Tuesday 23rd December 2014
NEWS TICKER: MONDAY, DECEMBER 22ND 2014: NASDAQ welcomed 313* new listings this year, including 189 initial public offerings (IPOs), worth a combined $22bn -- more IPOs than any other US exchange, representing a 50% increase from the 126 IPOs in 2013. The exchange says that 62% of the top 100 best performing IPOs overall this year, including eight of the top ten, listed on its main board – Meanwhile, TMX Group today announced that Toronto Stock Exchange (TSX) set a new daily volume record on December 19th with 1,535,887,985 shares traded, which surpassed the previous record of 895,769,152, $20,213,746,759. The previous record of $19,278,924,809 was set on September 18th 2008.which was set on December 19th 2008 - Fitch Ratings has revised the Outlook for both Bahrain's Long-term foreign and local currency Issuer Default Ratings (IDR) to Negative from Stable and affirmed the IDRs at 'BBB' and 'BBB+', respectively. The issue ratings on Bahrain's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB' and 'BBB+', respectively. The agency has simultaneously affirmed Bahrain's Country Ceiling at 'BBB+' and Short-term foreign currency IDR at 'F3' - Finnish IT company Neonella Oy (Ltd) is launching a service platform that enables the use of bitcoins, as part of interactive advertising, for example in TV-programs. The service also makes bitcoin transactions possible from media companies or advertisers to consumers. Neonella is currently seeking funding for the platform through a crowdfunding campaign. The payment interface developed enables ordering of goods or services within video or TV programs. It is also possible to vote, donate and encourage the viewers to tell about their opinions as part of the content. The same technology works in internet marketing and banners as well as in TV- and video content. - Citi is reportedly stepping in to absorb the energy and metals commodity-trading books of Credit Suisse. Citi's acquisitions will be added to the trading books it took on from Deutsche Bank this year - Credit Suisse Group meanwhile is focusing on equity trading. The banking group is said to be working with Intercontinental Exchange to restore more trading on the exchange. ICE is proposing a compromise in which exchanges agree to reduce stock-trading prices and banks agree to a rule requiring more trading on exchanges, reports the Wall Street Journal - Looking beyond post FED rate hike actions should be the key for investors to explore deep values at reasonable earnings momentum thinks Is Yatirim in Istanbul. The firm’s analysis think that the world will have to endure “a long period of low-growth, low-environment double whammy, which may not necessarily bad for Turkey [which] has hunger for foreign savings at least for another five years – Private equity firms Lombard Investments and LeapFrog Investments have bought just under 11% of the shares of Thai insurer Syn Mun Kong (SMK) for $57.5m from the Royal & Sun Alliance Group (4.35m shares at around $13.20 each), according to a regulatory filing - VTB Capital has successfully completed the RUB 2.5 billion securitisation deal for AK BARS BANK mortgage portfolio​ as part of the Vnesheconombank's programme for investing in affordable housing and mortgages in 2010-2013 - According to the US government technology news agency, North Korea has denied the Obama administration's allegations that it launched the hack attack against Sony Pictures Entertainment and has demanded that a joint investigation with the US into the incident be launched. The secretive communist regime, based in Pyongyang, also promised there would be "grave consequences" if the United States failed to agree to the joint probe. - Fitch Ratings has revised the Outlooks on Bahrain's Long-term foreign and local currency Issuer Default Ratings (IDR) to Negative from Stable and affirmed the IDRs at 'BBB' and 'BBB+', respectively. The issue ratings on Bahrain's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB' and 'BBB+', respectively. The agency has simultaneously affirmed Bahrain's Country Ceiling at 'BBB+' and Short-term foreign currency IDR at 'F3' - Finnish IT company Neonella Oy (Ltd) is launching a service platform that enables the use of bitcoins, as part of interactive advertising, for example in TV-programs. The service also makes bitcoin transactions possible from media companies or advertisers to consumers. Neonella is currently seeking funding for the platform through a crowdfunding campaign. The payment interface developed enables ordering of goods or services within video or TV programs. It is also possible to vote, donate and encourage the viewers to tell about their opinions as part of the content. The same technology works in internet marketing and banners as well as in TV- and video content. - Citi is reportedly stepping in to absorb the energy and metals commodity-trading books of Credit Suisse. Citi's acquisitions will be added to the trading books it took on from Deutsche Bank this year - Credit Suisse Group meanwhile is focusing on equity trading. The banking group is said to be working with Intercontinental Exchange to restore more trading on the exchange. ICE is proposing a compromise in which exchanges agree to reduce stock-trading prices and banks agree to a rule requiring more trading on exchanges, reports the Wall Street Journal - Looking beyond post FED rate hike actions should be the key for investors to explore deep values at reasonable earnings momentum thinks Is Yatirim in Istanbul. The firm’s analysis think that the world will have to endure “a long period of low-growth, low-environment double whammy, which may not necessarily bad for Turkey [which] has hunger for foreign savings at least for another five years – Private equity firms Lombard Investments and LeapFrog Investments have bought just under 11% of the shares of Thai insurer Syn Mun Kong (SMK) for $57.5m from the Royal & Sun Alliance Group (4.35m shares at around $13.20 each), according to a regulatory filing - VTB Capital has successfully completed the RUB 2.5 billion securitisation deal for AK BARS BANK mortgage portfolio​ as part of the Vnesheconombank's programme for investing in affordable housing and mortgages in 2010-2013.

