Setting is Greece 2010. The GFC has hit the country hard, with their budget deficit and public debt, quite frankly, out of control.
Enter the 16-nation euro zone and International Monetary Fund (IMF) offering Greece a much needed bail-out package.
Greece sighs with relief.
Act I, Scene ii
Germany (in a case of blatant typecasting) arrogantly refuses to support the bail-out package unless Greece agrees to implement an “austerity budget” in order to radically reduce their debt. The types of measures to be implemented include pay cuts and tax increases.
Greece knows it will be a tough sell, but impotently accept the conditions, knowing they have no other option.
Act I, Scene iii
Riots break out in Greece in protest against the austere measures, they are extremely violent, and some lives are lost.
Fortunately, as far as the economy is concerned, Greece is not a major character in this drama, in fact it represents less than 3% of GDP in Eurozone.
Act II, Scene i
Setting – Spain 2010.
Like fellow characters Greece, Spain has been hit hard by the recession and they are major protagonists in the economic drama.
Panic starts to build in trading rooms throughout the world, as footage of the Greek riots is shown, and a rumour spreads that Spain has been negotiating a $US364 billion bailout with the IMF.
The Spanish Prime Minister dismisses the rumour as “complete insanity”, and the IMF advise that no such negotiations have taken place.
Act II, Scene ii
Despite the strong denials, world sharemarkets nevertheless react to the riots and rumours. Obviously the reaction is not positive.
Act II, Scene iii
More rumours begin to circulate, and this time it’s Portugal in the firing line. Representing less than 2% of Eurozone’s GDP, Portugal are only rating a cameo appearance, but it’s enough to incite further madness from the crowds.
Act III, scene i
Setting – Australia
Enter Dr Ken Henry (stage left).
Back in Australia, the Henry Tax Review is released (see previous blog entry) and one of the proposals the government decides to adopt, is a 40% “super tax” on the profits of major resource companies.
Even though it’s only a proposal at this stage, Australian mining stocks take a dive as a number of overseas institutional investors dump their stock.
Act III, scene ii
As Europe prepares to set rumours aside for sleep, there is a buzz in the southern hemisphere as Australians wonder aloud whether the government will implement a similar “super tax” on our successful banking sector.
The generator fires up in the rumour mill, and like sands through the hourglass – well you know the rest.
End credits
It’s the opinion of this humble blogger, that these events, while disturbing, are unlikely to have a significant impact on the overall global economic recovery.
And so we close the proverbial curtains on this week’s dramas, knowing that whilst sharemarkets will no doubt be volatile over the coming weeks, we can still have faith in a happy ending.
CURTAIN
