Here is the
weekend’s linkfest on euro crisis. The usual Trading, Economics, Off-Topic posts are coming up next. Please follow ‘MoreLiver’ on Twitter or Facebook and contact me with any questions
or suggestions. Previously on MoreLiver:
GENERAL
A Solution for the Euro-Zone Crisis – MarketBeat
/ WSJ
A real fix to the European economic crisis must
encompass an umbrella solution that covers unemployment, a recession, bloated
sovereign and private debt and the threat of crisis among Europe’s struggling banks. With that in
mind, let me humbly suggest what I’m calling the European Investment and Growth
Pact.
A workable solution is a (relatively) cheap
solution – The
Economist
Incidentally, Mr Cowen's suggestion that
inflation well above 4% would be necessary to fix the euro zone's problems
seems dubious to me, or at least in need of supportive evidence. At any rate
there is no excuse not to try 4% inflation, given the probable magnitude of the
costs of break-up.
BANKS
Europe’s finance ministers are currently
deciding on the legislation intended to implement the Basel III international agreement on bank
capital, leverage, liquidity, and risk management. This column argues that many
officials, within Europe and beyond, severely underestimate the importance of this debate for
reaching a global standard for financial regulation.
Why European Bank Stocks May Have At Least 40%
More Downside – ZH
as Barclays notes, if European banks follow the same trajectory as Japanese banks did from their peak in 1993 (as Europe has been since their peak in 2006), then Europe's banks market cap as a percentage of the total market is likely to drop from the current 11% to around 6% within the next year. Combine that with reality with Deutsche Bank's note that Spanish and Portuguese banks (and less so Italy for now) appear perilously short of ECB-eligible collateral
as Barclays notes, if European banks follow the same trajectory as Japanese banks did from their peak in 1993 (as Europe has been since their peak in 2006), then Europe's banks market cap as a percentage of the total market is likely to drop from the current 11% to around 6% within the next year. Combine that with reality with Deutsche Bank's note that Spanish and Portuguese banks (and less so Italy for now) appear perilously short of ECB-eligible collateral
ECB
Draghi Departs the Solar System – naked
capitalism
I felt he sounded quite desperate about these
points. In fact, his answers to additional questions made it clear he is
fighting against a political machine that he may not have too much faith in. He
is absolutely correct on this aspect of the matter, but his words sounded more
like a plea than a policy statement...With economic delusion at one end and
political ineptitude at the other, it is becoming increasingly difficult to be
optimistic about the Eurozone’s future, even though I dearly wish it could
work.
If the euro zone is to survive, Germany must tolerate higher inflation…If the ECB’s monetary policy stays loose
for years, Germany will at some point have to worry about bubbles. But that point is a
long way off. Central bankers are supposed to take the punchbowl away from the
party. But not before the party has even begun.
Draghi: euro countries to lose even more
sovereignty – euobserver
Draghi has urged eurozone leaders to come up
with a 10-year target for the common currency, saying they should accept more
transfer of powers if they truly want a fiscal union.
Is LTRO QE in disguise? – voxeu.org
The ECB has managed a massive expansion of its
balance sheet with long-term refinancing operations. This has been called the
equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not
tight limits on the purchase of government bonds. Rather, it is the absence of
a banking and fiscal union and the heterogeneity within the Eurozone that
reduces the effectiveness of the ECB instruments.
Visualizing Why LTRO = QE – ZH
The ECB's more restrictive mandate, however,
does not allow them to print money for any other purpose than lending and so
direct QE was out of the question and so, as the chart below demonstrates, they
ingeniously created the LTRO - delivering an infusion of liquidity (potential
profits from carry and hope for capital raises).
Everything You Know About Monetary Policy Is
Wrong... And Why This Is Very Bad News For Europe – ZH
Aitken Advisors’ presentation: collateral is money, and everyone is out of collateral. Loosening collateral standards only increases eventual pain, and LTRO is counterproductive.
Aitken Advisors’ presentation: collateral is money, and everyone is out of collateral. Loosening collateral standards only increases eventual pain, and LTRO is counterproductive.
SPAIN
ECB, Behold the Wonders You Have Wrought! – CNBC
Rather than engaging in flat denial, which now
convinces no one, Spain’s banking community would be far better off doing what
the rumors suggest the Bank of Spain (under pressure from the IMF) is now about
to do, and bring in some outside experts to make an independent assessment of
the situation… As for the ECB, I have one simple piece of advice for Council
members as they visit the marvelous city of Barcelona: "look on in
wonder and behold"!
There seems to be no end to the troubles in Spain
ECONOMY
April started bad and got worse, final PMIs
show – alphaville
/ FT
On Friday morning, the Markit Eurozone Composite Purchasing Manager Indices were out, signalling further weakness. The manufacturing indices, released on Wednesday, had already set the scene for further deterioration not only in the periphery, but also the core.
On Friday morning, the Markit Eurozone Composite Purchasing Manager Indices were out, signalling further weakness. The manufacturing indices, released on Wednesday, had already set the scene for further deterioration not only in the periphery, but also the core.
Misery builds for the euro zone – Reuters
The euro zone economy worsened markedly in
April, according to business surveys that clashed with the prospect of a
gradual recovery augured by ECB President Mario Draghi this week.
European economy: Down, down, deeper and down – Buttonwood’s
/ The Economist
The composite
figures for the European economy, released this morning, show that the picture
is even worse than first thought.
Going for growth, but how? – The Economist
Europe is abuzz with talk of a growth compact,
but nobody agrees what it means
Krugman Wishes He Were Wrong Amid EU Austerity
Backlash – BB
Europe’s shifting emphasis from enforcing austerity to seeking economic growth
marks a hollow victory for Nobel laureate Paul Krugman. “I wish I’d been wrong
for the sake of the world,” Krugman said in an interview with Bloomberg
Television’s Carol Massar. “You can see that there has been a definite shift in
opinion.”
Are Europeans Turning Against Austerity? – PIIE
By focusing on tight spending rules at the
national level, the Fiscal Compact leaves only centralized euro area level
stimulus options available for European leaders. But such a development will
help strengthen the “European center” and expand the availability of jointly
guaranteed European debt.
Countries around the world envy Germany's economic success and look up to it as a role model. But a closer look
reveals a much bleaker picture. Only a few are benefiting from the boom, while
stagnant wages and precarious employment conditions are making it difficult for
millions to make ends meet.