So what now for the euro? As investors set their sights on the
eurozone’s weakest members, are the days of the single currency
numbered?
Euronews’ Tokunbo Salako spoke to Stephen Gallo, market analyst at Schneider Foreign Exchange.
Euronews: ‘‘This crisis seems to have been sparked by comments from
Germany. What can prevent this contagion spreading to Portugal, Italy or
even back to Greece?’‘
Stephen Gallo: ‘‘Yes, I would agree with you. A lot of stress within
the Irish sovereign debt markets was triggered by comments from
Germany. Germany seems to want to convince markets that it’s willing to
go along the lines of a “haircut” for investors in a number of these
peripheral sovereign debt markets. And since that has been put on to the
table, markets have pretty much unanimously agreed that a lot of this
debt is overpriced. So, you have contagion risks on the one hand and
political risks on the other. Both are creating a firestorm for the euro
in the short run.’‘
Euronews: ‘‘So what action, if any, can countries take in the face of this spreading contagion?’‘
Stephen Gallo: ‘‘It’s unlikely that policy makers are going to be
able to prevent contagion altogether. This is going to be something the
euro is going to continue battling against for at least the next three
to six months.’‘
Euronews: ‘‘So, things are going to get worse before they get better?’‘
Stephen Gallo: ‘‘Absolutely. If this project is going to work, and I
currently believe that it will, my longer term view is that the euro
project will survive; it is almost surely going to be one of the most
expensive projects in history to keep going, to keep alive. It’s going
to cost money in terms of fiscal transfers from the core of Europe, it’s
going to involve structural changes for a number of economies. At the
moment, in the short run, there doesn’t seem to be any flexibility in
terms of exit from the euro zone.’‘
Euronews: ‘‘But you do think the euro’s going to survive?’‘
