Unsurprisingly the markets are highly skeptical of Greece's commitment to restoring its shattered economy, and the efficacy of the EU/IMF bailout pledge.
As such the interest rates on Greek debts is soaring.
The key issue wrt the much hyped bailout, is that it is only a pledge. The paperwork has not been signed, and there is every reason to suppose that at least one Eurozone country will veto it.
In fact a quartet of German academics is putting its money where its mouth is, and is mounting a legal challenge to the bailout.
The group will ask for an injunction to block the transfer of German funds, until the court has ruled. It contends that the European Central Bank has broken EU law by bending collateral rules to help Greece.
Germany's Handelsbatt newspaper has cited sources warning that the bill for the bailout may be three times as high as thought, making the EU share €90BN.
The legal challenge will hold up the bailout package for months, thus undermining any confidence that the markets may have had in the package.
Dr Karl Albrecht Schachtschneider, law professor at Nuremberg and author of the complaint, has told The Daily Telegraph that he will be ready to file within days and will ask the court for an expedited procedure.
There is a sting in the tail, according to Hans Redeker, currency chief at BNP Paribas, speaking to the Telegraph:
"It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be single euro in further financing for the EMU periphery."
The quartet recognises the fundamental truth (the "elephant in the room" if you will) of the situation. Taking on more debt will not solve the problem, it merely puts off the day of reckoning. The inevitable solution that Greece needs to enact is to leave the Euro, and to allow its currency to fall.
At some stage or another this will occur. The longer it takes Greece to bite the bullet, the harder the pain will be when they do leave the Eurozone.
Ironically, to make matters worse, Greece intends to enact legislation that will bite the hand the feeds it. It will implement a 20% tax on villa extension.
Who, aside from the British, have the most villa extensions in Greece?
Oh, that would be the Germans!
Thursday, April 15, 2010
Wednesday, April 14, 2010
Brown Admits He Made Mistake
I see Brown admitted this morning that he made a mistake re bank regulation.
I think I need to sit down!
I think I need to sit down!
Tuesday, April 13, 2010
T Day
The market's belief in the Greek government's commitment to financial reform, will be tested today when Greece issues Euro 1.2BN of treasury bills.
Greece needs to raise Euro 11BN by the end of May in order to refinance maturing debt and interest charges. In total, for 2010, it needs to borrow Euro 53BN.
The bailout is in effect merely a "promise" to offer help if Greece asks for it. The hope being that by offering the bailout markets will be suitably reassured, and Greece can then be able to borrow money from the market via bond sales rather than activating the bailout package.
Were Greece to ask for the package to be activated there is a high risk that individual Eurozone states may veto it, or that it simply will not be enough.
The markets, Greece and the EU will be watching very closely how T Day goes.
Greece needs to raise Euro 11BN by the end of May in order to refinance maturing debt and interest charges. In total, for 2010, it needs to borrow Euro 53BN.
The bailout is in effect merely a "promise" to offer help if Greece asks for it. The hope being that by offering the bailout markets will be suitably reassured, and Greece can then be able to borrow money from the market via bond sales rather than activating the bailout package.
Were Greece to ask for the package to be activated there is a high risk that individual Eurozone states may veto it, or that it simply will not be enough.
The markets, Greece and the EU will be watching very closely how T Day goes.
Monday, April 12, 2010
Dead Cat Bounce
The Euro "enjoyed" something of a dead cat bounce today, as markets temporarily offered it respite after the announcement of the Euro30BN and the International Monetary Fund Euro15BN bailout plan for Greece.
The Eurozone finally agreed agreed to bailout Greece via three year loans at 5%, less than the real market rates.
Ironically even those countries that are also close to financial ruin (Spain, Ireland and Portugal) are being forced to contribute to help Greece.
It is now down to Greece to draw down the loans, and for individual member states not to veto the loan agreement.
This is of course only a temporary respite. The "rescue" package merely increases Greece's debt, and puts off the day when the country pas to pay the price for it misfeasance.
