The euro is a peculiar currency. It is used in 17 countries with very different economic models and fundamentals, which share a monetary policy but not a fiscal one.
Consequences of a Greek exit would be particularly felt by those countries that over the months have been victim of the euro contagion: Spain and Italy.
According to rating agency Standard & Poor’s, an exit from the eurozone of a member such as Greece could raise significant investor doubts about the future membership of Spain and that of other peripheral sovereigns.
“A eurozone exit by any member sovereign would implicitly reintroduce currency risk in cross-border financial transactions. Without a robust policy response from eurozone political and monetary authorities, a Greek or other exit could well hasten further capital outflows from Spain and from other peripheral sovereigns,” the agency said.
The sum of the two contrarian forces leaves many FX strategists with a view of compromise.
“The euro is strong, and has rallied 4.3% off of its low of 1.2043 on July 24, the day before ECB President Mario Draghi committed to doing whatever it takes to save it. We hold a year-end EUR forecast of 1.23,” strategists at Scotia Capital said.