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Euro holds firm as crisis drags on

The euro has held more or less stable over the past week. Of course, this doesn’t mean to say nothing’s happening in Europe. So why isn’t the exchange rate changing? Why aren’t the markets reacting?


Welcome to my weekly account of changes in the euro exchange rate. This is intended as a brief guide to what’s affected the exchange rate this week, to help you decide when’s the best time for you to change currencies.

Exchange rates:

GBP to EUR: +1.06% (1.231 to 1.243)
USD to EUR: +0.80% (0.791 to 0.797)

As you can see here, the euro has held more or less stable in the past week. Yes, the pound has gained more than a cent, but this is within the range established these last six weeks, between 1.23 and 1.25. Of course, this doesn’t mean to say nothing’s happening in Europe. Quite the opposite. Right now, politicians seem to be doing more and saying more than any time I can recall in the past two years. So given this, why isn’t the exchange rate changing? Why aren’t the markets reacting?

My guess would be that, to some extent, we’re all suffering from crisis fatigue. It’s quite possible the Eurozone debt crisis has been going on so long now it’s become a kind of normality, wherein anything but total collapse or significant recovery leaves the markets unfazed. I mean, there’s only so many times the papers can scream “Apocalypse!” at the coming Greek election or French election, or Spanish bailout or Italian bailout, before you begin to feel blasé.

So yes, the crisis is still ongoing, and yes, it doesn’t look like it’s going anywhere fast. But unlike in the past, that doesn’t look like it’s likely to affect the euro. As I say, it would take a decisive end to this situation (good or bad!) at this point to jolt the markets into taking notice.

The week’s events

For the record, let’s take a look at what Europe has been up to this week:

1. Greece formed a new government.

And for some reason, they think that this quite bohemian occurrence (which didn’t cause France a bit of trouble when it did the same thing two months ago) warrants more lenient conditions from their creditors. For my money, they’ll soon find out that neither the IMF nor European Commission are such pushovers.

2. The leaders of the Eurozone Big 4 met in Rome.

That’s Angela Merkel (Germany), Francois Hollande (France), Mario Monti (Italy) and Mariano Rajoy (Spain.) The plan is for these guys to agree a joint platform, ahead of the planned EU summit next week. But like so many previous meetings, given the difference in approach between Mrs. Merkel in particular and the rest of Europe, nothing looks set to be agreed.

3. Mario Monti warned that Italy might soon turn anti-euro.

If true, this would be a bit of a suckerpunch to those who think more integration is the solution to the debt crisis. Furthermore, Mr. Monti has solid grounds for his comments: former Italian premier (as well as billionaire and noted letch) Silvio Berlusconi said this week he could topple Mr. Monti’s government, by withdrawing his party’s support for the pro-euro agenda.

4. Spain drew a step nearer to receiving its bailout.

The independent assessors of Spain’s banking sector tell us the banks need up to €68 billion to keep going, short of the €100 billion the EU had earmarked. That would be positive, except that Spain’s government has earned a reputation for dragging its feet and blustering (see: Mariano Rajoy’s calling the rescue a “victory,”) which means the markets don’t quite trust the figures.

5. The Eurozone’s economic stagnation continued.

Of course, given all this political uncertainty, the last thing people are doing is hiring more workers or spending in the shops. This month the lack of confidence hit Germany, which will almost certainly confirm the Eurozone in recession in a month’s time. Furthermore, so long as the Eurozone remains in doubt, that will continue.

What happens next?

As I mentioned at the outset of this update, in any normal situation this sort of turmoil would be enough to see a currency plummeting. But turmoil is the status quo in Europe right now, and has been so for two years. Indeed, in one sense I’m surprised at how enduring this crisis has been. It has advanced, from Greece to Portugal to Spain, but there’s yet to be a crescendo equivalent to Lehman Brothers in 2008. I wonder if and how long that can last?

I will return with my next update next week.

If you have any questions about changing currencies or transferring money abroad in the meantime, please don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.

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Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.

Copyright: Peter Lavelle, Pure FX
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