From Marc Jones at Reuters:
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A hung parliament could be an opportunity for Britain. All parties agree that spending cuts lie ahead, but no party will want to be saddled with the attendant unpopularity. A coalition government could push through the obvious legislation, and then call another election.
But this week, sterling was sold heavily after polls suggested a hung parliament likelier than had been thought. Why? Apparently it is the fear that no clear majority would result in gridlock rather than co-operation, leaving deficits unaddressed.
British economic commentary – even at the most respected levels - has got a nasty bout of “spurious precision disease”. One that shows people are not thinking very carefully about the budgetary problems facing the country.
The disease is the obsession with talking about the “structural” or “underlying” budget deficit as if we have the faintest idea what it is. The two “official” structural budget deficit numbers – 9 per cent of national income for the overall deficit and 5.5 per cent of national income for the current deficit excluding net investment – are made up in the Treasury, based on its assumption of the permanent lost economic output. But the Treasury itself says this number, “remains subject to significant uncertainty”.
As I will explain, the disease is serious and potentially dangerous. It is setting up incentives for just the sort of uncertainty and rule-bending that undermined the credibility of Gordon Brown and the 1998 fiscal framework. We should all resist this. Avoiding using spurious structural deficit numbers would be a good place to start.
The $5bn sale of Greek bonds today has been oversubscribed by a factor of almost 3. The requested yield has tightened throughout the day, reflecting increasing demand. Actual details are expected at about 4.30pm London time.
Is this affordable, and is it fair? Greece has $15bn more financing to find over the next three months. The chart below shows comparative 10-year benchmark government bond yields for Portugal, Ireland, Spain and the UK. Portugal, in many ways a comparable economy to Greece, can raise 10-year debt for 1.8 percentage points less than Greece. Comments welcomed. More on ft.com.
From Jude Webber on ft.com:
An Argentine senate committee on Wednesday voted against the nomination of central bank governor Mercedes Marcó del Pont, raising the prospect that the country could be looking for a second new bank chief in as many months.
The central bank of the eurozone has kept the main refinancing rate at 1 per cent. The marginal lending facility and deposit facility remain at 1.75 and 0.25 per cent, respectively. There will be a video stream of the press conference at 2.30 CET. The bank is expected to make some comment on exit strategy.
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