Category: Europe/Middle East

The Impact of the ECB’s Decisions Regarding Greek Debt Largely Confined to Greece

The main story today is not that the ECB will no longer (as of February 11) accept Greek government bonds as collateral and that Greek banks can have access to the national central bank via the Emergency Lending Assistance.  That news broke late in North America yesterday.  The euro fell around a cent on the news.  The real development today is that the impact remains largely confined to Greece.  As this became clear, and that the ECB would lift the ELA borrowing cap by 10 bln euros, the single currency recovered in the European morning.

Is Europe Stuck with the EMU?

A jacket or shirt may be reversible.  Time is unidirectional, we are taught and some things simply cannot be reversed, like a hard-boiled egg.

However, science has once again pulled the rug out beneath our feet.  Earlier this week, ABC reported that scientists have discovered a way to un-boil an egg white.  Apparently boiling an egg folds the proteins, and scientists have learned to unfold them.  They can reverse the boiling process within a few minutes. 

Implications of the the ECJ Decision for the ECB

The most important development today was the preliminary indications by the European Court of Justice that the ECB’s Outright Monetary Transaction initiative was “in principle” consistent with the ECB mandate.  Even though the opinion by the Advocate General Villalon is non-binding, the signal is important.  

Are Euro Area Deflation Fears Well-Founded?

Oil prices have continued to slide.  Brent briefly traded below $50.  WTI is below $48.  Both have fallen about 10% this week.  Prices are stabilizing in late morning in Europe.  However, unlike yesterday, the fall in oil prices is not sending stocks or core bond yields lower.  The MSCI Asia Pacific Index was flat, while the Dow Jones Stoxx 600 in Europe is up 0.5%, near midday in London.  All of the main industry sectors are higher in Europe, even energy.   

The Potential for a ‘Grexit’ – or Not?

After Greek elections, Brussels and Berlin can no longer shun the issue of debt relief. 

Before the New Year, the Hellenic parliament rejected the nominee of Prime Minister Antonis Samaras for president. In accordance with the Greek constitution, a general election will follow on January 25. 

Is the Falling Euro Merkel and Draghi’s Fault?

In very early Asian markets, participants responded to Draghi’s sovereign bond buying hints, and Merkel’s seeming willingness to let Greece leave EMU by sending the euro to a low of $1.1865, according to Bloomberg.  The thin conditions exacerbated the move, but the single currency has not been able to resurface above the $1.1980 area since.  

Greek Election Fallout and European Asset Values

The failure of Greek Prime Minister Samaras to secure sufficient votes in the third and final parliamentary attempt to select a new president has sparked a sell-off in European stocks and peripheral bonds.  Up until now, the contagion from Greece has been remarkably limited.  Perhaps the thin holiday markets have exaggerated the knock-on effects.  At the same time, the fear that the Greek election will morph a Greek exit from monetary union is palpable.

Expectations Met by ECB Inaction

The ECB has not announced any new initiative.  It stands ready to do more next year, but there was no specific mention of sovereign bond purchases.  There was no tweaking of the second TLTRO which will launched next week.   The staff did cut the forecasts for growth and inflation, but Draghi acknowledged that the forecasts do not incorporate recent drop in energy prices.