In the London Telegraph, it was reported that French President Hollande visited Greece in an effort to show solidarity with the Greek people in pledging to support growth over austerity. The French leader told the Greeks that the French would “help with privatizations, tourism and a public sector overhaul.” Hollande also urged French investment into devastated Greek businesses. In direct opposition to October’s visit by German Chancellor Merkel, the French President proclaimed, “The Greek people have has as much as they can take.” While I would not disagree about the Greek citizenry being pushed to the limit through austerity budgets and tax increases, be assured that Hollande’s public show of support is all about trying to gain as much support as possible in his coming battle with the Germans.
Posts Tagged ‘Greece’
The weekend news was rather sparse as the Greeks got their trust fund check from the overlords in Brussels. The Greeks need to be leery of Eurocrats bearing gifts. The Sunday news shows in the U.S. highlighted the vast chasm between Speaker Boehner and Secretary Geithner. There was finger-pointing all around about as to which group was holding up the negotiations as to affect genuine compromise and a resolution to the fiscal cliff. As the rhetoric heats up, the S&Ps and global stock indices all closed higher on the week, showing that the price action speaks louder than words. The market has fears that failure to resolve the fiscal crisis will result in a new U.S. recession and will also undermine the global economic recovery, but yet the COPPER closed above the 200-day moving average for the first time in many weeks. Other industrial metals also performed well last week making me wonder if all the fiscal cliff rhetoric is missing some larger picture. We will watch to see if the COPPER can sustain its recent strength or whether we are in the midst of a short covering rally.
On November 19, 2012 I wrote a blog post about France getting a yellow card from Moody’s. In that post was another item about a Reuters story, “Germany Floats Idea of Greek 25-cent -on Euro Debt Buy Back.” Well, the importance of looking back is because that Reuters LEAK from Germany was virtually the agreement that was reached by the European policymakers in a short-term resolution to assuage the IMF and other Greek creditors. It is another example of the necessity of paying attention to official sources and leaks. I will re-post that NFU in its entirety with the link to the Reuters article. Preparation is the key to successful trading and investing.
As the sun sets on the Greek drama, the most predicted outcome has indeed taken place as the IMF/EU and ECB/EFSF/ESM have come to an agreement about bringing the Greek debt load to a robust level of 124% debt-to-GDP ratio by 2020. There was no way the TROIKA was going to risk the entire EURO project on a mere 44 BILLION EURO payout to the Greek government. The game was played out to the 11th hour–oh those drama queens in Brussels–and although the OFFICIAL SECTOR did not take an official haircut, the core nations of the European financial system do stand to take a bath. IMF Director Lagarde was able to save face as the Greek debt levels will reach the previously promised levels of 120%. Madame Lagarde can now go to the IMF Board and report that all previously agreed to conditions have been ratified by the EU and await the signing of the memorandum of understanding with the Greek leadership. The IMF needed to get Greece out of the way so it can figure out the role it will play in the Spanish bailout and/or Italy.
First and foremost, a happy Thanksgiving to all the readers of NOTES FROM UNDERGROUND. The growth in readership and the high level of discourse is something I am very grateful and certainly thankful for in full measure. As much energy as I expend in formulating the blog, it is worth the effort because it helps anchor my thoughts about the impact of the global political economy. It is certainly the definition of a give-get. So again, thanks to all my readers.
The key policy maker who raised the issue of the fiscal cliff back in April 2012 has been missing in action from the discussion. It is widely understood that the FED is not supposed to involve itself with fiscal policy, but that proposition was violated when the FED chairman voiced great concern about the failure of Congress to halt the potential drag on the economy. The FED has continually supplied the liquidity as the “only game in town” but it seems obvious that the great enabler of Congressional “benign neglect” should offer some guidance while not overstepping its mandate. More members of the G-20 were out over the weekend warning about the potential disastrous effects of a fiscal calamity in the U.S. on a very fragile global economy. What will it be Ben? I say yes, you say no. Bonds say buy and stocks say sell. Congress says goodbye. Will the FED say hello?
First and foremost: To all of my readers, friends and their families in the path of the hurricane that has wreaked havoc on so many lives, my thoughts and prayers are with you as you strive to put your lives back together. For you I am “Waitin’ On A Sunny Day.” The markets will do their job of assessing the damage to property and the economic impact that follows such devastation. Hopefully lost lives were kept to a minimum. For those trying to measure the economic impact I warn to be careful with all the flotsam and jetsam that will be filling the airwaves about how the repairs of the storm battered region is certain to be a form of economic stimulus.
First, the equity markets continued this week’s rally as better data in the U.S. (housing) following upon the Monday retail sales report provided more fuel for the bulls and is causing great angst for portfolio managers that are underinvested and badly underperforming their benchmarks. These investment advisers must go to sleep and pray for the U.S. to bomb Iran so that they will have some type of opportunity to buy into the global equity rally. It’s tough to chase this one. As I wrote on Sunday, the IMF “volte face” on the impact of austerity budgets was a game changer as it will mean that austerity inspired programs, like the U.S. fiscal cliff, will force policymakers to be cautious in pushing for too much austerity in times of a balance sheet recession. The pushback from Spain, Italy and others is allowing the forces for unrestrained growth to gain ascendancy over the voices of austerity led by the Bundesbank.
It seems that yesterday’s piece on the IMF left more questions than answers. The point of the IMF moving to break the adverse (negative) feedback loop in the economies of Europe and the impact of austerity budgets results in greater deficits as the economy affected experiences negative economic growth rates, which creates greater deficits. As my readers are well aware, budget deficits can increase by slowing growth as well as increased expenditures. The IMF economic models have used a 0.5% impact on proscribed fiscal retrenchment. The IMF has used that 0.5% number for 30 years. As the IMF has studied the European nations and other countries during the recent Great Recession, it seems that the organization’s models are flawed and the impact is far greater, resulting in ever greater deficits amid less economic growth. The IMF believed that for ever 1% drop in government budgets the result would be a drop in GDP of that beloved 0.5%–the multiplier that the models use.