One of the best quotes I have read this week comes from the well respected chief economist at Citibank William Buiter, ties in nicely with what I was talking about last week when Frau Merkel paid her little visit to Greece.
Not only did this eloquent pearl of wisdom come from the article but also it centred around how much European politicians are doing their utmost at the moment to really muck things up. In my eyes Mario Draghi the governor of the ECB has thrown a 90 yard pass only for the receivers to be deciding whether they want to catch it at all. We are so deep in the midst of headlines emanating from any politician with a microphone in front of them that I cannot keep track of where we stand at the moment, as soon as one thing is said it is either denied or not confirmed of contradicted by another minister.
So for clarity if you look past all the smoke and mirrors that gets thrown up this is roughly where we are:
ESM: ratification achieved, waiting on funding and more importantly an excuse to use it. Hopefully we wont have to but that is a rare show of optimism from me.
We are still awaiting the bold Mr. Rajoy of Spain to confirm or deny if he would indeed like a bailout. He is currently trying to play a game of chicken with the markets and hiding behind the sizeable shadow of Mario Draghi. His attitude is the pressure is off me until our govt bonds reach yields of 6.5-7% again (currently approx 5.4%) as he knows Draghi has committed himself to having to step into the market to drive yields back down lower if this occurs. So until this happens Rajoy will keep holding out as he does not want the dreaded Troika coming in and enforcing a regime of even harsher austerity on his already troubled country as is the conditionality attached to requesting a bailout. The talk of him requesting a credit line the other day has effectively been scotched as I thought at the time it sounded a little far-fetched.
Confusing signals being sent in that Merkel paid a visit to them last week to re-assure them they were in her thoughts and would push to help them. But as I and far smarter people than me suspect this is as Mr. Buiter points out alibi gathering. Greece are in dire straits and need the bailout money to keep flowing in just to keep the lights on. However the big bad Troika are in town and things are appearing to get sticky namely with the labour ministry. Still a lot of random headlines coming out but as far as I can see talks with the Troika are still ongoing and nothing has broken down…..yet. Mr. Buiter recently downgraded the likelihood that Greece would leave the Eurozone to 60% from 90% but I rather think that reflects his timeline and not his opinion that they will be gone. Greece need more money to keep the lights on and I will be shocked if they manage another bailout. They will be gone, they are just been kept quiet at the moment while the EU deal with monumentally bigger debt problems.
I’m not so sure why but Italy’s name is being dragged into the equation for bailouts at the moment and there is some talk about delaying a Spanish bailout to assess the impact on Italy. It is my opinion that Italy does not need a bailout just very radical restructuring of their economy and a reduction in power of their labour unions and a clean government. But there is always scope for me to be wrong …..it has been known to happen.
Back in the international debt markets and certainly performing better than the football team. Unemployment is still stubbornly high but can see signs of turning just need some momentum. Unfortunately because we never kick up enough stink we are at the back of the queue for attention right now as Spain, Greece and Italy dominate.
Portugal & Cyprus:
Both in a bit of sticky patch Cyprus requires a bailout and have the Troika in town but so small relative to other problems its not really worth worrying about. Roughly same with Portugal, still going through austerity measures and attempting to get back on track after their bailout, but their size is not enough to cause panic ripples around the world.
What we need to move forward:
Some clarity as to what is going to happen in Spain – bailout or not. If not then we need a serious detailed plan from Mariano as to how he is going to turn things around.
A banking union and or supervisor needs to be established.
Restructuring of debt for the PIGS to ease burden of onerus repayments.