All roads lead from Greece (and one thing leads to another).We all know about Grecian tragedies but there has not been one like this before. After months and months of dithering, EU leaders “jaw-dropped” world markets by announcing a 750bn euros rescue package and coupled it with direct purchases of Greek, Portuguese and Spanish debt. Greece had been running a casino larger than the whole of Las Vegas and Reno together. Not only that, beaurocrats and non-tax- paying citizens had been betting against the house for seemingly ages with the help of an elution performed by our friends at Goldman Sachs. What might work in the short term but it ends in tears. The house known as the big global market always wins in the end. And so it did with Greece that is well and truly a busted flush.
(One leading Grecian economist claimed that 75,000 extra civil servants had been recruited in the last one year alone “When the ones we already have, have nothing to do.”)
Whether the monetary intention was sound or not (we can liken it to our own QE programme as inflation rises rapidly), the roads from Greece creep ever closer and the ripple effect becomes a tsunami. What is happening is that foreign (to Greece that is) holders of Greek and Portuguese debt have leapt on the intervention by the EU to exit their positions. This leaves the eurozone taxpayers exposed. This weakens the euro and makes exports to euroland more expensive and decreases demand in the market taking 60% of UK exports.
The FTSE has dropped by over 12% in the time this tragedy has been unwinding and a new sovereign coin (banking on gold – the value of last resort) that fetched £164 a second or so ago, now cost £210. Very scary stuff and we all thought the credit crunch was bad. Quantitative easing to quantitative wheezing one might say.
The new UK coalition government is going to tighten our belt at last. Well it had better move real fast since Ireland, Greece, Portugal, Spain and now Italy are, inter alia, freezing public sector pay like a new ice-age has dawned. We are not in the EU monetary union but we sure are in the fiscal one. Our pension is starting to weep.
JGS-May 2010
