There Are Bad Times Just Around The Corner

The Council of Mortgage Lenders (CML) has warned that approximately 53,000 homes will be repossessed this year (a 15 year high).

Add in the public sector cuts, rises in taxes (both direct and indirect) and we are going to have a tough time. The smiles and bonhomie of Clegg and Cameron will not be enough to ease the financial pain that will be visited on every household in the UK in the coming months.

Crisis Far From Over

Now that the UK finally has a government which, for the short term, may well be stable it can be hoped that the ongoing local financial chaos can be abated.

However, as Mervyn King (Governor of The Bank of England) points out, the crisis is "far from over".

The Bank of England's quarterly inflation report predicts an increase in growth. However, it notes that conditions remain uncertain and that the pace of recovery will be dampened by the need for "substantial fiscal tightening" and a further strengthening of banks' balance sheets.

Mr King has been briefed on the fiscal plans of the new government, and has expressed satisfaction that there is a binding commitment to accelerating deficit reduction.

It should be remembered that Mr King has been reported as saying privately, before the election result, that whoever won the election would be so unpopular due to the spending cuts and tax rises to come that they would be out of power for a generation.

As Noel Coward once sang:

"There are dark days just around the corner..."

Dead Cats Fall Back To Earth

As expected, yesterday's European wide dead cat bounce has come to an end as the moggies have come crashing back to earth.

The markets have concerns over the details of the EU/IMF rescue fund to prevent the Greek debt crisis spreading across Europe. Aside from the doubt as to whether the package will be enough to allow smaller eurozone countries to ease their debts, there is also the rather large elephant in the room:

"Where exactly is the money coming from if countries have to be rescued?"

To add to the gloomy mood, Moody's stated that it is considering downgrading Greece by another notch and cutting Portugal's rating.

Oh, and in case anyone has forgotten, the UK has yet to form a government.

Dead Cats Bouncing

The member states of the Eurozone finally realised that they had to do something over the weekend, to prevent a financial tsunami engulfing Euroland.

Finance ministers have now unveiled a package that pledges to guarantee the debt of any of the countries that use the Euro. They include:

- Euro440bn in loans or guarantees from Eurozone countries
- Euro60bn from the European Union's Budget
- Up to Euro250bn from the IMF.

As a result, dead cats are bouncing throughout Euroland (ie markets are rising).

This of course is only a temporary relief, the PIGS will have to get their houses in order if the Eurozone is to maintain its credibility/existence.

Greece Dying

For heaven's sake will someone in the EU/Greece remove this financially destitute country from the Eurozone?

Its continued presence is not only destroying the fabric of its own economy and social structure, but destroying the Eurozone.

Greek Tragedy

As predicted this will all end in tears!

Greek Contagion Spreads

The eurozone crisis worsened yesterday, when Standard & Poor cut Spain's credit rating after downgrading both Greece and Portugal.

Meanwhile the estimate as to how much Greece needs from the IMF/EU has risen to Euro 120BN.

The only way out of this mess now is for Greece to leave the Euro ASAP.

Stephanopoulos and Son

S&P has cut Greece's credit rating to junk status, thus bringing to a head the ongoing the crisis that has been brewing for months.

Juergen Stark, European Central Bank Executive Board member, has warned that the current trend is not sustainable:

"The current trend in fiscal policies is simply not sustainable. ... The onus is now on governments to ensure that the crisis that initially affected the financial sector, and subsequently the real economy, does not lead to a full-blown sovereign debt crisis.

Averting it will require very ambitious and credible fiscal consolidation efforts. In fact, substantially stronger consolidation efforts than those conceived so far."

S&P also went on to cut Portugal's rating by two notches to A-. Thus upping the ante on the Eurozone governments to resolve this crisis one way or another.

Greek regulators have announced a ban on short-selling on Greece's stock market, following steep falls (9%) in bank shares.

Asian and European markets have fallen sharply, as it is clear that the Eurozone has yet to satisfactorily address this issue.

It is clear that the only solution (for both the Eurozone and Greece) is for Greece to leave the Euro and refloat the Drachma.

The longer this decision is put off, as a result of political posturing and fake "machismo", the greater the pain will be for both Greece and the Eurozone.

The Eurozone and Greece need to get real!

Return To The Drachma

The Greek tragedy continues apace.

Angela Merkel, the German Chancellor, had to make an emergency statement yesterday "promising" aid to Greece in response to the continued pressure brought to bear by the markets.

