Greece – should it stay or should it go

24 May, 2012

Greece, once again, has been causing significant woes for the Eurozone. However, these worries now seem to be causing ripples beyond nations that employ the single currency. With the Eurozone holding its breath for Greece’s election in mid-June, it seems unlikely the Euro is going to see any significant growth for the next month. However, concerns about the Eurozone as a whole is causing people to move away from currencies seen as being ‘close’ to the European currency, such as sterling, and move to less ‘risky’ currencies such as the US dollar. This caused sterling to fall to two month lows against the American currency yesterday.

Sterling’s case wasn’t helped by the announcement that UK retail sales saw a record fall of 2.3% in April, primarily caused by fuel sales being down by 13.2%. This is especially shocking for the UK economy, seeing as retail sales had, in fact, risen 2% in March, helped by panic buying of petrol. The BoE policymakers yesterday said that they intended to introduce further quantitative easing in the Euro crisis continued to cause more chaos. Due to the ongoing problems with Greece, this seems incredibly likely, and will almost certainly devalue sterling further.

European council President Herman Van Rumpuy has stated that he wants Greece to remain in the Eurozone, but would respect its commitments if it chooses not to. The markets themselves seem to be in a state of disagreement over whether or not Greece leaving the Euro would be a positive move for the zone as a whole. One one hand, cutting out what is doubtless the weakest member of the currency would stop the rest of the EU being dragged down with it, and prevent any further massive bailout packages. On the other hand, Greece leaving the Euro would make the currency look weaker on the international stage, causing investors to move even further away from it. The anxiety that Greece would have to exit caused European interest rates to fall by around 2% yesterday. This has caused the pound, despite its own weaknesses, to gain a small amount of value against the Euro, despite both sterling and the Euro losing strength against the US dollar.