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Friday, September 14

14th Sep - Weekender: Best of The Week

Here are the “best” article links from the past week.

Previously on MoreLiver’s:

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George Soros: Why Germany Should Lead or LeaveProject Syndicate
If Europe is to escape its crisis, its leaders must awaken Germany to the misconceptions that are guiding its policies. At this point, that will not happen unless they persuade Germany to make a choice: become a benevolent hegemon or exit the eurozone.

The Tragedy of the European Union and How to Resolve ItThe New York Review of Books
George Soros with a very long piece: In short, the current situation is like a nightmare that can be escaped only by waking up Germany and making it aware of the misconceptions that are currently guiding its policies. We can hope Germany, when put to the choice, will choose to exercise benevolent leadership rather than to suffer the losses connected with leaving the euro.

Things That Make You Go HmmmGrant Williams / ZH
The latest edition of the newsletter comments the ECB: Draghi has temporarily released the pressure on Europe’s peripherals, but he has had to go beyond to the very edge of his mandate. What happens next is open to debate but the Eurocrats are bound to find a way to ensure we have no more than a few days of relative calm ahead of us.

Now it’s back to Europe’s politiciansMacrobusiness
As I have continued to talk about over this year, without a massive change in direction, the economic outcomes of Europe have already been decided. Attempts at supra-Eurozone fiscal consolidation all but guarantee a fall in economic output for the EZ, and the recession has really only just begun. In that regard it is the politics that will become increasingly important over the next 12 months as the economic fallout opens new fractures in the political systems of participating nations.

Pierre Moscovici's speech at Bruegel Annual Meetingbruegel
“…where the eurozone stands at the moment, and what we think should be the path forward.”

Saving the euro: Tick tockThe Economist
Even if the ECB successfully intervenes, the euro zone’s politicians must ultimately determine the euro’s fate. Although work on a banking union has begun, they are many months away from actually setting one up. Leaders increasingly recognise the dangers of excessive austerity, but they still routinely demand harsh budgets as a token of merit. The debate about mutualising some government debt, which this newspaper thinks essential to restoring confidence, has barely begun. The vague German demand to shift political power to federal Brussels has hardly been broached in France.

Research: Finnish economy - falling starDanske Bank (pdf)
We have revised down our outlook for Finland to take into account the worse-than-expected 2012 Q2 figures: GDP is now forecast to remain flat in 2012. According to the preliminary figures GDP contracted by 1.1% q/q in the second quarter. Given weak leading indicators and statistic flow, Finland has probably fallen into the recession as we expected. For 2013 we expect sluggish growth of 1.0%, because the year will get a challenging start and the weak euro area outlook continues to hurt exports.

Spanish Fly In The OintmentMacro Man
German court announcement was pretty much as expected. A green light, but with what we have come to expect with all Euro capitulations, a conditionality sweetener to placate the hardliners…A lot has been made of the ECB's bond buying proposal, and for good reason. The question of just how much time it buys Europe, however, is a bit more nuanced.

The Evolving EuroEconoMonitor
it is clear that Eurozone 2.0 will not be launched for several more years. The president of the European Commission in his recent State of the Union address admitted that completion of the new design would require changes in the EU treaties.

Eurozone building blocks are falling into place Gavyn Davies / FT
The ESM and the fiscal compact can now be safely launched, and any immediate obstacle to Mario Draghi’s bond buying plan at the ECB has disappeared…there may be limits to the willingness of the German political system to make the cross-border transfers which are inherent in the ESM/ECB support operations, especially if the troubled economies, following the example of Greece, fail to stick to the necessary policy conditions

Goldman On Spain's Tension-Inducing ArroganceZH
The opposition seen in Germany in response to Mr Draghi’s preparedness to buy sovereign debt implies that current posturing in Spain will not wear well with the politics of signing a Memorandum of Understanding in Germany. The more the Spanish administration indulges domestic political interests and is perceived to be taking undue advantage of external support, the more explicit conditionality is likely to be demanded.

Mr. Draghi, Mr. Arnault, and Europe’s Gordian KnotEconoMonitor
This Gordian knot is, in turn, the consequence of two forces at the heart of the EU’s functioning—or rather, its epic dysfunctions: a creditor protection dogma and a fiscal black hole.

Do they they think it’s all over? MacroScope / Reuters
Good short list of open issues (Italian elections, Spain, Bundesbank, recession, austerity, Greece)

Meet Europe's leader of last resort Business Spectator
Just as Draghi makes his power grab sound like monetary prudence, Monti dresses his authoritarian demands in the colourful language of European integration and cooperation. But it cannot disguise the fact that what he is actually demanding is a departure from liberal democracy. In the European Union, criticism is denounced as populism, recklessness is called prudence, and disunion becomes integration. It is hard not to be reminded of Orwell’s Ministry of Truth when seeing the façade of the Berlaymont building.

