Proconsul, no thanks
Over the weekend rumours surfaced that the
EU would want to put the Greek government under administration. According to
apparently well-informed sources, the EU commission, supported by the German government,
should be interested in making further help depending on the Greek government
accepting an EU representative, who would have the right to veto its economic
decisions.
It is a very dangerous route to take. As
long as the EU is built on the principle of conservation of national
sovereignty (as opposed to what the UK government often claims for public
consumption), such a move would only give a new momentum to those who see EU as
a fundamentally anti-democratic construction.
On the other hand, several reports
are very clear: There is no willingness or indeed understanding in Greece that fundamental
reform is necessary. There are too many votes to be had on simple populist
messages. I perfectly well understand the exasperation on the part of the
European leaders, who are being asked to shell out billions only to be met with
obstruction from broad groupings in Greek political and administrative
institutions. I had mixed feelings reading Michael Lewis’ witty
description of the mood in Greece and other crisis countries.
There is no other way forward for the
euro-zone than having Germany accept a assistance package that may be
comparable to the Marshall aid after WW2. The northern countries must accept
that helping Greece and possibly Portugal is the price to pay for rescuing the
euro-zone in the short/medium term. Putting in a pro-consul will not help.
Maybe is the moment to bring in IMF as a neutral arbiter.
Downgrades
Fitch downgraded 5 euro-zone countries.
Yawn! It seems already to be forgotten. Maybe it was because it was “better
than expected” since rumours had it that 6 countries would be downgraded.
Ireland kept its rating, as did France and Italy.
Sarkozy
French president Sarkozy is facing a very
difficult run-up to the presidential elections on 22 April. His main opponent
Francois Hollande of the Social-democrat PS is consistently showing a
significant lead in the opinion
polls.
To those who have accepted the French
claim that the country represents a “cultural exception”, it will be disturbing
to observe that electioneering in France is exactly like elsewhere. Hollande
promises to solve the economic problems by lowering the pension age (sic!).
Sunday night Sarkozy went on all national TV channels to announce a tax on
financial transactions that has neither chance of neither being implemented,
nor ability to solve any problems if it ever were.
If Hollande is elected, it could at least
for a while throw a spanner in the works for the German-French joint
initiatives. But it would only a question of time before the new (and
completely inexperienced) French government would find out that Berlin is in
charge.
Data
The somewhat weaker than expected US GDP
data from last week will focus attention on this week’s data for personal income and spending. Several EU countries will release PMI data that for sure
will be scrutinised in every detail. For your investments, it is not important
what the economists have to say, but how the markets perceive the data.
Dollar
My colleague Frank proved to be right. My
pious hopes of a stronger dollar could do nothing against a market aggressively
positioned against the euro. In the past two weeks, the markets have begun to
unwind short EUR positions and all talk about a “collapse” just disappeared.
Another element in the risk-on trend.
American banks
Yesterday we had another reminder how
grateful we really need to be to the banks. Representatives of US banks pointed out
that if the stronger capital requirements and the limitations on prop-trading
are introduced, it will lead to slower economic growth and lower liquidity for
EUR denominated securities. Please!
The very banks that were saved by the
taxpayers continue to resist reforms necessary to avoid a repeat performance of
2008.
However, I agree that the higher capital
requirements need to be introduced over a longer period. The demand for a 9%
Tier 1 capital on 30 june 2012 is already having a negative effect on the
credit markets. Banks prefer to bring down their balances rather than raising
new capital.
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