Are there lessons to be learnt from the tortuous steps to agree a second Greek bail-out? Or simply another series of questions?
The crisis has been averted for now but no one is pretending that the danger of an entire country going bankrupt has been resolved. The truth may be that all this agreement has done is to buy time.
Many commentators are doubtful that it will go through. Michael Derks, chief strategist at FxPro , thinks this latest deal to provide another €130 billion (£110 billion) will unravel very quickly.
And Chris Towner of HiFX says: "The risks from here are three-fold. Firstly, the private investors start to rebel to prevent the bail-out from going through. Secondly, the Greeks need another bail-out sooner than expected and this starts to erode the patience of the EU leaders. Finally, let’s not forget that there is not much meat left on the bone in the Greek economy."
If it turns out that Greece still ends up leaving the euro by the end of the year, this rescue package will have cost more than £10 billion a month. But shoring up Greece was always about finding a way to make the other nations within the single currency strong enough to survive if it defaulted.
“The truth is that there is no quick fix or magic cure; otherwise the crisis would have been solved long ago,” says Trevor Williams, economic adviser at Lloyds TSB International .
One major issue is how the eurozone deals with its varying levels of economic strengths, with the northern countries generally weathering the tough conditions far better than the southern states. The difficulty is that it’s a collection of different nations, not a single country.
Look (Munich: 867225 - news) at how Britain deals with its north-south divide. London generates more income than the Government spends in the capital, allowing the surplus to be spent in poorer regions of the UK, thus preventing the economy diverging too widely.
“The same sort of stabilisation system is absent from the plumbing of the euro and is a major reason why the north-south divide became so pronounced in the first place,” says Alistair Cotton of Currencies Direct . “The EU needs to find a system to channel funds from richer, more productive countries to those countries struggling in a way that is politically acceptable.”
That’s why the International Monetary Fund (IMF (Berlin: MXG1.BE - news) ) is being set up as a middle man to channel funds to debtor countries. The sting is taken out of it by the fact that a wide range of countries contribute to the fund.
Cotton adds: “It is politically impossible for Germany to transfer the required amounts to offset the differences in productivity that now exist within the euro. If German politicians tried, they would be kicked out of office quicker than you can say ' auf wiedersehen '.”
Naturally, Germany has played a key role throughout, but it has not made it popular with those that most need its help. It’s more than just a case of envy at its relatively comfortable economic position.
“Nobody likes the person with the whip and the rulebook,” comments Jeremy Cook, chief economist at World First (Berlin: FC0.BE - news) ."That’s the role that Germany is performing in Greece at the moment, and there will be more unrest to come.”
Worryingly, there are signs of anti-German sentiment rising to the fore.
Daniel Abrahams of MyCurrencyTransfer.com says: ‘‘Anti-German rhetoric solidifying across Athens is deeply destabilising both economically and politically. The general feeling of ‘kick a man when he is down’ and shocking imagery in a populist newspaper of Merkel in Nazi uniform is a clear warning sign that economic tensions are spilling into civil unrest.”
Whether or not the Greeks can make their austerity plans work, the next few months will be used to legislate for greater fiscal union, believes Charles Purdy of Smart (Jakarta: SMAR.JK - news) Currency Exchange , “and perhaps to determine a mechanism for countries that do not or are unable to meet the new budgetary disciplines to leave the euro.”
Cook believes that both Greece and Portugal will leave the euro in the coming years, while Richard Driver of Caxton FX thinks Ireland’s example should be followed by others if the eurozone is to survive.
“Ireland (Xetra: A0Q8L3 - news) is the shining example of austerity cuts and reforms actually working and returning a country back to competitiveness. This needs to be replicated in Italy and Spain."
What will this mean for Britons with homes in the Club Med (Paris: FR0000121568 - news) countries?
Currency broker HiFX has seen a 155 per cent increase in euro sales compared to 12 months ago.
“And this is with a headwind of a weakening currency ie the law of economics suggest that if the price lowers, demand should increase, stimulating more euro buyers,” says Towner.
Those selling up may have to lower their price but the euro is still stronger than it was a few years ago, despite the sovereign debt crisis.
It’s trickier for those living in or owning second homes in countries that could leave the euro.
“There are significant risks that will arise,” says Cotton. “Redenomination would be the greatest risk, which is when existing contracts in euros like a mortgage may be converted (or not) into the new currency.”
However, the outlook is perhaps more positive for expat pensioners on a UK pension or those with euro mortgages. “We are confident sterling will appreciate significantly against the euro in 2012," predicts Driver. "We are looking for an end of year GBP/EUR rate towards €1.30 (77p).”
Since the UK is not part of the single currency, we are seen as a relatively safe haven. This has helped the pound, as Williams explains: “Flows into sterling have supported the currency, and helped keep down long-term borrowing costs.” Forex focus is sponsored by
