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Monday, 23 October 2017

Whither Greek paper for kindling, surly Scots (and Hugo Chavez)

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Anthony Peters, SwissInvest Strategist

It is quite amazing how quickly one becomes accustomed to a changing world and how easily one adapts to new normals. We will probably go home this evening complaining that it was a fairly uneventful week after the kind of volatility which would have had most of us suffering sleepless nights, had it all occurred five or six years ago.

Italy is supposed to be a troubled country and yet its 10-year bond yields have plunged 50bp in three days ahead of and not in the aftermath of a major bond auction – by the time you read this, of course, those yields could quite easily be 20bp higher or lower than the 6.65% that they closed at last night and that fact won’t even make the newspapers.

A Greek default is now no longer quite as systemically challenging as it would have been just a year back

I know that I am beginning to sound like a cracked record as I find it hard to escape from the Greek situation but it is becoming more sharply profiled as the PSI negotiations move forward. It is unclear whether there is any consensus yet with Greek MinFin officials making all the right noises but the IIF confirming that “some key areas” remain unresolved. There is a lot of noise and it is hard to crystallise the true state of affairs.

However, the word on the Street is that no more than 60% of the creditors have agreed to the proposed haircuts and that that is by far not enough for consensus – 75%–80% is what they are looking for. In the same way as on cannot be partially pregnant, 60% consensus is as good as no consensus at all. As I pointed out earlier on in the week, a Greek default is now no longer quite as systemically challenging as it would have been just a year back.

As we enter the new year, most holders of Greek debt will have finally taken the aggressive marks to market which they might have been trying to avoid in the past. There was much misplaced optimism that a revamping of the Greek National Statistical Office would make everything come good again but, in honesty, all it has done is to prove to people the extent to which the wool had been pulled over their eyes and that the true reality of the state of Hellenic finances is much worse than the perceived reality had been when they first appreciated the statistical deception.

Going back to the time of the first bail-out package, I suggested that the eurozone authorities were expecting to do nothing more than to give the banks three years of grace in order to write down the debt – or right off, if you prefer, in anticipation of the inevitable default. I said at the time that in my opinion the bailout had nothing to do with Greece and everything to do with northern European banks. I see no reason whatsoever to alter my position on that.

However, while the banks have been busily preparing themselves for D-Day, the authorities have been equally busily buying up unwanted Greek paper which they supposedly will not have to take a haircut on. How or why they would believe that they will be repaid more or better than the private sector somewhat escapes me; if they don’t, then they are deceiving taxpayers who will end up funding the write-offs, irrespective. The smoke and mirrors game continues apace.

Into this comes the report of two senior members of Germany’s governing CDU who apparently questioned Greece’s membership of the euro and who are said to have suggested that an exit would now be manageable. They would seem to be right. It is now, methinks, no longer a question of if, only of when.

Incidentally, it dawned on me just how much Germany needs the EU – without it, it would no longer be Deutschland but just Dtschland. Boom, boom!

Scotch exit strategy

While the eurozone is busily doing everything it can to stay together, a small bunch of Scots is equally frantically trying to break up this United Kingdom. The Scottish National party under Alex Salmond has finally announced that it intends to hold a referendum on Scottish independence. I have no problem with that. However, Mr.Salmond is merely the First Minister in the regional parliament for Scotland and not the leader of a country.

The authority for the referendum must come from Westminster where the parliament for the United Kingdom sits. The United Kingdom is governed by a Conservative/Liberal coalition, not England, and the fact that there are no Tory seats in the Scottish region of the United Kingdom does not diminish the authority of the duly elected government.

Salmond’s rhetoric reminds me terribly of one Hugo Chavez. Incidentally, as this is a united kingdom which represents the crowns of both Scotland and England, what does he intend to do with the Scottish crown if he gets it back? Put it on his own head or hand it to Kenny Dalglish?

Apparently he wants his referendum in 2014 which coincides with the 800th anniversary of the Battle of Bannockburn which sealed Scottish independence. Let’s get the referendum done and dusted – polls suggest that a referendum in Scotland would garner less support for Scottish independence than would the same poll, if held in England – and get on with pumping English tax money into keeping the Royal Bank of Scotland afloat.

Alas, it’s that time of the week again…

All that remains is for me to wish you and yours a very happy and peaceful weekend. May you enjoy a nice warm fire in the drawing room hearth but may you still refrain from thinking that all your Greek bonds are good for is for lighting it.                    

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