Monday, April 12, 2010

Grecian Gyrations

At last, a bailout (albeit one with a suspect emergency cord and a few holes in the lining):

Those wondering what the fuss is all about can take a look here:

The last part of this saga is that on Friday, Fitch downgraded Greece to a BBB- rating from a BBB+ (which is the last investment grade rating) with a negative outlook.

Its been an interesting experience for people like me, for whom "BB" till a few years back referred to an obscure soap brand whose ads were broadcast on All India Radio.

Within the daily ups and downs of the financial markets, the Euro Zone stands out as a very absorbing and challenging case study in itself. A union which would have seemed almost impossible at one point of time, hailed for giving the first real competitor to the US dollar, bringing prosperity to Europe and boosting European & World trade. Or did it really? Did it instead end up fuelling a vicious cycle of excessive leverage (debt) in the southern peripheral economies which lost no time in using the drastically reduced borrowing costs to their advantage in building an unsustainable growth cycle of consumption and housing booms?

Unfortunately, one thing I have learnt in this field is that skeletons may be shoved into cupboards, but they have an unfortunate propensity to smell and tumble out with alarming alacrity, sooner or later. Greece is no exception.

This tiny nation of a few million people has become the focal point and unwilling poster boy for the excesses of a system which was in all probability not the wisest of choices in the first place. Of course, its much easier to be wiser after the event has occurred.

A few weeks back, George Soros wrote an interesting article in the Financial Times:

As he wrote: "The euro was a unique and unusual construction whose viability is now being tested. The construction is patently flawed. A fully fledged currency requires both a central bank and a Treasury. The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency."

Or as Joaquim Voth of the Barcelona GSE has written on his blog: "If history teaches you something, it's that countries will stick to a silly monetary standard for way too long, especially if it's seen as the ultimately proof of adulthood in terms of currency."

An obvious thing, but as someone has mentioned earlier, the world is full of obvious things which no one by any chance observes. The discussion on this can go on and on.

So, quo vadis, Euro? Remains to be seen, though the answer seems to be down for the time being.

And as for Greece? Heck, whats a sovereign here or a sovereign there?

No comments:

Post a Comment