There is one headline and discussion point, in relation to the Greece debacle, which constantly catches the attention IF you’re concentrating;
“At stake is a target of lowering the debt to a more manageable 120 percent of gross domestic product by 2020. EU and IMF officials believe that target, which assumes Greece will run a budget surplus next year, excluding the massive cost of its debts, will be missed. Under the main scenario of an analysis by the European Commission, the European Central Bank and the International Monetary Fund, estimates suggest that Greek debt will fall to only 129 percent of GDP in 2020.”
Therefore by employing the most optimistic metrics the primary Greek debt versus GDP ratio could fall to 120% by 2020 and this does not take into consideration other debts such as the burden of personal debt which could severely impact on bank reserves and liquidity/solvency requiring further rescues etc. The standard economic metric by which many countries are judged to still be healthy is a debt v GDP ratio not exceeding 65-80%, yet here we are, with the troika openly admitting that a figure approaching double the lower threshold is the best that can be achieved, but that’s apparently the basis upon which a rescue deal could be struck.
It’s incredulous to imagine that Greece can stick to the overall plan, even if it’s lined up each week like a dutiful schoolboy, asked if its household chores are taken care of and then doled out pocket money in order to pay the remaining skeleton civil servants their reduced wage and fill up the ATMs. There are bound to be bumps in the road between now and 2020 and as Greece inevitably catches colds it’ll be forced to take more punitive medicine. However, are Greeks signing up to a minimum of eight years of incredible and arguably unnecessary hardship, when the obvious answer from the outset was a planned orderly default?
As we watch Iceland emerge from its catastrophe of 2009 some journalists and economic commentators will point fingers and suggest that there were, still are, alternatives. But having made Greece the pinnacle and pivotal issue (as the rescue mission to save the euro and Eurozone) the wider powers that be in Europe may have created a rod too big for every Euro citizens’ back.
2020 looks a long way off and any thought that Greece will be transformed into anything other than a zombie state by such time is wishful thinking. It’ll continue to drag and paw at it’s cruel master, until at some stage the schoolboy may tire of dutifully queuing up and asking for the sustenance level handout..
Market Overview
Global equities rose for a fourth day whilst metals rallied as a consequence of China’s central bank cutting the reserve requirements for banks, while the euro strengthened before European leaders meet to discuss a Greek rescue. Oil reached a nine-month high due to Iran stating it’s ceased crude exports to Europe.
The MSCI All-Country World Index gained 0.4 percent as of 8:00 a.m. in London. The Stoxx Europe 600 Index climbed 0.6 percent and Standard & Poor’s 500 Index futures advanced 0.3 percent. The euro rose 0.5 percent to $1.3199. The yen weakened against 13 of its 16 major peers after Japan posted the biggest monthly trade deficit on record. Ten-year German bund yields added two basis points to 1.95 percent. Copper reversed its six days of losses, increasing by 1.4 percent, whilst oil rose 1.5 percent.
Market snapshot at 9:30 am GMT (UK time)
Despite publishing record trade deficit figures the main Japanese index, the Nikkei, closed up over 100 points or 1.02%. The Hang Seng closed down 0.31% and the CSI closed up 0.14%. The ASX 200 closed up 1.44%, the healthiest rise in the Asian Pacific region, responding positively to the news that China’s lowering of reserve requirements for banks may increase demand for the raw materials Australia exports and give an overall boost to their economy. European bourse indices have enjoyed a bounce in the first part of the morning session, the STOXX 50 is up 0.84%, the FTSE is up 0.54%, the CAC is up 0.73% and the DAX up 0.75%. The main Athens exchange is up 1.42% the leading ‘riser’ this morning. The SPX equity index future is currently up 0.36%, ICE Brent crude is up 0.97% over €120 a barrel, Comex gold is up $9.70 an ounce.
Commodity Basics
Brent oil for April settlement increased 0.97 percent to $120.53 a barrel on the London-based ICE Futures Europe exchange. Copper in London rose as much as 2.7 percent to $8,396.50 a metric ton. Zinc increased 1.9 percent to $1,982 a ton, nickel added 1.4 percent to $19,900 and tin climbed 1.6 percent to $23,850.
Forex Spot-Lite
The yen fell 0.2 percent to 104.79 per euro and earlier touched 105.75, the weakest since Nov. 14. Japan’s exports dropped 9.3 percent from a year earlier, the Ministry of Finance said today, compared with the median estimate among economists for a 9.4 percent decline. The euro gained for a third day against the dollar. The euro rose 0.5 percent to $1.3199.
