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Thursday, 14 December 2017

On saving Varoufakis, a French paradox and the drubbing at Deutsche

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Anthony Peters provides his Tuesday takes.

Yesterday afternoon there were rumours swirling around the Street that Greece’s Finance Minister, Yanis Varoufakis, was about to be fired. In the event, he is this morning still in place but with a revamped negotiating team and hence with clipped wings. Varoufakis’ fairly brusque manner of dealing with his eurozone peers has come in for criticism but it came to a head this weekend and the rock-star economist has been forced concede that academic rigour and political expediency are not comfortable bedfellows.

Whether the reshuffle is anything other than Alexis Tsipras’ next time wasting tactic is another matter and one I shall not opine on, but it is clear that the creditors are running out of patience and Germany is letting it be known that, although it dislikes the idea of losing Greece from the eurozone as much as it loathes the idea of compromising all declared principles and conditions attached to the disbursement of bail-out funds, it is beginning to no longer care too much which of the two bitter pills it will have to swallow.

That might not be what the Syriza administration had been expecting so there now suddenly appears to be a flurry of activity in Athens in an attempt to appease the providers of cash. Varoufakis had a strong hand although he is obviously seen to have overplayed it. The plot thickens as the rook is sacrificed to protect the queen. Check!

French twist

While Greece still occupies the headlines, other relevant news seems to slip by, not least of all that French unemployment and the CAC40 jointly hit new highs yesterday. In March, jobseekers numbered 3,509,800, a rise of 15,000 on February and trumping the previous record of 3,500,700 reported in December.

Although there are all manner of signs of life creeping back into the eurozone economy, the benefits seem to be accruing to some of those countries, Spain and Portugal ahead of the rest, where the most radical reforms have been effected. That said, the fall, especially in these two was amongst the most dramatic and hence the recovery is coming from a dreadfully low base.

The picture in France has not been pretty for a very long time but it has a long track record of swift recovery when the broader economic picture begins to brighten. Could it be that this time it is being out-braked by some of its EU peers and that its resistance to reform is finally catching up with it? That is perfectly possible but I have too many years of experience to bet against France. Remain neutral the credit.

All that accounted for, it is surely not without reason that the Portuguese Deputy Prime Minister, Paulo Sacadura Cabral Portas, in urging Greece to stay within the euro and to abide by the rules added that he believes that, were the former to exit, his country would avoid the wrath of investors and would not fall into the contagion trap. Portugal is looking at 1.6% GDP growth this year and is hoping for 2%+ in 2016.

Deutsche, ex-Postbank facto

Meanwhile, on the side of the prosaic, Deutsche Bank is in the wars. Not that it has been out of them much in the past few years but the additional information which was attached to the fine imposed on it for rate rigging did it no good at all. It was stated that the fine, US$2.5bn, was particularly harsh as punishment for its policy of procrastination and evasion.

Yesterday it followed with grand announcements of restructuring and retrenchment with which it aims to save US$3.2bn. Cut backs in markets activity stand to reason but the big headline, though not unexpected, is its decision to divest itself of Postbank and its high-street retail business.

Why it bought the big, fat, lugubrious thing in the first place, other to prove that it could, still baffles. Its corporate and investment banking business is a money making machine without equal in Europe and the restructuring smacks of Anshu Jain trying to make a virtue out of a necessity.

The question which outsiders will find hard to answer is whether he is responsible for “too little, too late” or for holding his ground and finally achieving supremacy of the most powerful investment banking business in Europe over the parochial desire to be a universal bank and the biggest in every field in its home market.

The joint CEO-ship of Juergen Fitschen and Jain has occasionally been questioned and the head of at least one of them has been called for in the aftermath of the Libor rigging affair.

Jain is making a big play to be seen as the face of the investment bank which Deutsche seemingly wants to be – one has heard lines like “the European Goldman Sachs” – so one might be led to wonder whether Fitschen might be the one to be sacrificed. Interesting times.

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