So a nuclear physicist, a lawyer and a history student walk into a meeting..if you were expecting a joke, or an ending with a punchline, then I’m sorry to disappoint. The nuclear physicist is Ms. Merkel, the lawyer is Ms. Lagarde and the history student is one George Osborne and this trinity of (supposed) brilliant minds have very different ideas and agendas as to how to heal both Europe’s and the global financial community’s debt crises. Everything is changing. People are taking their comedians seriously and the politicians as a joke, but the ultimate cost of the final European ‘stability fund’, at circa €3 trillion, is no joke.
If you had to objectively pin your hopes on one of their diverse rescue theories you may choose the non politician’s, however, you’d quickly recall the Ms Lagarde was a politician until two months back and still is. All politicians should have 3 hats – one to throw into the ring, one to talk through, and one to pull rabbits out of if elected and Ms Lagarde’s appointment, as the ‘elected’ head of the IMF, was undoubtedly a political appointment and she’s desperately searching for that one single rabbit to pull out the hat.
One improvement and development of the multitude of G20, IMF, ECB, FED meetings that have taken place on both sides of the Atlantic during the past two weeks, is that finally a unified policy appears to be taking place. An injection of funds into a number of continental banks is the cornerstone of the new and revised three-pronged plan being discussed to ‘save’ the single currency. Finally we get to learn the size of the potential cheque that’ll be stiffed onto the unsuspecting citizens of the seventeen members of the Eurozone, and a few others who’ll have to contribute in order to keep the shrapnel and collateral damage to a minimum. The combined cost could be a truly jaw dropping €3 trillion and it involves giving additional firepower for the European Financial Stability Facility (EFSF).
The shoring up of banks under a recapitalisation scheme would finally and mercifully allow Greece to default on its debt, something all leaders have been nervous of because of the potential damage to Europe’s banks. The plans, under discussion by G20 finance ministers and the IMF in Washington, may finally be unveiled this week. It comes amid warnings that the FTSE 100 Index could fall as low as 4000 without rapid intervention.
The plans would lead to an orderly default by Greece and allow the country to remain within the eurozone, private sector creditors would bear a loss as high as 50%. Once Greece is ‘stabilised’ focus then turns inevitably to Spain and Italy. It’s believed that the EFSF needs €2 trillion euros to meet the financing needs of these two countries singularly if they are shut out of the markets.
In Japanese the haiku is composed of 17 sound units divided into three parts – one with 5 units, one with 7 units and another with 5 units. Since sound units are much shorter than English syllables, it has been found that following the Japanese example results in a much longer poem often filled up to make the count with unnecessary words. It’s not a Haiku yet the current situation was summed up perfectly by Japanese Finance Minister Jun Azumi; “the Lehman crisis was about rescuing a company. Now it involves a country’s sovereign debt so in a sense, the situation is more severe.”
The markets’ response to the latest pronouncements from global finance leaders is muted, so far the SPX daily index future is currently up 0.91%, the FTSE future up 1.1% the euro is currently up versus the dollar and yen. Sterling has recovered versus CHF, USD and YEN from it’s new lows of mid last week.
The data releases today that could affect sentiment include;
US – New Home Sales Aug
UK – Nationwide House Prices Sept.