Eurozone is still not free of Greek drama
GREECE’S return to the capital markets for the first time since its bailout four years ago with a £2.4bn bond sale is a remarkable turnaround for a country that was so recently seen as a financial pariah.
Even the boldest europhile would have baulked at predicting such a seemingly rosy outcome in the dark days of 2012, when all the talk was of a ‘Grexit’ or Greek departure from the single currency, possibly followed by the disintegration of the entire euro project.
The turning point came in the summer of 2012 when European Central Bank chief Mario Draghi declared himself willing to do ‘whatever it takes to preserve the euro,’ which must rank among the most momentous words ever uttered by a central banker.
From a UK perspective, we have to hope that the optimism for the eurozone continues, for the sake of our exporters and our banking system. The easing of fears over the single currency zone has been one factor – along with schemes such as Funding for Lending – that has helped bring about a big reduction in the British banks’ funding costs. Lower bank funding costs have led to greater availability of credit, which, in turn, has driven the economic recovery.
But it is far too soon to hail the successful bond issue as a ‘triumph’ as the Greek government has suggested.
The bond auction took place against a background of anti-austerity protests and a car bomb in the financial district of Athens, and the coalition government has a shaky hold on power.
The country is still heavily indebted and remains reliant on gargantuan levels of support from its eurozone partners. It is quite simply nonsense to say, as deputy prime minister Evangelos Venizelos did, that the bond issue proves Greece’s debt is sustainable, ‘oth- erwise the markets wouldn’t have bought it’. Investors have short memories and are perfectly capable of making the same mistake twice, or more times. Faced with rock-bottom interest rates, they are on a desperate hunt for yield, and the Greek bonds offered a relatively high return.
As for risk, the bond buyers are not really betting on the Greek economy, but on the strength of the political will behind the eurozone project. The structural flaws in the single currency are, however, still there.
Moreover, much of the eurozone is politically volatile, notably France under the discredited socialist administration of President Hollande.
And the IMF warned this week that the eurozone banking system is still in a state of dire disrepair and poses a serious threat to global financial stability.
The eurozone’s problems are a long way from being fixed.
Pot and kettle
TIDJANE Thiam, chairman of the Association of British Insurers and chief executive of the Prudential, has turned the tables on the City regulators.
He denounced the Financial Conduct Authority in a letter to George Osborne this week, expressing concerns over the way that insurance shares were sent into freefall following loose words from the regulator over a planned investigation into pensions and savings policies.
Thiam may have felt a sweet tang of revenge. The regulator last year slapped him with a personal censure – a rare brand of disapproval for someone of his standing – for failing to be ‘open’ and ‘co-operative’ about the Pru’s abortive £21bn takeover of AIA.
It is true that the FCA has been spectacularly incompetent, and not for the first time.
But it is also true that the industry is in no position to try to hog the moral high ground.
Even some leading insurers are frustrated with the ABI over this affair and other issues, feeling it should be coming down far more on the side of the consumer. Their view is that the industry needs strong regulation.
Undermining the credibility of the watchdogs is a standard technique used by firms and individuals who would prefer to deflect scrutiny away from their own shortcomings – in this case their shoddy treatment of millions of savers in ‘zombie’ pension funds.
What a shame the regulators make it so easy.
Baby steps
THE mania over Prince George should be gold dust to babywear retailers. Fashion firms such as Reiss capitalised on women wanting to steal the Duchess of Cambridge’s style, and you would expect operators such as Mothercare to be doing the same for regally-inspired infant fashions as seen on her son.
Yet inquiries to Mothercare as to whether it had seen any Royal baby uplift drew a blank.
Shareholders in the mother and baby company this week enjoyed a rare bounce thanks to a trading statement that was less awful than usual, but there could well be more tears before bedtime.