WE WON IT!!!

We've won the Nobel Peace Prize! Isn't it great! Whoever could have expected such a thing? It will look fantastic on the CV; "Joint Nobel laureate and GCSE woodwork". 

But reflect for a moment. Is the average Greek or German thinking "we've won" or "they've won"? And when the EU heads of government meet later this week in Brussels will it be "we" or "you" who have to do the impossible and create growth from austerity? As far as German Finance Minister Wolfgang Schäuble is concerned, "we" are helping "you" to sort yourselves out". At the weekend he reiterated the message his boss had taken to Athens earlier in the week. He told an audience in Singapore that "Greece has to take a lot of very serious reforms" and "everyone is trusting that the Greek government is doing what is necessary". His use of the word "trusting" instead of "praying" was a rare terminological in-exactitude from the usually precise politician. 

Herr Schäuble believes the only way is austerity. What a pity, then, that the IMF has reconsidered its previously unwavering support for it. The economists at the IMF have had another look at the "fiscal multiplier", the number which predicts by how much an economy will shrink in response to a certain degree of fiscal tightening. Until now it was generally understood that the fiscal multiplier was 0.5. In other words, 1% of tightening would result in a 0.5% economic shrinkage. And that factor might still work for a single troubled country in an otherwise buoyant global economy. But with everybody in the same waterlogged boat it now seems that it doesn't. The IMF can't be sure what today's fiscal multiplier really is but they put it somewhere between 0.9 and 1.7. 

Pick a number in the middle, let's say 1.5. Now look at the 3% of fiscal tightening that Spain must achieve next year. Multiply 3% by 1.5 and you get a prediction that the Spanish economy will shrink by -4.5% and not the -0.5% blithely assumed by Madrid. Having seen what has already been achieved in Greece and Spain this revelation cannot come as a total surprise but it is not good news for Euroland or the single currency. 

However, support for the euro remains reasonably robust even though, for the nth time, the rumour that Spain would apply for a bailout over the weekend proved to be unfounded. There weren't many economic data to help the euro on Friday but the unexpected 0.6% monthly increase in industrial production was better than nothing. Give or take a dozen ticks, the euro starts this morning unchanged against the major currencies from Friday's opening. The only notable movement was the rand's -1.8% decline after Standard and Poor's lowered South Africa's credit rating to BBB, just one grade above Spain. 

Figures from the Far East this morning showed Chinese exports rising three times as quickly as imports. Consumer inflation there slowed incrementally to 1.9%. Home loans in Australia rebounded with a 1.8% monthly increase. Japanese industrial production fell by -1.6% in the same month. The only figures from Europe today are Swiss producer and import prices. US data are restricted to retail sales and the New York Fed's manufacturing index. The ecostat pipeline will start pumping tomorrow but nothing on today's schedule is likely to get currencies moving.