We are constantly told that if we don't all neoliberalize everything, screw
the poor to give to the rich and destroy all civilized parts of our society then
the clever wizards say that TERRIBLE THINGS will happen. The "markets" and the
"euro" and other abstractions will PUNISH US. No mechanisms are ever explained.
Funny how much this resembles the wizards and magical shamans of the middle ages
saying that God is on their side. If we don't give our tithes to the church then
God will punish us, little children. ... One estimate put the cost to the
eurozone of Greece making a disorderly exit from the currency at $1tn, 5% of
output. This is exactly the kind of economic prediction that I'm talking
about. How on Earth can they predict this with any degree of remote accuracy?
It's like trying to predict the exact results of every match at the upcoming
European Championships. Still, you can be virtually certain about one thing in
both the football and the economy. Greece will eventually get knocked
out. ---- THE FACTS ARE :...If Greece decides to leave the euro it'll certainly make
sense in the longer term-- the macroeconomic conditionality attached to the euro
by the ECB is a 'one size fits all' framework designed to promote the economies
of the EU's richer countries, and Greece is never going to derive any benefit
from being in the euro. But for now economic catastrophe looms since Greece's
current debt is denominated in euros, and the new drachma will involve a swift
and drastic devaluation. There is no way Greece can pay its euro debt using the
new drachma. The humane solution would be for the richer nations to cancel
Greece's debt the moment it leaves the euro. To not do so would be to punish
millions of ordinary people who did nothing to cause this crisis.
Outgoing PM Lucas Papademos has warned it would be "disastrous"
for Greece to reject the austerity measures, which come as a condition of its
bailout cash: Any modification... must be pursued in a spirit of consensus
and with the full agreement of European peers. A unilateral rejection of the
country's contractual obligations would be disastrous for Greece, leading
unavoidably outside the euro and possible outside the European
Union....The decisions we take could seal Greece's course for decades.
They could lead the country to the fringe, canceling historic national
achievements of the last 38 years.
9 comments:
Moody's slashed the ratings of 16 Spanish banks on Thursday evening, citing the reduced ability of the Spanish government to provide support to the sector, as well as the "adverse operating conditions" characterised by a renewed recession.
The rating agency also downgraded Santander UK, although, at "A2," it is still rated one notch above its parent bank Banco Santander. Moody's highlighted that Santander UK has "no direct exposure to the Spanish government (or regional governments)".
Earlier in the day, shares in Bankia, the country’s fourth biggest bank, plunged by as much as 29pc amid reports that depositors had pulled out €1bn in the past week.
Madrid was then forced to pay 50pc more than in March to drum up interest in a €2.5bn (£2bn) bond. By then end of the day, borrowing costs for benchmark 10-year sovereign debt in Spain rose 2 basis points to 6.21pc, while gilts and German bunds dropped to fresh lows of 1.834pc and 1.41pc respectively. Britain’s debt management office was swamped with record demand for a 'safe haven’ £1.5bn gilt auction
In case of the crisis intensifying without political leaders managing to come up with a viable solution, it is unlikely that the revenues, especially in June and July would be collected as planned. Without a formal government and uncertainty culminating, domestic demand would collapse making collection of indirect taxes almost impossible. Moreover, households may chose to withhold payment of their tax obligations and firms are likely to halt VAT payments to the state. We assume now, that ordinary revenues in June and July will be halved, probably an optimistic scenario. In this case, we find that Greece would run out of money sometime in June, a much worse outcome than before but one which we believe is not unrealistic should things take a turn for the worse.
Fitch last night said that all 17 eurozone countries faced a greater than 50pc chance of a downgrade if a stable government does not emerge from the country's second round of elections. In a statement, it said:
The downgrade of Greece's sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union (EMU). The strong showing of 'anti-austerity' parties in the 6 May parliamentary elections and subsequent failure to form a government underscores the lack of public and political support for the EU-IMF EUR173bn programme.
[...] Consequently, Fitch would place all eurozone sovereign ratings on Rating Watch Negative (RWN) following the Greek elections if Fitch assesses that the risk of a Greek exit from EMU is probable in the near term.