However, her politician's promise (which contained a pre condition) failed to mollify the markets who suspect that Greece will not be able to restructure its economy nor meet its debt obligations (even if Germany does finally agree to the bailout plan).

The interest rate on two year Greek debt rose to almost 14% yesterday, in response to rumours that Greece was seeking an emergency restructuring of its short-term borrowings.

The trouble with financial rumours is that they have a habit of becoming self fulfilling, especially during financial tsunamis; ie the increase in rates, brought about by the rumour, will force Greece to restructure its debt obligations.

Angela Merkel's statement contained a hidden threat which can be easily understood by anyone:

"I say quite clearly, Germany will help, if the corresponding pre-conditions are met."

She added:

"If Greece is prepared to accept tough measures — and not just for one year but for several years — then we have a good chance to keep and secure the euro as a stable currency for us all."

The domestic reality for Greece is that it simply cannot enact the tough measures demanded of it by the Eurozone.

The only viable solution for the Eurozone and Greece is for it to leave the Euro, and return to the Drachma.

Greek Crisis Worsens

It seems that Greece's hopes for a temporary respite from the financial tsunami currently engulfing its economy have been a little premature. Despite being "promised" a bailout package by the IMF/EU, and despite finally asking for bailout aid, it seems that Greece may not yet receive this aid.

For why?

Germany is insisting that Greece commits to wholesale economic reform (which will inflict more pain domestically).

Germany's finance minister Wolfgang Schauble has told a German newspaper that a decision on aid had not yet been made, and could yet be "negative".

The aid package will need to be ratified by the German parliament, and there are legal challenges in the offing.

In brief, the "promise" of aid was intended to provide a sop to the markets. It was never intended that the aid be actually paid out.

Unfortunately for the optimists in the EU, the markets are not so naive and know full well that the aid package was over hyped and that Greece has no intention (nor any domestic political power) to enact the powerful financial reforms necessary to placate the Germans. The markets are savaging the Greek economy, and pushing interest rates to unbearable levels.

The only viable solution for Greece, and indeed the Eurozone, as I have long argued is for Greece to leave the Euro.

Sadly for the Greek people, the country will not voluntarily leave the Euro and will be forced out by the markets. The pain that Greece is suffering will, in the short term, become far worse.

Greek Bailout

CNBC report that Greece is expected to formally ask to use the IMF/EU bailout package this morning.

This being the package that Greece has spent the last few weeks/days assiduously denying that it needs to use.

Given Greece's inability to put its financial house in order it is clear that the money alone will not be enough, and that Greece will eventually be forced out of the Euro.

Greek Contagion Fears

Greece's attempts to renegotiate the terms of its IMF/EU bailout package has seriously spooked the markets, forcing interest rates on Greek debt up.

The attempt at renegotiation has also spooked the IMF and Bundesbank, who both warn that there is a serious risk of contagion spreading from Greece to other Eurozone countries unless matters are not addressed with some urgency.

The Telegraph quotes from the IMF's World Economic Outlook:

"In the near term, the main risk is that – if left unchecked – market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion."

Axel Weber, CEO of the Bundesbank, is also quoted saying that there is a:

"significant risk of contagion effects. A possible default by Greece would most likely be a severe economic blow for other countries in monetary union".

Those politicians in the UK who claim that it would be beneficial for the UK to join the Eurozone may care to watch the unfolding car crash of the Greek financial system, before making nay further pro Euro pronouncements.

Greek Discussions

Greece has begun renegotiations with with the European Commission and International Monetary Fund (IMF) over the terms of the bailout package.

Greece issued the following statement yesterday:

"The discussions concern a three-year programme of economic policies... which can be supported with financial assistance from eurozone members and the International Monetary Fund should Greek authorities decide to request the activation of the mechanism."

Although the Greeks continue to deny that they will use the bailout, only the very naive could possibly believe that they will not use it. Interest rates for Greek debt have soared, and the latest estimates indicate that Greece will need up to Euro 80BN.

The renegotiations are expected to last 10 days.

Vote Tory

Greece Undermines Its Own Position

Greece, despite claiming that it does not need the bailout package offered by the IMF/EU, has requested talks with the European Union, European Central Bank and IMF to discuss the package.

In other words, it doesn't like the conditions attached (were it to take the package) and wants them softened, so that it can then take the package.

Unsurprisingly the markets have been unimpressed by this, and the Euro has fallen as a result whilst the cost to Greece of borrowing has risen.

All in all the Greeks continue to be authors of their own financial destruction.