You Have Nothing To Fear But Fear Itself!

By: Mike Campbell

US President Franklin Delano Roosevelt (or his speechwriter) came up with this memorable and much quoted line in his inaugural speech in 1933 in the midst of the Great Recession; he was referring to the economic plight that faced the American people. He might have been talking about the Greek debt crisis and the knee-jerk reaction the Forex markets have to send the Euro lower every time a new rumour surfaces. Today’s rumour was to the effect that the Greek government was attempting to renegotiate the terms of the €22bn bailout package that Eurozone countries recently agreed to. The story was enough to drop the Euro by 1% against the Dollar and by 0.5p against Sterling and wind up the premium on Greek bonds too. Since the Greeks can only get their hands on this emergency line of funding in the event that it proves impossible for them to raise capital in the financial markets, there is nothing for them to renegotiate. With confidence (evidently a very transient commodity) creeping back in that the Greeks could manage their debts the Euro had regained some of the ground it had lost against other major currencies over recent weeks. The Greek government were swift to deny any basis to the claim: "There was never any action by our country to change the terms of the recent agreement," Greek Finance Minister George Papaconstantinou insisted in a written statement. Greece has managed to raise funds in the bond market with issues at the start and end of last month that were well subscribed, so what is the problem? It will remain to be seen if the Euro will move higher on the back of this denial.