Euro-crisis storm clouds still hanging over HK's economy
It took just hours following the results of Sunday's Greek election for the markets to realise that the euro crisis is far from over.
Despite a bank bail-out last week, Spain is still facing unsustainable funding costs. And despite the defeat of Greece's anti-austerity Syriza party, the new government in Athens will still need to renegotiate the terms of the country's bail-out. With the economy deteriorating fast, compliance simply isn't an option.
As a result, markets rapidly came to the conclusion that the events of the last week have merely bought more time for the euro zone.
Already, there is talk of the need for a new and bigger bail-out for the Spanish government.
And the first thing Greece's new government will have to do is to try to secure a loosening of its bail-out conditions.
Unfortunately, with German politicians still vowing there is no alternative to austerity, and that frugal German taxpayers are not going to subsidise profligate Greeks, Euro-pundits are warning that a forced Greek exit from the single currency is still likely. The danger has simply been postponed for a few months until the autumn.
That means the storm clouds are still hanging over Asia's economies. In a new study, Robert Prior-Wandesforde at Credit Suisse in Singapore has attempted to gauge the effect of a Greek exit on regional economies, as well as the impact of a more general break-up of the euro, possibly prompted by an escalation of the Spanish crisis.
His results are not encouraging. Prior-Wandesforde reckons that a Greek exit could suppress the euro zone's demand for imports by 6 per cent, while knock-on effects could push down American import demand by 2 per cent.
In Hong Kong, highly dependent on the global trade cycle, the pain would be intense. According to Prior-Wandesforde, a Greek exit would knock 2.3 percentage points of the city's fourth-quarter growth rate, pushing growth for 2012 as a whole down to just 1.1 per cent.
The impact of a wider euro-zone break-up would be far more severe, with European import demand falling 25 per cent, and US demand for Asian imports sliding 8 per cent.
That, Prior-Wandesforde believes, could knock 9.3 percentage points off Hong Kong's fourth-quarter growth rate, resulting in a 1.6 per cent economic contraction for 2012 as a whole (see the chart).
That's a grim prospect. Let's hope Europe's politicians can cobble together a solution over the summer.The parallels are irresistible. Just as economic heft counts for everything in the euro zone's hierarchy of power, so economic value is the dominant factor in the Euro 2012 football championships now being played out in Poland and Ukraine.
It's unromantic, but with the first-round group stage of the competition now complete, the line-up of teams going through to the knock-out phase is exactly what you would have forecast by looking at the value of their constituent players in the transfer market.
Independent research house Frontier Economics has combed through the data on past transfer fees to rank Europe's top seven national teams by player value. Germany comes out as the most valuable team, with a first-choice starting line-up that out-prices Spain's by just US$700,000 (see the chart).
Notably, six out of the seven top teams by value made it through the group stage to the quarter finals. The exception was the Netherlands, which had the misfortune to be drawn in the same group as two higher-value teams: Germany and Portugal.
Uncontroversially, team value predicts that Germany, Spain and Portugal will all win their quarter finals. However, it also indicates that England will triumph over Italy this Sunday in Kiev.
If that sounds unlikely, a quick cross-check with spread-betting company Sporting Index shows that England and Italy are both deemed equally likely to make the semi-finals. It will be interesting to see if value really can win out.