Greece And The Eu

[Malcolm Robinson]

Might be worth looking at where the UK is in the overall view of EU debt and GDP percentages:

[Malcolm Robinson]

Hang on to your beeches folks this could be the start of a second downward spiral in financial markets. Stock indices are tanking worldwide, Portugal and more worryingly Spain look to be in the firing line as markets test European sovereign debt issues, oil has hit over $100 in forward trades and even the new tiger economies are catching cold.

If we start to read about Spanish difficulties the UK will be next in line! The size of the Spanish economy is so much larger than the Greek one any bailout will need to be in the trillions not 100's of millions and that prospect will crash the Euro. We have a group of German academics taking the EMU backed Greek bailout package to the German Constitutional court arguing it is not legal and if successful that will be the end of any hope Merkel might have of putting German money into the Greek bailout. As Germany has almost a third share (technically) of the ECB again that may be enough to crash the euro. Make no mistake if the Euro tanks without any structure that will be enough to push markets over the edge.

The UK has been warned that because of a lack of exports our recovery is illusionary. With an almost 1/3rd devaluation against our nearest and biggest trading partner the lack of business generated is making that devaluation worthless in essence. We really needed that to kick start our exporters into taking up the slack produced by falling domestic demand, the fact that it hasn't happened means we have essentially given ourselves a double whammy as we have used one of the biggest economic tools in our armoury to no avail.

This time it is not a crisis of confidence which is effecting markets its a crisis of fundamentals as markets now look to economic fundamentals to underwrite the optimistic verbosity the political class are coming out with. Brown was right when he talked about a global problem but so wrong when he said it has been contained. Without the right fundamentals in place a recovery was always a pipe dream!

[Malcolm Robinson]

Markets are still tumbling, the Euro is heading towards parity with the dollar, Spanish resolve is being tested and now we have Greek fatalities to add into the mix. If the Greeks decided anything is worth maintaining EMU membership then I think we really have to consider a much longer term solution. It seems obvious that even this latest bailout package is flawed and on more than one count. This plan still leaves Greece after 3 years with a huge fiscal debt and the associated austerity measures will probably push it into a deep recession which makes loan repayments unaffordable. It is crazy! The ECB has to realise that solving the Greek problem will take time and yes a restructuring of the Greek economy has to take place but it has to be implemented over a much longer time frame. The Greek or any other economy for that matter cannot go cold turkey overnight that produces as many problems as it solves. So the ECB needs to have even deeper pockets than thought and agree a reform package which will eventually turn the Greek situation around. If that isn't an option, and Germany could scupper that sort of deal, then Greece really has to consider the best option for its people and as I have already said I would be considering exiting the Euro if a decent deal could be stuck with the ECB, who holds a hell of a lot of Greek debt paper. An agreed default or at the very least a 50% write down on that would give Greece the breathing space it needs to restructure and mean it could do the necessary domestic changes over the medium term and that would probably give it the populous support needed.

In the main this whole Greek problem started because of a lack of truth in her fiscal position as reported by previous governments. Had they done so they probably wouldn't have been allowed EMU membership. An interesting but worrying observation is that Osborn has been allowed a sneak peek at the UK books, they do this stuff to make possible newly elected governments hit the ground running, and his considered reply.....'They are a work of fiction!' If the Tories do get in today and we do see a spending review within 100 days that might end up being even tighter than anyone feared.

Poignant report I noticed today, a Chinese manufacturer has moved production from China to Thailand (I think it was) citing labour costs! Well they say what goes around comes around!

[Malcolm Robinson]

Footsie is about to open, my bet a 200+ drop!

[Malcolm Robinson]

Footsie is about to open, my bet a 200+ drop!

Bit pessimistic only about 150!