We estimate the probability of a Greek exit at 50% over the next 1Y; initiate risk-off trades. Such an event would likely be followed by 1) deposit and capital flight from peripheral countries, 2) Italy and Spain losing market access, and 3) contagion to core countries. Core country banks have €900bn of exposure to the periphery, while the official sector has €600bn (€900bn) of direct (indirect) exposure. Spanish banks are undercapitalized by €100-150bn but at most €50-70bn can be raised from Spanish sources in a market-credible way. Asking banks to raise private capital will likely be unsuccessful; ultimately the Eurozone will be called upon to recapitalize Spanish banks.
They also highlight that before Argentina defaulted in 2001, banks lost about 25pc of their deposit base. Greek banks have already lost 30pc
57pc of the 1,253 investors and analysts polled by Bloomberg on May 8 think Greece will exit the euro this year.
Certainly from a financial perspective the crisis can only intensify [...] We’re likely to get more debt restructurings and it would be remarkable if Greece didn’t leave the euro within a year.
...said one respondent.
Meanwhile, the man who coined the phrase "Grexit" now puts its likelihood at between 50pc and 75pc, from 50pc before.
In a note to investors last week, Willem Buiter, chief economist at Citigroup, said that the costs to Greece of a euro area exit would be “large and much outweigh the (likely temporary) boost to export competitiveness” and said that leaders would need to undertake “sufficiently decisive policy measures to ring-fence other euro area countries potentially under attack by markets”.
The greco-Spanish financial crisis spread to Asia overnight with the Nikkei 225 down 3pc and the Hang Seng off 2.83pc. That sell off will hit markets here this morning and the FTSE 100 is predicted to open down 1.3pc in what could prove a bloody day for investors. Bank shares across Europe are likely to come under renewed pressure, particularly in Spain where a mass downgrade yesterday and fears of a run on Bankia have left the Iberian financial sector in shock and awaiting news on how the Spanish authorities are going to strengthen their financial institutions.
There's a weekly Cabinet meeting in Spain this morning which could prompt further announcements from the government of new austerity measures.
On the corporate front here London Stock Exchange Group , which operates the main stock market here, has shrugged off increasing competition in its core cash equities market and announced annual results with sales up 10pc to £679.8m and adjusted pre-tax profit up 35pc at £400.6m. Chief executive Xavier Rolet has been busy transforming the group through acquisitions, including the FTSE data business and the clearing house LCH.Clearnet.
After Marston's yesterday, it's the turn of Mitchells & Butlers this morning to update the market with interim results for the All Bar One and O'Neill's pub group. The company, which has been dogged by ownership struggles and a boardroom bust up, reported like-for-like sales growth of 2.7pc but its financial report this morning is as cloudy as bad pint of Timothy Taylor so I advise a stiff drink before attempting the task of deciphering them.
Markets across the world slumped as fears gathered that a new and incalculable crisis was approaching. In London, the FTSE 100 fell to a six month low, dropping 1.2pc to 5,338 points, while France’s CAC and Germay’s DAX also dived 1.2pc, and Wall Street dropped almost 1pc in early trading
In Spain, Nicholas Spiro, managing director at Spiro Strategy, said the high cost of the Madrid bond auction was evidence that “'break-up contagion’ is seeping into Spanish yields”. “Make no mistake about it, these are painful auctions for the Treasury,” he added.
In a desperate plea to Brussels, Spain’s economy secretary Fernando Jimenez Latorre said: “Spain is making every necessary adjustment to fiscal police, structural reforms and there should be some kind of reaction from the European Central Bank to support us.”
Leafing through articles, I notice peoples' preference for the easy read. Todays' newspaper is entertainment with a storyline as predictable as a Punch and Judy show: the lazy Greek; the tight-fisted German; and the upright John Bull who has all the answers but nobody ever listens to him.
Other news - a US bank losing another billion or so, a UK banker feathering his own nest, people getting out of the stock market in droves - barely gets covered; and if it gets covered it doesn't get noticed. This is going to be a good year for bad news.
Macmillan, asked what he most feared, answered "Events, dear boy, events". June is going to come and go; and the Greek elections will be more thrills than a Premier League final. There will be live-blogging, and comments, and flame-fests. And by the time we've wrenched our collective gaze away from Greece, or Spain, or whatever, there will be bread and games. Olympic games. Have fun, it's on the house. And when we come back to our senses, we may belatedly realize we haven't kept our eyes on the ball. That we've been distracted from events we should have paid attention to.
I'd suggest spreading your savings over two quite distinct banks. Life might not be a Punch and Judy show after all.
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