Greeks In 'Extend And Pretend' Situation

In his weekly Greed and Fear report, CLSA analyst Christopher Wood looks at the drama unfolding in Greece. Wood sees the latest developments as an indication that Europe is headed toward an “extend and pretend” approach to Greece.

German dominance
According to Wood, the demands imposed on Greece in the conditions of the recent bailout proposal is yet another indication of Germany’s Eurozone dominance. “The German political establishment’s commitment to maintain the Eurozone in its current form, while admirable in theory given its history, is unfortunately destined to result in an upsurge in the divisive nationalism the whole project was [originally] designed to avoid,” Wood writes.

Pros and cons of the Eurozone
Wood praises the free movement of people and labor that has come about as a result of the creation of the Eurozone. However, he identifies “monetary union without fiscal union” as a fundamental flaw in the system.

Debt relief on its way
Wood finds the recent decision-making of Greek Prime Minister Tsipras surrounding the terms of a bailout agreement and the national referendum “somewhat of a mystery.” However, he believes that the recent IMF statement highlighting the unsustainability of Greek debt has paved the way for “some form of formal debt relief” for Greece in the future.

Japan
In the report, Wood also discussed the latest macro data out of Japan, which he called “far from conclusive in terms of the related issues of a tightening labour market and rising wage pressures.” The nation’s job-offers-to-applicant ratio rose to 1.19 in May, its highest level since February 1992. However, According to the Ministry of Labor, Japan’s monthly scheduled cash earnings for full-time workers climbed 0.2 percent year-over-year in May following a 0.6 percent rise in April.