At the end of October investors were cock-a-hoop that EU leaders had agreed a rescue package that would provide Greece with a second lump of finance, recapitalise the region’s banks and beef up the financial stability facility to a trillion euros. The euro climbed two cents higher against the pound and rose by three cents against the US dollar.
Less than a week later the wheels had come off after the Greek prime minister decided he could not sign up for the deal without a referendum. In the confusion that followed, the referendum idea was scrapped the premier stood down. Italy’s PM left office only days later and both have been replaced by unelected “technocratic” economics professors. In mid-November there was a third change of government in Euroland when Spanish voters used a general election to sack the ruling party in favour of the opposition, hoping a change of austerity would be as good as a rest from it.
The euro ends the penultimate week of November three cents lower than a month ago against the dollar and a cent down on the pound. It could have been worse, given the low ebb of confidence in the single currency. However, investors are uncertain about the implications of a euro breakup because they have no idea whether, when or how it might happen. Would it make things worse than they already are? Or would the removal of weaker members – perhaps leaving a hard German-centric core – improve the situation?
Having taken two years to paint themselves into their current uncomfortable corner it is unlikely that EU leaders will rush to bring things to a head. There is no guarantee that we will be discussing this self-same uncertainty and lack of confidence in a month’s time but experience points that way