Monday, 14 May 2012

For Greece it's play ball or make the call!

1994 World Cup Stamp
Tomorrow’s expected confirmation of recession for the eurozone as a whole will add little new to the growth dynamic now in play. It will however add to the momentum of the changing tide on fiscal austerity and make Mr Hollande’s meeting with Mrs. Merkel well timed. 

As for the growth dynamic, this is evident in the European Commission’s (EC) Spring forecast released last week which reinforces the point that fiscal austerity not only compounds recession but hinders rather than helps the adjustment to debt sustainability.

Also, playing ‘catch up’ for budget deficits that miss targets by a prescription of forcing through more budget cuts not only deepens and/or prolongs recession but also adds to the prospect of more problem loans for the banks. By spelling greater provisioning for more bad and doubtful debts it discourages any bank, even one adequately capitalised, not to mention amply fortified with LTRO money, from wishing to lend and risk weakening its financial position. 

Europe’s reaction to austerity is not only spreading but not discriminating either between politician and technocrat. Germany’s state election over the weekend was won by the Social Democrats on a go-slow ticket to reducing the state’s debt. In Italy, Prime Minister Monti, the technocrat with no political axe to grind but in charge of a tough job that needs doing has seen his popularity plunge hugely since taking office. More >


Mike Lenhoff
Chief Strategist

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