I hope you had some fun this week-end as you will have to process a lot of information left over from Friday, new things that came out during the week-end and more issues that will come out throughout the week. I know, amid all this you are also required to do your job.
Here is what you should know about the week-end.
At first on Saturday the Greeks came out and vowed to do everything possible to avoid default. But they knew it would not be enough and they actually had to come up with a plan. They decided to increase property taxes and more public worker’s wage cuts. This is not a new policy as they used it throughout the crisis at the advise of IMF and European Commission and it shows the limitations of those two institutions when it comes to economic policy during crisis. What is interesting is that the Greek government plans to collect the new tax via the electricity bill. I will just come out and say it: It will not work, it will just be leading to more frustration in the country and maybe with a lot of electricity bills unpaid. More austerity measures during the crisis will not bring the voters on board and without them any long term solution is doomed. I do not expect the decision from the Greek government will calm the markets this week. It will take more than that.
Second, the week-end started with the resignation of Mr. Stark as executive board member of the ECB which allowed for plenty of speculation regarding how unified is the ECB at the top on the subject of stimulus. I expect Mr. Stark to be replaced and ECB to save the day, one more time. But time is running out and I expect the ECB and EC are preparing the european banking market for a Greek debt restructuring (not default yet) and an isolation of the Greek banking sector from the rest of Europe.
Third, Asian stocks reacted as expected by falling as there are no news from Europe or G7 yet. But it seems that the Chinese economy is still going strong which should count as good thing in current economic environment.
I expect a volatile start of the week with strong verbal interventions from EU leaders to calm the markets. Decisions might take few days but something will be done to try to push the issue beyond September.