04/11/2011 World Business Report


04/11/2011

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manslaughter. Those are the latest headlines for

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The headlines: World leaders scrambled to contain the eurozone

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debt crisis as Greece's government teeters on the brink.

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I am at the G20 summit in Cannes. World leaders are trying to beef up

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the power of the International Monetary Fund, such that it can

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stop the contagion to countries such as Italy and Spain within the

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eurozone. Asian markets rise as Greece drops

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plans for a controversial referendum.

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Plus a new way of doing business or a new dot-com bubble? Loss-making

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website Groupon has as -- is having its Nasdaq debut with a valuation

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of almost $13 billion. They had hoped to present a united

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front and a solution to the eurozone debt crisis, t crisis,

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leaders at the G20 summit I in damage limitation mode as they face

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the possibility that the political turmoil in Greece would force it

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out of the euro and threaten the single currency. Talks on Friday

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are expected to focus on beefing up the power of the IMF, to provide a

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fi fire Walk, basically to protect the likes of Italy and

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Spain in the event of a Greek default.

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It is damage limitation but it is trying to beef up the IMF. So we

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had these very hefty firewalls in place. It was always accepted that

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Greece in itself was going to be a containable problem, the debts of

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Reiss which amount to something of a third of a trillion euros. If

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confidence was lost, in Italy and Spain, it was understood that that

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would not be a containable problem. Italy is the third largest economy

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within the eurozone. So you look at the firepower of the stability

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facility, which at the moment st ste trillion, and A Bit

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Of mask shows you that the numbers do not stack up. Contagion is

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exactly what is happening right now. Greek crisis have led raids on

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Italian sovereign borrowings, so what the government pays to borrow

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on the markets, too well in excess of 6%. It was always understood

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that 6% was some kind of turning point, that that would be

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unaffordable for Greece, it is paying that much on its debt, it is

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possible that it cannot afford to be finance it. You might find that

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it will be unable to pay its domestic bills. So the contagion

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problem has already started. It is well under way. So the IMF, there

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is talk about boosting the firepower of the IMF in order that

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he can try to contain the problem. That is going to be the challenge.

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A big challenge indeed. Reiss's teacher in the euro could

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hinge on this confidence vote in parliament in Athens today. We have

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a professor of economics at Athens University. Also a spokesperson for

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the European Council. I guess the big question, what in

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the world is going to happen today? Can decree government collapse

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today? -- the Greek government. It is is isn really tell.

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Most people expect that it is going to be a smooth transition, so the

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party and the opposition will find a way to have a temporary coalition,

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which is going to vote on the October agreement with the European

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Union. After that, there is going to be elections called in about 4-5

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months. That is the most probable scenario. Right now, there is a

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little bit of a game of chicken, where the two large parties did not

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ing in this agreement. The main thing

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to stress is that regardless of all the tactical moves, the strategic

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decision of the vast mthe vast m the Greek people and the vast

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majority of the Greek political parties, is they do want to belong

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to the eurozone. In fact, that is why in the last couple of years,

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the Greek people had been extremely patient in accepting all types of

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extremely severe austerity measures, in comes had been decreased by

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roughly 40%, in some cases. Taxes have gone up. Four times, I'm going

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to stop you there. Anybody mentioned -- mentioning a

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member leaving the eurozone would likely be sent to the gallows. Is

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the eurozone preparing to cut loose Greece?

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In general, no. That is an extreme case scenario which remains

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unlikely. The mechanisms, there is a lot of talk, we have Angela

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Merkel, she has touted on it, Nicolas Sarkcolas Sark is a lot of

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talk about the mechanisms. Is there such a thing as the mechanisms to

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allow an exit? There are no mechanisms in the treaty. That

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would be a problem. But what has provoked in this discussion is the

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possibility that Greece, through a referendum or otherwise, might say

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no to a deal that was reached last week. What would the no actually

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mean? It can mean that no that deal is insufficient, we want more loads

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of a greater size, it could mean that, no, we do not want any

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assistance, we can manage by ourselves, all we are going to

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default, or possibly, we want to leave the euro. It is not what the

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Greeks themselves want. But it raises those sorts of questions.

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What does a no actually mean. That is why these questions come up.

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The headlines over to last couple of days have all been political.

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But at the end of the day, the fundamentals are still there.

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Whether the Greek government survives, at the end of the day, it

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is still going to struggle paying off its debt. That is . That is is

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where the October agreement comes in. This is the end of a long road

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in the last year and a half. Reiss has been trying to implement

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unprecedented measures and at the same time, the EU has taken a

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number of measures, what we are seeing right now is that we are

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trying to solve the problems that the eurozone has, and has had for a

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number of years, and the problems that Greece has had, nobody said it

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was going to be easy, but the progress that had been made in the

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last couple of years were very significant. But now it seems we

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are at the very last stage, and if the October agreement goes through,

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then this is an opportunity for a new start. As long as the

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politicians behave as they should. We are running out of time.

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The big question, how is all of this affecting the markets?

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We have seen a nice little bounce back on the markets. It is the

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first time in about five days. What is the driver? As you can imagine,

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it is the fact that Greece has now scrapped plans for that

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controversial referendum, certainly a very positive reaction. All

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across Asia, we are seeing the stock markets, some up as much as

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3.3%. Many investors are doing exactly like their European and

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American counterparts, rising on the news that there may not be a

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referendum. It is the first rise in five days in Asia. People that I

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had been talking to have been telling me that although Greek

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politics may be in disarray, the fact that the referendum has been

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scrapped, this potentially could mean that Greece could be closer to

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