EU should focus on the war on its doorstep......

Monday 27th April 2015

EU should focus on the war on its doorstep......

"The real threat lies in Ukraine rather than Greece" , The Financial Times , p.11

No one denies the inextricable link between geopolitical events and their economic consequences, which makes it hard to understand why the ongoing hostilities between Ukraine and pro-Russian rebels are not grabbing more attention from EU politicians and economic leaders alike. Understandably, the tragicomedy that is the Greek crisis makes great headlines but the consensus is that the EU and the Euro will be able to handle a default or even "Grexit", however dire the consequences for that beleaguered nation. A much bigger threat, argues Wolfgang Munchau, is posed by the possibility of further annexation of Ukrainian territory and/or its economic collapse. Q1 GDP is estimated to have fallen 15%, and inflation to be running at 35%. The Ukraine is not a member of the EU but its long-term importance to it is huge, and the EU is giving it minimal support. Not the least interesting aspect of this is what will happen if and when Ukraine defaults on loans from Russia. The danger is that the worst-case scenario would be seen as a failure of the EU to protect its interests, and what happens then to the credibility of the EU and its institutions ? 

But anyway, since we've mentioned Greece.....

"Eurozone officials look beyond Varoufakis to spur talks" , The Financial Times, p.8

It's hard to believe that Friday's meeting in Riga between Greek finance minister Yanis Varoufakis and his Eurozone counterparts could have gone any worse. Not only were essential new reforms barely discussed, officials were apparently furious over Mr Varoufakis' refusal to go beyond how any reforms (should he indeed have any in mind!) might be monitored. Really, if the possible consequences of Mr Varoufakis' tactics, if that's what they truly are,  weren't so disastrous for his own country the whole situation would be almost laughable. Not only does he seem intent on deliberately angering his counterparties, but to revel in the opprobrium it brings him.

Now the Eurozone authorities are looking to bypass Mr Varoufakis and go direct to Greek PM Alexis Tsipras, much as they did in February. It may be of some encouragement to them to hear that even  in Athens senior officials may be tiring of Mr Varoufakis' behaviour. It seems awfully late to implement a new game plan, but frankly in these circumstances what other option do they have ?

 Fed Reserve meets on Wednesday...... any hints on rate rises likely ?

 "Q&A : What to watch for at the Federal Reserve meeting this week", The Financial Times, p.6

Not a question of "will they / won't they?", more one of "when will they?". A helpful update on the factors likely to influence the Fed's discussions from Sam Fleming, including US growth data, inflation, dollar strength and global events. As to whether the Fed's statement is likely to give any signals towards future policy.....well, central banks usually like to keep all options open unless they have a specific agenda so it's unlikely. That won't stop the markets reading into it what they will, though.