{"id":59107,"date":"2011-11-07T09:51:27","date_gmt":"2011-11-06T22:51:27","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/07\/papandreou-falls-on-political-sword\/"},"modified":"2011-11-07T09:51:27","modified_gmt":"2011-11-06T22:51:27","slug":"papandreou-falls-on-political-sword","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/07\/papandreou-falls-on-political-sword\/","title":{"rendered":"Papandreou Falls On Political Sword"},"content":{"rendered":"

\n\tBy Kathleen Brooks, Research Director UK EMEA<\/span>, FOREX.com<\/span><\/p>\n

\n\tHe survived a confidence vote on Friday but he has been ousted as part of a coalition deal with the opposition leader on Sunday. At least Greece has a government but the political drama continues to play out in Athens as a new PM will be decided tomorrow. This is one hurdle over, as having a “unity” government in place is vital to pass a vote in Parliament to accept strict terms for the latest batch of bailout funds and Greece is fast running out of money. Tomorrow’s Eurozone<\/span> finance ministers’ meeting won’t be much fun for Evangelos<\/span> Venizelos<\/span> as he is set to become the next Prime Minister.<\/p>\n

\n\tThat was the big weekend news. The G20<\/span> was meant to be an historic event, but ended up a damp squib. The world’s most important leaders should have been back-slapping each other for having found THE SOLUTION to the debt crisis. Alas, that wasn’t meant to be and the world’s most powerful leaders seem stumped as to how to deal with Greece, which means that this uncertainty and ensuing market volatility are set to continue.<\/p>\n

\n\tGermany’s Merkel is sounding less and less like she cares about finding a quick fix to the Eurozone<\/span> debt crisis. She said rather nonchalantly after the Cannes summit that nothing had been agreed with the IMF to boost the EFSF<\/span> rescue fund, which needs urgent funding to ensure it can cope with escalating problems in Italy. She also added that the current problems could take a decade to sort out, talk about dampening market expectations for a quick fix.<\/p>\n

\n\tSo that expensive Cannes summit delivered nothing at all. The only thing it did do was reinforce just how focused the market is on one thing: Greece. I would bet that more people in the UK could recognize the name of the Greek Finance Minister than would have heard of Chinese premier Wen Jiabao<\/span>. China is the world’s economic hope, yet a bankrupt, political basket case like Greece dominates our headlines and threatens to throw our economy back into recession.
\n\tHowever, the lack of progress is bad news for Italy. The country’s bond yields shot up to dangerously high levels on Friday and are within touching distance of 6.5% as we start the week. ECB<\/span> member Mersch<\/span> said that the Bank may refrain from further purchases of Italian debt if economic reform is not passed by law makers. If this were to happen Italy would surely be sent hurtling towards a bailout.<\/p>\n

\n\tWorryingly<\/span>, 2-year Italian yields have been surging. When yields on short-term debt start increasing at a faster pace than long-term debt you have a problem on your hands because it signals that investors have no faith that you can pay back the money you owe. With the IMF now in Rome analysing<\/span> the public books, it looks like Italy has gone for the bailout-lite<\/span> option, but will it need to go the whole hog? The bond markets certainly think so, and it could happen sooner than we think.<\/p>\n

\n\tNext week is set to be a major test for Italy. A vote is due on Tuesday to pass the state accounts. Last month the government lost the vote, which caused the bond vigilantes to up-the ante on Rome. It is vital that this vote passes to ensure that Italy can keep out of the grip of the IMF, ECB<\/span> and EU troika. Added to this there is a risk that the opposition leader will call a no confidence vote in Berlusconi<\/span> in the coming days after his support has dwindled threatening his majority in Parliament.<\/p>\n

\n\tBerlusconi<\/span> has threatened to call snap elections in January to try and guarantee his party’s support (never a good sign) and Greece may hold elections in February or March once the Unity government is fully formed, so the EU has to put out multiple financial and political fires at once, and it is stretching resources and the market’s patience. Add to that French and US presidential elections next year and 2012 could be another political maze for the markets to negotiate.<\/p>\n

\n\tInterestingly, the euro and risk assets have held up surprisingly well considering the manic media coverage of Greece and the possibly dissolution of the Eurozone<\/span>. However, elsewhere things are looking ok. The US labour<\/span> market might be creating jobs in unspectacular fashion but at least it’s creating jobs. However, the unemployment rate is falling slowly – 1% in the last 2 years, which is not acceptable to the Fed. This keeps the prospect of QE3<\/span> on the table, which risky assets love. Add to that global consensus that monetary policy needs to remain low for some time (even the ECB<\/span> caved in last week) and you can have the euro continue to hold up versus the dollar even though its very existence is in jeopardy.<\/p>\n

\n\tStrange times indeed. If there is a break in headlines coming out of Greece then a host of Fed speakers, a Bank of England Policy meeting and Chinese inflation data may get a look in, but I think the bulk of commentary will still be focused on Europe and whether Berlusconi<\/span> can save his political shirt once again.<\/p>\n

\n\tDisclaimer:<\/strong> The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD<\/span> contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.<\/em><\/p>\n

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Has Germany’s Angela Merkel given up on the idea of a quick solution to Europe’s financial woes while Papandreou soon will be Greece’s PM no more?<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[41],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59107"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59107"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59107\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59107"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}