We have our result out of Greece and, I must confess, it is not the one I would have expected, albeit that the polls going into yesterday’s election made a late rebound of the incumbent government look ever more unlikely. Now, once again, the “political will” which has held the unlikely construct which is the euro together through its travails of the past years will be called upon to save the day.
Austere, so the Oxford English Dictionary tells us means, among other definitions, ”having a plain and unadorned appearance”. I was chatting to a friend last night on the subject of the elections who said of austerity: “Why can’t they just call it “living within one’s means”? This was shortly after yet another overly-clever TV journo, when reporting the early news of an overwhelming Syriza victory, had again wheeled out that nonsense that “Austerity isn’t working”. Austerity, my friend, is not a process, it is a state.
Austerity is not something to be taken like a course of antibiotics. It is the acknowledgement that government finances are out of control and that the left side and the right side of the national P&L need to be brought into some sort of harmony.
That previous governments played hard and fast with the people’s money and with the capacity of international lenders to convince themselves that because a country is in the same monetary system as Germany that it is Germany by proxy. That Germany is offering up anything more than a letter of comfort, is neither here nor there… It does not alter the fact that the country and the people have been plunged into a desperate place.
The eurozone’s collective and utterly selfish response has effectively been to forbid Greece from defaulting and from being offered the opportunity of a restart. Greece is not in a €240bn bailout for the benefit of Greece but for the benefit of those misguided idealists who, in the early 1990s, could think of no other non-controversial project for creating an ever closer union than currency union.
Political will cannot permanently defy those wonderfully pragmatic forces of reality as the eventual collapse of even the most repressive of systems, namely that of the Marxist-Leninist Soviet empire, bears witness to. The resulting devastation of 70 years of lies and deception (or should that be self-deception) is still, 24 years on, plain for all to see. Take oil out of the Russian equation, as markets seem to be doing at the moment, and there is still not all that much to show as asset prices and risk premia quite unflatteringly reflect.
The Greek people have declared that they have spent too much time as guinea pigs in the laboratory of how-to-run-a-currency-union-without-fiscal-union and are in effect ready to get out. Of course they don’t want to be out, but they are no longer prepared to pay the price demanded of them in order to stay in.
Unless the central powers in Brussels and Frankfurt can significantly reduce the cost, it is surely game over. But, as we know, they cannot reduce the cost lest Portugal, Spain and Italy demand that they too deserve more slack. To use an English euphemism, you simply can’t fit a quart into a pint pot or as the good burghers of Berlin would have it, with all the force in the world, you can’t milk a bull.
Alexis Tsipras is not the cause; he is the effect.
The first response of course came in the currency markets where the euro legged lower, yet again, and it opened today at around €1.12 even. Is parity on the way? In the short term there will surely been something of a bounce but it is hard to argue against the continued decline.
Peripheral bonds should widen a bit although I can’t see too many investors being ready to go the whole hog to coin a phrase –- with a serious underweight in the offending PIGS (the I for Ireland can surely be taken out of the acronym). Tsipras might be proposing that if they can’t afford bread they might do better ordering cake with a fair level of certainty that he will not end up the way the last proponent of that solution to austerity
Well, I shall go into the coming weeks with as open a mind as I can; every time I had previously thought the single currency project had blown its credibility it rose, like Tosca, and sang another aria. Mind you, in the end she did throw herself off the castle’s parapets.
Beyond Greece
Meanwhile, New York and the large parts of the East Coast of the USA are bracing themselves for some heavy snow which is slated to cause serious disruption. Talk is of 3-4 feet which is around a metre in new money.
Apart from that, the Davos beano finished this week-end and did anybody care? I did hear of a fairly fruity panel discussion involving Jack Lew, mar, “The Magician” Carney and Deutsche Bank’s CEO, Anshu Jain, in which the latter blamed much recent volatility on the regulatory castration of market liquidity. The former two of course denied it. I was reminded of the strap line which my old chum, Beat Matzinger, of Julius Baer in Zurich has on his Bloomberg: In theory, there is not difference between theory and practice. In practice, there is.
