From crisis to crisis
After five years of on-again-off-again crisis, Europe is on the brink of something huge.
Unfortunately, observers fear that will be what amounts to a default by Greece.
The other option is a breakthrough in the stalemate between Athens and its creditors, but that appears more elusive with each passing day.
No deal emerged from today’s meeting of the euro zone finance ministers, bringing Greece ever closer to the expiry of its bailout program at the end of June, but an emergency summit has now been scheduled for Monday.
“They have to default,” said chief analyst Michael Hewson of CMC Markets in London.
There’s also a full-scale meeting of European Union leaders late this month, but that’s cutting it awfully close to the line, leading to suggestions that Athens could first bring in capital controls to head off a run on the banks.
The uninitiated may be wondering how it got this bad, along the lines of “it’s Greek to me.”
Since then, Athens has been bailed out in exchange for austerity reforms and measures that have brought Greece to its knees, plagued by unemployment, among other things.
But Prime Minister Alexis Tsipras was elected just a few months ago on an anti-austerity platform, his young Syriza Party government seeking an end to the crippling measures agreed to by previous administrations.
By holding his ground, he is fulfilling that mandate, trying to ease the suffering of the people who elected him.
“If we don’t have an honourable compromise and an economically viable solution, we will take the responsibility to say ‘no’ to the continuation of a catastrophic policy,” Mr. Tsipras reportedly warned yesterday.
The Greek crisis has been a concern for markets since about May of 2010, Mr. Hewson noted, and that promises now to continue.
Athens owes the International Monetary Fund €1.6-billion by the end of the month, and creditors want further reforms in the areas of pensions, retirement and taxes. Which could spell the end of Greek bailouts, leaving Athens on its own, though failure to pay would not be a technical default.
“Unfortunately, more effort appears to be going into preparing for a Greek default than avoiding it, and one can’t help but think that both sides are coming close to giving up on this whole process,” said IG market analyst Joshua Mahony.
“Ultimately, the anti-austerity measures of Syriza fly in the face of the debt mountain that needs to be met, and debts will need to be written down via a default, haircut or whatever other technique is conjured up to lessen the burden.”
There are various scenarios for what happens should Greece squelch on its debts, possibly followed by the bum’s rush out of the euro zone. The latter is commonly referred to as a “Grexit.”
“The pressure is intense, even by Greek debt crisis standards, and one by one dealers are ducking out of the market,” said IG analyst David Madden.
Obviously this would upset the markets, but how long would that last? Here’s one view from John Higgins of Capital Economics:
“If Greece does default on her sovereign debt, the euro zone stock market will probably fall further, especially if this is swiftly followed by her abandoning the euro. But even in the event of a ‘Grexit,’ we doubt the slide would last long.”
The initial hit from Greece quitting the euro zone, Mr. Higgins said, could be in the area of 10 per cent to the Euro Stoxx 50.
“And a further 10-per-cent or so drop in the Euro Stoxx 50 would bring its total decline since mid-April to around 20 per cent,” he said.
“This would be similar to the size of the pullback seen at the peak of the last crisis in Greece in the spring of 2012.”
A comment I'd love to see
"Not bad, Stephen, but the part needs to be a bit lower.”
Words of the day
Default
Not meeting your financial obligations. In the case of the IMF, there wouldn’t be a technical default by Greece. Athens would instead by in arrears. A nice way of saying you’re a bum.
Whose fault?
Depends who you ask. Mr. Tsipras says the IMF bears “criminal responsibility” for Greece’s troubles. Germany’s Angela Merkel says Athens can fix things if it wants.
Quote of the day
“When Alex Tsipras says that he’d rather Greece default than endure more austerity, he may actually get what he wants.”
Brenda Kelly, London Capital Group
EI jumps
Alberta is still leading the country where a grim statistic is concerned: Jobless benefits.
The oil province led all others in April in a jump in the number of Employment Insurance beneficiaries, with a surge of 10.7 per cent, Statistics Canada said today.
That climb to 43,900 beneficiaries marked the fourth consecutive month of Alberta heading the list, The Globe and Mail's Tavia Grant reports.
The number of people receiving benefits climbed 10.4 per cent in Edmonton and 9.3 per cent in Calgary. In the rest of Alberta, the jump was 12.2 per cent.
The number of claims, however, fell 8.8 per cent.
Across Canada, the number of beneficiaries rose 0.5 per cent to 521,300.
In the news
Shares of Fitbit Inc. surged on the New York Stock Exchange debut today, putting a huge value on the company.
The United States has ended its brush with deflation, with the month-to-month rise in consumer prices up 0.4 per cent in May to bring the annual inflation rate back up to zero.
OMERS Private Equity is buying Kenan Advantage Group, an Ohio-based trucking company.
Norges Bank cuts rate
You’re to be forgiven if you’ve lost track of how many of the world’s central banks have cut their key rates, and how many times.
Norway’s central bank became the latest today, trimming its benchmark rate by one-quarter of a percentage point to 1 per cent.
Like Canada, Norway has been hit by the oil shock.
“Developments in the Norwegian economy have been slightly weaker than expected and the economic outlook has deteriorated somewhat,” Norges Bank Governor Oystein Olsen said as he announced the move, adding he could cut deeper still.
The central bank added, though, that the hit from the oil price plunge “will be less pronounced” than earlier believed.
A statement I'd love to see
“Donald Trump can’t use ‘Rockin’ in the Free World.’ But if he opposes the oil sands, I’ll let him.”