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What a surprise!

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by Peter Switzer

What a surprise! The Greek tragedy of yesterday has not turned into contagion and another stock market collapse and that’s why I used the bullsh–t word yesterday.

Don’t get me wrong, the European debt issue is a concern but it has been exaggerated.

Greece was always the most vulnerable economy to an event like this because they are not resource rich, the governments have always been excessive borrowers and the Greek’s productivity is nothing to write home about.

Greece has been caught out fudging budget figures and has seldom passed the fiscal discipline tests that go with being in the European Union. In fact, one time when they did meet EU budget expectations it was when they added in the money in the black economy and the proceeds from prostitution to get over the benchmark!

Bailout delay

I do believe the EU will come up with a bailout package but there’s a short-term political problem causing a delay.

You see the Germans go to a regional election in a couple of weeks and German sentiment isn’t tolerant of the Greek predicament, which they think is a product of their socialist slash Club Med lifestyle.

The government of Angela Merkel could lose this election in a key area if they seem too generous to the Greeks.

As David Hale, a prominent US economist, who is an international adviser, pointed out on the ABC Lateline program — this Greek bailout should have happened six weeks ago.

He also implied that Spain and Portugal have shown a lot more fiscal responsibility since the debt problems of the GFC emerged. Spain’s unemployment level is around 20 per cent.

In the news

The real test was overnight when the US central bank again told the market that interest rates were unchanged and would be kept low for an "extended period". The market went up on this news and that was the test of how serious Wall Street was about the importance of Greece and its debt disaster.

Before this rise stocks were down after S&P downgraded the debt rating on Spain. I’m more concerned about Spain being an economy which is five times bigger than Greece and this situation needs to be watched more closely.

On the economic front, the US saw the highest demand for home purchase loans in six months, which has to be a good sign for the housing sector.

In other good news Dow Chemical reported better-than-expected earnings and sales, which is another good US economic rebound sign.

Despite European debt concerns the US recovery and rally continues.

Ireland downgrade?

One final debt matter concerns Ireland and a possible S&P debt downgrade. The Irish have done the opposite of Greece with three budgets in 14 months, wage cuts, spending cuts and tax increases but they still could cop a downgrade, debt experts are speculating.

Eventually, this kind of stuff in places like the UK will have to eventuate and it will mean slower economies and higher interest rates in these countries. And this sort of thing will eventually slow down global economic growth and stock markets.

Thank God for China, India, the rest of Asia and the likes of Brazil. These developing countries will help global growth as the developed world reduces the debts that saved us from the Great Depression MkII!

For advice you can trust, contact Switzer Financial Services.

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Published on: Thursday, April 29, 2010