Monday 23 October 2017

More uncertainty the only certainty as dust settles on that Greek vote

Greek Prime Minister Alexis Tsipras votes at a polling station in Athens
Greek Prime Minister Alexis Tsipras votes at a polling station in Athens
Colm Kelpie

Colm Kelpie

By the time you read this, the outcome of yesterday's referendum in Greece will be fairly clear. Early indicators are that it's a No, but whatever the result, the only thing we can say for now with certainty is that the coming days will bring with it even more uncertainty.

A Yes vote would probably have been the clearer outcome, likely spelling the end for both Alexis Tsipras and his controversial finance minister Yanis Varoufakis. The latter has already said he would resign rather than press ahead with a deal he disagrees with.

It would be political suicide for Mr Tsipras to implement a programme he has repeatedly called a "humiliation" for his country and which he has vehemently opposed.

A No vote really puts the cat among the Eurozone pigeons. Brussels has warned that a No would signal a rejection of the euro and shut the door on the prospect of further aid from creditors, leaving the country in uncharted territory and isolated within the Eurozone. Analysts say the chances of an exit from the euro would increase.

Either way, Greek banks are expected to reopen tomorrow, which should be of some relief to the Greek people.

But it's by no means clear whether those banks will be full of euros, which would require new support from the European Central Bank, or something else.

The continuing Greek drama looks set to dominate the international news agenda for the week.

On Thursday, finance ministers Wolfgang Schaeuble of Germany and Michel Sapin of France are due to speak at a Bundesbank conference on how to protect Europe from future financial crises.

It seems more likely that they'll end up discussing the current crisis.

The event takes place in Frankfurt and other speakers include Bundesbank President Jens Weidmann, Federal Reserve Bank of Minneapolis president Narayana Kocherlakota and former Bank of England governor Mervyn King. Expect Greece to be one of the big topics of conversation.

Another big event this week - although arguably of less global impact - is the first post-election budget in Britain. UK Chancellor George Osborne will announce tax and spending changes in his first budget since Prime Minister David Cameron's Conservative Party won a surprise parliamentary majority in May's election.

Freed from needing the support of their former coalition partners, the Liberal Democrats, Conservatives want to reduce borrowing faster this year and set out plans to cut the annual welfare bill by £12bn. Since he took office in 2010, deficit reduction has been a central theme for Mr Osborne. Now he has a chance to make his mark with the first budget by a fully Conservative administration since November 1996.

The chancellor is likely to take advantage of a growing economy and a new mandate for spending cuts to move faster towards his goal of running a budget surplus within three years. Britain's public sector net debt exceeded £1.5 trillion in May, more than 80pc of GDP, and Mr Osborne wants to lock in budget surpluses to bring this down rapidly, before Britain is hit by another financial crisis.

Britain's budget deficit in the year to March was 4.9pc of GDP, larger than most other advanced economies. In the coalition's last budget, it was forecast to fall this year to 4pc of GDP - equivalent to £75bn.

But a mix of strong tax revenue, lower borrowing costs and more spending cuts mean economists think the government's budget watchdog will lower this forecast by around £10bn.

This 'front-loading' reduces the pace of spending cuts Mr Osborne will need to make in future years to hit his budget surplus target.

Here at home, economic data due to be released include industrial production and turnover from the Central Statistics Office today for May, on a provisional basis, and final figures for April.

Inflation data will be released on Thursday, and trade statistics come out on Friday.

On currencies, besides the referendum the dollar will have the minutes from the June Federal Reserve meeting to look forward to, after markets took Thursday's softer payrolls number as an indication that the Fed may push back its first rate hike in almost a decade.

Any clue that a rate hike in September continues to be in favour will push the greenback higher. With the domestic economic news looking brighter even as the outlook from overseas deteriorates, Federal Reserve chair Janet Yellen will give her views on Friday on the prospects for US growth, inflation, and the job market amid keen global investor interest on whether she sides with the faction at the Fed who believe the central bank should raise rates just once this year, or with those who prefer two rate hikes.

Amid all of that, and if you get the time, make sure to squeeze in the final week of Wimbledon.

(Additional reporting agencies)

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