In 2010-2012, we thought speculation of a Greek exit were over the top. Some bookmakers suggested the odds that Greece would leave were as high as 70%. As the crisis flared up again in late 2014, and here in 2015, we again argued that a Greek exit is not the most likely scenario. It was a ploy to add pressure on the Syriza government to capitulate to the demands of the official creditors.
It is easy to become quite cavalier when analyzing economic performance of various countries to think of them as existing in bubbles. However, as anyone with a moderate level of economic understanding and experience reading markets knows, trade is a major factor of almost every healthy economy in the world. That means that every nation’s fortunes are interconnected. When that nation happens to be one with an economy as large as China’s, it can have ripple effects around the world.
The Greek drama is approaching the long awaited climax. An emergency heads of state summit will be held on Monday, followed by the regularly scheduled summit later in the week. At the same time, the banking crisis threatens to eclipse the sovereign crisis in terms of urgency.
The accelerated flight of deposits from Greek banks, and the two extensions of ELA lending last week warn of the untenable status quo. Without that extension of ELA lending before the weekend, an ECB official expressed concern that Greek banks might not be able to open on Monday
The US dollar has continued to sell-off post-FOMC meeting against most of the major currencies. The euro traded above $1.14 for the first time in a month. Sterling moved above $1.59 to new highs for the year. The dollar has moved back toward the lows spurred by BOJ Kuroda’s recent comments about the yen’s effective exchange rate.
The recent general election offered the electorate a big fiscal choice over the speed and extent to which the deficit, and public spending, should be cut. The electorate plumped for the bigger, swifter cuts on offer. However, we were not offered much choice on the shape of the cuts. There was, for example, complete unanimity on the need to protect spending on health and pensions at the expense of most other spending. In addition, we certainly were not faced with the big, longer term, choices that we will have to make in response to growing pressures created by an ageing population.
It was supposed to be all about the Federal Reserve today, but the strong UK’s weekly earnings data has sent sterling to four-week highs and brought forward market-based measures of the BOE’s first rate hike. Previously, the SONIA forwards had implied that the UK’s lift-off would take place in July-August 2016. With today’s news, it comes forward to near June.
The historical production-reproduction divide held that mothers are the chief caregivers of children and men are providers. However, this division has fallen rapidly and rightfully by the wayside in much of the world and in most households. Women now make up more than 40% of the paid workforce globally, though women’s pay is still stubbornly lower than men’s by an average of 24%.
Any attempt to bridge the divide between scholars and policy-makers in international affairs is so welcome that I could not help but applaud this book, “Scholars, Policymakers, and International Affairs: Finding Common Cause”. The sad truth, however, is that after reading it I am even more convinced that the divide is a chasm.
The FOMC meeting is the most important economic event next week. The implications are much broader than the impact on the US dollar, which has surprisingly not reacted to the recent string of strong economic data.
This month’s FOMC meeting had previously been widely seen as a likely timeframe for the first rate hike. The unexpected weakness in GDP and the well-below trend job growth in March help shift sentiment to September. This month’s Wall Street Journal survey showed 72% of economists expect that.
A sluggish economic recovery in Europe is adding pressure to talks between Greek and German policymakers, while to the west and east of the continent signs of economic recovery are mounting.
