Time to worry about Greece?
Apparently (well, we have been wrong on
this one before), the negotiations about the Greek restructuring are
inching towards a resolution and the private bond holders appear ready to accept
a coupon of some 3.6% on the newly issued bonds. That corresponds to a haircut
of 70%. You may call that a default or not, depending on your preferences.
But what worries me is the steady stream
of reports out of Greece that the public sector is falling apart and
essentially unable to implement radical policy changes. This is amply
chronicled, even by such staid institutions as the OECD back in
November. It begins to look eerily like Argentina.
In a telltale sign, Steve Hanke has
publicly stated that Greece will fall apart. Hanke was the intellectual force
behind Argentina’s disastrous “currency board ”in the late 1990s that led to
the country’s default in 2002. He still does not see any responsibility for the
failure but blames the fiasco squarely on the implementation.
Anyway, he has seen up close what
happened, and he believes he now sees the same happen in Greece. It is not
often you will see me reference Telegraph,
but in all of their euro-hostility, they have made a listing of what could
happen to Greece if not something is done to stop the downward spiral. Not funny
at all.
Geithner
The US Secretary of the Treasury may well
be sacrificed by Obama in order to obtain re-election. Geither is widely seen
as an ambassador of Wall Street inside the US Administration (I tend to agree),
and it is likely that Obama will try to tap into the public exasperation with
the financial sector excesses. Geithner’s position may stand in the way of the
re-election strategy.
In a statement to reporters Geithner made
a comment that gives away a lot of the thinking inside the Administration. “We
are working to discourage other nations from applying softer rules to their
institutions in order to try to attract financial activity away from the U.S.
market and U.S. institutions”, he said. One can only assume that governments
elsewhere have the same attitudes, and that explains why international
agreements are so hard to come by.
But what about the European politicians
who want to introduce tougher rules on their banks?
It must be official by now
Goldman Sachs, one of the leading
consensus makers in the English-speaking part of the financial sector, has
finally given in to the positive mood. Jim
O’Neill, chairman of GS Asset Management offered the following gem:
“just the cessation of bad news itself has sort of appeared (to be) a bit
of a positive”. It must mean that GS agrees with me about the (feeble) economic
recovery and its influence on the market. I am sure he will receive a huge bonus
for this rigorous analysis. Predictably others followed in his wake.
Should we worry?
In recent days there have been some
disturbing reports about the trends in Europe’s broad money supply. Overall it
can be taken as an indicator of the amount of credit given - but not a precise
one. In the last months of 2011, the EU-zone money supply fell by a few per
cent (in Greece it actually collapsed). We need to see this trend reverse in
the first quarter in order for the region’s recovery to continue.
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