German Chancellor Angela Merkel, Greek Prime Minister Lucas Papademos and Italian Premier Mario Monti expressed confidence on Feb. 17 that ministers will resolve open questions. Should they fail to back the bailout plan at the Brussels meeting, the issue could be pushed back to the next European Union summit on March 1.
Australia’s currency rose 0.5 percent to $1.0762 and New Zealand’s so-called kiwi gained 0.9 percent to 83.97 U.S. cents. The two nations, which count China among their largest export destinations, gained on prospects the reserve-ratio cut will also boost demand for commodities.
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/is-this-what-constitutes-20-20-vision-for-greece/
Forex Market Commentary - As Iceland’s Economic Winter Thaws What Lessons Can Be Learned By Europe’s Policy Makers?
Iceland’s approach to dealing with the meltdown was to put the needs of its population ahead of the markets at every turn.
Iceland’s approach to dealing with the meltdown was to put the needs of its population ahead of the markets at every turn.
No it’s not a typo it’s an attempt to reinforce the one workable solution that has investment banks running scared, debt forgiveness. In any other business if you mess up, you fail, you lose. If lenders pumped their gravy train full of the wrong additives, to then cause a coronary in their system, then surely the fault lies at their feet and not individuals. The collective individualisation of loans and credit in Iceland did not cause their banking system to collapse, it was the massive growth in derivatives and securities that caused the system to derail a game in which Joe public, particularly in Iceland, had no skin in..
From the outset of the crash and during the various crises that have unfolded since 2008-2009 many economic commentators suggested that rescuing ‘main street’ ahead of Wall street was the only credible long term solution as any other method would bake in stagnation or worse stagflation and create an insoluble inter-generational debt burden. And here we are, three-four years later and despite the rescues, the bailouts, the various rounds of QE and the TARP (in the USA), the overall health of the western banking problem has not improved and has arguably worsened whilst a long term solution appears no closer.
The USA will point to decreasing unemployment, GDP rising, exports likewise, but it’s been at the expense of huge public debt. The USA is past 100% debt versus national GDP and it’s hunger for debt is as voracious as ever, on current projections it’s growing at an alarming rate of circa $2.4 trillion a year. Estimates suggest that for every two dollars of growth the USA achieves it’s actually being ‘bought’ by eight dollars of debt. Since Obama took office in 2008 the national debt has increased by an eye watering 50%, in loose maths from circa ten trillion to fifteen trillion with room to explode to 16.5 inside the next four-six months. But what’s of even more concern is just how quickly the USA has burned through the latest two trillion to simply keep their system trickling up, giving ever more to the top echelons of their broken society.
So how has Iceland recovered so quickly and efficiently, in simplistic terms what did they do that other economies could re-produce? Simple, the ‘needs’ and privileges of the banking and political elite were rendered secondary to the needs of the wider population. Iceland re-set the debt clock to zero and put their people first, even going so far as to countenance the unthinkable: indicting certain high ranking banking officials who were, in the opinion of Iceland’s government to blame for the implosion.
Iceland, A Brief Economic Resume Since 2008
Since the end of 2008, Iceland’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.
Iceland’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organisation for Economic Cooperation and Development estimates. It costs the same to insure versus an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.
The island’s households were helped by an agreement between the government and the banks, (which are still partly controlled by the state), to forgive debt exceeding 110 percent of home values. A Supreme Court ruling in June 2010 deduced and ruled that loans indexed to foreign currencies were illegal, households no longer need to cover, for example, krona or euro losses. Without the relief, homeowners would have broken under the weight of loans, the ratio of debt to incomes surged to circa 240 percent in 2008.
Iceland’s $13 billion economy shrank 6.7 percent in 2009, it grew 2.9 percent last year and will expand 2.4 percent this year and 2013, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates. Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse.
Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, police used teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.
A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown. Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.
Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.
In comparison with the U.S. no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.
There is an irony were Iceland is concerned as it now emerges from it’s very brief economic winter, Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s
"unorthodox crisis policy response has succeeded"
Source: FX Central Clearing Ltd, (FXCC BLOG)
http://blog.fxcc.com/as-icelands-economic-winter-thaws-what-lessons-can-be-learned-by-europes-policy-makers/
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