The Current State of the Eurozone
So, where do we start from to talk about the Eurozone? As and when fundamentals hit the economy of the Eurozone, investors shift their interest and move towards better prospects. The question is that there has been several factors contributing to the failure of the Eurozone and is not only a matter of a depreciating euro. The feud between Ukraine and Russia, the quantitative measures bringing no results, and a Mario Draghi who is concerned over Greece’s compelled exit. The ingredients are there and so are the problems pertaining to the same issue.
Eurozone wants to go smart, but what is impeding its growth…
The projection for a better 2015 was already there in 2014 but there are a lot of factors that came in to play the spoilsport. EU officials had already predicted a good growth for the Eurozone by putting the target for 2015 growth rate at 0.8 percent. Today, the euro is treading along the most bearish line, not seen since 12 years. As of the second week of March 2015, the Euro went to trade the lowest by touching the 1.08 handle and is now trading bearishly even lower than the 1.08 handle.
The Eurozone is huge and carries a lot of prospects for countries that want to flourish but there is one pertinent issue that troubles the mind of investors. What has happened to capital investment? Investment activity is said to be one of the main factors for why growth was less than expected. There is no doubt that, the Eurozone still has a good reading for private consumption and exports, since businesses have to continue to function despite worries. But, investments grew only at a quarter of the expected 2.3 percent.
The sources of the worries of Eurozone, where do they come from:
- The Current Investment Weakness
- The Feud between Ukraine and Russia
- The GREXIT problem
- The Quantitative Easing measures which are not reflecting positivity
The Famous QE measures
Mario Draghi has been long concentrating on how to implement measures to revive the Eurozone. With Greece almost at the door of the Eurozone, the QE measures are now being said to help the Euro more than Greece. The Quantitative measures took effect from Monday 09 2015, and the European Central Bank began its task of buying bonds starting from Spain and Italy and Germany. The Stimulus plan is all set to reignite the Euro area’s economy. And the ECB has showed a lot of willingness to be patient to launch the QE measures, though the Euro was in dire difficulty. The Euro was constantly losing value, but unfortunately, this week investors’ sentiment still went down regarding the QE measures. The Euro went to trade in the lower regions of the charts with the Pound sterling and the Greenback exerting more pressure on it. The QE measures have been implemented but the revival of the Euro still needs to be seen.
Greece had almost set one foot out of the Eurozone door, when ECB prompted Greece for a bailout extension. Recent elections in Greece saw a new government which was not ready to comply with the Bailout extension. The new Government with, Alexis Tsipras as the Prime minister, pushing the country into more disastrous situations, and days are getting numbered for him to pull back Greece from the brink. Two weeks back, Greece agreed to submit the bailout proposal reforms to the ECB officials through a series of meetings. As the proposal submission got delayed, Greece managed to bag some extension to hand over the proposal to the ECB. The survival plan got approved, but, recently EU officials condemned the plan stating that the proposal lacks credibility and certain proposal reforms, and Greece is taking too much time to act on the proposal reform. As of now, the Greece government technical advisors are going through the technicalities in order to save Greece from the imminent doom. The Head of ECB, Mario Draghi, is pressurizing on Greece to hold on to its promise and save its economy. With the current situation of Greece, a third bailout might come in handy to them, in the near future.
The Feud between Ukraine and Russia
The Feud of Ukraine and Russia over the Gas issue is still in the air. Russia has been recently threatening Ukraine to cut down on its Natural gas, as a result of constant dispute. Ukraine’s dispute constantly hovers over the economy of the Eurozone as it depends on the countries for business. Deflation is starting to make its way in the economy and with time the problem is getting deepened. Russia being the top Oil producer in the world, will start creating problem for a fragile economy as the Eurozone, with decreasing Oil prices. Eurozone wants to maintain the good relationship with its neighbors, as it already faces poor economic situations. Since last spring the problem has been gradually intensifying. The living standard is threatened to be going down if the problem continues. They speak of a probable world war 3, well, we might already be living a silent world war 3.
The current Investment status:
More and more investors are running away from investing in the Eurozone with a lack of trust in the economy. A weaker than expected growth rate in the world is impeding on the growth of the Eurozone’s economy. Amongst all, there is also the issue of crisis in Ukraine and the Middle East. Data also shows that investment activity did not decrease just like that, but it has already started with European countries hesitant to invest for a much longer period of time. The economy of the Eurozone being not stable, drove the investors away. Investments have recovered on a much slower level in the Eurozone compared to other countries of the world after the financial crisis. Investment in fact, never did recover, and are substantially lower than the level in 2007.
An overview on the current status of the Euro:
The GBP has overpowered the Euro overall on the charts. Against the dollar, the euro is already losing value by trading in lower regions at the 1.08 handle. While the pair EURGBP is also not depicting a good sentiment on the market. The pair is currently trading lower than the 0.71 handle showing a slow recovery for the Euro. The Euro dropped for an eight consecutive days against the pound and is not gaining enough momentum to bounce back on the charts. Currently the pair trades at 0.70 level and trends on a bearish level. Well, this is an insight into how bad the euro is performing on the charts.
Tip: PUT EUR/GBP for 15mins (12 March 2015)
With the current situation prevailing in the Eurozone, it will be difficult before the euro does actually bounce back on the charts as it carries the legacy of a faulting Greece, a feud between Ukraine and Russia and retreating investors as well as a collapsing QE measure. The problems are too many, and with deflation threatening the key economies in the world, along with a slumping Oil Price, solutions have to be implemented quickly.