The machinations over the Greek problems and Eurozone in general haven't gone away with this new plan they have intensified. Member countries have almost ratified it but if we look at Greek CDS's they have blasted off in a straight line upwards! This is the costs to insure Greek debt. We now see the Yanks becoming overtly involved. There is a meeting this weekend in Basil where Fed representatives are meeting with European central bankers. I expect an announcement Sunday possibly something along the lines of America will back the European banking system. In other words the Fed could be about to underwrite European banking!!!!!!!! This seems a little strange but look a bit closer especially at Euro/Dollar rates and we can easily see why. Not one of any of the countries involved are in a position of fiscal strength so we must assume sovereign debt will forever be underwritten by QE measures, amen! This is lunacy and is only putting off the day of reckoning!

On a domestic note our electoral uncertainty has already had effect. Looking at the gilt markets and what the pound is doing would seem testament to that. If we consider the implications of the LIBOR moves then we see the same sort of framework which precipitated Lehman's! This is not the time for wishy washy politicians; we have seen what dithering has done to the Greek scenario!

[Malcolm Robinson]

Some interesting quotes on various web sites concerning this stuff yesterday............

"We will defend the euro, whatever it takes,”

European Commission President Jose Barroso.

"Europe is getting its act together; time will tell if this statement is enough to satisfy the European bond market vigilantes.”

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd.

"When the markets re-open Monday, we will have in place a mechanism to defend the euro, if you don't think that's significant, you haven't been to many EU summits.” French President Nicolas Sarkozy.

"There is a need for a clear, timely and strong response,”

Canadian Finance Minister, Jim Flaherty.

"There are impacts on financial markets, including share markets, from the events in Europe and in Greece more specifically. We are urging as speedy a resolution as is possible in the circumstances.”

Australian Treasurer Wayne Swan.

''Europe will send a very clear signal against those who want to speculate against the euro.”

German Chancellor Angela Merkel.

Well can so many of the great and good be wrong? Can they really get their acts together and come up with a plan, for what is in effect at this stage in the game, to save the euro. If the markets keep taking positions against Spain and Portugal hard to see even this slush fund will be enough. Good job the Yanks are taking it seriously, and all in the name of keeping the dollar No 1 world reserve currency.

BTW, those German academics lost their court fight trying to stop any German Euros going into the Greek pot.

The thing which worries me is that all of this talk, money, loans etc is really going into servicing sovereign and structural debt piles in an effort to keep the system running. It is not being used for infrastructure improvements or investment as a way of earning our way out of the mess we are in.

At some point someone will say the 'Emperor has no clothes on!'

[Malcolm Robinson]

I have been asked why I consider this stuff to be so important and there is a very simple answer. It is one thing for a single country to be in fiscal difficulties, that's bad enough, quite another for 16 of them as a group. We are seeing a concerted effort now to literally save the Euro and that has brought the Fed to the table. If the Euro does implode without any default structure in place that will tip the whole world banking system over the edge, much like the financial crisis of a couple of years ago. There is a difference this time and it is what I have already said, last time it was a crisis of confidence associated with dodgy dealing, this time it's the fundamentals which have never been addressed. The politicians seem to be waking up to that fact! It will lead to a breakdown in social cohesion as countries scramble to get their houses in order, which because of the huge nature of the beast they won't be able to do.

The Eurocrats seem to have had a 'road to Damascus' experience over the last few days and even the most hardened sceptics of bail outs, Germany and Holland, have capitulated. In fact it looks like Sarko is leading the charge, why him I don't know as he seems one of the least capable out of the lot, but he has even managed to silence Germany! Germany and Holland, whose populaces are almost implacably against any bail out going to Greece, or anywhere else, have seemingly overnight agreed to play their part. The PM of Luxemburg went on German TV and said, 'We stand together, we fall together. We will do whatever it takes to save the Euro.”

This new accord within the EMU states in effect allows them to go nuclear in efforts to save the Euro. The package they seem to be gravitating towards is allowing the ECB to offer single Eurozone bonds and the limit, about 1000 billion dollars! Blooming heck they have just replaced a generations worth of repayments with infinite repayments but we can clearly see the size of the problem now! I have been looking into the numbers of the debtor nations to see why this has happened and we see France (Sarko!) is owed about $950B, Germany $704B and even the UK comes in at $418B. Any default or even haircuts on these figures will produce a meltdown in any of the banking systems mentioned, which will spread to the rest. The result, we are back to staring over the edge of a cliff!

