Denial is not a river in Africa, but it is a state occupied by many eurozone politicians. Instead of confronting economic reality this week, they chose to vent their fury at the messengers of bad news – the rating agencies that downgraded Portugal and dismissed French banks’ complex plan to roll over Greek debt. Many investors now appear increasingly convinced that the crisis cannot be contained as markets enter a new and riskier phase. Jean-Claude Trichet, the European Central Bank’s president, seemed to be equally exasperated with the continent’s leaders as he sent a tough signal by raising the base interest rate to 1.5 per cent. In Asia, China’s central bank also raised interest rates to provide liquidity relief and dampen inflation as it addresses the same problems.
Meanwhile the financial services sector continued its struggle to regain full health. The regulatory denial of Europe’s insurance watchdog with its weak stress tests is not helping. Policymakers and regulators could assist eurozone banks by adopting new accounting rules to give institutions more leeway when valuing Greek debt on their books. Given the Greek contagion risk, investors in imminent Spanish savings bank IPOs would still be taking a gamble. In the US, Citigroup appears to be in better shape as it put its profitable consumer lending business on the block. It can now go for broke in emerging markets, where it could conceivably join the upcoming scramble to take a minority stake in China’s largest and best connected fund manager.
The corporate sector was dominated by one story: the implosion of News of the World, the 168-year old UK tabloid of News Corp, due to a phone hacking scandal. Elsewhere food producers’ fortunes varied as the world’s biggest provider of bakery products, CSM, issued a profit warning and the world’s largest food group, Nestlé, attempted its latest expansion in China. Finally, it appears US carmakers have exited their crisis-induced state of denial and faced up to their problems by winning back market share from Japanese rivals. Maybe eurozone politicians could learn from their example.
John Casey, Lex publisher
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