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NEWS TICKER: FRIDAY, JULY 3rd: Euronext says trading volumes for June 2015 and enterprise-wide activity for the first half year. During the first six months of 2015, Euronext posted the strongest six-month performance since the end of 2011 supported by favourable economic conditions. June average daily transaction value on the Euronext cash order book stood at €9,202m (+54% compared with June 2014). Activity on ETFs remained particularly dynamic last month with an average daily transaction value at €587m, up 106% compared to June 2014. Cash markets saw a material increase in trading activity across the first half of 2015, with an average daily transaction value for the period up 35% vs 2014. During this period, Euronext experienced three of the ten highest volume traded days since January 2012, and on march 20th the strongest single day of trading cash products of €18bn since the same date. In the meantime, the continued focus on nurturing domestic market share meant it returned to 65% for the month of June in a highly competitive environment - Morningstar has placed the Morningstar Analyst Rating for the Mirabaud Equities Swiss Small and Mid-fund Under Review following the appointment of new portfolio manager, Paul Schibli. The fund previously held a Neutral rating. Morningstar manager research analysts will meet with the new manager soon to reassess Morningstar’s opinion on the fund - Moody’s has today changed the outlook on all ratings of Bridge Holdco 4 Ltd, the ultimate holding company for Bridon Group, to stable from positive. Concurrently, the group's B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR) as well as the B2 instrument rating on the USD286 million senior secured first lien term loan, $40m senior secured revolving credit facility and the Caa2 rating on the $111m senior secured second lien term loan borrowed by Bridge Finco LLC have been affirmed - Subsea 7 S.A. repurchase of convertible bonds has filed a notice with the Luxembourg stock exchange that it has repurchased convertible bonds worth $10m in nominal value at an average price of 91.5 of the $700m 1% Subsea 7 S.A. Convertible Bond Issue 2012/2017 (ISIN NO: 001066116.8). Following the purchase, the Company holds bonds with an aggregate nominal value of USD 91,800,000 representing approximately 13.1% of the 1.00% Subsea 7 S.A. Convertible Bond Issue 2012/2017 - Bellpenny says that its CEO, Kevin Ronaldson, will step down later this year to become ‘Founder Director’ of the business. Nigel Stockton, who has been a director of Bellpenny since inception, will, subject to FCA approval, become the new CEO. The changes are expected to take effect in September - The Straits Times Index (STI) ended 14.89 points or 0.45% higher to 3342.73, taking the year-to-date performance to -0.67%. The top active stocks today were DBS, which gained 2.00%, Singtel, which closed unchanged, Global Logistic, which declined 0.39%, Ascendas REIT, which gained 0.42% and UOB, with a 0.43% advance. The FTSE ST Mid Cap Index gained 0.16%, while the FTSE ST Small Cap Index declined 0.30%. Outperforming sectors today were represented by the FTSE ST Financials Index, which rose 0.69%. The two biggest stocks of the Index - DBS Group Holdings and OCBC- ended 2.00% higher and 0.79% higher respectively. The underperforming sector was the FTSE ST Basic Materials Index, which slipped 0.89%. Midas Holdings shares declined 1.56% and NSL increased 0.67%.

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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

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