March 25, 2012
It has been a few weeks since I last wrote about the eurozone crisis and the news has gone very quiet. The Greek problem seems to be solved, yes? We should all relax, yes?
Well, umm, not yet, no.
For what it is worth, your author is still amazed that the Greek debt problem has been solved, at least temporarily. If you had asked me to bet in January or February on whether Greece would default in March, I would have backed a default all the way.
Behind the scenes there have been a number of things going on that do not make the big news headlines. For example:
– there is a wide recognition that Greece will need more money (c.50 billion euros) before too long
– there is a wide recognition that the “fiscal compact” that was going to save the day is not going to be much help, if any
– there is considerable worry about the state of the Spanish economy
– there is much debate in Ireland about whether some of their debt can be converted into a longer term bond, thus making their repayments slightly less unaffordable
– there is much jockeying for position behind the scenes. With Jean-Claude Junker of Luxembourg soon to leave his position as head of the eurogroup, there are a number of people and countries trying to secure this top job. One of the leading contenders is Wolfgang Schauble from Germany, but if he gets the job, there will need to be other changes to remove Germans from other important financial positions. A typical EU merry-go-round. This situation is exacerbated by the huge costs being paid in countries often at the insistence of Germany that they now see it as vital to have a role at these high tables, meaning that there are lots of national interests at stake to be defended.
– there is much debate about the size and scale of the EFSF and ESM and whether we really need them to be as big as planned, after all, markets have been quiet for at least a week now…
What does all this mean? Firstly, that the issues have become very technical and with all due respect to them, most journalists probably don’t understand much of it (there is a lot going on right now that I don’t understand), meaning that they cannot report on it and if they did, their readers wouldn’t understand it. Additionally, a lot of this is not overly newsworthy. However, this is where the business is done, since let’s be clear, central banking is not normally a great spectator sport. But in a few months time when the eurozone problem rears it’s ugly head once more – when there is more debt to be rolled over or a default is faced – these will be the people making the important decisions, based on debates happening now.financialguy