The real world solution is for Greece to exit the Euro and allow its currency to collapse.
Be under no illusions, Greece will be forced out of the Euro.
The Eurozone finally agreed agreed to bailout Greece via three year loans at 5%, less than the real market rates.
Ironically even those countries that are also close to financial ruin (Spain, Ireland and Portugal) are being forced to contribute to help Greece.
It is now down to Greece to draw down the loans, and for individual member states not to veto the loan agreement.
This is of course only a temporary respite. The "rescue" package merely increases Greece's debt, and puts off the day when the country pas to pay the price for it misfeasance.
The real world solution is for Greece to exit the Euro and allow its currency to collapse.
Be under no illusions, Greece will be forced out of the Euro.
Friday, April 09, 2010
Greece Stands On The Edge
Greece is now standing on the edge of a financial precipice, pushed there by ever rising borrowing costs.
The rise in borrowing costs forced the European Central Bank (ECB) to prolong its easing of the rules on using government bonds as collateral for its loans.
The problem stems from the fact that the Greek government has not indicated exactly what it needs/wants to resolve its problems, ie it has to go publicly to the IMF and EU and ask for help.
This of course will not play well domestically. It therefore should not come as any surprise to learn that Greece is steadfastly sticking its head in the sand, and saying that the aid is not yet needed.
The reality is of course that the markets will do the equivalent to Greece what they did to the UK in the early 90's (when the UK was pushed out of the ERM); Greece will, if it does not act swiftly and decisively, be pushed out of the Euro.
The other problem facing Greece is that, even if it does publicly ask for help, the EU and IMF have yet to finalise the structure/terms whereby aid would be given.
In short Greece will be pushed out of the Euro, it is only a matter of time.
The rise in borrowing costs forced the European Central Bank (ECB) to prolong its easing of the rules on using government bonds as collateral for its loans.
The problem stems from the fact that the Greek government has not indicated exactly what it needs/wants to resolve its problems, ie it has to go publicly to the IMF and EU and ask for help.
This of course will not play well domestically. It therefore should not come as any surprise to learn that Greece is steadfastly sticking its head in the sand, and saying that the aid is not yet needed.
The reality is of course that the markets will do the equivalent to Greece what they did to the UK in the early 90's (when the UK was pushed out of the ERM); Greece will, if it does not act swiftly and decisively, be pushed out of the Euro.
The other problem facing Greece is that, even if it does publicly ask for help, the EU and IMF have yet to finalise the structure/terms whereby aid would be given.
In short Greece will be pushed out of the Euro, it is only a matter of time.
Thursday, April 08, 2010
Euro 40BN Claim Against Kaupthing Bank
Wikileaks reports that 28167 claims, totalling over 40 billion euro, have been lodged against the failed Icelandic bank Kaupthing Bank hf.
Wednesday, April 07, 2010
Greece Stands At The Precipice
As predicted, despite the recent paltry IMF/EU "rescue" deal, Greece is determined to be the author of its own destruction.
Greece's borrowing costs rose yesterday, as markets tested the sincerity of Greece and the rescue package itself.
Rumours abound that Greece has little or no intention of complying with the austerity measures enforced upon it by the rescue package, and that it is in fact trying to renegotiate the package.
Greece has of course denied that it is in a renegotiation. It knows full well that any admission of such a renegotiation would push it over the precipice.
Aside from Greece's sincerity over rebuilding its shattered economy, the markets are also questioning the exact terms and conditions of the package.
Germany wants any deal done on commercial rates. However, other member states are prepared to offer sub market rates. Until the EU sorts its own position out, the package itself cannot actually be implemented.
Once Greece falls, as it looks likely to before the summer, other weak economies (aka "PIGS") will also fall:
- Portugal
- Ireland
- Greece
- Spain
As I have noted before, the solution for the EU is to kick Greece out of the Euro before the markets force it and the other PIGS out.
Greece's borrowing costs rose yesterday, as markets tested the sincerity of Greece and the rescue package itself.
