Global Investing

from MacroScope:

Germany 1919, Greece 2010

Greece's decision to ask for help from its European Union partners and the International Monetary Fund has triggered a new wave of notes on where the country's debt crisis stands and what will happen next. For the most part, they have managed to avoid groan-inducing headlines referencing marathons, tragedies, Hellas having no fury or even Big Fat Greek Defaults.

Perhaps this is because the latest reports are pointed. They focus on the need to solve the Greek debt crisis before it spreads to bring down others and even shake Europe's monetary framework loose.

Barclays Capital reckons the 45 billion euros or so of aid Greece is being promised is a drop in the bucket and that twice that will be needed in a multi-year package. JPMorgan Asset Management, meanwhile, says that to bring its 130 percent debt to GDP ratio under control Greece will need the largest three-year fiscal adjustment in recent history.

But perhaps the most unusual note yet on the crisis comes from Ted Scott, a director at  F&C Investments.  He takes aim at Germany's  reticence about taking on its traditional role as EU paymaster (including the IMF being brought in from outside the euro zone) and its hardball approach of demanding yet tougher action by Athens.

Germany should remember the impact that the 1919 Versailles Treaty after the First World War had on its own population by imposing draconian terms, he says.  Keynes called it a "Cathaginian Peace" after the harsh terms Tome imposed on Carthage after the end of the Punic War.

Can the euro zone survive Greece?

Wolfgang Munchau, co-founder and president of Eurointelligence, has raised an uncomfortable prospect for investors in Greece. In a Financial Times column today, the long-time Europe commentator argues that Brussels may not be willing to bail Greece out if it were to default on its debt à la all-but sovereign Dubai World is about to.

The EU’s authorities, rightly or wrongly, are more afraid of the moral hazard of a bail-out than the possible spillover effect of a hypothetical Greek default to other eurozone countries. If faced with a choice between preserving the integrity of the stability pact and the integrity of Greece, they are currently minded to choose the former.

Munchau reckons that outright default is unlikely, but wonders whether the current spread between Greek and benchmark German bonds really reflects the risk that investors are taking.  It is currently around 178 basis points after recovering from a blow out on Dubai worries last week.

Falling on deaf ears

The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.

In what it must hope will be seen as a carefully considered and constructed response to the European Commission’s hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association — the voice for private equity in Europe — calls for the threshold for reporting on its companies’ activities to be lifted to 1 billion euros assets under management from 500 million.

It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.

More than a nice-to-have, buy-side considers its actions

More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.

Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.

The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.

Will invasion of Georgia steel EU into kicking its addiction to Russian oil and gas?

As George Bush might say, the EU is addicted to Russian energy. While no member wants to kick the habit totally, Brussels would like the bloc to reduce its growing dependence.

Even before Moscow invaded Georgia, the main non-Russian route for exporting Central Asian and Azeri crude and gas to Europe, the EU watched Russia’s regular cuts in energy supplies to neighbours with concern.

But EU members have been reluctant to take the hard measures that would allow them to bypass Russia, so analysts think their reliance on Moscow will grow.