The best
ones from my past seven day’s postings.
Previously on MoreLiver’s
EUROPE
Dad, you were right – FT
The structural foundations of the eurozone
project were indeed flawed and the current crisis is forcing leaders to correct
them
Europe’s Austerity Madness – Krugman
/ NYT
Suddenly, Spain and Greece are being racked by
strikes and huge demonstrations. The public in these countries is, in effect,
saying that it has reached its limit: With unemployment at Great Depression
levels and with erstwhile middle-class workers reduced to picking through
garbage in search of food, austerity has already gone too far. And this means
that there may not be a deal after all.
Wynne Godley and the
Eurozone’s Eventual Sovereign Crisis – EconoMonitor
Steve Keen dug up a 1992 post by Wynne Godley
on the London Review of Books that offers sharp insight into the fundamental problems
with the euro. “Godley’s remarks, no doubt seen as extremist when he uttered
them,” Keen writes, “have proven to be utterly prophetic.”
External Imbalances in the
Euro Area – IMF
The paper examines the extent to which current
account imbalances of euro area countries are related to intra-euro area
factors and to external trade shocks. We argue that the traditional
explanations for the rising imbalances are correct, but are incomplete. We
uncover a large impact of declines in export competitiveness and asymmetric
trade developments vis-à-vis the rest of the world –in particular vis-à-vis China, Central and Eastern Europe, and oil exporters—on
the external balance of euro area debtor countries. While current account
imbalances of euro area deficit countries vis-à-vis the rest of the world
increased, they were financed mostly by intra-euro area capital inflows (in
particular by the purchase of government and financial institutions’
securities, and cross-border interbank lending) which permitted external
imbalances to grow over time.
Euro Leaders Face October of
Unrest After September Rally – BB
Good themes
and coming events-roundup
Growth without rebalancing is
not enough – Free
exchange / The Economist
The status quo is only bearable because most
people suffer from the illusion that the current course will end the crises and
depressions. It has not so far and almost certainly will not in the future. The
cross-border claims have to be liquidated one way or another, whether by
subsuming them into a pan-European identity, restructuring, or rebalancing. Yet
there seems to be no political support for any of these options, which suggests
that the breakup of the single currency is the most likely course.
The inflation treatment – Free
exchange / The Economist
The IMF presents six case studies which help to
illustrate how consolidations generally work (or don't)…while inflation might
be unpalatable in many ways, the alternatives look more costly and dramatically
less likely to succeed. And so the supposition ought to be that inflation will
at some point become the treatment of choice.
FT column: Blame the great men for Europe’s crisis – The
World / FT
The Roots of the Euro Crisis Lie at the
Doorsteps of the ECB
– EconoMonitor
The Eurosystem monetary policy strategy,
instruments, and procedures have contributed to an unprecedented intra-Eurozone
external debt crisis and presently result in large “stealth” transfers from the
GNLF to the GIIPS, among other fiscal effects.
Analysis: Uneasy role for IMF
in euro zone crisis
– Reuters
The euro zone debt crisis is pushing the
International Monetary Fund into new, and at times, uncomfortable territory.
The global lender is preparing to monitor some of Europe's largest economies possibly
without its biggest weapon - money.
OSI likely, but not to give Greece a new lease on life in the EZ – Economist
Meg
Possibly as early as the first half of next
year if the current Greek coalition collapses and is replaced by a Syriza-led,
hard bargaining coalition that goes to the brink with the troika and is too
inexperienced to pull back. There is also a chance the troika will continue to
keep Greece on life support until after the German elections (September 2013) and
until both Spain and Italy are in partial bailout programs (Spain: any day now, Italy: probably after their
election in Q2 2013).
EUROPE: FISCAL UNION
The leaked Van Rompuy plan for
eurozone – Brussels
blog / FT
MoUs for all! More on that
draft EU agenda… – alphaville
/ FT
might make
sense, and might have the support of the major countries – but nothing solid
yet.
Van Rompuy paper points to EU
summit pitfalls – Reuters
Banking supervision, the single market, a
centralized euro zone budget, a single bank resolution fund, direct
recapitalization of banks from rescue funds and much stricter fiscal oversight.
