Has Greece come to the end of its Euro participation ?

 

Schwaben small S              Schwaben Blog

 

July 06, 2015

 

Weekly Statistics:

 

 

Today

Week Ago Year Ago
  06-July-15 26-June-15

06-July-14

       
S&P TSX

14,593

14,808

15,172

S&P 500

2,069

2,101

 1,977

DJIA

17,683

17,947

17,024

OIL

$52.78

$59.65

 $96.02

USD vs CAD

0.7905

0.8116

0.9370

Gold

$1,169

$1,174

 $1,320

 

In a historic outcome, the Greeks have overwhelmingly rejected the conditions of a rescue package from their creditors on Sunday. The Greeks were supposed to vote a ‘Yes’ or a ‘No’ on whether to accept their creditors’ conditions of pension cuts and tax increases, and continue being a part of Eurozone or reject their conditions and risk their country’s membership of Eurozone or even European Union.  61% of the Greek population voted ‘No’. Greece has now become the first developed economy to default on its international obligations and it is by far the largest default International Monetary Fund (IMF) has ever faced. The Greek economy is already facing acute crisis with national banks imposing a daily ATM withdrawal limit of 60 Euros and unemployment topping 20 percent.

This default does not necessarily mean that the Greece will be thrown out of the single currency Eurozone however will increase the risk that Greece will turn into a economic and financial tailspin that will force it to revert to a newly created Drachma. Tsipras came to power in January riding high on the promises of ending austerity measures and redefining the Greek economy. So far the economy has not shown any substantial progress and improvement. Although Greece does not play a major role in international trade, its debt default can lead to fear that the default may spread into the other troubled European countries (PIIGS) like Portugal, Italy, Ireland, Greece or Spain. and as a result could cause significantly raise their cost of borrowing. While this scenario is unlikely, in order to contain this contagion, German Chancellor, Angela Merkel, and French President, Francois Hollande met in Paris on Monday.  The image below compares the exposures of different countries to the Greek economy in 2010 to 2014 with Germany, Italy and Spain being the largest creditors to Greece. While Germany’s economy can withstand the default of the Greek economy, it will be the Italy and the Spain, which could face trouble as their economies are already under pressure.

Soverign and Bank lending

Grexit in Europe versus US growth in North America

 

Schwaben small S    Schwaben Blog

 

June 26, 2015

 

Weekly Statistics:

 

Today Week Ago Year Ago
  26-June-15 19-June-15

26-June-14

       
S&P TSX

14,808

14,653

15,146

S&P 500

2,101

2,110

 1,960

DJIA

17,947

18,014

16,851

OIL

$59.65

$59.51

 $96.43

USD vs CAD

0.8116

0.8140

0.9370

Gold

$1,174

$1,200

 $1,323

An upbeat New Homes sales report for the United States showed further strength of the US economy. Sales of newly built homes rose in May to 546,000 from 534,000 in April. It is the highest level since February 2008 and a solid indicator of a strengthening US housing market. Although this number is still far from the July 2005 peak of 1.4 million (annualized), but the increase in demand shows that builders will ramp up construction this year which would likely strengthen the broader economy.. Americans also boosted their consumer spending at the fastest rate in almost six years. This increase came amid lowest jobless claims in 15 years. All these indicators will help the Federal Reserve decide when to raise the interest rates. These indicators also clearly show that the US economy is set to grow at a decent pace after a dismal performance in the first quarter, which many analysts believe was due to the harsh winter and the strike at the western ports. Although the positive indicators were supposed to help equity markets, the uncertainty of a Greek debt default still kept the investors anxious. After the meeting of the Eurozone’s finance ministers on Saturday, the ministers rejected a Greek request for a one month extension to its bailout. Subsequent to receiving continuous bailouts for the last five years from the European Central Bank (ECB) and the International Monetary Fund (IMF), Greece is finally set to default on its payment of EUR 1.5 Billion to the IMF on Tuesday. The decision not to extend Greece’s bailout came after Athens rejected the policy overhauls and budget cuts demanded by its creditors. At this time, when the US is preparing for an interest rate increase after almost 9 years, the Greek debt default could severely impact the growth prospects of the Eurozone and also plunge other countries like Portugal, Cyprus and other fragile European countries into a recession. The default may also spread fear among North American investors, which could hurt North American equity markets.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics