Markets ignore possible Greek debt default as Euro remains steady

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The Eurozone, and in particular Greece, hogged the headlines yesterday with more uncertainty over the future and a possible Greek default on debt. Nobody seems to know for sure how much debt Greece is in with the latest figures suggesting Greek debt is around €350 billion or 150% of Greece's GDP.

The latest bailout is dependent however on whether the Greek government get's approval from parliament for further austerity measures. If they do, other Eurozone countries and the IMF are prepared to extend further credit to prop up their beleaguered finances.

Does this resolve Greece's problems though? That is doubtful, especially considering their chances of accessing the markets for funding in the next 3-4 years are zero, and that they are facing a further credit downgrade. The big problem for Greece (and other periphery Eurozone states) is that after many years of strong growth came the global credit crunch which has exposed woefully inadequate tax revenues for current expenditures. This is not a situation that will be resolved by kicking the debt can further down the road.

By virtue, the UK is exposed to the Greek situation as well due to the UK €5.5 billion commitment to the European Financial Stability Mechanism. It is evident, that there is a high degree of scepticism in Whitehall that Greece can hang on in there for the long haul, whether or not it borrows more money. The UK Treasury Minister refused yesterday to express faith in the survivability of the Euro, saying: "I am not going to comment on whether the Eurozone will remain intact or not as this crisis demonstrates the huge strain the Eurozone is under".

This scepticism was shared on the foreign currency exchange markets as investors seem to believe Greece will be able to pass these latest measures as the Euro remained firm against Sterling, closing the day slightly up. Sterling though managed to edge higher against the US Dollar, Australian Dollar, New Zealand Dollar and Canadian Dollar.

Yesterday's Eurozone current account data balance worsened in April to show a deficit of €5.1 billion, but it was the Reserve Bank of Australia's minutes from their July meeting that was the bombshell.

Recent comments by the Governor of the RBA had hinted that Australian interest rates would be going up sooner rather than later. The minutes appeared to contradict that urgency with the statement that the RBA "considered current monetary policy setting was appropriate". In central bank talk, a policy rate being "appropriate" means they aren't thinking of changing it. The comments saw the Australian dollar lose half a cent immediately.

Today's data calendar features UK public sector net borrowing for May (which will probably be uncomfortably high) while the Eurozone economic sentiment will be overshadowed by the looming vote in the Greek parliament. In the US existing home sales are expected to have fallen by -4.0% in May.