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| EURUSD and relative sizes of CB balance sheets, from ZH |
Here is today’s first blogosphere roundup. For Euro crisis ideas, please also consider the first article posted under Other.
EURO CRISIS: GENERAL
Reflections on the crisis, thus far… – alphaville / FT
Deutsche Bank sees very limited room for fiscal easing, thus more monetary easing is the only policy choice
Germany’s determination to impose a fiscal hair shirt on its eurozone partners did not work in the “stability and growth pact”. Is it going to work in the “treaty on stability, co-ordination and governance” agreed last week? I doubt it. The treaty reflects the view that the crisis was due to fiscal indiscipline and that the solution is more discipline.
EURO CRISIS: ECB / LTRO / TARGET
European Banks Now Face Huge Margin Calls As ECB Collateral Crumbles – ZH
as of last Friday the ECB has started to make very sizable margin calls on its credit-extensions to counterparties… increase in margin calls can only further exacerbate the stigma attached to LTRO-facing banks
While the fall in Germany’s current-account surplus may have alleviated the Eurozone’s imbalances, another has arisen. German exporters and banks are no longer Europe’s financiers but Germany is instead now filling this financing gap through so-called TARGET claims – the system for central bank settlements within the Eurosystem. At stake is not just academic curiosity but the financial architecture of the Eurozone.
EURO CRISIS: GREECE
Possible outcomes of the Greek debt swap – Danske Bank (pdf)
Three main scenarios, over 90% (swap proceeds), 75-90% (no voluntary PSI) and below 75% (forced restructuring and even more austerity)
There are too many questions that remain unclear. What happens to the Japanese bonds/investors? How about non-qualified investors? What happens if I abstain from voting? Does the Republic have the right to alter the result after the voting by exempting some bonds from the counting? Is the 75% threshold an absolute one or a soft one that can be changed simply by a ministerial decision? Which laws does the Greek Bondholder’s Act 4050/2012 (introducing CAC) suspend? How about European law?
CHINA
Sure, reduced Chinese growth will hurt the global economy. But an unreformed China that refuses to change its economic model and promotes growth at all costs is a much bigger danger to world economic stability. Wen Jiabao is exactly correct about what China must do. Now let’s see if it really gets done.
Citi’s conclusion? That premier Wen Jiabao’s forecast of 7.5 per cent GDP growth this year could prove conservative – as Chinese official forecasts generally have done in recent years. Citi says: “The proactive fiscal policy should be supportive of above 8 percent growth in 2012.”
China Economy: 2012 and beyond – Also Sprach Analyst
OTHER
Fed economists slam TARP (LTRO?) in a paper measuring the rescue fund's effect on risk-taking at TBTFs – ZH
Interestingly, the TARP banks were less capitalized than the non-TARP banks prior to the infusions, but became relatively less capitalized after the infusions. This suggests that these banks suffered larger losses in the later period of the sample.
An end to the 60/40 asset allocation – Pensions & Investments
diversification by common risk factors and risk premiums will replace conventional asset class silos as the key building blocks in portfolio construction… concepts of regime persistence and adaptation will increasingly feature in risk management processes… the line of demarcation distinguishing strategic and tactical asset allocation will become blurred.
Will oil prices derail the global recovery (again)? – Danske Bank (pdf)
Oil prices are again on the rise creating a new risk to the global economy. This takes thoughts back to early 2011 when the global recovery was confronted with a sharp rise in oil prices followed by a downturn in the global economy.
OFF-TOPIC
The Lone Tweeter of Deutsche Bank – Businessweek
LulzSec Leader Was Snitch Who Helped Snag Fellow Hackers – Wired