‘Greece has agreed to another round of tightening’, informs Economist Giada Giani, ‘to rein in the budget deficit and meet the target of 8.7% of GDP for ‘10… the extra package, worth €4.8bn or 2% of Greek GDP, stands at the upper end of the EU’s requested 1.5-2% of GDP… a hike in the VAT rate being the main measure revenue-wise, together with further increases in taxes on fuel, tobacco, alcohol and luxury goods (i.e. yachts, jewels and cars with a market value above €35k)… this is further evidence of the government’s commitment to do whatever is necessary to gain EU support and, most importantly, to win back market
confidence… it may also allow Greece to finally issue the much-awaited syndicated 10-year bond, possibly later this- or early next- week… but, major social unrest remains a risk to the successful implementation of Greece’s fiscal plans’.
Beware the false calm in Europe
‘Tensions in Europe look to be in full retreat’, adds CitiFX, ‘as reflected in Greece to Germany spreads… but since we remain skeptical that EU assistance for Greece will go far to address underlying structural challenges, we suspect this price action represents a false calm… and still see new lows close to 1.30 for EURUSD in the months ahead… that said, as tensions in Europe look less and less likely to upset broader risk appetite, this ‘decoupling’ should accelerate the shift towards greater differentiation among currencies on the basis of relative cyclical trajectories… with AUD and CAD standing to benefit from this trend’.
The Globaliser
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