Blog

The European Review

By Patrick Artus, chief economist at Natixis

Is Greece offered any other choice to a slow death and a sudden death?

Friday, 06 July 2012 Written by 
Is Greece offered any other choice to a slow death and a sudden death? The adjustment programme that Greece is putting in place with the Troika, even if it is toned down and spread out over time, will eventually lead to a fall in Greeks' purchasing power until Greece's external deficit disappears. And in light of Greece's economic structure and the disproportion between its imports and exports, this will imply a collapse in living standards in Greece. The other possibility for Greece is to leave the euro and massively devalue its currency, but this would instantly mean a loss of purchasing power due to the deterioration of the terms of trade, and a massive decline in domestic demand, which would in any case be inevitable because there would then be no more lenders to finance Greece's external deficit. http://www.ftseglobalmarkets.com/

The adjustment programme that Greece is putting in place with the "Troika", even if it is toned down and spread out over time, will eventually lead to a fall in Greeks' purchasing power until Greece's external deficit disappears. And in light of Greece's economic structure and the disproportion between its imports and exports, this will imply a collapse in living standards in Greece. The other possibility for Greece is to leave the euro and massively devalue its currency, but this would instantly mean a loss of purchasing power due to the deterioration of the terms of trade, and a massive decline in domestic demand, which would in any case be inevitable because there would then be no more lenders to finance Greece's external deficit.

For Greece to escape a slow death (austerity programme) or a sudden death (exit from the euro), a massive European aid plan would be needed to rebuild the Greek economy and create jobs, a plan that is unlikely at present, and very different from the present bailout which merely finances debt servicing on Greek government bonds held by public investors.

The logic of the adjustment programme for Greece: Slow death



Even if Greece and the Troika renegotiate the adjustment programme, its fundamental characteristics will remain the same:

·                                  a restrictive fiscal policy to eliminate the fiscal deficit;

·                                  a fall in wages to improve competitiveness and reduce domestic demand, until Greece's external deficit disappears.

The main idea of the adjustment programme is that Greece's domestic demand exceeds its production capacity, thereby generating a structural external deficit. So Greeks "are living beyond their means", with a rise in living standards far exceeding growth in production capacity, and it is therefore legitimate to reduce domestic demand both through a restrictive fiscal policy and wage cuts.

The fall in wages could also bring about an improvement in competitiveness, hence an improvement in foreign trade, but its main objective is to reduce domestic demand and imports.

The problem with this approach is that:

·                                  it is showing its ineffectiveness: despite the decline in domestic demand, the current-account deficit has declined little; due to the shortfall in activity, public finances are no longer improving;

·                                  its cost in terms of jobs and purchasing power is gigantic. Greece is a country in which the weight of industry is very small and where, as a consequence, the disproportion between imports and exports is very great.

A substantial decline in purchasing power in Greece is therefore needed to eliminate the external deficit, with a further fall of about 30% in real wages. Purchasing power would have to be brought back to the level of the early 1990s to balance the current account, and this is of course rejected by the population. The fundamental problem is twofold:

·                                  even if there is a fall in wages, the improvement in price-competitiveness is limited by price stickiness;

·                                  since the size of industry is small, the adjustment must be achieved mainly through a fall in imports, hence a decline in income.

Exit from the euro and devaluation: Sudden death

Faced with this prospect of a "slow death" due to the austerity programme, Greeks could decide to leave the euro and devalue. But in that case the shock would be sudden and terrible, because there would be both:

·                                  a rise in import prices;

·                                  an obligation to eliminate the external deficit, because no one (neither the private sector nor the public sector) would any longer lend to Greece;

·                                  a weak positive impact of the gain in competitiveness, due to the small size of industry.

Greece would default on its gross external debt, and would therefore no longer have to service that debt, which is positive (it would gain six percentage points of GDP in interest payments on external debt). But the rise in import prices would even further exacerbate the foreign trade imbalance, while the potential for external borrowing would disappear. There would inevitably have to be a reduction in domestic demand to restore the foreign trade balance despite the rise in import prices, hence inevitably a collapse in imports in volume terms.

This is reminiscent of the process in Argentina, in similar circumstances, in the early 2000s: a collapse of activity following the huge devaluation, the need to switch to a current-account surplus which required dividing imports by three - hence a collapse in the real wage due to imported inflation, and in domestic demand and employment.

From 2003 onwards, there was  a sharp improvement in Argentina's situation, but it is important to remember that it had considerable structural advantages by comparison with Greece at present:

·                                  substantial weight of industry (22% of jobs);

·                                  before the crisis, exports and imports of the same size;

·                                  a smaller current-account deficit to reduce (five percentage points of GDP).

The shock would be far more violent and prolonged for Greece.

So what would be the solution for Greece?

We have seen that Greece is at present offered two solutions:

·                                  a "slow death", through a stifling of the economy via the austerity plan, even if it is softened down;

·                                  a "sudden death", if there is an exit from the euro and devaluation.

In either case, gradually or suddenly, there must be a substantial decline in purchasing power to eliminate the external deficit which is no longer financeable. For Greece to escape this dreadful choice, Europe's aid would have to be allocated not to debt servicing on Greece's government bonds held by public investors (EFSF, ECB) - which in and of itself is an incredible situation where Europe is borrowing in order to pay to itself the servicing of the Greek debt it holds - but to help rebuild the Greek economy and create jobs, which is definitely not being done at present.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

Related News

Related Articles

Related Blogs

Related Videos

Current IssueSpecial Report

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP