Macro Highlights June 15th 2015

Analysis - 6/16/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Greece and the "bad cop" strategy

Negotiations between Greece and its creditors remain in gridlock. The next Eurogroup summit, bringing together the Euro Zone finance ministers, will be held on Thursday. An agreement is urgently needed, with due dates for Greek payments to the International Monetary Fund (IMF) approaching fast. The rising risk of a default is whipping up volatility in financial markets. The familiar questions are being asked yet again. What is the most likely scenario? Should we be worried?

Without rehashing the whole saga, we should begin by pointing out how important it is to understand how it has come to this since the debt crisis erupted seven years ago and how the situation stands for Greece at present.

2009: Greece, with a debt-to-GDP ratio of 98% already, announces that it will run a 15% budget deficit—far above the 3% ceiling provided in the European Growth and Stability Pact. The country’s bonds are gradually downgraded by all the ratings agencies, from A to CCC today.


How the main emerging countries stack up

Although the emerging markets by and large benefited from the trend in global growth in the first ten years of this century, since 2011 their reactions to the major economic variables have differed widely and prevented investors from treating them as a homogeneous bloc. (...)

Monetary stimulus and action against shadow banking

China’s finance minister has announced that the debt-to-bond swaps quota allocated to local governments will be doubled to 2 trillion yuan. This measure is designed to shore up these authorities’ shaky balance-sheets and make them more transparent. The ultimate aim is to encourage economic growth in China by reducing the risk premium that now weighs on bank loans.  (...)