Almost whatever it takes

Beyond the wire
Eight years ago a struggling Japanese railway appointed a cat called Tama as stationmaster at Kishi. Following her employment the railway prospered. Sadly, Tama Chan passed away last week but her inspiration lives on and there is talk of appointing cats as finance ministers in Greece and Germany.

They couldn't make any more of a hash of it than the current incumbents. After bailout negotiations broke down for the umpteenth time on Friday the Greek prime minister announced what is tantamount to an in-out referendum on the euro, to be held this coming Sunday. The European Central Bank subsequently halted its emergency liquidity assistance to Greek banks, which will therefore remain closed at least until next week. Those with money still in Greek banks (who cannot have been paying attention for the last five months) will have their withdrawals limited to €60 a day.

When the Far East opened for business this morning investors hastily reduced their holdings of financial assets perceived to be "risky", including equities, emerging-market currencies and, of course, the euro. It was marked down by more than 1% and the South African rand took an even bigger hit. Since Friday morning the euro has lost two cents to sterling and one and three quarter US cents. The "safe" Japanese yen made the most of the situation, strengthening by 0.8% against the pound.

Chinese gas
Apparently in response to sharply-lower prices on the Shanghai stock exchange last Friday, the People's Bank of China lowered its benchmark interest by 25 basis points to 4.85% on Saturday. Share prices initially strengthened but by the time London opened this morning the index was down by another -3.5%.

The bear market in Chinese shares can only undermine further the confidence of investors around the world, as evidenced by the $10 jump in the price of gold this morning. They have too many unknowns to deal with and uncertainty makes them nervous.

They will have no top-tier economic data to handle today. Norwegian retail sales, UK mortgage approvals, Euroland confidence, South African unemployment and US pending home sales will pale into insignificance alongside the speculation surrounding the euro.

A cat would know
The Athens government's strategy has thrown Euroland leaders into confusion. The ECB's decision to halt ELA support for Greek banks has cast doubt on its determination to "do whatever it takes" to preserve the single currency. Nobody knows how it will all pan out.

If the referendum takes place (the last one was banned by the EC), and if the population votes to accept the terms of a troika proposal that is no longer on the table, negotiations could get underway again next week. In that case Greek banks would presumably receive renewed support from the ECB and Greece would remain in the single currency, at least until the next blow-up.

But in the meantime everything will remain up in the air. That will not be good for the euro.