It seems Cyprus' bailout has not solved its problems. It’s had the money, but apparently it has had to sell €400m euros’ worth of gold to help finance its end of the bailout deal, and its costs for the deal have rocketed up from the original €7bn to €13bn since talks began. President Nicos Anastasiades has said he just wants better terms, not more money, so who knows if European leaders can find any mercy in their hearts. Onto other economic matters.
Anyone who was around in Weimar Germany in the ‘30s or Britain in the ‘70s knows about the spectre of high inflation. And that’s the concern of the IMF, which said on Thursday that quantitative easing and ‘accommodative’ measures from central banks around the world could put the whole house of cards at risk. It did concede that measures such as QE have helped to stabilise the world economy, but stressed that there is a fine balance between a stabilising effect and a catastrophic one.
In its Global Financial Stability Report, published on Thursday, it said: ‘Financial stability risks may be shifting to other parts of the financial system, such as shadow banks, pension finds, and insurance companies. Despite their positive short-term effects for banks, these central bank policies are associated with financial risks that are likely to increase the longer the policies are maintained.’The difficulty, of course, is that everyone’s having a torrid time thanks to painfully slow growth and spiralling debt.
Even today, Greece revealed that its unemployment rate in January was at its highest ever, standing at around 27.2% of the working population. Youth unemployment is within touching distance of 60%, up from 51% the year before, and its economy is expected to shrink a massive 4.5% this year.Then there’s the renewed, looming, problem of Portugal. It’s looking like the country may need another handout because many of the austerity measures it agreed with the EU have been voted down in its parliament.
And by July next year will owe the EU and IMF about 78 billion euros. That’s a pretty severe debt spiral, and its already on European leaders’ radar – the intel came from a troika document leaked to the FT. So, you see, it’s understandable that central banks everywhere want to pull the inflation lever as far as they can.
It reduces the value of their debt and avoids whole countries having to admit that they’re not going to, proverbially, make next month’s rent. We suspect the IMF’s warning will go unheeded.