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Good News Ahead for the Euro?

Yuri Kuzmin | iStock Vectors | Getty Images

An upcoming meeting could give the common currency a lift, this strategist says.

The pain in Spain, at least in its banks, is a troubling sign of what could befall the euro zone — or so says Paul Richards, head of global FX at UBS.

"This is all about contagion," says Richards, alluding to the turmoil in Greece and its possible ripple effect on weaker euro zone members. He argues that if the Greeks vote to reject austerity on June 17, "I think what we saw today in Spain is the tip of the iceberg. This is all about contagion, and we cannot afford to have this thing happen." Richards says there is "no such thing as a non-messy exit for Greece."

That said, Richards thinks the long-term prospects for the euro are more than respectable. He points out that on June 13, just days before the next Greek election, a European Union summit will be focused on growth strategies for the euro zone — but he thinks investors are so focused on Greece and Spain that they are paying little attention.

"What if four days before the Greek election we see positive rhetoric coming out of the summit, enough to persuade the Greek electorate to in fact say, yes" to doing what it takes to stay in the euro zone, Richards says. "Then the EU will have time to come up with a longer term solution for growth in the periphery, and I think the market would be looking the wrong way if that outcome were to occur."

You can watch the discussion on this video.

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