- News & comment
Greek coalition deal still possible
Publication date: 11 May 2012
Author: Mark Deans, Moneycorp
In recent years, the US intelligence services have been quick to level criticism at their opposite numbers in the UK for being too open about the sources of their information. Among other things it has resulted in people being held for years without trial so as to obscure the origin of the incriminating evidence against them. How ironic then, that having obtained the prototype of Underpants Bomb 2.0 the CIA has revealed on successive days that a) the source was a double agent, b) who is a Briton, c) called Abdul Featherstonehaugh, d) who lives in Milton Keynes, e) 23 Acacia Gardens, actually, f) and whose photo will appear in next week’s Hello!
Considerably more watertight has been the secrecy surrounding the Spanish banking system. Having nationalised Bankia to protect it from its creditors, the Spanish authorities were adamant that it was an isolated case. The country’s other banks were absolutely fine. No problem whatsoever. Well, they would be with the addition of a little extra capital. So come on, lend your money to Spanish banks. You’ll get it back, honest.
That strategy has not worked. Foreign investors and institutions still won’t touch most Spanish banks so the government will have to come clean about the size of the problem and say what it intends to do about it. An announcement is expected today. Estimates vary but analysts reckon between €50bn and €100bn will be needed to prop up ailing institutions. That leads to a funding problem. Spain can’t print the money and it surely can’t collect it in taxes. So it will have to borrow it. Unfortunately, the Spanish government’s only source of funds is its own banks. Oops. Spanish bailout here we come.
But fear not. Investors have not given up on the euro. Their confidence received a boost yesterday when it appeared that the Pasok party might be able to cobble together a pro-austerity coalition in Greece and the country received a €5bn bailout stage payment. Although the euro was unable to hold its own against the pound, the US dollar or the yen it managed to make headway against the commodity currencies.
Sterling got a boost when the Bank of England revealed it had no immediate plans to add to its £325bn asset purchase programme. Although investors had been expecting exactly that decision, confirmation of it led to a relief rally for sterling that took it to a fresh high against the euro.
Thursday’s economic data aroused little comment. All were roughly in line with forecast except, perhaps, the nine-point fall in Nationwide’s index of UK consumer confidence announced at midnight.
Today’s list opened with China, where inflation in the year to April was 3.4%, industrial production grew by an annual 9.3% and retail sales by 14.1%; all three figures were lower than before. German inflation was steady at 2.1%. Later, Britain and the US report on April’s producer price index and the University of Michigan finalises its consumer sentiment index for May. Potentially the most important figures are Canada’s unemployment rate and net change in payrolls.
Sterling is unlikely to react to the UK PPI data. Its fortunes today will depend on the news from Euroland and investors’ inclination to take profits on another positive week. A setback is possible but would not alter the underlying upward trend. Have a good weekend.
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