OXI! Greece Refuses Creditor Terms

Last month’s newsletter contemplated what would happen to Greece’s EUR 1.6 billion debt payments coming due in June. Whilst the consensus expected creditors to make Greece an “offer it could not refuse” (click here), the Greeks actually did the unthinkable and refused the proposed bailout terms via popular vote (click here). As a result, Greece missed its EUR 1.6 billion debt payment, and is thereby the first developed country defaulting on debt payments to the International Monetary Fund (IMF) (click here).

Once the hangover of the “Oxi” camp’s victory celebration subsides, the country will wake up to a reality that could entail an exit from the Euro and the European Union as well as the collapse of its banking system (click here). In this regard, the Wall Street Journal sadly asks the question as how Europe would look like without Greece (click here). At this point perhaps worth remembering how it got so far, which Reuters has summarized in the report “How Greece went bust” (click here).

As if the potential for a “Grexit” was not bad enough, the Organization for Economic Cooperation and Development (OECD) slashed its forecast for economic growth with the comment that “The world economy is muddling through with a B-minus average, but if homework is not done . . . a failing grade is all too possible” (click here). The IMF was in a similarly gloomy mood when it urged the US Federal Reserve to postpone its expected interest rate hike, citing uncertainty on the resilience of future economic growth and impact on emerging markets (click here).

For somewhat unrelated reasons both wheat and corn decided to take a big jump up the price ladder. As measured by MATIF commodity exchange, the corn November contract increase from 160 EUR/t in mid-June to almost 200 EUR/t by the beginning of July, whereas wheat increased from 180 EUR/t to about 205 EUR/t over the same period. What is behind the increase? According to the Financial Times the reason may be “unseasonal dryness in Canada and France” is pushing the wheat price higher (click here), whereas strong demand from livestock and biofuels adds to the upward pressure on the price of corn and soybeans (click here).

As the world is preparing for the impact of the El Niño weather phenomenon (click here), the G7 countries actually agreed to do something about CO2 emissions and climate change. In an unprecedented pledge, the World’s leading economies pledged to cut greenhouse gases by 40 to 70 percent by 2050 from 2010 levels, and phase out fossil fuels within this century (click here). As consequence, the International Energy Agency predicts renewable energy sources such as wind and solar will overtake coal to become the top source of electricity within just 15 years (click here).

With the exception of the Montreal Protocol curbing the expanding hole in the Ozone layer (click here), the international community arguably has a dismal record in mobilizing resources to combat climate change (click here for the BBC’s history on climate change). However, as humorously depicted by the Economist (click here), it is a start…