It may be worth pointing out that even at the time of the Great Depression, generally, currencies and social cohesion were pretty solid. This time it is the currency being attacked and the CDS markets are bringing the banking systems into the fray. Seems someone in Europe has woken up to that fact!

[Malcolm Robinson]

Trying to find a possible solution and forecasting what may come out of the latest EMU summit meeting the ground seems pretty treacherous. To get this proposal through will mean the ECB will in some way have to accept liability for any losses incurred. That isn't as simple as it at first glance looks because the ECB is supposed to be truly independent and doesn't have the likes of the US Treasury (for the Fed) or even the UK treasury (for the BoE) behind it to absorb losses. It will need some EU organ to guarantee any liabilities and who will do that, the EU could and may well or else we might see the EU commission which will be a very poor alternative. I hope for once we see some realism and actions associated with Eurocrat uttering's!

Another interesting point to make is the leader the Guardian has come out with regarding the UK and EMU. According to them they have seen draft EU policy by the Conservatives.

''The British relationship with the EU has changed with our election. We will never join the euro. We will introduce legislation early to implement our commitments: any Treaty change transferring competence or powers would require a referendum; the sovereignty bill; and increased parliamentary controls on any use of ratchet clauses”

If this is true and does in fact become UK policy then the UK will have to turn down any deal along the lines of what is being talked about for the EMU members now. This is getting scary folks and could mean the EU backs defaults, with the banking system in jeopardy, or starts up its own QE measures which will probably lead to a German exit.

[Monsta®]

the provident do great deals for those with poor credit histories!

[Malcolm Robinson]

It seems Mrs Merkel has paid the price for offering German Euros to Greece; her party have lost out big time in the latest election in Westphalia and have so lost control of the upper German house.

The details of this new super deal the Eurocrats have announced not just for Greece but for the Euro as well need a bit more examination. The forecast figure of 1000B turned into over 750B and is made up of several parts.

There is to be a European Stabilisation Fund of 60 billion Euros which will be made available and will be accompanied by 440 billion Euros of bilateral loans which will be called a special purpose vehicle. I think we might be seeing the EU equivalent of a national Treasury which backs up monetary policy. The IMF has also agreed to further package of funds of around 250B if the 2/3rd -1/3rd share is correct. On first reactions it looks like the markets are breathing a sigh of relief on the news. However we have seen the same scenario played out many times over the last few months where actions do not relate to the rhetoric. One thing which does look to be a done deal is that the IMF have made E5.5B available to Greece immediately so she can pay her current debt liabilities and a further E30B over the next three years. We have a little longer to wait before we see if the full 16 members of EMU sign off to their E80B for Greece.

So everything in euroland looks hunky dory, err maybe not so...... This IMF deal (for Greece) is substantial and represents one of the largest deals it has done with a single country. Considering the other figures talked about we see a marked change in IMF involvement as it has turned from being a lender of short term liquidity to address balance of payment problems to a lender for fiscal debt! This precipitates the question I raised several postings ago, if there are defaults who take the liabilities on and will we see them on the balance sheets of the individual member countries?

It did seem as if someone (ECB) wanted the onus covered by all EU members not just EMU ones but the Swedes as well as Mr Darling look to have put paid to that. We now have to consider that countries who are themselves in financial straits will have to pay their share in this Greek bailout. That might well play out in national elections as Mrs Merkel has just found out! The practical implications of the Greek deal as well as contributions to the Euro 'fighting fund' might be a tad too much for some countries to stomach.

The ECB itself is to start buying sovereign debt in secondary markets by issuing its own AAA rated bonds. This would initiate a policy of QE to enable it and that is something Trichet said only last Thursday he would never countenance!

