Jurgen Stark a member of the ECB’s Executive Board stated emphatically that the EU will not save Greece, triggering a massive selloff in the EUR/USD which tumbled more than 50 points below the 1.4300 level within minutes of the news. Mr. Stark noted that a liquidity injection would have negative consequences for European stock markets and also stated while the European economy has improved the recovery remains uncertain.
Less than a month ago Mr. Stark noted that, “we have 10 days and one year to address this question,(of accepting Greek collateral) ", with ECB committing to accepting Greek BBB rated securities in its refinancing operations until the end of 2010. Today’s unmistakably direct comments by Mr. Stark are a clear sign that European monetary officials want to serve notice to Greek fiscal authorities to get their budget in order.
Despite M. Starks’ bluster it is difficult to determine the exact implications of his words. Greece is an EU member and is therefore bound to the union by a series of treaties. A financial failure by one of the union’s members, would be the first such occurrence since the introduction of the euro and could put tremendous stress on the currency as a whole.
The financial problems with Greece expose the weakness in the North South divide in the union with fiscal conditions in Spain, Portugal and Italy considerably worse than those in Germany, France and Netherlands and euro’s status as a currency without a country comes under assault every time fiscal difficulties create political tensions in the union.
Nevertheless, tonight’s fireworks are merely an opening gambit in further negotiations with Greece and will likelybecome resolved especially if the region’s economy continues to recover in 2010 ameliorating some of the fiscal problems. Still, the concerns regarding the fiscal problems in EU could continue to weigh on the unit until markets see some concrete austerity plans from politicians in the region.
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