SYRIZA Win Pushes Euro to 11-Year LowEU | January 26, 2015, Monday // 12:46| views
Alexis Tsipras, leader of opoosition radical left SYRIZA party, greets supporters after the release of initial results of Greece's general elections in Athens, Greece, 25 January 2015. Photo EPA/BGNES
The euro hit its lowest level against the US dollar in more than 11 years on Monday following the victory of radical left SYRIZA party in Greece’s elections that has ignited fears the country might exit the eurozone.
SYRIZA leader Alexis Tsipras has pledged to renegotiate the conditions of the country’s EUR 240B bailout programme with the so-called troika of creditors – the EU, the European Central Bank and the International Monetary Fund - and abandon many of the austerity measures and government spending cuts imposed by the lenders in exchange for aid.
The pledges have raised fears Greece’s new government might seek a debt write-off - a move that could spark a possible confrontation with the country’s European partners.
The common European currency fell as low as as USD 1.109 in Tokyo trading, its lowest level against the US dollar since September 2003.
It later rebounded to USD 1.124 in morning trading in Europe with some traders apparently lightening dollar positions to take profits following initial sell-off in the euro.
According to Chang Wei Liang at Mizuho Bank in Tokyo, “SYRIZA’s victory could signal a broadening shift of support away from mainstream political parties toward economic populism, and might lead to more active political pressure to pare back austerity measures within Spain and Italy as well.”
The euro already weakened last week after the European Central Bank announced a massive bond-buying programme in a bid to boost flagging growth in the eurozone by pumping cash into the economy.
Greece's current bailout programme ends in February, and economists say a short-term deal will be negotiated, but difficult talks lie ahead. Germany has signalled that it is not prepared to renegotiate the bailout terms, raising the prospect that Greece could end up leaving the eurozone.
According to Jonathan Loynes, chief European economist at Capital Economics in London, "there is a danger of a prolonged stand-off with the troika as SYRIZA attempts to negotiate some form of official debt restructuring while not reneging on its promises to voters to cut taxes, raise government spending and increase the minimum wage."
The euro could weaken again later on Monday if SYRIZA reiterates a tough stance for talks with Greece’s creditors, forex market participants believe.
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