The thing to remember is that most of this stuff is only political rhetoric and looking closely at some of the comments associated with the politicians involved they may well think they will never have to bring the deals to life! So this for them is more talk in an effort to calm markets, will they never learn markets have a habit of testing this sort of fudge!

[Malcolm Robinson]

If anyone thought the surge on markets yesterday heralded the end of the downturn don't be fooled, injected liquidity won't solve the fundamental problems. I would say the thing to watch out for is 'independent' economists saying this will not be a long term solution and deficits have to be addressed! It is no good being able to borrow more and more just to service debt piles! It is good to see most of the world big players starting to realise that even if they don't have the political will to see the necessary measures through. Expect the UK to come under the spotlight now!

[Malcolm Robinson]

The markets look to be testing the resolve much talked about by the Eurocrats only a day or so ago. They don't even have the necessary mechanism in place to deliver this trillion dollars! At best there seems to be about E90B available quite a way short of the E750b talked about! As already said the ECB doesn't have the likes of a treasury department which would over see the sales of these new ECB super bonds and directly buy the likes of Greek and Spanish bonds. In effect what they are trying to do is sell the EMU quality book, German Bunds, and buy the EMU junk bonds. This injects liquidity but it doesn't address the fundamental flaws! It is to all extents what the UK government have done with their QE programme! It produces a temporary, very temporary, breathing space but greatly adds to the eventual problem because you are piling debts onto debts. This is not rocket science at some point you have to do something to reduce the debt figures! The only saving grace as far as I can see is that this latest EU fudge is keeping the spotlight away from the UK!

The UK is to have a new budget in 50 days. This will be the test of Dave's resolve to set the country on a path to reduce our deficits. If it does what it says on the can we will be in for a rough time, if it doesn't we could easily end up in the hands of the IMF again!

[Malcolm Robinson]

£9 billion cut.........thats going to hurt!

[Malcolm Robinson]

It would seem we haven't got off to a particularly auspicious start with our new coalition government! Listen to the rhetoric anyone might assume we would have been given quite a clear guideline if not actual policy to reduce these deficits we are beholden to and which both parties made such vociferous references to pre election! What has come out seems to be more about spending pledges and tax cuts??????????? This is not what we were promised!

We are still committed to £4B increase in overseas aid. The 10K starting point for income tax is to have a staggered introduction and will cost around £4B a year for 4 years and then cost around £17B per year when fully implemented. A reduction in employer's national insurance contributions of about £3B as against Labour's plans. Reinstating the earnings link for pensions will cost around £2B. More schools funding costing around £2.5B and a jobs package costing about £.5B.

So there seems to be quite some pledges there, lest look at what is to be used to cut our deficits.

Aviation taxes by charging planes instead of customers should raise around £3B. Capital gains tax changes which could raise around £2B a year. A completely unspecified plan to make spending cuts of £6 billion this year "subject to advice from the Treasury and the Bank of England on their feasibility and advisability.''

Now is it just me but it looks like £16B increases with £11B reductions? That leaves us £5B worse off, hardly an inspiring start!

Putting the VAT rate up to 20% would be inflationary but would raise about £12B per year which is starting to be the sort of figures we will have to put up with going forward if we are to get a hold of our budget!

I can only assume the political ramifications of this hung parliament have been such fiscal planning has taken a back seat for the moment and given that we do not know the exact state of the books for UKPLC there might be some nasties hidden away somewhere that will take time to plan for?

[Malcolm Robinson]

Looks like the Greek problems have now settled onto the EMU as a whole with calls on Trichet to do much more about actually reducing deficits and not just talk about increasing liquidity. The very nature of the EMU members make that an almost impossible task, why, because of the lack of political union. There is a well voiced analogy for the Euro and European project and that is America. How many times did we hear about the 'United States of Europe'? A fine aspiration but in practice there are fundamental flaws and in reality we cannot even compare the USA to the EU. This is all to do with geopolitical union which means the varied peoples of Europe do not have a common ideal, we are a group of fractured states banding together out of self interest. The USA does have a deep sense of being for the vast majority of its peoples as they consider themselves Americans first whereas we consider ourselves British, French, German etc etc in fact anything but European! Without that sense of connectivity and commitment the Euro was always doomed.

