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FINANCE: Pandora's Box

 





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The Greek crisis is a Pandora's box revealing fiscal mayhem in many economies across the European Union (EU). The mounting fiscal problems in Greece have dominated markets over the past few weeks, and may do so for many more months to come. Although the country only accounts for roughly 2% of the Eurozone's total GDP, it has the highest debt ratio of any Eurozone country.

Despite plans to curb the country's ballooning fiscal deficit, there is growing scepticism as to whether the embattled Eurozone nation has the necessary armour to stave of the looming debt crisis. Greek woes have sparked concerns of potential spill-over effects into other Eurozone countries plagued by debilitating deficits, compelling the EU to address the problem before it spirals out of control and provokes further sharp EUR weakness.

This is starting to create fresh risks for the ZAR. Having disregarded the initial impact of the Greek fall-out on EUR/USD in December 2009, the ZAR has appeared to be more responsive to changes in the EUR since the beginning of this month. As we go to press, it is rumoured that Greece will receive a bailout which, as we discuss, will have positive implications for the ZAR. However, it is easy to sketch far worse scenarios for the Greek economy.

Ultimately the key to a stronger ZAR remains a sustainable global recovery. Our positive view on this front keeps us generally optimistic on the local unit and we maintain our mid-year forecast of USD/ZAR7.25. Nevertheless, the rapidly changing EUR environment creates risks in the near-term as reflected in our USD/ZAR estimate for 1Q10.


 
 
 
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