IMF officials say Greece will need a third bailoutZH

The euro’s demise may be the final chapter of the ERM debacleThe Telegraph
The drama of 1992 showed why Germany cannot lead Europe out of a monetary crisis

The euro zone’s leaders have turned a corner. Where to, is not yet clearThe Economist
In the end, the euro’s survival rests on the political support for greater economic and financial union. That will be the real game-changer.

Autumn renewal?The Economist
Having survived a difficult month, the euro zone is grappling with its taboos

German court approves new plan to save Europe. But is it a good plan? Wonkblog / WP
So, instead, Europe’s leaders have devised a compromise plan that’s supposed to quell the immediate financial panic, bring down leaping bond yields, and at the same time placate German voters who are tired of bailing out their neighbors.

Burying a banking licence alphaville / FT
the court adds more legal flesh to the argument against the ESM tapping the ECB — interestingly through delving into the ESM treaty text itself. Most interestingly of all, it does so in a way that suggests the treaty really is badly drafted ambiguous to interpet on key points.

What will the German Constitutional Court ruling mean for the eurozone? Open Europe
This decision merely referred to the question of whether to grant a temporary injunction against the ESM. The full ruling on the complaints is expected in early 2013. However, since the law can now be finalised, and as an international treaty may be difficult to reverse, many expect the final ruling to be along the same lines.

German Constitutional Court tightens the noose yet further The Telegraph
"An acquisition of government bonds on the secondary market by the European Central Bank aiming at financing the Members’ budgets independently of the capital markets is prohibited as well, as it would circumvent the prohibition of monetary financing."

The promise and pitfalls of the euro zone’s plan for a banking unionThe Economist
The euro zone was woefully late in trying to stabilise its banks and ensure that taxpayers do not have to pay when they fail. Moreover, it is unlikely ever to create a regulatory system like America’s which allows the FDIC, for instance, to wind up a bank in a weekend. Banks in Europe tend to be larger as a share of national GDP than those in America, and European companies rely more on banks than American ones. More important, in a corporatist political culture, small banks are often tools of political patronage and big ones are treated as national champions.

Here's the full proposal for an EU banking union (leaked)
The Commission's highly anticipated proposal for an EU Banking Union, due to be released on 12 September, has leaked (courtesy of Italian daily Il sore 24 ore). The full document can be read here.

Banking Union Part II – now for the safeguards Open Europe

Let’s not be afraid of… banking unionalphaville / FT
JPMorgan’s Alex White has taken a stab at some of the current problems:

Euro-zone banking unionThe Economist
Plans for common supervision could easily turn messy

Spain and Italy mustn’t blow ECB planHugo Dixon / Reuters
For now, Draghi can withstand the criticism, as long as Angela Merkel keeps backing him. But if Rajoy and Monti don’t move fast, the ECB’s magic will wear off. And if its medicine then fails, it will be hard to conjure up the political will for an even more powerful concoction.

ECB death pact good for risk (6-Sep) – James Saft / Reuters
Becoming a lender of last resort then ultimately means that the ECB enters into a death pact, a sort of mutually assured destruction, with the states it rescues, as each can bring the other down. That may make Bundesbank fears of inflation and debasement correct, even if it doesn’t make their preferred course of policy wise. For investors it comes to the same thing; for now be more comfortable with a bit more risk but be prepared for that to change. Your main insurer is committed and owns a printing press, but death pacts can and do end badly.

Volatility and the OMTalphaville / FT
Will the ECB support price levels from the LTRO? Also, Draghi said volatility is one factor they watch

BofAML: The ECB OMT: End game or (some) more trouble?ZH
The ECB has offered a seatbelt to a driver with a bad driving record, which will only work if the driver agrees to a strict monitoring of his driving. So, will the driver accept the offer in the first place? Will he change his behaviour afterwards? And if not in the latter case, is the threat of removing the seatbelt credible?

The OMT, and the plumbingalphaville / FT
Charts on a certain broken transmission mechanism are popping up everywhere.

Weekly ChartopiaZH
Good charts from a recent Goldman Sachs note

Debt Be Not ProudJohn Mauldin / The Big Picture
How Down Can Be Up If You Create the Rules * The Fed to the Rescue? * The Correlation Between Government Size and Growth * Debt Be Not Proud * Debt Overhangs: Past and Present * Should the Fed Give Us QE3?

Is US economic growth over?Robert J. Gordon /
Global growth is slowing – especially in advanced-technology economies. This column argues that regardless of cyclical trends, long term economic growth may grind to a halt. Two and a half centuries of rising per-capita incomes could well turn out to be a unique episode in human history.

