Long-term value of euro could be hit by IMF involvement in Greece bailout

| March 29, 2010 | 0 Comments
Long-term value of euro could be hit by IMF involvement in Greece bailout

Last week, a deal was reached to help Greece manage its debt crisis, following the two-day EU summit, which was held in Brussels.

The news meant the euro recovered from a 10-month low, which will see a rescue package total €22 billion (£20 billion) and will include help from the International Monetary Fund (IMF).

So far the euro zone has avoided seeking an IMF loan for Greece, opting for a solution closer to home to maintain global confidence in the euro.

The ongoing uncertainty in Greece has recently pushed the euro to a 10-month low after concerns grew over how the country plans to cut its public deficit.

Greece currently has the highest debt of the 16-member euro zone, at €300 billion (£273 billion) and its economy is considered to be the euro zone’s weakest.

The country is currently taking action to reduce its public deficit from 12% to 8% of GDP this year.

However, the involvement by the IMF is unlikely to lift the currency in the long-term, according to Phil McHugh, senior executive dealer at Currencies Direct.

Mr McHugh comments: “Although the bailout was welcomed by the financial markets, the news of the IMF’s involvement was not good for the euro. What we are seeing is a relief rally, with the euro being bought on the fact that a proposal has finally been agreed, rather than on the specific details it contains.”

As a result, Mr McHugh believes financial markets will remain cautious about the long-term prospects of the euro.

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