There has been a lot of comment in the press about the "extraordinary" stability of the Euro throughout the simmering Greece debacle. To my mind this is not surprising at all. Traders and hedge funds are simply flat the currency until they know which way to jump. No-one of size is putting on a bet. They've been burnt before by overnight and weekend announcements, and have finally realised that when dealing with politicians rational, logical economics-based outcomes are irrelevant. Once the problem is resolved one way or the other (bailout or Grexit) then you'll see the currency really move.
Wednesday, June 24, 2015
In economics, as in pilates, a strong core is what counts...
As the slow but almost inevitable resolution of the current Greek crisis unfolds (as opposed to the next Greek crisis once this deal expires) you can almost hear politicians patting themselves on the back and markets breathing huge sighs of relief. However this excellent article in today's FT points out that while everyone has been concentrating on the EU periphery, it's the core that's really rotten.
To encourage those too lazy to click links.....
"Italian total real economy debt (government, household and business) is about 259 per cent of GDP, up 55 per cent since 2007. France’s equivalent debt is about 280 per cent of GDP, up 66 per cent since 2007. This ignores unfunded pension and healthcare obligations as well as contingent commitments to eurozone bailouts.
Italy is running a budget deficit of 2.9 per cent. Government debt is around €2.6tn, approaching 140 per cent of GDP. French public debt is above €2.4tn, or 95 per cent of GDP. The current budget deficit is 4.2 per cent of GDP. France’s budget has not been balanced in any single year since 1974.
Italy’s economy has shrunk about 10 per cent since 2007, as the country endured a triple-dip recession. Italy’s unemployment is more than 12 per cent, with youth unemployment about 44 per cent. French GDP growth is anaemic, with unemployment above 10 per cent and youth unemployment of more than 25 per cent."
As ever the EU is merely kicking the can down the road. The problems have been the same since day one of the crisis. Europe has made no effort to pay down any of it's debts - either personal or national, and no real effort to clean up and recapitalise its banks. Until it does both it will simply limp from crisis to crisis.
To encourage those too lazy to click links.....
"Italian total real economy debt (government, household and business) is about 259 per cent of GDP, up 55 per cent since 2007. France’s equivalent debt is about 280 per cent of GDP, up 66 per cent since 2007. This ignores unfunded pension and healthcare obligations as well as contingent commitments to eurozone bailouts.
Italy is running a budget deficit of 2.9 per cent. Government debt is around €2.6tn, approaching 140 per cent of GDP. French public debt is above €2.4tn, or 95 per cent of GDP. The current budget deficit is 4.2 per cent of GDP. France’s budget has not been balanced in any single year since 1974.
Italy’s economy has shrunk about 10 per cent since 2007, as the country endured a triple-dip recession. Italy’s unemployment is more than 12 per cent, with youth unemployment about 44 per cent. French GDP growth is anaemic, with unemployment above 10 per cent and youth unemployment of more than 25 per cent."
As ever the EU is merely kicking the can down the road. The problems have been the same since day one of the crisis. Europe has made no effort to pay down any of it's debts - either personal or national, and no real effort to clean up and recapitalise its banks. Until it does both it will simply limp from crisis to crisis.
Tuesday, June 23, 2015
Greeks bearing gifts
Looks like they might save the day. Both sides simply have too much to lose for them not to try bloody hard to come to some sort of settlement. No doubt there will be lots of fudging of numbers, and euphemisms for "the troika" and the tax rises and pension cuts that are coming, but that's fine. As long as there's a result that all can (just about) live with.
Friday, June 19, 2015
Grexit
I still don't think it's going to happen. The EU lenders have too much to lose and will cave in. They'll have to. After all it's their money that's going to be lost.
I believe the only possible reason the creditors have not already caved is that they have seriously underestimated the views of the Greek people. The Troika believe it is not rational for the Greeks to default and this be thrown out of the Euro and the EU. But most of the Greek people have nothing to lose. Youth unemployment is over 40%, pensions are being slashed, asset prices are collapsing and the economy is back in recession. For most Greeks they may not want to leave the EU, but the never-ending pain required to stay in simply is not worth it. As has been pointed out frequently over the ages, there are few things more dangerous than a man who has nothing to lose. The Greeks are not going to blink first.
Tuesday, June 16, 2015
Just like the good old days
There's talk of an emergency EU summit over the weekend to sort out the Greece "crisis". Meantime equities and bonds a all over the place.
It reminds of the good old days of 2008 when everyone had to square positions on a Friday night because who knew what firms or countries would fail or be rescued over the weekend.
Those were the days.....
Monday, June 15, 2015
Switzerland
The hills are alive with the sound of falling prices..... http://on.ft.com/1FigXXj
The only surprise to me is the increase in retail sales. I don't know who it is that's buying stuff here but it certainly isn't anyone I know. Pretty much every person down here close to Lac Leman does at least some or all of their shopping in France, and some even drive all the way to Germany to do it (the Germans are much more organised at paying back tax than the French - surprise, surprise). Up in Zurich it's apparently the same. The major supermarket's car parks across the border are full of Swiss registered cars. Even Swiss-made products are cheaper in Euros.
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