Rumours abound that Greece has little or no intention of complying with the austerity measures enforced upon it by the rescue package, and that it is in fact trying to renegotiate the package.
Greece has of course denied that it is in a renegotiation. It knows full well that any admission of such a renegotiation would push it over the precipice.
Aside from Greece's sincerity over rebuilding its shattered economy, the markets are also questioning the exact terms and conditions of the package.
Germany wants any deal done on commercial rates. However, other member states are prepared to offer sub market rates. Until the EU sorts its own position out, the package itself cannot actually be implemented.
Once Greece falls, as it looks likely to before the summer, other weak economies (aka "PIGS") will also fall:
- Portugal
- Ireland
- Greece
- Spain
As I have noted before, the solution for the EU is to kick Greece out of the Euro before the markets force it and the other PIGS out.
Tuesday, April 06, 2010
Public Sector Pensions
With a general election looming the CBI have entered the political fray and, quite correctly, pointed out that someone really needs to do something about public sector pensions.
The CBI state that the public sector final salary pension schemes (a burden of around £1 Trillion) are unsustainable and must be overhauled.
The CBI state that public sector pension benefits are now worth an average of 26% of annual salary, this is far beyond the norm in the private sector.
The CBI wants the next government to set up an independent commission to fully investigate pension costs.
All very well.
However, the politicians have a vested interest in retaining the current system, as when they retire they receive a public sector pension.
The CBI state that the public sector final salary pension schemes (a burden of around £1 Trillion) are unsustainable and must be overhauled.
The CBI state that public sector pension benefits are now worth an average of 26% of annual salary, this is far beyond the norm in the private sector.
The CBI wants the next government to set up an independent commission to fully investigate pension costs.
All very well.
However, the politicians have a vested interest in retaining the current system, as when they retire they receive a public sector pension.
Thursday, April 01, 2010
No More Boom and Bust?
Those of you with long memories may recall some years ago the then Chancellor, Gordon Brown, boasting in parliament that there would be "no return to boom and bust".
However, politicians' promises are as fleeting as the early morning dew. Following on the from the worst recession in decades, the CIPS/Markit manufacturing purchasing managers' index (PMI) rose to 57.2 in March (from 56.5 in February). This is the highest level since October 1994.
Additionally, the Post Office is set to offer "super sized" mortgages to people with only a 10% deposit; thus hoping to end the loan drought that has held back the housing market.
However, those of you who fear a boom should take comfort in the fact that the TUC has promised months of industrial unrest. This will guarantee that any boom will be short lived, as the "brothers" seek to push the economy back into the economic doldrums.
In retrospect maybe Brown was right, there will be no return to boom and bust; we seem to be condemned to live in a permanent state of "bust".
However, politicians' promises are as fleeting as the early morning dew. Following on the from the worst recession in decades, the CIPS/Markit manufacturing purchasing managers' index (PMI) rose to 57.2 in March (from 56.5 in February). This is the highest level since October 1994.
Additionally, the Post Office is set to offer "super sized" mortgages to people with only a 10% deposit; thus hoping to end the loan drought that has held back the housing market.
However, those of you who fear a boom should take comfort in the fact that the TUC has promised months of industrial unrest. This will guarantee that any boom will be short lived, as the "brothers" seek to push the economy back into the economic doldrums.
In retrospect maybe Brown was right, there will be no return to boom and bust; we seem to be condemned to live in a permanent state of "bust".
Wednesday, March 31, 2010
The Great ISA Rip Off
The Times reports that the Isa tax break created by Gordon Brown to encourage people to save has turned into a £3BN a year rip-off operated by the banks.
That at least is the conclusion of Consumer Focus (CF), a consumer watchdog.
Consumer Focus has made a formal complaint to the Office of Fair Trading (OFT)alleging that cash Isas pay derisory rates of interest and that banks use unfair obstacles to stop people from switching to better deals.
Mike O'Connor, CEO of Consumer Focus, is quoted:
"It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.
