Really, why now? Why this noise all over again with Greece and other PIGS? The problem is not really new – it is actually renewed. The finances of Greece have not changed much since the last two years, they are still in bad shape. Neither did the situation worsen too much into the country – the deficit rather shrank a bit compared to the previous periods. According to the Economist Intelligence Unit, Greece’s current account balance stands at -6.7% of the GDP (-$20.3 billion), not much different from the beginning of the crisis.
But reading the press between the lines helps a lot sometimes (if not all the times). Reading carefully between the lines I mean. Lots of press coverage means that something is going on, especially since some of the countries are really opposing giving a further lifeline to Greece. The countries are Germany, Netherlands and Finland, two of them quite vocal. The same first two also approach local or regional elections, and this explains a lot – some politicians are trying to capitalize on the Grexit to gain support from electorate.
Of course, it was never popular in Germany to support Greece. On the other hand, the top politicians realize that besides some interest money, Germany might also loose a lot – a stable export market, support for the wider European projects or even the safe Mediterranean borders they had until now. So it also means that an internal battle between the politicians is going on. And this is why the subject is so harshly re-activated these days, when there is something to gain…
Or rather not dispelling. On an interesting twist, the situation with the European finances got again worse these days. And when the things get worse, the European powerhouse, aka Germany, stepped in. Even she might not want it. Angela Merkel found herself at the pinnacle of the battle yesterday (Sunday), when Bundesbank said that the ECB bond-buying policy is “like a drug” to the markets. To add more spice, a leader from the Bavarian Christian Social Union (CSU), Alexander Dobrindt, spoke out that Greece should be left to go.
Despite these pressures, the German Chancellor Angela Merkel seems decided to support the ECB policy’s in gradually buying its way out of the crisis. The reason is simple and interesting – it seems that the European leaders are expecting better times to come (and the worst to have already passed). With Mario Draghi on tour to convince other central banks to support the European monetary policies, it seems that at last the FED, ECB and other G20 central banks are arriving to a coordinated action to calm the markets. Which would be something new and beneficial not only for the European Union, but also for a USA contemplating a double dip recession. Will it work? We will see…
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For our Eurozone criris blog published periodically on Doitinvest, we have chosen today the topic of the double dip recession. What is double dip recession? Well, when you like a biscuit you dip it twice in your coffee (or chocolate or yoghurt). When recession likes a region, it pushes it back into its arms two years in a row. It seems that after the infamous 2011,European Union countries will go back into the same recession for the second year in a row.
But enough with definitions. The hidden fear for the Eurozone is called stagflation, the neo-liberal’s greatest worry. It is made of economic stagnation and inflation, all together. If economic stagnation is clearly here, inflation is actually quite a long short, since the raw materials prices are at normal levels and inflation in the member countries is quite low (1-2%). This does not mean safety from price increases, anyway. The problem is that most companies are struggling to improve their bottom lines and (whilst they cannot grow sales because the markets are stagnant) they are very keen to rise prices. And they will start doing price increases sooner or later… which means inflation.
So even if inflation is a long shot (6 months to 1 year according to my estimations), stagnation is here and I guess we might need to cope with it for the next quarters. At least this is what most of the economic journalists are saying today…
As promised earlier on our investment blog, I am coming back to the periodical analysis of the European crisis. These weeks’ radio silence is quite strange – let me explain why: at the end of July 2012 there was a loot of noise about Greece (complaining they are not able to meet the new deficit and financing targets anyway – PASHOK source) and Italy (where some regions from South were stating that they are broke). Now there was nothing new about these two countries and these weak points on their geographies. It was known since 2010 that Greece will have a very hard time to meet any financing commitments, whilst the south of Italy was never a model of public excedents in terms of budgets (especially if you look at their taxes collection history and habits). But the noise surrounding these events caused the major European stock exchanges to have mini-strokes again, whilst even some rating agencies threatened the all-mighty Germany with downgrading their ratings (based on its exposure to these two countries).
Now it is quiet on all media fronts. So quiet, that you can hear a Euro coin falling from Berlin to Athens. Could be that all politicians are on holidays – or could be that the speculating bankers are on holidays or thinking about new ways to profit from this. Either way, for me this silence is not good. So I would actually take advantage of this respiro moment to revise my investing priorities. What do you think?