There would seem several options going forward but instead of the politicians being proactive in pursuit of them they will now be unadulteratedly reactive. This is always the case which emerges without clear leadership and a defined goal. We could see the Euro split and the introduction of a 'hard' Euro for the northern countries while a much 'softer' version is held by the southern countries. This is to presuppose the Euro is not allowed to fail and the only reason for that will be to save political blushes! The option of countries like Greece being able to exit and after getting their house back into some sort of shape where it meets EMU convergence criteria they are allowed back in have gone.

If we do see a spilt in the Euro along the lines I have suggested I think we in the UK will have to make a national decision in the not too distant future!

[Malcolm Robinson]

As the fallout from the Eurozone's shock and awe trillion dollar bailout becomes a bit clearer we see Spain and Portugal announcing their own deficit cutting measures. This is starting to look like punishment for letting their own sovereign debts get out of control and in some ways justifying the likes of 'prudent' Germany riding to the rescue. We also at this stage have to consider the whole bailout as a measure to 'save' Eurozone banks, however that is a slightly different take on this topic.

Looking at the Spanish measures we see public sector pay cuts of around 5%, (government ministers take a 15% cut!) local and regional government spending cuts of around E1.2B and a E6B cut in public sector investment. Pensions are to be frozen, E6000M cut in the foreign aid and the abolition in 2011 of the E2500 child birth allowance. Coupled with already announced 'austerity' measures this is supposed to cut Spain's fiscal deficit to 6% of GDP by 2012 and she still insists she will hit the EMU target figure of 3% by 2013.

On the face of it this does look a much more serious plan than that which Spain announced in February and which the markets have been testing of late. There is one other significant factor to consider and that is the political one. Jose Zapatero, Spain's Prime Minister, was re-elected in 2008 on promises of higher pensions, better welfare and full employment clearly the Spanish population will be feeling rightfully indignant especially as unemployment is now at 20%! Whilst these new measures do have merit by way of facing up to the Spanish deficit care will have to be applied so they themselves don't push Spain into a full blown recession!

Portugal has announced her own 'extra 'measures to achieve a deficit figure this year of just over 7% of GDP. (We have to remember the size of the respective economies here so a E20B cut in one might equal a E5B cut in another.) There will be tax rises under the "crisis tax” banner and they include a 2.5 % increase in corporate tax to 27.5% on annual profits which exceed 2 million Euros, a 1 % increase in value added tax to 21 per cent and increases of up to 1.5 percentage points in income tax. As well as that lot there will be spending cuts including a general 5% pay cut for the public sector including ministers. There will also be a 100 million Euro reduction in transfer payments from central to local government. Overall these budget cuts are planned to amount to 11 billion Euros over the next four years.

With a socialist government at the helm these sorts of measures will probably elicit popular unrest; however the main problem she will face is the lack of growth in her economy. As I have already said the easiest and least painful way for any country to address its fiscal debt problems is to increase GDP because even if the debt remains the same the percentage shown against GDP reduces! Portugal has gone through a decade of little economic growth so forecasts going forward now do not look rosy. It really needs to cut out all large public investment such as the TGV planned extension until such times as it can be economically justified.

There is one significance for both of these countries and that is their geography as both make up the Iberian Peninsular. It could easily be the case that excessive measures in one will adversely affect the other! At least they do seem to be starting to take the situation seriously and a 15% pay cut for ministers has to be seen against ours of 5%! It would seem some are taking the situation a bit more serious than others!