The average Isa saver is getting a poor deal."
It estimates that cash Isa savers are being denied between £1.5BN and £3BN.
It is hardly surprising that people do not trust the banks.
That at least is the conclusion of Consumer Focus (CF), a consumer watchdog.
Consumer Focus has made a formal complaint to the Office of Fair Trading (OFT)alleging that cash Isas pay derisory rates of interest and that banks use unfair obstacles to stop people from switching to better deals.
Mike O'Connor, CEO of Consumer Focus, is quoted:
"It beggars belief that in 21st century Britain it takes a month to transfer information and funds from one bank to another.
The average Isa saver is getting a poor deal."
It estimates that cash Isa savers are being denied between £1.5BN and £3BN.
It is hardly surprising that people do not trust the banks.
Monday, March 29, 2010
Mortgage Approvals Stall
Despite boast from the government that the budget's changes to stamp duty (for the next two years first-time buyers purchasing properties worth up to £250K will pay no stamp duty) will give the housing market and, by definition, the economy a much needed boost, reality does not match political spin.
Figures from the Bank of England show that mortgage approvals fell in February by just over 1,000 to 47,094, the third consecutive monthly fall.
This indicates that first time buyers are having trouble raising the loans necessary to buy their homes, it is unlikely that the stamp duty holiday will be enough to change that situation.
Figures from the Bank of England show that mortgage approvals fell in February by just over 1,000 to 47,094, the third consecutive monthly fall.
This indicates that first time buyers are having trouble raising the loans necessary to buy their homes, it is unlikely that the stamp duty holiday will be enough to change that situation.
Friday, March 26, 2010
The Greek Bailout
Despite protestations from Greece that it would look to the IMF not the EU for a bailout (if it "really needed one"), a joint IMF/European bailout of sorts has been agreed.
EU leaders have agreed on a paltry $30BN bailout for Greece, which will simply delay the day of reckoning for that failed economy.
In return for this much hyped gesture of little substance, the EU has extracted a heavy price. The EU has granted itself sweeping new powers to co-ordinate all EU economies.
Whilst the Euro made some recovery, this will be only a short term recovery. Even if Greece really has been "saved" (and there are serious doubts that it has), there are other EU countries that are also close to economic meltdown eg; Portugal, Spain and Ireland.
As part of the deal the little known and untested Herman Van Rompuy, the permanent European Council President, is now in charge of "the economic governance of Europe".
Unsurprisingly there have been calls from Angela Merkel, the German Chancellor, for a new treaty to give the EU extra economic powers. Those with good memories will recall that only last year EU leaders "promised" that they wouldn't need anymore powers, and that the Lisbon treaty was good enough for at least 10 years.
The lesson to learned here is that politicians, most especially European politicians, should never be trusted.
This will end badly for Eurozone countries, both politically and economically.
EU leaders have agreed on a paltry $30BN bailout for Greece, which will simply delay the day of reckoning for that failed economy.
In return for this much hyped gesture of little substance, the EU has extracted a heavy price. The EU has granted itself sweeping new powers to co-ordinate all EU economies.
Whilst the Euro made some recovery, this will be only a short term recovery. Even if Greece really has been "saved" (and there are serious doubts that it has), there are other EU countries that are also close to economic meltdown eg; Portugal, Spain and Ireland.
As part of the deal the little known and untested Herman Van Rompuy, the permanent European Council President, is now in charge of "the economic governance of Europe".
Unsurprisingly there have been calls from Angela Merkel, the German Chancellor, for a new treaty to give the EU extra economic powers. Those with good memories will recall that only last year EU leaders "promised" that they wouldn't need anymore powers, and that the Lisbon treaty was good enough for at least 10 years.
The lesson to learned here is that politicians, most especially European politicians, should never be trusted.
This will end badly for Eurozone countries, both politically and economically.
Thursday, March 25, 2010
The Domino Effect
Moving on from the diversion of yesterday's budget, most of the contents of which will probably not come to fruition, the Times reports that European economies are gradually being downgraded one by one.