Moody’s update on US rating, threatens downgradealphaville / FT

UBS Asia: is the miracle overZH
After two decades of unparalleled economic success, we believe China now needs a reform programme on a scale similar to that adopted 30 years ago. Without it, a heavily investment-centric and credit-intensive economic model could soon become unstable, and later stall in a middle income trap. (full 29-page document  download)

Extend-and-Pretend continues – now in the phase of Maximum Intervention but it’s the wrong medicine at the wrong time…We are in the fifth wave of all major macro benchmarks: the stock market (high), yields (low), economics (low), intervention (high), hope (high) and politics (low). This will lead into an ABC correction phase for valuation.

Podcast: In the Balance - Central bankers: too powerful or too weak? (25min) – BBC (mp3)
As the ECB brings in a new scheme to save the euro, the programme asks whether central banks have been over- reaching themselves. Have they been poking their noses into stuff that should be left to elected politicians? Plus central bankers' impenetrable jargon: In the Balance's resident comedian Colm O'Regan reckons parents could deploy that kind of language next time the kids ask for more pocket money. Discussing these issues with Lesley Curwen - naturally in the clearest way possible - are Randall Kroszner, former member of the Board of Governors of the Federal Reserve, who was chair of its Committee on Supervision and Regulation of Banking Institutions during the global financial crisis; Professor David Blanchflower, formerly a member of the Bank of England's interest rate-setting Monetary Policy Committee and economist Gabriel Stein, from the Official Monetary and Financial Institutions Forum.

UBS: PMIs and Global EquitiesZH
Given the recent rally, in addition to underlying macro weakness, policy action - and effective action at that – has become increasingly important for investors. Without it this recent rally could end up looking more like a false start than a head start.

Introduction to Computational Finance and Financial EconometricsCoursera
Free online course from University of Washington.

Fiddling at the FireNouriel Roubini / Project Syndicate
Ineffective governments with weak leadership are at the root of the problem. In democracies, repeated elections lead to short-term policy choices. In autocracies like China and Russia, leaders resist the radical reforms that would reduce the power of entrenched lobbies and interests, thereby fueling social unrest as resentment against corruption and rent-seeking boils over into protest.

The Great Ideas of the Social SciencesFarnam Street

9/11 Articles, past and present (2011) – MoreLiver’s Daily

Kolme syytä vastahankaan, pääjohtaja LiikanenJan Hurri / TalSa
EKP ryhtyy uusiin kriisivaltioiden tukitoimiin. On kyseenalaista, toimiiko EKP perussääntönsä mukaan vai sitä rikkoen. Saksan keskuspankin johtajat ovat vastustaneet mielestään kiellettyjä tukitoimia jopa eroamalla tehtävistään. Suomen Pankilta kriisitoimilla on hiljainen hyväksyntä – vaikka pääjohtaja Liikasellakin olisi vastahankaan ainakin kolme hyvää syytä.

EKP:n hyvä ja huono versioKrasting / Huopainen / US Puheenvuoro
Omasta mielestäni Draghi on asettanut EU:n ja siten koko maailman ison kuilun eteen. Mikään hänen suunnitelmassaan ei muuta Espanjan talouden tilaa. Lisäsäästötoimet eivät korjaa Espanjaa vaan ne vain pahentavat sen tilaa.

EKP lähti uhkapeliin täydellä bluffilla. On sinällään se ja sama ketä tässä loppujen lopuksi bluffataan, mutta asia on aiheellista ottaa esille jo pelkästään siksikin, että Suomi on mahdollisten hämäämisyritysten kärsijänä.

Tyhjensikö EKP pöydän?Raha ja Talous
Vaikka EKP ei vielä uusilla päätöksillään onnistunut tyhjentämään pelipöytää, se osoitti pystyvänsä halutessaan sekä rauhoittamaan markkinat että lopettamaan eurovaltioiden rahoituskriisin. Viimeinen askel eli rahoitusavun ehdollisuuden poistaminen jäi kuitenkin ottamatta, minkä seurauksena analyyseja Euroopan talouskriisistä julkaistaan tässä blogissa myös jatkossa.

Euro on ja pysyy - ja Suomi maksaaTE
Esko Seppäsen tuoreen kirjan arviointi – vilkaise myös tuore haastattelu Ylellä.

Pysyväisluontoinen taantuma Hannu Visti

Björn Wahlroos: Piikki kiinni Talouselämä
”Vähän kärjistäen voisi kysyä, että haluatteko todella, että OP-Pohjola takaa koko euroalueen pankkijärjestelmän?” Wahlroos provosoi.

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