Saving The Euro - Part 8

Rob's 8th guest post on 'Saving The Euro'

Back to life, back to reality

A classic line from Jazzy B and Soul II Soul.

As they say, the devil is in the detail and a bit of reality has descended upon the markets as they have just had a week-end to digest and further analyse the reaction to the package announced by the Euro zone group.

Results:

Euro/$ back down to 1.3700.

Stock markets down about 2.5% across the board.

To rub salt in to the wound, the Greek government has decided to hold a referendum to ask the people if they are willing to endorse the austerity and loan agreements before finally accepting the conditions of the deal, and the earliest this is likely to take place is mid-January 2012, and there is a massive groundswell of opinion in Greece to reject the terms, leave the Euro, default and devalue the new currency to create a competitive edge.

I don't think they care what happens to the rest of Europe – Greece entered the Euro on questionable financial terms at best, some might even say the numbers were rigged, and were welcomed with open arms by Germany and France as they sought to incorporate every European country in to the Federal States of Europe. The conditions were totally wrong then and the guy in the street feels exceedingly hard done by today having been forced to accept a massive cut back in their standard of living – admittedly totally inflated in recent years by the Greek government's overly generous welfare reforms which have proven to be unsustainable.

However, when you are stuck at the bottom of a deep hole, for heaven's sake stop digging.

Europe has gone out on a massive limb to try and rescue Greece from years of financial mismanagement, and when they have finally come up with a package that might actually do the job the Greek government comes up with this completely bonkers idea.

The market is full of conspiracy theorists, and the latest one doing the rounds is that this is a carefully orchestrated move by the leaders of the Euro zone – Germany and France – to shunt Greece out of the Euro, but saving their face and reputations by enabling them to say "we tried our best, not our fault" that it all went horribly wrong.

European banks, especially French banks, are taking the brunt of the fall out from the Greek referendum announcement and their shares are down around 10-15%, having seen their prices jump up around 35% last week on the announcement of an agreement on the bail out package.

Things are still not looking too good over the pond in the USA – MF Global, possibly one of the world's largest commodity brokers, filed for bankruptcy and the knock-on effect was immediately felt. They were the largest brokers by volume on NYMEX and COMEX, second on CME and third on CBOT. In Australia the wool markets had to close as MF Global accounted for around 80% of all trading.

I have in the past, rather tongue in cheek, suggested that if a solution could not be reached on the Greek/Euro zone problem, a good investment would be to buy bottled water and dried food. 
Scarily the ILO (International Labour Organisation) has researched 118 countries, and identified 45 where there is a significant risk of severe social unrest if there is a global double-dip recession, so perhaps that wasn't such a bad suggestion……

This is going to get very messy before we see a real improvement.

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The author, Rob (not his real name), is a treasury manager at one of UK's largest charities