By Russell Glaser – Despite prior tough talk from the German government and European Central Bank (ECB) that there would be no bailout for its fellow European Union member, Greece, Germany decided to swoop in, announcing a plan to rescue the fiscally challenged EU member state. The announcement propelled the EUR/USD yesterday, but the end result of the rescue may turn out to be bearish for the euro.
Both officials from Germany’s Finance Ministry and ECB President Jean-Claude Trichet took a firm stance against lending a hand to Greece. However, a consensus was reached between Brussels and Frankfurt to bailout Greece in order to limit the fallout to only one nation rather than to allow a crisis to engulf the entire European Union. While the details of the bailout have yet to be confirmed, the fallout could be tremendous.
Now that Germany has offered a lifeline to Greece, Germany may be obligated to do the same for fellow EU members Portugal and Spain.
Yesterday’s announcement sparked a rally of more than 1% in the EUR/USD, but the long term implications could be negative for the euro. The move by Germany may help to conserve both the European Union and the European Monetary Union from crumbling, but perhaps at a hefty cost to the euro’s valuation.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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