The Stress and Strain of a Bailout Euro down, Dollar up

So the “euro area member states will take determined and coordinated action if needed to safeguard stability in the euro area as a whole.” That’s no surprise. The larger countries have the ability to save Greece and the euro, but do they have the ability or will to save the PIIGS and the euro? Who is next? It is humorous that the communiqué included the comment “The Greek government has not requested any financial support.” Most of us are unaware of what goes on behind the photo ops and the carefully scripted press releases.

Without any details, this vote of support sounds hollow. Germany and France may temporarily calm world concerns about Greece and the PIIGS. However, the play has just begun. We will probably see varying degrees of civil unrest in Greece with the EU demanding stiff restraint. Then we will see political unrest in some EU countries. They have problems enough without having to bailout another country with such self inflicted wounds. And the strains that will inevitably occur between EU nations will be kept behind closed doors. If not, the euro will take another hit. More bailouts, which may not be avoidable, will transfer more risk from the PIIGS to the EU and will further damage the euro. Foreign exchange traders will take every opportunity to profit from the resulting loss of credibility. So while there are not a lot of good reasons to buy the dollar, there are some good reasons to sell the euro. Will it reach parity with the US dollar?

And if commodity prices show some stability here, especially oil, watch the Canadian dollar. Canada holds huge oil and gas reserves and other resources: potash, metals, diamonds and grains. It has a strong banking system, a strong housing market and a more financially sound government.