Thursday, 14 June 2012

Les jeux sont fait

Photo by Jake McMillan
“Les jeux sont fait” is a French idiomatic expression which translates as “the bets have been placed” and is the cry of the croupier at the roulette table in casinos.  This seems an entirely appropriate analogy for where we find ourselves over this coming weekend.  Breaths are held, the wheel is spinning, the ball is circling.  Soon we will hear the tell tale clatter as the ball nestles into the slot and we can assess the outcome.

Things do seem delicately poised.  The Greeks return to the polls on Sunday, hoping to find an end to the political stalemate that has proved impossible to break and amidst fears that Alexis Tsipras, president of the Syriza coalition (Coalition of the Radical Left) will be elected, precipitating Greece’s exit from the eurozone.  The recent aid offered to Spain has given hope to the Greek opposition that some revision to its own bailout terms will be achievable, although this seems unlikely given the mood emanating from Berlin.  Meanwhile Spain, despite an initially positive reaction to the bailout of its banking system, has seen its cost of borrowing for ten years soar from just over 6% to nearly 7% in the space of a week following another downgrade to its credit rating.

It would be wrong, however, to be totally fatalistic about the potential problems in Europe.  Yes, Greece may be forced to leave the Euro.  It may even chose to do so voluntarily.  However, Mario Draghi, the president of the European Central Bank does have some ammunition available to him and, as my colleague Guy pointed out earlier in his excellent Eurozone Policy Wish List other alternatives may be available.  Moreover, the build up of political pressure increases the chances that there may be a positive outcome from the forthcoming summit meeting.  The European mantra remains “just about enough, just about in time”. That said, we must all recognize that there is no silver bullet.  The big bazooka that is often referred to simply does not exist in the form that can solve the problems at a stroke.  Rather, it will take a number of measures and, equally crucially, time to resolve the situation.

In the meantime, life goes on.  This was highlighted last week by spirits company Diageo, who indicated that revenues from Whisky sales in Europe were down 1% over the first nine months of the firm’s fiscal year - a little surprising in itself as I should imagine the demand for a stiff drink in certain parts of the region would be quite high – while they rose by 14% in the emerging world. These are not esoteric numbers, of interest only to investment analysts and dividend hunters.  On the back of this growth, Diageo are investing £1 billion in the UK to help it to satisfy this growth – an investment in materials and people – and have indicated that they will consider building a new distillery if demand warrants.  This is a significant investment in employment and services which, by the time one factors in the “multiplier effect” of money, will have an important effect on the wider economy.  Moreover, it also serves to highlight that growth in emerging markets does not necessarily imply a continuous loss of capital and employment eastwards.  Rather, it can become a catalyst for a wider economy recovery.


Rob Burgeman
Divisional Director

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