By Phillip Souta
After a few weeks of unremittingly bad news, a number of events over the last few days paint a picture more complicated than the one seen by most commentators.
First, the eurozone is not in recession, driven by Q1 0.5 per cent growth in Germany. Despite good employment figures, the UK is. Despite Germany’s powering ahead, this is not an entirely comfortable contrast.
Second, a Bank of America / Merrill Lynch report covered in the FT today (£) says that 60 per cent of fund managers believe the ECB will turn the liquidity taps back on. That would immediately serve to stabilise markets, and to follow onto the next point, serve as a push on inflation.
Third, German policy makers have changed their tone with the election of Francois Hollande. They have hinted they are willing to accept inflation above 2 per cent, which is about as politically sensitive as saying German troops should go on combat operations abroad, and the Chancellor has accepted that a “growth pact” should accompany the fiscal compact. Quite what that will consist of is unclear, but the message to Greeks about to witness a second round of election campaigning is clear – there is more we can do to support you.
Combine this with the unexpected Greek move to fully repay a €450 million bond yesterday, and you have a series of events that may in hindsight look like a turning point if Greeks vote for pro-euro parties in June.
Whilst opinion polls in Greece show Syriza increasing their support from about 16 to 20 per cent, 50 per cent of Greeks still believe the country should keep to the austerity programme – this tension will have to be resolved one way or the other in the coming elections.
If Greeks vote for parties that take them out of the euro, these small green shoots will be quickly forgotten in the dangerous situation that unfolds. There is still a chance that Greece will look into the abyss, not like what it sees, and give the mainstream parties a chance to compete the programme they have started.