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Greece, Portugal, Spain Wavering

Greece, Portugal and Spain headline separate financial woes in the euro zone’s southern tier but there are other stress points that the Troika (EU-IMF-ECB) will need to put to rest to keep the bailouts for the three countries intact. As usual, Greece faces the biggest and most immediate challenges.

Greece is scheduled to redeem 2.2 billion euros in bonds in August. If Athens fails, the IMF would have to violate its rules to standby its commitment to the 240-billion-euro bailout scheme. IMF rules require a borrower to be financed one year ahead of schedule.

An IMF pullout would be disastrous to the euro and euro zone. Lenders are unhappy about Greece’s faltering efforts, a missed June deadline and lack of austerity. But, other aspects of the southern tier countries are also falling apart.

In Portugal, highly regarded Finance Minister Vitor Gaspar, who has been in favor with the Troika and is the recognized architect of the country’s austerity program, resigned on Monday. The country had a strategy to exit the EU/IMF bailout but those plans may be dissipating.

In Italy, political tensions are heightened. Prime Minister Enrico Letta was forced to call a government meeting after a coalition partner threatened to withdraw support for the austerity plan. Investors are anxiously following Italy as are members of the Troika.

Greece’s recent efforts to close spending nearly closed another prolonged government shutdown. The closing of the public radio station, ERT, seemed the most sensible and painless means to meet a government reduction deadline.

Greece missed a June deadline to put 12,500 workers into a “mobility scheme,” whereby they would be transferred or terminated within 12 months. Adding to the problem is that the state-run health insurer, EOPYY, has suffered an unexpected 1 billion euro shortfall. Deeper spending cuts are the only means to reduce the shortfall.

Greece has also failed to liquidate certain public assets, most notably the sale of the government-run gas company. Amidst this chaos, Prime Minister Antonius Samaras has declared that no new austerity cuts will be implemented.

Greece’s unemployment rate is now 27 percent. The country has lost 33 percent of its disposable income. Despite all this data, the euro remains solid against the dollar and the yen.

Currency Shifts  

The dollar achieved four-week highs against a basket of currencies. US ten-year bonds were steady at 2.48 and luring investors back to the market.

The dollar also continued its climb against the yen. The yen remains under pressure from the Bank of Japan’s aggressive stimulus program but is also reflecting concerns about Asian economies and emerging economies in general. China’s slowdown is affecting all economies and currencies at emerging economies are suffering as a result. The dollar settled at 99.87 yen.

The euro held above the $1.30 mark settling at $1.3062, below the 200-day average of $1.3074. Against the yen, the euro reached a three-week high of 130.485.

The Australian dollar slumped 0.7 percent to $0.9172 upon news that the currency has fallen 13 percent against the USD. The cash rate set by the RBA stayed at 2.75 percent for the second month in succession.

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