By Chris Towner, director of FX advisory services at currency specialist HiFX

Spain for now will be relieved that the spotlight has moved away from them and back to Greece. The Greeks seem to be playing a game of chicken here, first of all putting party politics above sovereign interests and secondly in the bigger picture questioning whether the ECB are bluffing when it comes to not offering them bail-out money if they fail to form a Government.

From the ECB’s perspective despite the stakes being high, Greece is smaller enough to manage in an orderly fashion and arguably over the longer term Greece’s exit from the Euro could strengthen the EU. However Greece knows that an exit from the Euro leads to a precedent and it’s a dangerous precedent, which could lead to contagion and the exit of far bigger countries, which are too big to bail, from the EU.

The markets don’t like uncertainty and given the momentum for a weaker Euro, investors find it simpler to sell the Euro and hold less concerning currencies such as Sterling, which continues to benefit from this Greek tragedy, but at the same time with its geographic proximity and strengthening currency is also going to be impacted.

It’s too early to say whether Greece will be able to remain in the Euro. If they fudge a Government together, then yet again the alarm bells will return to amber. However Greece in the bigger picture is in a downward spiral and if not this time round, then at some stage, remaining in the EU will become too much and a Euro exit may just be the only alternative.

The market seems tense as though bracing themselves for something to happen, but not sure what it will be. Volatility is therefore expected to increase.

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