Euro bolstered by new Greek bailout deal

P hoto: Eisenrah

A Greek bailout deal has been agreed “in principle”, the European Commission has announced today , bolstering the previously weak euro.

Overnight talks took place in Athens this week, ahead of a 20th August deadline for repaying €3 billion to the European Central Bank. Greek Finance Minister Euclid Tsakalotos said that there were “two or three small issues” still to be resolved, but that a technical agreement had been reached.

As the Greek government prepares to push the €85 billion, three-year deal through parliament, the single currency was buouyed by the news, rising against the dollar to weekly peak of 1.1082.

“The EUR has firmed broadly so far in Q3, outperforming other funding currencies and suggesting volatility in EM and commodity exporter currencies is deterring outflows,” analysts at BNP Paribas SA led by Steven Saywell, told clients .

The slight strengthening in the euro follows a period where the single currency was at seven-year lows against the pound, prompting a significant increase in investment overseas from British property hunters. Now, the pound is weakening against the euro, although this is due to factors on UK soil as well as Greek.

“We probably shouldn’t be too shocked; nothing moves in a straight line for ever in these markets and the unexpectedly dovish Bank of England minutes had an immediate impact,” brokerage Halo Financial told Pound Sterling Live .

At the same time, a new study from the the Leibniz Institute of Economic Research has revealed that Germany has profited from the Greek bailout crisis by almost €100 billion, “through lower interest payments on funds the government borrowed amid investor flights to safety”.

“These savings exceed the costs of the crisis – even if Greece were to default on its entire debt,” said the report.

“Every time financial markets faced negative news on Greece in recent years, interest rates on German government bonds fell, and every time there was good news, they rose.”

Germany has saved approximately €100 billion since 2010, said the institute, with the bonds of other countries also benefitting, albeit to a much smaller extent.