We’re fine, but you may want to do something about …

Key News

Quotable

“I hold it that a little rebellion, now and then, is a good thing, and as necessary in the political world as storms in the physical. It is a medicine necessary for the sound health of government.”

                           Thomas Jefferson

FX Trading – We’re fine, but you may want to do something about …

Good ole Greek Prime minister, running his motor again. As Reuters summed it up:

BRUSSELS, March 25 (Reuters) – Greek reforms are on the right track and will continue to be so regardless of whether European Union leaders offer Athens a financial safety net at a summit on Thursday, Greek Prime Minister George Papandreou said.

He told reporters before the start of the EU summit in Brussels that any solution offered for Greece’s debt problems should come from Europe and that it was important to stabilise the euro.

In other words, don’t worry about us; we’ll worry about ourselves. But if you do find it in you to lend a helping hand then think about what your efforts might be able to do for the common currency. After all, we’re in this together, brothers.

Fresh.

Well it’s a good thing Greece is on track with everything thanks to its own efforts, because now Portugal is on the naughty list and Germany put a dead-bolt on their bailout-thy-neighbor fund. From eurointelligence.com …

This is hard to believe – and a sign of the confusion now deliberately spread by German officials. According to FT Deutschland Germany wants to achieve that the subject of aid to Greece is not at all addressed during the summit. The Greeks have not asked for help so there is no need for a decision now, is the official reasoning. The German government also says no invitations have been issued for a special eurozone summit.

The line in all the German media is that Merkel’s position has been hardening, and that she has recent some support from other leaders over IMF involvement. The European Commission also seem to have given up its resistance to such a plan. Le Monde quotes Commissioner Olli Rehn trying to save a compromise by saying that the IMF could be a partner of an EU led initiative.

And then, talk about a road block … how about the clout of nearly a 1.5 billion people strong economy? Yeah, you know, China – the place where economic growth never sleeps. A deputy governor at the PBoC seems to think the Greek tragedy is just beginning. (As insignificant as that comment may seem coming from a deputy governor in China, people seem to take Chinese officials’ comments as scripture these days, at least as far as the immediate risk appetite is concerned.)

The press is starting to hit on reasons other than strictly “indebtedness” to explain the weakness across the Eurozone. In doing so they’re finding that there exists a growth problem in these deficit-distressed countries; lack of competitiveness is coming to the fore; Germany is the dominant economic force, period; others can’t operate successfully in a one-size-fits-all system.

As we’ve been saying for a while, this dynamic has created imbalances within the Eurozone. We were sent these numbers yesterday, courtesy of Leto Market Research:

Prior to the Euro’s introduction, the South accounted for 25% of German surpluses or $19 billion, but in 2008 it was 43% of surpluses or $113 billion, and 3% of German GDP. That equals more than twice Germany’s GDP growth (1.25%) for 2008.

The Leto piece went on to summarize the reason for Germany to exit the euro. But I’ll defer to Leto, as it was said so well the first time, as to why Germany may stay in:

Under these conditions, what could keep Germany in the Euro? There are two possible reasons:

1. Germany may wish to use the proposed conditions of strict, direct supervision to grab any national asset worth having in the indebted South, and
2. Germany may wish to avoid the 20% or more revaluation of the Deutsche Mark if it were to revert to the DM under current conditions.

But the same motivations that may make Germany want to stay in the Euro are the same two that may make the Eurozone South want to leave the Euro.

As is hopefully clear by now, there remains a long, tough road ahead of the euro if it is to emerge from this crisis in one conglomerate piece.

But …

… if for some reason you expect the euro is due for a bounce, perhaps now’s the time to play for it … but not against the dollar; against the Swiss franc …

EURCHF Weekly

The pair, in the last two weeks, has quickly recaptured its Q4 2008 spike low. Market physics may be enough to expect a recoil soon. But if that’s not enough, the Swiss National Bank seems like they’re going to keep sticking their finger in the market to stem the franc’s strength relative to the euro.

BERNE, March 25 (Reuters) – The strength of the Swiss franc is a burden for Switzerland’s economy and a reason for concern, the country’s economy minister said on Thursday.

"It worries me when the Swiss franc is too strong," economy minister Doris Leuthard said, speaking to journalists in Berne. It was clear that this was a "huge" burden for the country’s export industry, she added.

These two items mean a short-term bounce in EURCHF may lie just ahead. But I don’t know if I’d dare stand underneath EURUSD, summit or no summit.

Place your bets. We are.

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