It was announced early today that Greece has officially been awarded a financial bailout. The 130 billion Euro bailout will prevent Greece from defaulting on bonds and will have an ongoing benefit to help Greece restore its economy back up to acceptable levels. This saving of the Greek economy has implications that range across the entire Euro zone. By saving Greece, this should have a positive effect over all of Europe, including its official currency, the Euro.
The Euro debt crisis is not over, however. There are several problems that still lay ahead for Greece and the rest of Europe. The fact of whether or not Greece’s government will be able to financially support themselves in the future is still up in the air. With systemic trouble, Greece’s future still remains cloudy. In order for this bailout to be effective long term, Greece needs to make some major changes and overhauls to its economic structure. For the Euro to remain a stable currency, these changes need to come sooner rather than later. The bailout accord included a reduction in Greek debt to its bondholders. But more is going to be needed for Greece to become independent financially. With the International Monetary Fund and the Euro zone in general funding the bailout, Greece has at least been given footing on which it can start to correct its problems.
The Euro immediately reacted to news of the approved bailout by spiking up in price. The Euro went from about 1.315 on Monday up to above 1.325 on Tuesday before easing back down to 1.322 in comparison to the U.S. dollar. If the Euro is going to stay at these higher levels, long term growth within the Euro zone is a necessity.
Long term prospects of the Euro poses some major questions for traders. For one, the Greece bailout might give them temporary relief, but the nation is still burdened with debt. This checks in at about the equivalent of $29,000 per every person in Greece, including children. This amount will all need to be repaid over a period of time, and it’s still unclear as to how Greece will be able to do this. The Euro, it looks like, might see some short term gains, making the next few days profitable for day traders, but the long term fundamental indicators still show danger within this currency.
A price correction with the Euro is imminent. There is very little chance that it will retain its artificially increased price levels, so selling this currency short has a lot of upside. The dollar still remains a strong currency and it is likely that the dollar will continue to grow in value in comparison to the Euro once the fireworks from the Greek bailout start to fade away and the true state of Greece’s economy begins to show itself.