Friday, 20 July 2018

Samaras' search for aid highlights eurozone fractures

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If you think the world is currently a confusing place to be, spare a thought for the poor old BBC financial news people who referred to Jean-Claude Juncker this morning as the “head of the finance ministers”.

Anthony Peters, SwissInvest Strategist

He, the muppet in chief, is principally Prime Minister of a postage stamp as well as President of the Eurogroup and he also acts at home as Minister of State and Minister of the Treasury but one title he does not enjoy is that of Minister of Finance – Luc Frieden has that pleasure as the minister of finance for Luxembourg. To some extent I do have sympathy with the guys and galls at the Beeb because it really is hard to follow who is who in the dolly mixture which is modern Europe. Everybody has something to say on something.

There are presidents, prime ministers, chancellors, other ministers, members of parliaments, both national and pan-European, central bankers, both national and pan-European, the troika, heads of agencies, sub-heads of agencies, those who think they should be heads of agencies, asset managers, hedge funds managers, journalists and, finally, the likes of myself who all have an opinion on what is to be done, by whom and by when it should be done and always in the firm belief that whatever it is, it should be paid for by somebody else.

To all that, we can add strong opinions from New York, Washington, Newport Beach, Tokyo, Beijing, New York again and, if he got paid enough, Tony Blair from wherever he happened to be at any given time.

Questions about Greece

As Antonis Samaras approaches the lion’s den, he knows that Greece has failed every test it has been set in order to qualify for further aid. Two sets of questions have to be asked. The first set is whether Greece has made any efforts at all to meet the conditions and whether, were it to meet them, it would make the situation worse or better. The second set concerns whether, should more money be forthcoming, the Greeks would ever be able to repay what they are being lent. If the answer to the latter is “no” which we all quietly know it is, then throwing good money after bad is of no use to either the Greeks or to the rest of Europe.

Enter, stage left, Mutti Merkel. She has, over the past two and a half years, played an absolute blinder when it comes to balancing the needs of the eurozone partners with the demands of the German people. What has looked like playing endless hardball with the eurozone authorities can also be seen as an elegant and gradual softening of her voters’ opinions. Slowly, slowly catchy monkey.

However, as the next elections in Germany draw closer – they are, just for the record, not until October 2013 at the latest – she cannot wholly disregard popular opinion. “Der Deutsche Michel”, the personification of the quintessential German, the real “Hans Six-Pack”, has borne 20 years of financing the reconstruction of the eastern provinces from where Chancellor Merkel herself hails and it is hard to demand of the people a further 30, 40 or even 50 years of solidarity payments.

I raised the point last week that the fiscal and monetary union alone will not be enough to put the Eurozone on an even keel. Until the social benefit platform – that covers everything from unemployment and retirement benefits to healthcare – is brought into line and as long as the likes of the French retire at 60 while the Germans work until 67, the sort of fiscal equalisation which is envisaged has no future.

Merkel knows that she does not have the answers to many of the questions – they don’t really exist yet – but cuffing it through to autumn of next year after yet another bail-out of Greece might prove to be a political and an electoral bridge too far.

Thinking the unthinkable

Very quietly, politicians from across the spectrum have been letting it slip that the unthinkable is being thought. Ahead of all, Finland seems to have been leading in terms the internal debate and admits – why not – that the possibility and the cost of a break-up of the Euro are being considered and discussed at cabinet level.

I don’t know whether this was just an urban myth but I do recall being told that when the single currency was introduced, Finland was the only member to store its old notes and coins, just in case. Of course, if provisions had not been made in other countries, be that for the probable exit of Greece and for the still highly unlikely and unnecessary break-up of the whole system, that would smack of gross negligence and criminal incompetence, just as much as discussing it in public would too.

Irrespective of what floral rhetoric follows the Samaras trip, we must be braced for some heavy action over the next two or three months. If we were to grant Greece more time and money, write off its existing debts, refinance its banking system without adding that to the national debt burden and generate foreign investment, then the country would have a chance.

Well, if my grandmother had four wheels and a diesel engine, she’d be the Number 22 bus. “Sell in May and go away…” we all know. The original ends “..stay away ’til St Leger Day”. Strictly, the saint’s day for St.Leger is October 2 but I suspect they mean the week the St Leger classic horse racing meeting which is scheduled annually in the middle of September. Therefore, we still have a few weeks until markets get really serious again and we should all be mindful of treating them that way.                       

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