By David Song, Currency Analyst Is Greece going to abandon the euro? Is a civil war coming? Is the cure worse than the disease? Are we seeing the beginning of the Euro Zone's end? Indeed, there’s speculation that Greecewill ultimately leave the monetary union as Alexis Tsipras of the left wing party threatensto reject the terms of the EU-IMF bailout , and the anti-austerity movement certainlyraises the risk for a euro-area breakup as policy makers struggleto meet on common ground. As the region remains at risk for aprolonged recession, European officials may continue move in theirown interest, and the governments operating under the singlecurrency may become increasingly reliant on monetary support as thenew fiscal pact drawn up by the EU fails to restore investorconfidence. In turn, the European Central Bank may come underincreased pressure to carry its easing cycle into the second-halfof 2012, but central bank President Mario Draghi may show anincreased willingness to target the benchmark interest rate as thenon-standard measures have a limited impact on addressing the risksfor the region. Which is the biggest concern in Europe - Spain, Hollande's France or Greece? Or the election in Germany scheduled for next year? The ongoing turmoil in Greece certainlypresents the most immediate risk for the euro-area, but Spain posesthe largest threat as the country remains too big to save. As Spainembarks on a very ambitious path to get its public finances inorder, tightening fiscal policy may ultimately push the economyinto a deep recession, and the government may look towards theinternational community for further assistance as the fundamentaloutlook for the region turns increasingly bleak. Indeed, thenationalization of Bankia SA may just be the tip of the iceberg asrecord-high unemployment and falling property prices continues todrag on the housing market, and the risk for contagion may continueto materialize as the yield tied to Spain’s 10-Year debtclimbs back above 6 percent. How has the Euro performed following Sunday’s elections? Expected levels? The Euro is struggle to hold its ground as the political shift in France and Greece undermines the EU’s effort to address the debt crisis, and we maintain a bearish outlook for the single currency as the 1.3000 figure gives way. We are looking for another run at 1.26000 as the EURUSD gives back the advance from earlier this year, but the pair may weaken to 1.2000 heading into the second-half of 2012 as the European Central Bank maintains a dovish tone for monetary policy. --- Written by David Song, Currency Analyst
To contact David, e-mail firstname.lastname@example.org. Followme on Twitter at @DavidJSongTo be added to David's e-mail distribution list,send an e-mail with subject line "Distribution List" email@example.com.