Greek eurozone exit still possible, says Evercore Pan-Asset’s John Redwood
John Redwood, chairman of Evercore Pan-Asset, still believes that a Greek eurozone exit is likely.
Half a trillion Euros has had a very soothing effect. Ever since the European Central Bank lent all that money to the banks of Euroland, Spain, Italy and France have found it easier to raise money to pay for their excess state spending. Fears about bank solvency have eased. World markets have been enjoying a great rally, partly on the back of the relief that there is no immediate move to EU bank bankruptcy, sovereign default or Italy running out of money.
It’s true that good news from the US on the state of the economy has helped. It is undeniable that the switch to easier credit and lower interest rates in leading emerging market economies is a boost. Yet experience from 2011 teaches us that the Euro crisis is an important influence on how world markets operate. They could not do this if enough investors thought we were staring major bank and sovereign bankruptcy in the face in the EU.
So how well based is the new optimism? It is true it is a big change to see the ECB helping out, with large sums of money. They are likely to do some more, so that can buy some more time and prolong the rally further. However, we must remind ourselves that so far their actions stave off disaster, but do not transform the situation. Greece remains on the edge of formal bankruptcy. The country has already announced it cannot repay all its debts, and is in prolonged discussion with creditors over how much they might get back. It is uncompetitive, finds it difficult to raise enough money in taxes, and watches helplessly as rich people leave the country with their money.