Back from a two-week break, so what have I missed?
All the big and ghastly news has come from the Middle East but there have been interesting developments in the European economic sphere.
It seems safe to say that Britain’s economic recovery is on track, and maybe more broadly rooted than in just consumer spending and a housing market recovery (bubble?).
Slightly more surprisingly, the euro zone is back on the growth track too with some unexpectedly strong performances from Portugal and France in particular in the second quarter. Latest consumer morale data have been strong and as a result European Central Bank policymakers have begun downplaying thoughts of a further interest rate cut. However, it’s unlikely that all these countries will grow as strongly in the third quarter. Tuesday’s reading of German sentiment via the Ifo index will be key this week.
Perhaps the biggest surprise was Germany’s Wolfgang Schaeuble admitting what was widely known but hitherto unacknowledged – that Greece will need more financial help. The real shock was not the news but the source; the assumption had been that no one would whisper a word until the German elections are out of the way in four weeks’ time. Angela Merkel has been notably more circumspect about Greece than her finance minister.
The IMF estimates an 11 billion euros hole and Greek finance minister Stournaras came out over the weekend saying 10 billion euros may be needed. Having been leant more than a quarter of a trillion already that may be small enough beer to pass without protest. What would be politically more toxic would be a writedown on Greek bonds, most of which are now held by euro zone government and the ECB. That may be unavoidable eventually but remains a taboo for now, not least since Portuguese and Cypriot bailouts could have to be renegotiated over the next year too.
Some in Brussels are talking about lower interest rates or longer repayment terms on existing loans rather than cold, hard cash – but it amounts to the same thing. ECB policymakers Jens Weidmann and Erkki Liikanen are both speaking today. Bundesbank chief Weidmann has already declared a debt haircut would be a mistake and said the onus is on Athens to implement the required reforms.