Fisher Investments Editorial Staff

Hermes Delivers

By, 08/06/2010

Story Highlights:

  • The IMF praised Greece for showing "great progress" after the troubled country implemented austerity measures, including tax raises and wage cuts.
  • Meanwhile, the ECB and BoE kept rates at historic lows, and ECB President Trichet highlighted several positives for the EU.
  • Recent economic data confirm the European recovery continues—particular in the bigger core economies.
  • Worries should continue to ease—making way for a better second half of the year.


Hermes, messenger of the gods, was a protector of travelers (thieves too—the Greek roads were plagued with scallywags), and he appears to have shepherded Greece, at least partially, successfully down their austerity road. (Isn't Pan the god of shepherds? This metaphor is becoming dreadfully mixed.)

To qualify for the €110 billion European rescue package back in May, Greece promised to ferociously reduce spending, privatize government-owned businesses, and raise taxes. They received the first payment more or less on their word alone. But saying and doing are two different things (Hermes was also the god of liars) and further funding was contingent on real progress. There was speculation politicians would lack the will to fully enact their promises (particularly since Greek public workers were prone to riot). But Greece delivered—Wednesday, the IMF praised Greece for showing "great progress" and said it was likely the country would receive the next payment of €9 billion in September and likely another in December. Barring some strange political development, that greatly reduces the probability of a renewed panic over Greek debt.

And even as default risk from any of the PIIGS seems increasingly remote, the rest of Europe looks to be on more solid ground too. Appropriately, the European Central Bank (ECB) and Bank of England (BoE) are keeping rates at historic lows of 1.0% and 0.5%, respectively—a light monetary touch could be a counterweight to proposed European austerity measures outside the PIIGS (should they ultimately be enacted as promised—still no guarantees here).

More importantly, ECB President Jean-Claude Trichet highlighted several economic positives for the EU—namely, the positive outcome of bank stress tests and a continually strengthening economy—even acknowledging "the market is functioning a little bit better." Recent data confirm the European recovery continues, particular in the bigger core economies. German industrial orders rose in June, German and French retailers posted gains in Q2, and European and UK manufacturing surveys continued robust expansion in July, beating expectations. Additionally, European junk bonds' average yields have declined markedly (to 6.56%) and are set to fall below average US junk yields (currently at 6.49%) for the first time since 2008—yet another indication of falling relative risk levels.

Overall, the conditions contributing to this year's rocky detour seem to be easing. Investors should never expect a smooth and easy road, but at the very least, PIIGS fears appear to be flying away. (In Hermes winged shoes! We knew we could get back to him somehow.)

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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