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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Downward Spiral in Greece Accelerates

On April 21, 2010, in Europe, by Tim

Today’s news from two of the PIGS (i.e., Portugal, Ireland, Greece, Spain) is not good as credit spreads are widening rapidly in Portugal (with downgrades likely to follow) and the odds of Greece making it through to the conclusion of the joint EU/IMF talks in two weeks without a bailout grow slimmer by the hour, at least according to this report at Bloomberg.

Greece could activate a 45 billion- euro ($60 billion) emergency aid package led by the European Union before talks on the conditions for the loans conclude in two weeks time, Finance Minister George Papaconstantinou said.

Greek bonds slumped today as the talks began in Athens. The risk premium investors demand to hold Greek bonds over comparable German debt soared to 516 basis points, the highest in at least 12 years, on concern the cash-strapped nation may struggle to repay 8.5 billion-euros of bonds maturing May 19.

“I’m not saying that the government will ask for it,” Papaconstantinou told reporters after the first session of talks with officials from the euro region, the International Monetary Fund and the European Central Bank.

The negotiations will probably last two weeks and a final text on the outcome would be presented by May 15, he said. The talks are focusing on additional deficit-cutting measures Greece would have to accept as a condition for the funds, particularly after the first year payout of as much as 45 billion euros.

Clearly, at this point, the bond market wants fewer words and  more action, it no longer being a matter of if, but when, the bailout will be needed. Meanwhile, protests continue in Athens as some of the population still doesn’t seem to grasp the concept of not spending money you don’t have. Government workers are gearing up for another 24-hour strike to protest budget cuts required for the bailout, what has become a regular, monthly event.

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Prices are Rising in the U.K.

On April 20, 2010, in Europe, by Tim

Let’s see, China’s got a small inflation problem and India’s got a huge one with prices now rising at an annual rate of 10 percent per this report at the BBC. This story in the Telegraph details the latest inflation data from the British Isles where the trend is definitely up.

The Consumer Price Index climbed 0.6pc in the month compared with February and is now 3.4pc higher than a year ago, figures from the Office for National Statistics showed today. City economists had expected inflation to come in at 3.1pc.

Other measures of inflation also accelerated last month. The Retail Price Index, which is the measure widely used to calculate pay settlements – climbed 0.7pc on the month and is now up 4.4pc on the year.

As is the case for inflation in the U.S., there are still a few months to go before the worst of the annual energy price increases are behind us, though, the way it looks now, we won’t see inflation rates anywhere near four percent stateside.

Of course, across the pond, BOE Governor Mervyn King must now write a letter to Chancellor Alistair Darling explaining why inflation has been allowed to exceed the three percent mark.

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Eyjafjallajökull

On April 20, 2010, in Europe, by Tim

This photo seems to be popping up all over the place. It was last spotted as part of this photo series at Spiegel Online and reminds me of our visits to Scotland a few years back – not the ash cloud, but the structures that are similar to what you seen in the U.S. but just different enough to make you do a double-take.

It looks as though, just when flights were about to resume throughout Europe, Eyjafjallajökull began erupting again, bringing into doubt the travel plans of those who have been stranded for days – the longest closure of airspace over Europe since World War II.

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Filling the Irish Bank Black Hole

On April 1, 2010, in Europe, by Tim

They are in the process of nationalizing a large swath of the banking system in Ireland, a “bad bank” plan that has been praised by the IMF, and ECU chief economist Kit Juckes talks with Bloomberg’s Linzie Janis about what’s next.

Juckes notes: “Because the economy’s got worse on the back of their austerity package, the bad loan problem is getting worse and the black hole is getting bigger … If you can’t inflate your way out of a debt problem and you can’t default your way out of a debt problem, wow, how miserably unpleasant this is.”

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Belief in God in Europe

On March 29, 2010, in Europe, Our Culture, Uncategorized, by Tim

In writing about the troubles in Europe for  the previous item, this intriguing graphic was stumbled upon over at Wikipedia, information that goes a long way in explaining why the Western world is the way it is.

The question asked in this opinion poll was whether respondents “believe in a God”. While the average across all of Europe was about 50 percent, there was quite a variation. If memory serves, similar surveys across the entire U.S. produced numbers in the 80 to 90 percent range with a near-unanimous result in some parts of the country.

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The Ongoing Trouble in Europe

On March 29, 2010, in Europe, by Tim

[The following commentary is from the companion investment website Iacono Research. Apparently, I'm a little more sanguine than many others about the prospects for Europe.]

It was another tumultuous week in Europe but one that, in my view, increased the odds of the common currency surviving over the long-term and carried valuable lessons about what can and should be done in other Western nations such as the U.S. and the U.K. where similar structural budget problems continue to fester.

Early in the week, Fitch Ratings downgraded Portugal sovereign debt and, in the absence of any news flow in the run-up to a meeting of the EU (European Union) on Thursday, the euro tumbled to an 11-month low. The ratings agency warned that another downgrade for Portugal could follow and it looked rather bleak for the “single unit” until an agreement was struck between German Chancellor Angela Merkel and French President Nicolas Sarkozy on terms of a bailout for Greece, should one be required, that included support from the IMF (International Monetary Fund).

Like Greece, Portugal is struggling with large budget deficits, large trade deficits, and continuing economic contraction that has led to high unemployment, though none of these conditions are as bad as their Aegean neighbor to the East is now seeing. With budget fixes not coming fast enough to bring their deficit below the euro zone limit of 3 percent by 2013, Fitch lowered their sovereign debt rating to AA-minus, just above the BBB-plus for Greece, the lowest in the euro zone. In a statement, Fitch noted, “The planned deficit adjustment is back-loaded and the risk of macroeconomic disappointment … is significant”.

While this came at an unfortunate time, just as EU leaders were dealing with new concerns about Greek debt, it was not a surprise as the Portuguese government has struggled in making necessary spending cuts and, importantly, this will not be the last of the debt downgrades in the region.

(more…)

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