Anticipation is rising in the euro area that the long-awaited debt swap in Greece has put an end to the speculative trashing of the country’s government bonds. Private-sector investors have lost, one way or another, almost three-quarters of the value of their holdings. Most will have ‘volunteered’ to lose, believing a 73 per cent write-down to be better than the total loss that would come with a disorderly default. Many of the others have sheltered behind insurance policies that would become effective only if the write-down were to be made compulsory. For them, a default event would be a good thing.
All through this Greek debt crisis – it seems absurd to refer to something lasting more than two years as a ‘crisis’ – investors have remained surprisingly calm. The euro-sterling and euro-dollar exchange rates today are not appreciably adrift from their levels in March 2010, when the whole thing kicked off. If anything, the market has become more laidback as the likelihood of a full-blown Greek default has grown. The sensation now is that Euroland’s financial system has made sufficient preparation to ensure its survival, whatever Greece might throw at it.
Across the pond, Americans are finding that looking good is easier than feeling good. The US has, arguably, the best-performing economy among developed nations. Employment has risen in the last 17 reported months and gross domestic product is on the way up. Yet looking good has done the dollar no favours. Investors still see the dollar as the currency of last resort when things look dodgy elsewhere. An ultra-low interest rate – which is likely to remain so well into next year – makes dollar holdings useful only when everything else is too risky. Increasingly, everything else isn’t.
The Australian dollar, on the other hand, has almost everything going for it. A 4.25 per cent benchmark interest rate, a robust market in China for the country’s coal and iron ore exports, and an increasingly rare triple-A credit rating make the Aussie dollar a popular choice for investors. In February it hit another record high against sterling, having risen by 78 per cent from its autumn 2008 low. Not all is sweetness and light though. House prices are declining and the strong currency is starting to take its toll among commodity exporters. Products are priced in US dollars, so conversion to a more expensive Aussie dollar means less money in the coffers and greater unhappiness.
Overindulging teenagers are similarly destitute and despondent, according to Essex University in the UK. The Daily Mail reports that “higher consumption of fruit and vegetables, and less eating of crisps, sweets and fizzy drinks, was associated with high happiness levels”.
Such moral and behavioural rectitude is key to the policies which UK chancellor George Osborne is likely to reiterate when he delivers his 2012 Budget. While critics argue that more should be done to encourage economic growth, supporters maintain that the UK’s – and sterling’s – best bet is to balance government spending with government expenditure.
Greece has provided a graphic and scary example of what can happen when that balance goes awry. Over in Germany, chancellor Merkel’s ‘fiscal compact’ provides an equally clear guide to what is right. Budgetary prudence might be painful in the short term but could prove invaluable in the long run if UK borrowing costs remain low and sterling holds its own against the other major currencies.
