- Will it lead to Greece leaving the euro?
- Or could Berlin soften its stance?
Good morning. There were some extraordinary victories at the weekend. Manchester City stole the premier league title with a last-second goal. German Chancellor Angela Merkel suffered a drubbing at regional elections in Nordrhein-Westfalen in what was seen as a protest against austerity. Chillingly, in the annual contest to find Britain’s most talented individual, the TV audience voted for a dog.
In Greece the Syriza party is hoping Greek voters can be persuaded to do the same if, as expected, there is a general election re-run on 17 June. Alexis Tsipras, Syriza’s leader, has rejected every effort to form a government of national unity. If he could emerge with the largest number of seats next time around he would have the mandate he wants to renegotiate the terms of Greece’s bailout.
In the last week, market sentiment has been squarely aligned with an assumption that an anti-austerity government in Greece would lead inevitably to the cessation of bailout payments, a consequent sovereign default and either secession or expulsion from the single currency. But could the game be changing?
Popular appetite for austerity has never been strong and that unpopularity is now turning to antipathy. Thus far, Chancellor Merkel was able to force through her Fiscal Compact and the austerity that went with it. The collaboration of President Sarkozy was an important plank of her support. Now however, with François Hollande in the French driving seat and voters turning against her at home, the chancellor might perhaps soften her uncompromising insistence on balanced budgets.
Were she to do so, it would not be impossible to imagine a Syriza-led government in Greece doing the impossible; renegotiating the terms of the bailout and keeping the country in the single currency. Such an outcome would pull the euro back from the brink and further postpone the day of reckoning. It would be pointless in the long run of course. Greece would still be saddled with impossible debts and shrinking output. But the longer a breakup can be put off, the more chance there is of preventing it becoming a catastrophe.
Needless to say it was Athenian politics, not UK and US producer prices, that dominated financial markets on Friday. The only data to stand out were those for Canadian employment. The 58.2k net increase in payrolls was more than eight times as many as forecast and the Loonie reacted by jumping a cent higher against sterling.
Today began with a -1.5% quarterly fall in New Zealand retail sales and a 0.3% monthly increase in Australian home loans. German wholesale prices were up by 2.4% in the year to April. There is precious little left on the card, just Swiss producer and import prices and Euroland industrial production.
And of course the last-gasp efforts of the Greek president to whip his MPs into line and form a government. At this point it looks as though he will fail, so expect an announcement about the election re-run. That would leave a month for all the protagonists – and the electorate – to reassess their positions. Brussels will be banking on voters behaving more responsibly next time around. After all, most of them apparently want to stay in the euro. But Britons voted for a dog on Saturday night and Greeks might do the same on 17 June.
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