Weekly Review. Greece: Don´t Call For Me Argentina…

Euro/US Dollar back where it began

The Euro finished the week unchanged against the dollar having recovered its earlier losses. Reports that Germany has finally bowed to pressure and will rubber stamp a bale out at rates around half the current borrowing rate for Greece could well help further advances for the Euro this week.This could well prove to be something of a watershed for the Greek problem.
Don´t Call For Me Argentina….
Some commentators are comparing the situation of Greece with that of Argentina in early 2000. They did indeed go on to default. The market may bide its time but the recent levels of capital fleeing Greece are a pointer to what will likely reemerge at some stage.Can the Greek government sell the public the idea of years of austerity and falls in take home wages which is required. The answer is almost certainly no and the next crisis whenever it arrives could be the one which leads to a Euro exit for Greece.( Remember the expression Rearranging the deckchairs on the Titanic)

Sterling has continued to perform well considering many polls still seem to point to a hung parliament. A workable conservative majority is still likely to produce a knee jerk move higher but could well be short lived.
Neither party seems able to come to terms with the scale of deficit cuts required. Another warning, this time from the IEA (Institute for Economic Affairs) think tank has called for the need for a total overhaul on spending levels. George Soros has concluded that a further devaluation of the pound may be an option the incoming Government may take. In truth it may be that this happens anyway and that eventually the markets as they so often do will force some draconian action on borrowing.

There were no surprises from any central banks last week on interest rates. Only the RBA moving rates to 4.25% from 4 which was expected. Risk appetite remains intact and this could continue the trend for a softer dollar and Yen especially with the aforementioned announcement on a Greek bailout.
The bad news I hear is that large increases paper pulp prices point to big increase in toilet roll prices…………lets hope there are no shocks in the markets.