Margareta Pagano: Europe will not allow a modern Greek tragedy
The richer EU states will bail out their southern peer
Sunday 18 January 2009
Look at any euro note and find the top right-hand corner of the side with the map. Preceding the serial number is a letter in the tiniest of prints. This is a code for the central bank that commissioned the note, though not necessarily the country of printing. If you have one with the letter Y – the code for Greece – you might want to swap it after last week's humiliating decision by Standard & Poor's to downgrade the country's sovereign debt from A to A-1.
The downgrade came after the Greek government carried out an unusual €2.5bn (£2.3bn) debt sale issued as three-month notes, rather than longer-term bonds, suggesting that it knew investors wouldn't want the long-term debt. Indeed, interest spreads on Greek 10-year bonds are now trading 245 basis points higher than German bunds – despite inflation falling rapidly in the second-half of last year.
But Greece's problems are not a surprise to many German savers who have been worrying about the growing economic rift between the north and south for months. What's more, they have been boycotting euros coded from the south and demanding their own bank notes – letter X. According to German reports, more ordinary savers are withdrawing money from branches rather than cash machines as it makes it easier to screen the notes. If the notes carry the Y, or S for Italy, or V for Spain – savers are asking for them to be exchanged for X-rated euros printed by the Bundesdruckerei in Berlin.
Under European Central Bank rules, each country prints its own notes based on its economic credit worthiness and weight. So theoretically, all the notes printed – whether by the Bundesdruckerei or the Istituto Poligrafico e Zecca dello Stato in Rome – are equal and interchangeable.
So are the Germans being driven by a bout of Teutonic angst over the future of the Teuro – as they call their notes – or a much deeper fear that the eurozone is in danger of cracking up under the pressure of this recession?
Greece looks, at the moment, like the one most likely to make the split. Its current account deficit is above the 14 per cent of GDP set by the ECB while its public debt will rise to more than 100 per cent of GDP by 2011 without big spending cuts. So Greece has three options: it quits the euro and devalues; assets prices deflate hugely to reflect the higher cost of capital or there is an EU bailout. With Greece's pivotal geo-political role in the region vis-à-vis Cyprus and Turkey, it's unlikely it would be allowed to exit the euro. This leaves some sort of combination of a bail-out by Y of the richer countries – X and U (France) – plus a tough few years of deflation.
No one can afford to let Greece fail. Not only would it be too ironic if the country whose goddess, Europa, gave the curency its name, were allowed to crash. but such a fall from grace would damage the grand EU project. A more likely possibility is that one day you could see all the southern states splitting away – a sort of ClubMed currency block.
For those in the UK who say this is a good time for sterling to join the euro, I have a question. Do you think German savers would be stockpiling notes carrying a letter denoting they were printed in Debden, Essex?
Does Barack have a blueprint for kickstarting our banks?
When Barack Obama first coined his "Yes, we can" aphorism, I don't think he had in mind spending $1 trillion or more to rescue the US economy. But that's the latest mind-boggling number emerging from Capitol Hill as the Democrats step up their battle to halt the US economy from renewed fears of meltdown sparked by what looks like the start of a secondary banking crisis.
Even white knights are turning into baddies. Bank of America (BoA), the Merrill Lynch's saviour a few months ago, has had to go cap in hand to the government for a new $140bn (£96bn) rescue package to shore up capital and guarantee toxic debts. Meanwhile, Citigroup is struggling to stave off full-scale nationalisation by breaking itself up.
The BoA lifeline is particularly embarrassing for its chief executive, Ken Lewis, who may now regret his opportunism in rescuing Merrill. Lewis won't like having to take money from Hank Paulson's Tarp fund, or giving Washington a stake in the bank.
It's the $825bn stimulus also unveiled by the Democrats last week that Obama is betting on to get the US through the crisis. Called the American Recovery and Reinvestment Plan, just over half the money is for new public spending on infrastructure. Obama's ace, of course, is the promised $275bn in tax reductions and reliefs.
Debt guarantees – they're better than a toxic bank – and tax cuts are two things our own ministers should be looking at as they toil to restore confidence and get the banks lending again.
But Obama's toughest mission will be to stick to the pledge he made on Friday to hold a summit next month on reforming welfare, a potential hot potato that both Democrats and Republicans have gone out of their way to avoid.
Tackling the banking bailout may turn out to be a piece of cake in comparison.
China doll Barbie takes up residence in Shanghai
Conquering China is Mattel's present to Barbie for her 50th birthday celebration in March.
Mattel is putting the finishing touches to a £20m home for her in Shanghai, a vivid pink-and-glass, six-storey, House of Barbie department store which opens in time for her big day. And even though Barbie comes in all skin tones and hair colours – or veiled for Muslim girls – the Shanghai doll is still blond and blue-eyed. Back in the US, the £2bn-a-year babe is to be queen of New York Fashion Week next month when 50 designers present Barbie-inspired outfits in her signature pink.
While I have no problem with girls playing with Barbie dolls, the idea of women dressing up Barbie-style is too depressing for words. But the magnificent Barbara Millicent Roberts is proving as symbolic as she is recession proof: two dolls are bought somewhere in the world every second. We'll see if Mattel's bet pays off when it reports figures next month.
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