NEW YORK–An emer­gency loan for Greece may stave off an im­mi­nent debt de­fault, but it doesn't seem to be whet­ting in­vestors' ap­petite for eu­ro-de­nom­i­nat­ed as­sets or eas­ing con­cerns about the fu­ture of Eu­ro­pean mon­e­tary union. Even with the eu­ro down more than 6.0 per cent against the US dol­lar in 2010, in­vestors are in­clined to bet on ad­di­tion­al loss­es of up to 10 per cent by year end. Many favour di­vert­ing mon­ey in­to oth­er de­vel­oped and emerg­ing economies, while some are even bet­ting that the cost of bail­ing out Greece and oth­er prof­li­gate coun­tries on the eu­ro zone's pe­riph­ery could pro­voke Ger­many to quit the eu­ro­zone al­to­geth­er, ef­fec­tive­ly end­ing mon­e­tary union.

"There's noth­ing great to write home about in Eu­rope, so even if Greece's prob­lems clear up for now, you've got slow growth and con­cerns about (debt lev­els) in oth­er coun­tries," said Win Thin, se­nior strate­gist at Brown Broth­ers Har­ri­man. "And even if Greece gets emer­gency aid, that will back­stop them for on­ly a year or so. And since you can't short a Greek cur­ren­cy, you have to short the eu­ro." Greece faces about 39 bil­lion (US$52 bil­lion) in eu­ro debt com­ing due over the next 12 months and stands to get rough­ly 45 bil­lion eu­ros in three-year loans from an EU/IMF aid pack­age.

While it will pay around 5.0 per cent on most of that mon­ey–well be­low mar­ket rates of more than 10 per cent for com­pa­ra­ble loans–time is short, with an 8.5 bil­lion eu­ro bond due to ma­ture on May 19.

Mar­kets wor­ry

It's un­clear whether dis­burse­ment re­quires ap­proval from eu­ro zone heads of state or sim­ply from fi­nance min­is­ters, but mar­kets wor­ry that the con­fu­sion will slow down the process. Mar­kets al­so fear Greece, al­ready com­mit­ted to cut­ting four per cen­t­age points from its bud­get deficit this year, won't be able to make fur­ther con­ces­sions in ex­change for the IMF por­tion of the loan. An­oth­er con­cern is what the eu­ro zone will do if mar­kets be­gin to doubt whether oth­er heav­i­ly in­debt­ed coun­tries such as Por­tu­gal and Spain can get their fis­cal hous­es in or­der.

"Even if the Greek prob­lem goes away, it doesn't nec­es­sar­i­ly mean the eu­ro is a buy," said Con­stan­tine Pon­ti­cos, a man­ag­er at Pare­to In­vest­ment Man­age­ment, one of the world's largest cur­ren­cy funds with about US$47 bil­lion in as­sets. A large cur­ren­cy pro­pri­etary trad­er this week pre­dict­ed the eu­ro, which neared a 12-month low around US$1.32 this week, could fall be­low US$1.30 by the first week in May and even fur­ther in sub­se­quent weeks. IFR Mar­kets tech­ni­cal analy­sis strong­ly sug­gests a move over the next sev­er­al weeks to at least the US$1.2880 area, where the up­trend from the March 2009 low co­in­cides with a medi­um-term tech­ni­cal ob­jec­tive. (Reuters)