THE EUROZONE IS RUNNING OUT OF OPTIONS

The Eurozone Is Running Out Of Options

January 15th, 2015

Europe Jim Bach: The euro is falling. And our 2015 euro forecast sees little changing over the next year – and for some time after.

“The trend of the euro is down,” said Money Morning Capital Wave Strategist Shah Gilani. “It would be virtually a miracle for the euro any time in the foreseeable future – meaning the next few quarters, at least, to a year or two – to turn around.”

The euro has been sliding for a while, but in just the last couple weeks it crashed through key support levels.
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2015 euro forecast

Here’s what’s behind the euro’s recent violent plunge to multiyear lows…

Greece Continues to Drag Down the Euro

Confidence in the euro is weakening for a number of reasons, but there’s one major concern right now: Greece.

Greek elections are slated for Jan. 25. The radical left Syriza party, led by Alexis Tsipras, is leading polls. A Syriza victory will put Greece’s future up in the air.

In 2012, Greece was in the midst of a harsh austerity program. Yields rose on Greek debt. It became clear that repayment would be impossible without a bailout. The European Union and the International Monetary Fund offered Greece this bailout – provided they make deep budget cuts.

Balancing the Greek budget proved a difficult task. Unemployment rose. Wages fell. Social programs were cut. And social unrest soon followed.

The Syriza party seized on this climate just before a 2012 summer election.

Syriza emerged as the anti-austerity and anti-bailout party. Their victory would have surely put Greece at a contentious posture toward the stronger Eurozone countries that were extracting austerity conditions in exchange for bailout funds. And that would have increased the chances of Greece exiting the euro, re-adopting the drachma, and devaluing it to stay competitive.

Syriza made gains in the election, but not enough to dethrone the establishment. However, since that election, its influence has grown. Economic conditions are still poor, and the Syriza message is resonating with the electorate.

euro is falling

Syriza is now polling favorably for the upcoming vote. There’s a good chance Syriza could emerge the winner. And while Syriza has moderated its stance – Tsipras seems more willing to work with the European Central Bank (ECB) and International Monetary Fund (IMF) than in 2012 – it would still raise a lot of uncertainties.

Tsipras wants to see more debt restructuring. He also wants an end to austerity.