GREECE & FISCAL TENSIONS IN THE SPOTLIGHT. Yesterday we got news during the NZ trading day that the Greek parliament approved a package of austerity measures, seeing the 2013 budget pass by 167 votes to 128. However, as we warned on Friday, this is unlikely to trigger the next payment of the Troika’s bailout, as European Finance ministers have indicated that they want to wait for the Troika report before making a decision.
The troika’s draft report suggests that there are “very large risks” to the Greek policy programme, adding that Greece may need an additional €15bn through to 2014 and €17.6bn over 2015 and 2016. As we reported yesterday, there is a €5bn bill maturing on Friday, but this is expected to be partly funded by a €3.1bn bill issue this week. The question is, how much tolerance do European creditor governments have of Greece continuing to miss on its targets – not that the Greek government’s job is made any easier by protests and the like.
Of course, the real issue is the lack of growth. Debt is a noose, but you can manage if you have growth, and the issue is that Europe does not, as we will shall find out when Q3 GDP figures are released tomorrow. Bottom line – we are starting to get that sinking feeling that Europe will become a flashpoint again (making the US fiscal cliff issue even trickier to decipher) – and with volatility low in all markets (rates, FX, equities), additional volatility seems likely. Let’s hope NZ remains on the “right” side of the safe-haven divide. So far we have done well (particularly given the poor state of data of late), and the NZD remains well bid despite the emergence of a clear safe-haven trend in the USD and Treasuries. Fiscal tensions offshore underscore the importance of fiscal discipline – in this environment it’s a good thing the NZ Government has committed to returning to surplus and keeping net debt below 30% GDP.