[Malcolm Robinson]

Libor rates heading north, Futures heading south, Euro bombing against major currencies, gold hitting new highs and Trichet told a group of German financiers and economists last Saturday that he had told all the other EMU countries, and he has been proved right, to do something about their debt problems or they would be in trouble. He's a laddo isn't he!!!!!!!! Cosying up and in reality fawning over the paymasters of EMU, guess their fiscal debt position being higher than EMU convergence rates wasn't mentioned! It has taken him over 2 years to get on the same bus as the rest of the world, and the EU still hasn't got the mechanisms in place to deliver, and he's claiming to be correct?????? Flipping heck I think he went to the same economics seminars as Brown! If the markets keep going in their present directions expect some serious talk about either a split in the Euro or it's disappearance.

[Malcolm Robinson]

Georgie Boy has just announced a new budgetary oversight office, about time! At last we might actually see the real position the country is in, if as has been stated it will publish all liabilities, including the off balance sheet stuff. Only then can we think about getting a real plan in place to redress our budget deficits!

[Malcolm Robinson]

The Euro looks to be tanking against the dollar but for that very reason we might well see a rebound? Historically when a currency tanks like this and almost everyone is of the opinion it is a one way bet something strange happens and the opposite becomes true. I have read two strategists thinking along these lines in the last couple of days.

It was a bit galling to see the French finance minister, Christine Lagarde, on TV saying her plan to save the Euro has worked? We then saw a steady downwards movement, when will these people learn! The Euro probably needs some relief from the highs it was worth to help with international competitiveness so a slight run would actually be helpful. This E750B package announced to back the Euro is flawed if for no other reason than the SPV (more later!) doesn't as yet exist and so cannot trade at the moment. Seeing as this was the vehicle which is supposed to buy up to E450B of EMU debts I wonder if there is really any intent by the ECB to actually do what it says on the tin? The problems we saw in Germany over their E8B contribution, later revised up to E22B, will be as nothing because their contribution to this fund will be E120B! Can we really expect then to cough up willingly? The whole credibility of the ECB and Trichet has been compromised as far as I can see and the markets are giving their assessment. A final and intrinsic point to make is that to get these debts under control we hear about austerity measures but these could easily push economies out of recovery and into full blown recession. Having just read a report which predicts a 1% fall in spending by the likes of the Greek government could result in a 2.5% fall in economic output and if we then input the proposed figures of around a 10% reduction we can assume a fall of 25% of economic output! This is a very deep recession being talked about if care is not taken and we need to bear in mind out own position regarding debts/GDP!

[Malcolm Robinson]

BTW, that SPV Trichet is talking about reminds me of something...............

And if I remember correctly they drove them backwards!!!!!!!!!

[Malcolm Robinson]

Can someone explain the word 'temporary' to Merve the Swerve, he seems unable to understand the definition! Every time he has had to write his letter to the Chancellor explaining why inflation is at least 1% over target he has used this term yet inflation seems to be persistently over target? In fact inflation has been over target in all but 6 out of the last 30 months, looks like a trend to me? If we now consider currency falls and a possible rise in VAT we will see even more upwards pressure on our inflation figures. So we seem to have a sort of relaxed attitude to inflation and we also have to consider all that QE money which added to liquidity in the system and in itself must push up inflation. The only explanation I can see is that someone somewhere wants to use inflation to reduce the debt pile we are carrying in real terms.

I think the MPC has to come in for criticism in this respect as they are charged with implementing fiscal policy to combat inflation. Their projections of deflation have been proved wrong yet the measures they took at that time have been carried forward, can we ask why? It would seem the obvious case that either the MPC have been wrong and in which case incompetent or there is a hidden policy towards our inflation targets! Their faith in output gap theory is still holding even though a blind man on a 3 legged white horse could drive though it!

Considering the possible mechanism to get rid of miscreant politicians being talked about maybe that should be extended towards all public bodies as well!

