What an interesting set of semi-finalists the European football championship has thrown up. Germany, Portugal, Spain and Italy: the have and the have-nots; the good, the bad and the ugly; Goldilocks and the three mares. Three of their elected representatives met on Friday, together with the president of France, to hammer out a deal to save the euro. According to Mario Monti’s comment last week, there are now only four days left in which to do so.
If Sig. Monti’s assessment of the situation was accurate, things are not looking good. The aim of France, Spain and Italy at last week’s meeting was to prevail upon Chancellor Merkel to yield to their demand for a bigger slice of Germany’s tax revenues. Instead, she agreed to a €130bn investment-for-growth programme that would take considerably longer than a week to initiate.
Subsequently, German finance minister Wolfgang Schäuble took an even more dismissive stance than his boss, saying: “The most important task facing new prime minister Samaras is to enact the programme agreed upon quickly and without further delay, instead of asking how much more others can do for Greece.” Germany’s response is not the best possible omen for this week’s EU summit meeting, nor is the expected absence of the Greek prime minister and finance minister, both of whom are conveniently off sick.
Ahead of last Friday’s meeting, investors were guardedly optimistic that the four leaders would come up with something more immediate than an airy-fairy long-term investment scheme. There was evident disappointment in the Far East this morning that they had not. Any gains made by the euro had been wiped out by the time London got going.
The net result has been minimal net exchange rate movement. Sterling, the US dollar, the pound, the yen, the euro, the franc and the commodity dollars are all within half a cent of Friday’s opening levels. The only statistics of note released since then are IFO’s assessment of German business expectations (down from 100.8 to 97.3 and close to its lowest in three years) and Canadian inflation (even lower than expected at 1.2%).
Today’s ecostats will be no more illuminative. There are just three of them: US new home sales, the Chicago Federal Reserve’s national activity index, and the Dallas Fed’s manufacturing index.
An event that has gone mostly unremarked this morning is the continued decline of the Indian rupee to a record low against the US dollar. A year ago one dollar would have bought 45 rupees; today it will buy 56.5. The rupee’s 20% fall against the dollar is similar to its 18% decline against the pound over the same 12 months. Today the Indian government is expected to announce plans to support its currency. Central bank intervention is seen as likely.
But there is precious little chance of intervention to support the euro. The words of Finance Minister Schäuble suggested he would have no trouble hanging out Spain and Italy to dry on the same line as Greece, Portugal and Ireland if necessary. That’ll be four days left to save the euro then.