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GREECE IS ALONE ! ?

After falling into recession as the 2008 financial crisis hit, Greece’s economy has finally expanded by 1.7% in Q3 in 2014, compared to the same quarter last year , and also Greece has benefited from a highly successful tourism season. After six years of trauma following a rescue from near bankruptcy and drastic economics restructuring, Greece economy is set to return to growth this year.

However, umemployment rate is still high and inflation is still getting very low. Greece is still suffering from large budget deficit and capital flows, so the government will still need to borrow money in order to pay the police and the pensions.

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GREEK GOVERNMENT BOND YIELDS

 

Greek Parliament failed to appoint a new president in december in 2014 and had to face snap election. This caused the Greek stocks fell as much as %11 in the new year while Greek bond yields jumped above 9 percent. Investors sold off Greek government bonds, pushing bond yields above 9%. The government’s borrowing costs on 10-year bonds rose to 9,7%, in a reminder of the 2010 crisis when 10-year bonds soared above 11%.

These elections will be a struggle between fear for Euro exit and anger against austerity.The left-wing Syriza party program includes not paying the debt greece owes to European countries. Syriza’s leader has promised to raise incomes, reduce taxation and reverse privatizations. He wants to replace the term ‘debt default’ with ‘debt renegotiation’ and Syriza’s government aim is to exit the bailout without new austerity measure.

 

Samaras government, the leader of a small centre-left party, wants to restore political stability, the minumum wage to its pre-crisis level, provide free electricty and food to destitute families, and to reduce unemployment by hiring moore civil servants. Samaras’s promises may be financed by austerity measures this time, even if previous experiences not showing it, there is always hope. However, it is unclear how a syriza government will finance such expansive policies without austerity measures if his party wins.It seems to me that there will be high political risk for greece in 2015 and will increase the risks to Greece’s creditworthiness.

According to analysts, there is an increasing probability that Greece will default on its debt, leave the eurozone and devalue the new drachma in 2015.I think that nothing will change except unresolved default on debt for Greece in 2015, whatever the result of elections, it is certain that Greece should continue to reform its finances rather than ending austerity measures, try to build stability its public finances and not to leave the Euro.

Otherwise, if greece leaves the eurozone, it will lead to chaos and has difficulty times in the long run. It seems to me that Greece is alone in EU and should solve his problem on his own.

 

 

 

 

 

 

 

 

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The danger has passed for Russia ?

The plunge in oil prices causes significant economic consequences around the world.

(I will write in detail about the reason of oil prices’ slowing down later)

Russia is the most affected by the oil prices’ falling because it is hugely dependent on oil and gas production with oil revenues making up 45 percent of the government budget .Therefore, the sharp fall on prices was a incubus for Russia for a while.

(On December 15th, the ruble dropped 9.7 percent to 64.4455 a dollar, the lowest on record. It brings its plunge this year to 49 percent )

The sharp falling of oil prices has also caused the ruble’s value to collapse which is leading to panic inside Russia and a rise in inflation, as imports become strongly more expensive.

Until now, Russia’s central bank has been struggling to deal with this crisis. On December 15, the country suddenly increased interest rates from 10.5 percent to 17 percent in an attempt to stop people from selling off rubles. It was the biggest increase since 1998 default, aimed at limiting ruble depreciation and inflation risks.

source: Tradingeconomics

Bonds are a way for the government to borrow a bit like the government taking out a loan. Therefore, higher demand for bonds leads to lower bond yields. Russia sell bonds because of low demand in these days, this pushes up the bond yield.

As a result of this, Russia Government Bond 10Y increased to 13.12 percent in December from 10.61 percent in November of 2014. The Russia Government Bond 10Y averaged 8.69 from 2000 until 2014, reaching an all time high of 16.33 in January of 2001 and a record low of 6.26 in July of 2007.

source : Tradineconomics

Widening CDS spreads can be a sign that investors are becoming increasingly concerned about the potential default risk. 

After these kind of negative circumstances, President Putin said that Russian economic problems have been provoked by external factors and despite financial-market turbelence , they will have a federal budget surplus.

Saudi Arabia’s oil minister warned against the negative role of speculators that cause sharp price volatility in oil market. China’s minister explained that they are ready to provide financial aid for Russia.

( In 2010, Russia and China decided to use their national currencies for joint trade)

So far, Russia’s ruble strengthened after confirming goverment intervention and some important explanations. However, credit rating agencies warned that Russia may lose its investment grade credit rating. This leads to Russia being unattractive for foreign investors , or they won’t care in future ?The danger has passed for russia?

 I guess that the ruble’s will  lead to higher inflation next year and they are headed for sharp recession in 2015 and this time the sharp decrease in the ruble’s value may not lead to growth as 1998 crisis for Russia. It’s hard to predict how many months oil prices take to rebalance? We all know that it depends on many things. It seems that world oil supply is expected to growing in 2015. Therefore, 2015 will be interesting year for the global entire economy. We will see –it’s charging...