25 June 2012 00:00 [Source: ICB]
G20 leaders were working hard to hatch a plan
As the Greek election euphoria quickly melts away, the chemical industry needs politicians to put measures in place fast that will help restore order to the eurozone and calm markets
People breathed a big sigh of relief as it became clear that Greek citizens had chosen the more moderate candidate in last week's elections. The result showed that the population's fear of the consequences of a "no" vote to austerity outweighed their anger at the current economic mayhem.
The country's new government now has a clear mandate to pursue the country's austerity agenda, keep the bailout money flowing and remain in the eurozone. Stock markets reacted favorably.
The new prime minister, Harvard-educated Antonis Samaras, now leads a coalition that has pledged to try to renegotiate some of the more draconian measures in the country's bailout plan. With the economy still in free fall, he hopes there will be scope to renegotiate loan agreements. How successful he will be in tackling the country's structural problems remains to be seen. Many Greeks still seem unwilling to pay much tax and there has been huge opposition - and some civil unrest - to the cuts and reforms already attempted.
However, the euphoria soon wore off as one tiny dribble of good news was drowned out by a further torrent of bad news. Spain's banks are in a mess and borrowing costs have been spiraling upwards. Markets were expecting more bad news from a survey of Spanish banks.
In France, the newly elected socialist president seems to be breaking from the austerity agenda, while in Italy borrowing costs have been creeping upwards.
Europe's woes are weighing heavily on the global economy and chemical industry. Fear breeds caution and we have seen the results of that along chemical supply chains as companies delay or reduce the size of their purchases as a new round of destocking takes place. Many chemical prices have experienced steep falls this year, along with those for crude oil. Earlier in June, Europe's trade group Cefic forecast flat growth for the region's chemical industry in 2012. Chemical mergers and acquisition activity has also fallen away.
As growth and recovery is challenged around the world, it has become even more vital for Europe's leaders to act swiftly. As the G20 meeting got underway last week there were some glimmers of hope. Proposals to allow European bailout funds to buy the bonds of troubled states directly appeared to gain support from France and was not ruled out by Germany. Such a move falls short of a common "Eurobond" that would allow all states to borrow at a common rate, but it could be a step in the right direction.
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