Euro Falls as Germany Rejects Greek Loan Proposal

Following early reports that Germany has rejected Greece’s recent request for a bailout extension, the euro has fallen to session lows of just 1.1356 against the dollar. 

The Greek request included a pledge to maintain “fiscal balance” for a six-month period in order to promote domestic growth, but Eurozone ministers were adamant that the agreement did not meet their criteria.  

Greece and Germany Remain at Loggerheads 

Emerging reports have revealed that Germany has rejected the bailout extension that was presented to them on Thursday 19th January. 

The request from Greece, which the country’s ministers had been keen to differentiate from a request to extend their bailout conditions, suggested an extension of an existing loan agreement with the Eurozone. 

The proposal incorporated a pledge to maintain “fiscal balance” for a period of six months, in the hopes of giving the country time to reach a renegotiated agreement on growth with its Eurozone partners.  

However, the response from Germany’s finance minister, Wolfgang Schaeuble, made it clear that the Eurozone has no intention of altering these terms, and in light of this the Greek proposal was “not a substantial proposal for a solution”. He went on to elaborate that it actively contravened the criteria agreed on during a group meeting of Eurozone ministers on Monday 16th.  

The Fall of the Euro 

This failure to reach an agreement has created an air of uncertainty around the future of the euro. Greece is expected to run out of money when its current 240 billion euro bailout expires on 28th February, and commentators from around the world, from brokers like Oanda to traders, politicians and financial institutions, have warned that this could trigger the country’s exit from the Eurozone, a potentially costly result for its partners.  

The euro has already shown signs of instability, suggesting that investors are increasingly losing faith in the ability of the opposing groups to negotiate a resolution. Indeed, the currency dropped to a session low of 1.1365 against the dollar on Thursday, when the reports of Germany’s rejection were first released. 

With investors increasingly turning a weather eye to the sky, uneasy mutterings are beginning to emerge as to the future of the Eurozone and its currency. With the European Commission earlier appearing receptive to the bailout extension request, on the grounds that it could pave the way for compromise and stability, perhaps the turbulence of the currency will soon see the Eurozone reversing their policy, and growing more receptive to Greek demands.  

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