Monday, 23 July 2018

On concessions and more Greek can kicking

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  • Peters 475px June 2014
  • A pedestrian walks past a drawing of Greek Prime Minister Alexis Tsipras

Anthony Peters believes that, whatever the deal, the outcome is still inevitable.

Let’s face it; Tsipras has blinked. He arrived on Sunday with another set of final proposals – I can’t remember how many final proposals we have already seen – but this time it appears as though he has acknowledged that it is “Game Over” unless he shows some flex.

What he has shown willingness to concede is not known but, having explained his thinking to Mutti Merkel, François “Qui? Moi?” Hollande and to the Muppet in Chief, Jean Claude Juncker, an aide of the latter called what they had seen “a good basis for progress”.

I suppose most of those involved will have conveniently forgotten that, irrespective of the outcome, Greece remains a country which is broke and any solution, whether it stands for a week, a month, a year or even two or three does nothing to change that. There hasn’t, this time around, been half as much talk about the kicking down the road of cans but in reality, that is all that is being done.

The reason Athens is in this mess is because most of the promised reforms haven’t been implemented and anyone who believes that “this time it is different” has another thing coming. Sure, Greece’s proximity to Turkey hasn’t helped it. Many of its exports are the same as those of Turkey and the sharp decline of the Turkish Lira has put it at a significant disadvantage.

Philip Mause argues in an article titled “Greece Should Be Cut Some Slack” in Seeking Alpha that this isn’t Greece’s fault and that we should offer concessions in order to help it over the problems. I’m afraid I disagree. Greece has turned up to a gunfight with a knife. Within the eurozone, it has hitched its trailer to a highly-industrialised wagon with which it cannot compete and in doing so has equally made itself uncompetitive vis a vis those of its own peer group.

I suppose my conclusion has to be that Greece is, for better or for worse, a member of the wrong club. That makes neither Greece nor the club wrong of themselves but there is a mis-alliance. Prolonging the misery will help neither. As we stand, I would suggest that this week-end the chances of Greece formally defaulting this week have diminished but even if it doesn’t, there will be no cause for high-fiving. That will not prevent European equities also taking at trip to the moon.

Perhaps the most sobering thought is brought about by the report to be published today on the next steps in bedding down the common currency – and which bears the name of the Muppet in Chief as its author – 24 pages without one single mention of fiscal union.

It focuses on best practice, on strengthening some of the new institutions which were established during the darkest days of the eurozone crisis. The final conclusion, if you will, is that Greece is a one-off and that no other country will be permitted to exit the currency union. Orwellian “New Speak” again? If we ban talk about it, it cannot happen?

No contagion but no joy

That said, one of the great achievements of the past months has been the way in which the fear of contagion has, this time around, never seriously taken hold. Sure, Spain last week flirted with 2.50% yield in the 10-year but, as at this morning, that is back down 2.15% as Italy, Spain and Portugal all open around 10bp better to the disadvantage of France and Germany which open 5bp and 7bp wider, respectively. Risk on? What else?

We are now past the summer solstice – it’s hard to believe that the days are already getting shorter again – and half-year end is just over a week away. I can’t think of too many people in the industry who will be too happy with the outcome of the first six months. I do not know of anybody who has not been caught on the wrong side of the market at least once – if they say they haven’t, they’re surely being more than just a tad disingenuous – and levels of self-confidence are generally low. Volumes remain derisory and the summer lull hasn’t even begun yet.

I would think that senior management, across the industry, is already meeting in closed sessions with sharp pencils while trying to revise budgets at the same time as looking how to right-size the business platform. I fear the City fairy is replenishing her little basket with redundancy dust and that there are some out there who will be facing summer holidays several months longer that they had planned.,

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