Greece and Spain to remain Investor`s focus amid worries the crisis is escalating

Worries are expected to remain predominant this period amid concerns from Greece and Spain that the euro area debt crisis is intensifying. 

 

However, some of the tensions eased with the start of the week after polls for Greek elections showed the advance of pro-bailout parties which lowered concerns of a Greek exit from the euro bloc. 

 

New Democracy Party, which stands with the plan negotiated by Greece’s government with international lenders, came at the first place in all polls as the party led the race by 5.7 percentage points over Syriza, the main leftist party opposing adopting spending cuts, according to a poll by Kapa Research SA for To Vima newspaper. 

 

The main focus will remain on the Greek elections taking place mid-June and knowing the winner in the contest, where polls showed the change in voters` direction to supporting austerity measures to remain the euro area. 

 

Greek voters are facing a daunting challenge next month as they have to choose between either remaining in the euro area by adopting sharp spending cuts, or leaving the monetary union by voting to leftist parties.   

Last week, International Monetary Fund chief Christine Lagarde highlighted that Greek people must pay the price to remain in the euro area as Greeks are showing their strong belonging to the euro bloc while rejecting austerity measures in the last elections; the thing described by Lagarde as "inconsistency." 

 

In addition, Lagarde said to in an interview with the U.K.`s Guardian newspaper that she is having more sympathy to poor people in Africa than Greeks struggling on the back of the economic woes, confirming her position that Greek should remain committed to spending cuts. 

 

Moreover, the heat is increasing is Spain with the escalating fiscal concerns which is threatening the euro area`s fourth largest economy will soon ask for an international bailout.

The Spanish government is currently working on the reform for the ailing banking sector which is still suffering from bad loans. 

 

Bankia Group, Spain’s fourth-largest lender, said it will ask for 19 billion euros of funds to cover provision losses from bad real estate and non-property loans.

In the same context, Spain`s rich Catalonia region called for government support for refinancing debt this year. 

 

In the FX market, the euro although opened on an upside gap versus the dollar after dipping to two-year low on Friday, it is expected to remain under pressure this period as the uncertainty remains high.    

 Asad Khan
Financial Analyst  (CFB)
050-8774861
asad@cfb.ae