Greece Kills (Atleast postpones) Arab Currency Independence
Hello there again!
The Euro continues to falter. The PIIGS are continuing to hog the limelight. And just late last week, Spain lost its AAA ratings. What a shocker!!
OK - So what other collateral damage has been inflicted upon the world's currencies due to the over obsession with Greece, Spain and the likes?
One of the first one that comes to mind is the Arab currencies (I will call them GCC Currencies for convenience).
I do not expect the GCC currencies to be hit directly. I also do not expect the exports out of the GCC to be seriously hit as the GCC and EU trade is roughly 20% of total GCC exports. So even with a slowdown in Europe, GCC will not be affected in a massive way. Bulk of GCC exports are to Asian US and other GCC members. But with the Dollar based peg of the GCC currencies, a weak Euro does make the GCC exports less competitive (primarily non-oil) which will hurt the diversification efforts. A weakening Euro makes the dollar priced commodities and products expensive leading to a crushing blow on the fragile and slowly recovering GCC economies.
Next, the weakness and concerns over Europe will boost the GCC tourism trade. GCC has been vieing for the tourist dollars for a decade now. With Club Med (My pet name for Spain, Portugal, Greece and Italy) down in th dumps, GCC tourism will be a direct benefactor. So yes, the tourism will get a boost, but the higher prices (in US Dollar terms per Euro) will hurt the Europeans who frequently travel in GCC counties and form a large part of the tourism dollars.
As a consequence of the US Dollar strength, any plans that the GCC had of de-pegging from the US Dollar will now be put on hold till there is steady and solid economic gains posted across the GCC.
Greece has enslaved the GCC countries for another few years!
Talk about unintended consequences, huh?