Investor's window  |  November 13, 2012 15:38:24

Europe and the Flying Circus. Starring Juncker and Lagarde

When you say British humor, I think about Monty Python and the Flying Circus. Flooding puns, brilliantly thought out and ingenious absurd humor, which could come no other than the British. Recently, however, this type often absurních sketches like he penetrate into even the highest levels of European politics.   What is going on?

Greece last week after massive protests approved further austerity measures and budget for 2013. Thus meeting the condition of the euro zone and the IMF, from which, according to the agreement should get the next part already promised to help.The euro area (on behalf of Jean-Claude Juncker) and the IMF (under the leadership of Christine Lagarde), but this release yet do not want to help. The reason? They can not agree among themselves on how high should the Greek debt in 2020.

Now apart from the fact that since the outbreak of the financial crisis, yet Greek politicians did not meet the goal of reducing the deficit even once. Also ignore the fact that only a few weeks ago, the country announced that its public debt in 2014 will be 170 percent of GDP, as Juncker with Lagarde recently thought, but maybe up to 190 percent. Now let's focus on one thing only, and that the subject matter divisions between Lagarde and Juncker.

According to Lagarde Greece should reduce debt in 2020 at 120% of GDP. Juncker rejects this proposal and requests to achieve this objective in 2022. On this whole debate is extremely interesting two things. Not only that, it Juncker with Lagarde seriously and accuracy of the unit percent ever trying to predict the development of chronic indebtedness of the borrower with little room for maneuver to the next 8-10 years. By far the most bizarre is the fact that neither of the participants in the debate trying to address how Greece would something like this could ever achieve.

Without default, the next "forgiveness" of debt, or significant acceleration of inflation is something is unrealistic. If we assume that the country from 2015 will manage a balanced budget, which itself is a precondition from the world of sci-fi stories, it should at the same time, as required by Lagarde, growth in the period 2015 to 2020 each year by approximately 7.7% . In the case of scenario, then Junckeova during 2015 - 2022 sufficed annual GDP growth of around 6%. I do not have a sufficiently long time series, but I would bet that Greece something like that in the last century failed even once. Growth could of course be even lower if the country during this period managed to reduce the total amount of debt. That's but again teetering somewhere in the world of science fiction.

Optimism, which is implicit in the discussion between the EU and the IMF is now so ridiculous that would, with the current split between Lagarde and Juncker withstand even the requirements netvrdší classic Python sketches.   The significant difference, however, unfortunately, that while Cleese, Palin et al. you've always done only kidding Lagardvá with Juncker's deadly serious.

Jaroslav Brychta

Jaroslav Brychta - principal analyst at X-Trade Brokers

  • He graduated from the Economic Policy at the Silesian University in Opava. The XTB operates since 2007, currently as chief analyst. It mainly deals with the analysis of exchange rates, as well as bonds, the banking sector and monetary policy. His professional articles and interviews contributes to most of the leading media.
  • Logo XTB X-Trade Brokers (XTB) is an international brokerage house that provides its clients with professional trading conditions for forex, commodities, stocks and options. Its services are constantly improving, as evidenced by a number of international awards and it is confirmed by the titles and BrokerForex broker of the year, obtained at the Investment Summit MoneyExpo 2012th

    In addition to the standard menu XTB allows Forex traders direct access to the market, thus enabling them to reach the lowest spreads. Beginning options traders can use the optional possibility of opening an account with no minimum deposit of 2500, - CZK . For XTB offers its clients advice on trading, 24 in the Czech language support, free training courses and daily news from the financial markets.
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Evropa a její létající cirkus. V hlavní roli Juncker a Lagardová

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