New hopes for 'fiscal consolidation'

A hotel worker stands next to the shutter of a closed hotel during a protest against cutbacks and...
A hotel worker stands next to the shutter of a closed hotel during a protest against cutbacks and reforms in central Athens, in Greece. Photo by Reuters.
The new buzz words "fiscal consolidation" are giving some hope austerity measures in Europe will be replaced by stimulus to strengthen euro-zone economies and reduce unemployment.

With about three months before the next Greek election, eyes have turned to the United States for direction.

Craigs Investment Partners broker Peter McIntyre said yesterday investors would scrutinise data on US consumer confidence, gross domestic product and non-farm payrolls during the week.

Wall Street is closed today, New Zealand time, for Memorial Day but there were expectations for signs of improvement in the US labour markets in May, he said.

"There is a labour market that's improving, but not the kind of growth that would really propel the recovery to a stronger phase. But any positive data out of the US is a blessing."

There was evidence from last week's G8 conference the words "austerity measures" might be replaced with "fiscal consolidation", Mr McIntyre said.

The US had agreed to continue to provide stimulus as a way of strengthening the economy and it appeared tough talking by US President Barack Obama had convinced other G8 leaders to trying strengthening economies rather than just cutting spending.

Support for austerity was unrealistic, particularly in southern Europe, Mr McIntyre believed.

"This will all be a mess until we get some direction from Greece, and that could be three weeks away."

Confusing the issues was the admission by the British Government it was preparing a plan to cope with the exit of Greece from the euro zone, Mr McIntyre said.

The Greek exit was the wild card, but more importantly, it appeared Spain could be the next to leave the euro zone if Greece was cut loose.

On Friday, Spanish Bank Bankia said it needed more money than initially estimated to avoid collapse. Catalonia said it needed federal help to refinance its debt and Standard & Poor's cut the credit rating of the previous downgraded Bankia as well as four other Spanish banks.

Mr McIntyre said Australian and New Zealand banks had been through the Asian banking crisis and were stronger than the European banks after that experience.

The New Zealand dollar is forecast to rise this week if the Spanish banks receive their bail-out money.

The Australian dollar was trading at its highest level in almost a week yesterday as hopes grew Greece would elect a party favouring the bail-out on June 17 and stay in the euro zone.

dene.mackenzie@odt.co.nz

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