No deal… yet

Australians who have heard Julia Gillard’s and Wayne Swan’s lectures to the Europeans to follow our lead and get on with a solution, have already moved forward and started planning to have a very merry Christmas and a much more prosperous New Year.

Like that TV pick-a-box show, they are hoping that the bank will accept responsibility for a payout for those left standing at the end of the show.

The rise in the gold price, however, and the focus on off-shore earnings means that there is still a long way to go before the top end of the globe follows the pattern of growth in the bottom half’s quarry farm economies. There will be no real deal until the Irish, Italian and Spanish accept that printing money and deficit spending are no longer viable options for governments.

Weak numbers released this week by the ABS showed inflation in Australia during the September quarter was only 0.6% – putting inflation at the bottom of the RBA’s mandate of 2-3% per annum. Gary Morgan reports that Roy Morgan Consumer Confidence has increased 2.9pts to 114.7 – its third straight weekly increase.

“All components of the survey have moved in a positive direction this week – led by an increasing number of Australians (38%, up 1%) that say Australia will have ‘good times’ over the next five years and an increasing number who say now is a ‘good time to buy major household items’ (55%, up 1%).”

For all those who can remember “Debt Bus” claims about Australia’s stimulus payouts and can forget concerns about Wayne Swan’s vocabulary in relation to a return to surplus, this week’s Euro summit should be taken with a measure of caution. Some financial pundits are betting on a rate cut as a new form of retail stimulus to encourage Cup Day punters. It is just as likely however that Glenn Stevens will hold steady in the light of these rising levels of consumer confidence.
How would you like to be in the shoes of EU President Herman Van Rompuy working late into the night to stitch up the Greek defaults to reduce Greece’s debt to 120% of its GDP in 2020? (Under current conditions, it would have grown to 180%.) That deal asks banks to take on 50% losses on their Greek bond holdings – a hard-fought deal that negotiators will now have to sell to individual bondholders.

It’s not surprising to see that the banks are already telling Herman that they have not agreed on a new deal on Greek debt, including any new effort to kick the can a little further down the road to recession.

“These are exceptional measures for exceptional times. Europe must never find itself in this situation again,” European Commission President Jose Manuel Barroso said after the meetings.

Charles Dallara, the head of the Institute of International Finance that is representing the banks in EU negotiations says, “There has been no agreement on any Greek deal or a specific ‘haircut’. We remain open to a dialogue in search of a voluntary agreement.”

“There is no agreement on any element of a deal. There are limits, however, to what could be considered as voluntary to the investor base and to broader market participants. Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default,” Dallara warned.

This cautionary statement came as European Union leaders grappled in Brussels to produce a solid plan to rescue Greece, resolve the Eurozone debt crisis and recapitalise banks by a self-imposed deadline on Wednesday.

French President Nicolas Sarkozy told reporters as the meeting broke early into Thursday morning. “The results will be a source of huge relief worldwide. We have reached an agreement which I believe lets us give a credible and ambitious and overall response to the Greek crisis. Because of the complexity of the issues at stake, it took us a full night.”

Smart companies will appreciate that our three speed economy and the $430 billion pipeline of foreign capital investment will keep small business growing while the deals get done for the big guys looking for bailouts. This is therefore the time to make the most of a return to electronic equipment, luxury gifts, overseas travel and business consolidation that create new customers and invite investments in regional export development.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.