Black Wednesday in 1992, the Dutch tulip collapse in 1637 and the Grexit – Guest Editorial

Paul Orford, VP Business Development at TopFX, takes a close look at the forthcoming effect on the FX industry which could ensue as the Greek government remains defiant and refuses to hold any talks until a referendum has taken place

After the incredible events of the Greek Prime Ministers TV address yesterday,  Alexis Tsipras has become the most isolated political leader at the negotiation table.

Tsipras stated that his opposite numbers in the Eurozone nations are to blame for the capital controls being placed on his country. He went further to outline that “extremist conservative forces”, are to blame, and that the Greek government is without responsibility for the banks closing for the week.

The Greek government of Tsipras and the flamboyant finance minister Yannis Varoufakis made much of their belief of game theory when they launched their charm offensive to the European media. However, would it have been more useful for them to read up on realpolitik?

For those who are not aware of the term realpolitik, it was devised by Ludwig Von Rochau in the 19th century. It is outlined as being the politics or diplomacy based primarily on power and material factors, rather than explicit ideological notions.

As a government that has been elected on a radical agenda which runs diametrically opposed to most of the other Eurozone incumbent ideologies, the Greek government is finding that in modern 21st century Europe radical agendas may get you elected, but they may not keep you in power.

Perhaps Tsipras should have paid more attention to the popularity of the current French Premier Francois Hollande, who also got elected by selling a dream, and is now living in the reality of a struggling economy which now has to pay for the dreams of previous regimes.

What does this mean for our industry in the short term?

We have already seen announcements from many institutions regarding the reduction in leverage, which may not be a bad thing for them in the long term. Moreover, when the markets opened in Asia at the beginning of the trading week the much anticipated volatility arrived with large movements across many Euro pairs and EU based indices.

How long will this last is the question on everyone’s lips at the moment. The correct answer is – who knows?

What can increase the longevity of the situation is that the Council of Europe believe that one week notice period given falls short of international standards, and that the wording of the referendum has become confusing for the electorate. As a result of this, Greece’s highest court has asked for the plebiscite to be cancelled on constitutional grounds.

Like many things in the markets and life, this will pass and will just go down as just another footnote in trading history. It will line up against such luminaries as the recent SNB movement, Black Wednesday in 1992 all the way back to the Dutch tulip collapse in 1637.

One thing we can count on is that where politicians are involved, there will be indecision. And where there is indecision there is volatility.

This is a Guest Editorial which was compiled by, and reflects the perspective of Paul Orford, VP Business Development at TopFX

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