Greece and Ireland the next battleground?

Equity markets seem to be taking the view that the worst of this recession is behind us with four good days of positive trading last week. Let's hope they are right. In the absence of any data showing that things are stabilizing let alone turning around I remain wary. February numbers from Russia's St.Petersburg container terminal show a 27.3% drop in February volumes from the year earlier period. By the same measure Los Angeles cargo traffic is down 35% although some of this decline may be due to the Chinese New Year. This bull market rally will probably last as long as it takes for a fresh wave of money to be drawn into the market and then on swelling volume the traders will reinstate their short positions.

Switzerland decided to intervene in the currency markets last week to reverse the relative strength in the Swiss Franc. An immediate beneficiary of lower interest rates were all those Hungarians and others who had taken out mortgages on the Budapest and Riga villas in Swiss Francs. Elsewhere in the currency universe it's gone very quiet. Chancellor Merkels comments yesterday about the need to see how the existing stimulus measures work before pushing for any additional programmes seems to me to be important. I'm more and more of the view that the ECB is working on a guarantee programme that will bail out Ireland and Greece (possibly Portugal ) but only in return for the imposition of strictly monitored fiscal policies ( higher VAT, lower spending ?) aimed at producing a more balanced budget. The effect of this generosity wedded to a tough dose of fiscal conservatism on the other members of the Eurozone like Italy, Belgium and Spain would be salutary. For Frau Merkel (who will ultimately sign the cheque ) linking the bail out to strict terms will go down well ahead of Septembers elections with a German public that is increasingly dismayed at the cost of Euro membership.The political ramifications of a conservative bailout on a wayward financial centre like Dublin would make life very lonely for Gordon Brown and Sterling - a point which may be viewed positively by the bureaucrats in Berlin and Paris.