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Thursday, January 19

19th Jan - Saving Faces

Crack of light, but is it enough? Source
For the past couple of months the thinking has become more varied. This is a good trend, as any policy choice or forecast cannot reasonably be evaluated alone. First the euro and convergence were the dogma, but reality quickly dispatched those dreams. Then austerity as a necessary and only solution became the official line, only to be proven ineffective. Now that almost everyone is broke and those with money left do not want to play the game anymore, we are getting  more coverage of alternative views.

Voices that perhaps Germany is also to blame have become stronger. While being intellectually honest usually is a good thing, there are basically two scenarios with radically different outcomes that will follow from this: either Germany admits that the ECB policy and the trade imbalances have basically made Germany what it is today, and the imbalances need to be addressed through monetary and fiscal policies and a German trade deficit with the rest of the EU, or Germany leaves the EU in order to avoid facing the awkward truth.

Politically, I see zero chance of Germany understanding, admitting and acting on the reality. They would rather just leave the club and later blame the balancing of European internal trade- and debt imbalances on everyone else. Of course, this would make the eventual cost to Germany much larger, but at least they would have saved faces.

- MoreLiver

To the links:

News roundup morning – BTH
News roundup – The Trader
Press digests by Reuters: FT, WSJ, British
Tomorrow’s Tape (19th) – WSJ
Market Preview – Saxo
Morning BriefingBNY Mellon
  Officials must work rapidly to bolster the Euro-zone ‘firewall’ as a major first test seemingly awaits
Daily – Saxo Bank (pdf)

FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

EURO CRISIS: GENERAL
M√ľnchau: We are fighting the wrong crisisCredit Writedowns
To me this situation looks pretty hopeless frankly. Policy makers in Europe just don’t get it. The best we are going to get is austerity and partial monetisation by the ECB until the union breaks or sovereign debtors default and banks are recapped.

Diverging competitiveness among EU nations: Constraining wages is the keyMickey Levy / voxeu.org
The Eurozone crisis rolls on. This column argues that Europe’s leaders must do more to address the gap in competitiveness between the lean north and the bloated south. The answer is as simple to say as it is difficult to do - follow Germany’s example and keep wages low.

GaveKal: If Euro Fails, Blame GermanyMarketBeat / WSJ
The euro’s fundamental problem is that Germany … forces other governments to adopt ever more draconian and unrealistic austerity targets, while vetoing consideration of the things that would make such austerity possible and productive: collective debt guarantees and central bank intervention.

EURO CRISIS: GREECE
On Greece, Growth, and DowngradesPIIE
EU sets the terms of Greece PSI, principal effect of downgrades is political – not financial.

Greece’s game planFelix Salmon / Reuters
Interesting look at the advisors employed by the PSI parties. Greece’s advisors have previously gotten their way, and Salmon thinks: if the bondholders don’t agree to Greece’s terms, then Greece can simply force them to join the exchange. Greece’s bonds are issued under Greek law, and Greece can change its own domestic law any time it wants.

Hedge Funds May Sue Greece if It Tries to Force LossNYT
Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing
Greece in a human rights court to make good on its bond payments.

OTHER
So Why Has the IMF Asked for $500 Billion That it Probably Won’t Get?naked capitalism
The IMF reportedly wants to strike a deal at the February 25-26 meeting of G20 Finance Ministers in Mexico City…nobody (US, BRICS, Japan) wants to give more money, so: other “options” are being looked at. We assume these would include leveraging existing resources and/or relying on more unorthodox contributions from central banks, rather than on governments.

How to Save CapitalismTIME
Capitalism, though, hasn’t regulated itself all that well either. Government officials and central bankers aren’t the only ones who failed to prevent the financial crisis… However these debates play out, the capitalism that emerges from the Great Recession will be a different capitalism.

Economists: A Profession at SeaTIME
1) resist overstating what they actually know 2) recognize the shortcomings of high-powered mathematical models 3) reintroduce context: more research on economic history and evidence-based studies