According to the Office for National Statistics Consumer Price Inflation is now 3.7% and has risen 0.6% on a month on month basis. Ordinary RPI has risen by 1% on a month on month basis and is now 5.3%. RPI-X (our old targeted measure) has also risen by 1% on a month on month basis and is now 5.4%. Things are going from bad to worse. If we take the old RPI-X figure we see a real figure of 5.4% with a target of 2.5% so we are 2.9% over target. After a clear relaxation of targeting inflation we seethe CPI figure now being used and even that brings up an overshoot of 1.7%. If we take a moment to consider that both figures are supposed to measure the same thing then on one hand we see different tallies and on the other both are way out of whack, not good either way! There would seem to be a build up of more pressure in the system not a release. Output prices rose 5.7% year on year but input prices rose 13.1%. Our exchange rate falls will contribute to higher prices and impact onto the inflation figures. These, and the possible VAT rise which now seems certain, are inescapable and will have persistent upward pressure on our inflation figures not at Merve says be a temporary blip!

GGG might yet be proved correct!

[Malcolm Robinson]

Well now we see Markel banning CDS's. I think serendipity has a part to play here as it would seem an overtly political move as the Germans have to ratify their part (maybe E140B) in the ECB Euro bailout. Course the markets have now been spooked and the Euro continues its downward spiral! Even the most fiscally responsible seem to act in a completely irresponsible way sometimes! The politicians want to portray hedge funds and currency speculators as bogymen whereas in reality they only operate taking positions with regard to the moves the politicians make. If this is a move to stabilise the Euro it would seem to be having the opposite effect for obvious reasons. Traders can now not insure their positions against a drop so they will get out forcing the Euro even lower. Course that would suit Germany as she is an exporter but it will make the PIGS positions even weaker. I thought the whole idea behind EMU was economic convergence, what we are seeing is divergence as the industrialised northern European members of EMU leave their fellow southern members for dead in the water.

It all boils down to the major flaw in EMU, political integration, as sovereign countries will now do what suits them not what suits the wider community the belong to.

[Malcolm Robinson]

Might be worth seeing why there is such a clamor to 'save' Greek and Portuguese banks........

[threegee]

I wonder how long Global Gordon's "not putting the recovery at risk" election stance would have lasted? Happily we'll never know, but it didn't take the LDs very long to be convinced that we had to do something right away about the Labour binge.

Course he'd have declared it another completely unforeseen global problem, that started somewhere else, and was all someone else's fault.

I think we can be fairly sure now that we've only done the bare minimum to prevent the markets rounding on the pound. We have to be seen to be more than fiscally prudent (something Gordon was in the first couple of years, but then he inherited a reasonably sound economy before he completely lost touch with reality).

I can remember Wim Duisenberg, chairman of the ECB, on the money program back in the late 90's confidently lecturing us on how we were doomed if we didn't join the Euro. Wonder what happened to him? Oops... probably bad taste to make a "floating exchange rate" joke out of that ...but so tempting.

Amusing to see Mrs Merkel writing bigger and bigger cheques by the day. Someone should have told her that banning short selling is ranked alongside ministerial pronouncements there will be NO devaluation. Now what's that German word? Ah, yes: schadenfreude.

Proposal for a future film: Dr. Strangelove 2, Or: How I Learned To Stop Worrying And Love Inflation. Going to be a hard sell in Germany! (except to wheelbarrow manufacturers)

[Malcolm Robinson]

It has just escalated some more.........

Just to further complicate this already heady mix of international poker bluff the Yanks (Congress) have now voted not to allow the IMF recue package for Greece! If we believe the published figures that takes out around $320B and leaves the ECB with an empty hat! I don't believe the ECB actually thought it would have to stump up their projected share of the Trillion dollar bailout, even if it did put a SPV in place! If anyone thought this was only about a little European country called Greece then I hope by now you are seeing something different! If the Congress vote goes through, and they have said they cannot constitutionally subscribe to the IMF bailout as there is no prospect of any repayments and they are bankrupt anyway, then the IMF is about washed up. That leave the world with no fall back position, no lender of last resort, if or when countries go belly up! It is a salutary thought!