Oscar Wilde famously said of fox hunting that it is the unspeakable in pursuit of the uneatable. I have been wondering how he would have chosen to describe the putative rescue of Greece.
According to the FT, the IMF has asked for an answer to much the same question by Poul Thomsen, Director of its European Department. He has more or less announced that the Greek’s finance programme is now so far off course that it will require some very severe measures to be taken by the errant borrower or for the Eurozone lenders to step back and take a significant write-down in the value of their lendings to Greece for the IMF to seriously contemplate forwarding further funds to Athens.
In doing so, Mr Thomsen has told us all what we already know but which we have been behaving as though it were not the case, namely that Greece is effectively a lost cause and that the creditors will either have to take a monster haircut or that the country will fall down the black hole over which it has been hovering for the past four or five years. Denial, as the saying goes, is not a river in Egypt.
Although much of the World, Greece included, lost Friday to a public holiday and London for a large part lost yesterday, the clocks didn’t stop and diplomatic activity has been significant. Athens is in touch with its creditors and I wonder of Alexis Tsipras might not now rue the day when he promised an expectant nation that he would pull the nation’s neck out of the noose at the sole expense of the lenders and to the unfettered benefit of the Greek people. Sorry sir, but that only happens in the movies.
The Muppet in Chief, the President of the Commission, Jean-Claude Juncker, the one who once so wisely stated that “We all know what to do, we just don’t know how to get re-elected after we’ve done it” is still running around declaring blithely that “Grexit is not an option” and that it would pose “numerous dangers”. But in 2011 he also gave us “When it becomes serious, you have to lie.” Was there not also a Lord Voldemort-like dictator who shall be nameless who in 1945, while the Russians were raising the red flag over the ruins of the Reichstag in Berlin, was still chittering on about the “Endsieg”, the ultimate triumph?
There is no question that Mr Thomsen is absolutely right and, on past form, the creditors, mainly eurozone agencies, will have no choice but to back down. Greece will be saved, the politicians, well at least the usual suspects, will strut around declaring the victory of European solidarity over the Anglo-Saxon speculators and all-round forces of evil and down the line the poor bastard tax-payers across the eurozone will be scalped a second time. Forget the “numerous dangers” that bailing Greece out again might bring with it. With a bit of luck (for him at least), Mr. Juncker will be happily retired on his generous, tax-payer funded, inflation-linked pension and be sitting by the pool at his Mediterranean holiday home by the time the next round of problems surfaces.
In the background, France continues to disappoint with a renewed decline in its Manufacturing PMI which was reported yesterday at 48.00. This diffusion index (above 50 = growth, below 50 = contraction) dropped through 50 in June 2011 and, with exception of three occurrences, has remained there ever since. The last reading which pointed towards expansion was in April of last year. President Francois “Qui? Moi?” Hollande now looks to have given up trying to drum out the upbeat message of how things are improving and how everything he has been doing to improve things is beginning to work. Unemployment figures not only remain stubbornly high but seemingly continue to deteriorate.
On politics and cycles…
News of the Assemblée Nationale vote today on enhanced powers for the security services in the fight against Muslim extremism will be derided by civil rights groups but they could also be seen as being the result of failed economic policies which have left the “banlieue” behind and its young people seeking release in violence. France is clearly struggling and Marine Le Pen’s expulsion of her father from the Front National in her search for a wider electorate will surely rattle both the left of centre PS and the right of centre UMP.
The UK, faced with its General Election on Thursday, is not the only country where fragmentation away from the traditional left and right is causing head scratching. I am still perplexed by the UK markets’ generally sanguine run up to Thursday and I can’t, to be honest, work out whether it is because they don’t care or because they simply don’t know which way to jump. Instinctively, I’d be tempted to suggest the latter.
On the other side of the globe – hello Australia, come in Australia… – the RBA has cut rates by a further 25bps to 2.00%, a record low. Oz came through the GFC in more or less one piece and was able to benefit from China’s accelerating expansion. That has now slowed considerably and the bullet-proof Australian economy, including its powerful commodity sector, is looking weak. The RBA might be talking of falling inflation risks as being the driver of the cut be we all know that you don’t give away rate cuts for nothing.
Larry Summers, former US Treasury Secretary and President Emeritus of Harvard, recently commented very pertinently that if the Fed were to find itself faced with a cyclical downturn in the economy after seven years of stable growth, it has no arms left in its arsenal.
It has never before faced a period falling growth without 300-400bp of leeway and, I suppose, with an empty tool-kit the Fed, like any other monetary authority would, will have to ride out the cycle without the means to smooth the decline. I’m sure the RBA will have thought this one through in the light of the Summers way of thinking as much as it will have done along the more common lines of believing that the tide of economic cyclicality can and must be held back, whatever the cost.
