30 May Greece Is The Word
Greece Is The Word (Source Wikipedia, Citigroup & MLC)
Greece’s relationship with Europe (or more particularly Germany) are reminiscent of Danny Zuko’s (John Travolta – Germany) relationship with Sandy Olsson (Olivia Newton-John – Greece) in the movie Grease.
Danny & Sandy had a Summer Romance (Greece entering the Euro), but at the end of Summer Sandy says she is leaving (Time to Pay the Bills & No $$$ – Greek Politicians threatening to leave the Euro). Upon learning Danny was Sandy’s summer romance, Rizzo (IMF/ECB) arranges for the two to reunite, but Danny (Germany) is forced to maintain his nonchalant badboy attitude in front of his friends (Austerity. Tough guy rhetoric), which upsets Sandy (Greece), who sees Danny (Germany) as pretentious.
Sound familiar……..
Germany is effectively the Banker & the funder of Western Europe. The Euro has benefitted Germany in many ways – a low Euro has helped Germany become the world’s leading exporter of manufactured goods, thus providing significant stimulus to their economy (which would not be the same if they still had the Deutschemark – their currency would have skyrocketed in value similar to the Australian Dollar).
No one person can say with 100% accuracy what might come out of Europe. Opinion polls in Greece presently show more support for the mainstream parties give some hope that a disruptive Greek exit from the Euro might not be as imminent, What we are seeing in recent times is the talk now of offering pro-growth economic measures (designed to increase GDP & hence jobs, etc.), rather than merely talking about austerity measures (cutting government spending). Expect to see more talk of this over coming weeks – people have to be offered some little ray of sunshine at the end of the day. It is in nobody’s interests in Europe for a disruptive exit of any country from the Euro
Nonetheless, looking back over the past nine months, since the sovereign debt and European crisis escalated last August, the developments to this point haven’t had the impact on world growth that was feared – world industrial growth is still growing at it’s long term trend rate – 4%. The US economy has carried on growing moderately with relatively little apparent impact. There are now reasons to believe that the US housing market is stabilizing, after five years of misery (the market actually started falling in 2007). This will remove a significant drag on US GDP, and a gradual recovery in the housing market could really benefit growth there
If in coming weeks a disruptive Greek exit is becoming less imminent, other developments in Europe, while still potentially a source of concern and volatility, could continue to have only the moderate impact on the rest of the world they’ve had so far. And with China now focused on maintaining growth (having just announced a $300 bn stimulus package), global industrial production could continue to grow at or even a little above trend.
In the finale of Grease both Danny & Sandy admit they love each other and reunite. The film ends with Danny and Sandy departing in Danny’s car which takes flight and they wave goodbye to friends as they leave. It took some “brinkmanship” for Danny & Sandy to reach this point – expect to see some more of this coming out of Europe in the next 3 – 4 weeks. hopefully with the same happy ending.