Ireland
Downgraded from AA+ to AA-
November 2009
Greece
Downgraded from A- to BBB+
December 2009
Turkey
Upgraded from BB- to BB+
December 2009
Portugal
Downgraded from AA to AA-
March 2010
This "death by a thousand cuts" is, unsurprisingly, negatively impacting the Euro which fell to a ten month low against the dollar yesterday.
Downgrades make it increasingly difficult for downgraded countries to borrow from the bond markets, without increasing the rates they pay lenders (thus increasing their fiscal woes).
There is of course the possibility of an EU bailout for countries facing ruin. However, that prospect (for Greece anyway) looks rather unlikely given that Chancellor Merkel has called Greece's bluff and suggested that it should go to the IMF (something that Greece has been bluffing it will do).
The economic solution that the EU needs to face, namely expelling Greece, may appear politically unpalatable. However, it is the only solution that will stop the infection spreading.
Ireland
Downgraded from AA+ to AA-
November 2009
Greece
Downgraded from A- to BBB+
December 2009
Turkey
Upgraded from BB- to BB+
December 2009
Portugal
Downgraded from AA to AA-
March 2010
This "death by a thousand cuts" is, unsurprisingly, negatively impacting the Euro which fell to a ten month low against the dollar yesterday.
Downgrades make it increasingly difficult for downgraded countries to borrow from the bond markets, without increasing the rates they pay lenders (thus increasing their fiscal woes).
There is of course the possibility of an EU bailout for countries facing ruin. However, that prospect (for Greece anyway) looks rather unlikely given that Chancellor Merkel has called Greece's bluff and suggested that it should go to the IMF (something that Greece has been bluffing it will do).
The economic solution that the EU needs to face, namely expelling Greece, may appear politically unpalatable. However, it is the only solution that will stop the infection spreading.
Wednesday, March 24, 2010
Happy Budget Day
Today is budget day.
In keeping with "modern tradition", since Labour took office, budget "secrets" are now routinely leaked.
This year's budget will, according to the media, contain an announcement from Alistair Darling that stamp duty on properties will be scrapped on house purchases up to £250K for first-time buyers.
All very well, if they can borrow the money to buy the house.
Duty on strong ciders and alcopops will be increased significantly, in an attempt to reduce binge drinking by young people.
I am of the view that the economy and country would run much more effectively if politicians resisted the urge to tinker, meddle and change the rules quite so often.
In keeping with "modern tradition", since Labour took office, budget "secrets" are now routinely leaked.
This year's budget will, according to the media, contain an announcement from Alistair Darling that stamp duty on properties will be scrapped on house purchases up to £250K for first-time buyers.
All very well, if they can borrow the money to buy the house.
Duty on strong ciders and alcopops will be increased significantly, in an attempt to reduce binge drinking by young people.
I am of the view that the economy and country would run much more effectively if politicians resisted the urge to tinker, meddle and change the rules quite so often.
Tuesday, March 23, 2010
Darling Receives Pre Budget Boost
In the run up to tomorrow's "eagerly anticipated" budget, Alistair Darling has received something of a boost from the inflation figures.
The Office for National Statistics (ONS) reports that inflation (consumer prices index - CPI) fell to 3% in February.
However, the retail prices index remained at 3.7%.
Optimistic forecasters believe that inflation will fall back to 2% by the end of the year.
Doubtless the wave of optimism that these figures has unleashed will be somewhat dampened after tomorrow's budget, which will bring home to roost a few truths about the real state of the economy.
The Office for National Statistics (ONS) reports that inflation (consumer prices index - CPI) fell to 3% in February.
However, the retail prices index remained at 3.7%.
Optimistic forecasters believe that inflation will fall back to 2% by the end of the year.
Doubtless the wave of optimism that these figures has unleashed will be somewhat dampened after tomorrow's budget, which will bring home to roost a few truths about the real state of the economy.
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