April 27, 2011
-- Finance IQ: What do you feel that the latest bailout of Portugal means for the long-term future of the Euro and what effect do you think this will have on the pound?
P Lequeux: I think, on the one hand, this bail out was expected by the market so it’s not like it was unexpected news. The reaction of the Euro has been quite telling since we've seen a fairly strong appreciation of the Euro versus the US$ since. I think it will take the uncertainty away and probably bring a better confidence into the Eurozone in terms of the UK. The effect that will have on the pound, I think, will be relatively limited. Clearly the funding that you're talking about is being provided across several years so I can't see that having an immediate effect on the pound in terms of the UK participating to the funding.
In respect of the possible domino effect, I think that's very unlikely. People have focused on Spain and some are worried there because of the cover assets on the financial sector, but it’s a very much more diversified and stronger economy than Portugal or Ireland for that effect. So I think it is quite unlikely for Spain to fail, and we’ve seen that quite recently. You see the auction as well coming at lower yield and I think that’s quite telling. For the risk of the Euro breaking up, those are headlines that you may have seen but I think they were not written by very informed people. The break-up of the Euro would be so much more damaging for the current Europe. Especially you would see a successful country such as Germany, that has enjoyed the Euro tremendously, wouldn't have been able to sell their goods within the Eurozone if they’d stayed within the Deutschmark. The Deutschmark would be so elevated because it would be rewarded for the trade or its surplus, etc, and I think it would be very bad.
Imagine Greece or Portugal or Ireland actually coming away from the Euro; certainly they would have very negative growth; they would have a currency which would be totally devalued. They would take onboard a huge amount of inflation, not something which is a very good prospect, I would say. Going back to the successful part of Europe, if you would see, say, Germany breaking away from the Euro or just remaining as a core country with France on the good part of the Eurozone, then you would see the Euro shooting up maybe at 1.7 or something like that. So you can imagine the implication it would have for the trade flow and you would see unemployment rising and some very dire prospects. So I think the Euro is working. I think there've been a few issues over the last few months but I think if you look at the growth in the Eurozone, we can say it’s working better than the US.
Finance IQ: Would you say that we’re past the worst and things are likely to start improving?
To access the full podcast and transcript please visit the event website - details below:
Pierre Lequeux will be speaking at the FX Trading Strategies & Solutions Europe 2011 Conference, which will take place on 29th June at the Sheraton Park Lane. For details please visit: www.fxtradingeurope.com, email email@example.com or call 0800 652 2363.