The deal went down, finally, but as it goes with all of these hugely political fights, the process to get there was ugly and filled with tension. Greece’s passing of its austerity package helps the Eurozone move a step closer to containing the debt crisis, moves the EU in the direction of economic recovery, and it helps prevent Greece from slipping into third-world status via an ugly and disastrous default. The market seems relieved, but not overwhelmingly so. After all, it has been to this dance before with this same date, and she has not followed through on her promise to do the moves she says she can do. Nevertheless, inch by inch, the whole process moves forward, and if Greece does do her moves, well, somebody will be happy …
The rioting began Sunday afternoon ahead of a landmark vote in Parliament on yet more austerity measures. The drastic cuts debated in parliament include axing one in five civil service jobs over the next three years and slashing the minimum wage by more than a fifth.
Here’s the thing … The people of Greece are rioting in the street because they don’t want to lose their jobs, take cuts in their salaries or their pensions. Somehow, and mindboggling so, they think they would be better off not getting the bailout from the EU. Talk about unenlightened self-interest …
More work is necessary to allow the market to breathe a sigh of relief and begin an earnest march of the steep hill. Now that Greece is temporarily stabilized, the ECB and the EU can get to their business, which is the new EU economic accord due to be signed on March 1 and the ECB’s second release of its three-year, 1% loans to the banks on February 29. Both actions will bring a sense of near-term relief to the market, which could open the door for all that waiting money, money waiting for that sense of relief. Yes, indeed, we are getting closer to the moment.
The central bank will offer another round of three-year loans at the end of this month, and last Thursday it loosened its collateral rules to encourage smaller banks to join in. According to some predictions, banks may draw on the cheap credit even more enthusiastically than they did in December. The central bank intends for banks to use the money to lend to businesses and support the economy. That is especially crucial in Europe, where banks, rather than capital markets, are the main source of credit for corporations. But analysts suspect banks are using much of the cash to buy government bonds. That would help explain why interest rates on Spanish and Italian bonds have plunged in recent weeks.
One Rolling Stone’s song goes like this … “You can’t always get what you want. But if you try sometimes, well you might find. You get what you need.” In the case above, the ECB may publicly state that lending is what it wants, and if the banks do lend out more, that is a good thing for the European economy, but let’s stay real folks; there ain’t no economy until confidence is restored and the path to that is to contain the contagion of fear. Go you banks go! Buying up those sovereign bonds is what is needed, so go ahead and make that short term-return on your cheap money, bring down the yields of Spain and Italy, and then move on to lending money.
Speaking of moving on … In just about 12 hours, a jet plane leaves from San Francisco headed to London. On that plane is a seat waiting for me to plunk my butt down for some 11 hours. The next time you hear from me, I will be in Europe. I want to see what is really going on over there.
Trade in the day – Invest in your life …
