Austerity Drive Causing New Euro Rifts

The market sell-off continued yesterday, with European political uncertainty continuing to dominate headlines. Spain has nationalised the crippled lender Bankia, while Greece is moving closer to fresh elections, as politicians in Athens fail to agree on the formation of a new coalition government.
 
German European Central Bank member Joerg Asmussen has stated bluntly that “Greece must know that there is no alternative to the agreed to restructuring arrangement, if it wants to stay a member of the eurozone,” but the Greek people want it both ways: on the one hand they are strongly in favour of staying in the eurozone, but at the same time, bitterly opposed to Brussels’ austerity drive. Germany is now threatening to withhold aid payments to Greece unless the Greek government sticks to the terms of March’s bailout agreement.
 
Detlev Schlichter sums up the weekend’s elections perfectly:
 
. . . This was not an anti-establishment vote at all. It was not a vote for change but a desperate vote for the status quo. Of course, the old elite deserved the sack but they were largely booted out not because people got tired of the old policies but because the leadership now finally admitted that they could no longer deliver on the old promises.
 
As if the markets didn’t have enough to worry about at the moment, news of disappointing Chinese import/export numbers adds to the sense that China is heading for a “hard landing” economically speaking. Annual growth in imports last month was just 0.3%, way off the 11% increase economists had been expecting, and considerably lower than the 5.3% rate seen in March.
 
Those hoping that Chinese demand will fill the void left by cash-strapped European and American consumers look destined to be disappointed. Moreover, the yuan has been flat against the US dollar since the start of the year, following a year-and-a-half of steady appreciation. Have the Chinese, faced with a slowing economy, crept back towards a dollar peg? The CNY vs USD “battle” will bear close attention in the coming months.