Common EZ budget? Good luck! – Economist
Meg
Euro zone policymakers are right that fiscal
transfers are necessary to keep all current member states in the common
currency union. But I doubt that politics can evolve fast enough to establish a
fiscal union before countries choose to abandon the euro
EUROPE: BANKS
Capital shortages, Basel III, and credit crunches – Free
exchange / The Economist
The European Banking Authority (EBA) released
its second report monitoring compliance with Basel III regulations on September 27. The
big finding is that the aggregate European banking sector needs about 338 billion euros of additional equity
capital to comply with the rules. While firms have several more years to adjust
their balance sheets and raise funds, this seems like a tall order, especially
given what has happened to bank share prices
European Banks Still Treat
Their Sovereign Debt Holdings As Risk-Free, BIS
Finds – ZH
The EU’s plans for tightening bank capital
rules fail to live up to the Basel III banking reform, an inspection team
of global regulators has decided. The draft EU directive is “noncompliant” with
the global deal in two important areas. Its definitions of top-quality capital
are looser in at least seven ways and a loophole allows many big banks to
assume that their sovereign debt holdings are risk-free.
The quest for a healthy
European banking sector – Open
Europe
Yesterday saw the release of the hefty Liikanen
report (a dense 153 pages) on the European banking sector. We’re yet to fully
sift through the report but there a quite a few eye catching graphs and
statistics which we thought worth flagging up.
EUROPE: SPAIN
A week of Spain-related
excitement is not over just yet – alphaville
/ FT
UBS strategist Justin Knight rightly points out
“the areas of concern are now becoming numerous” and it’s making the question
of when Spain might request aid increasingly complex.
How Oliver Wyman Manipulated
The Spanish Bank Bailout Analysis – ZH
Spanish Bank Stress Tests – TF
Market Advisors
Exclusive: Spain ready for bailout, Germany signals "wait" – sources – Reuters
Spain is ready to request a euro zone bailout
for its public finances as early as next weekend but Germany has signaled that
it should hold off, European officials said on Monday.
USA
HSBC: Don’t say printing! – alphaville
/ FT
The Global fixed income strategy team at HSBC *believe*
they’ve come up with a non-consensus view on the effects of QEternity
The expectations bluff – alphaville
/ FT
“What’s he thinking with QEternity? It’s so
inflationary. AGHH!” But what if, as Dario Perkins at Lombard Street Research wonders this week, that’s exactly the reaction Bernanke was
hoping for?
Investment Outlook Monthly:
Damages – Bill Gross / PIMCO
The U.S. has federal debt/GDP less than 100%, Aaa/AA+ credit
ratings, and the benefit of being the world’s reserve currency. Studies by the
CBO, IMF and BIS (when averaged) suggest that we need to cut spending or raise taxes by
11% of GDP and rather quickly over the next five to 10 years. Unless we begin to
close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the
Fed would print money to pay for the deficiency, inflation would follow, and
the dollar would inevitably decline.
ASIA
Is China’s Communist Party Doomed? – The Diplomat
Is China’s Communist Party Doomed? – The Diplomat
MARKETS
FX Comment: action time? – Nordea
Deflating the emerging
markets bubble – Sober
Look
On The Edge Of A Recession – The
Short Side of The Long
The bull case is still intact – Humble
Student
Mr. October’s Interesting
Charts – Global
Macro Monitor
Charting
the major stock markets, good and quick.
A new era for FX – alphaville
/ FT
HSBC’s
report: domination of risk-on/ risk-off and
how, no matter how you parse it or trade it, everything comes down to RORO and
central bank moves.
Quarterly Guide to the
Markets – J.P.
Morgan
Excellent
chartbook, the pdf download link is on the left of the page.
Nordea Economic and Market
Outlook: From crisis to crisis – Nordea
US: Unintended side-effects of the Fed’s
ultra-easy policy loom * Euro-zone: Slowly moving in the right direction * FX
Majors: Under the central bank “put” * Sweden: Manufacturing in the
cold November rain * Norway: Later rate hike from
Norges Bank * Denmark: A gradual return to the growth track * Nordic Covered bonds: Plenty of
cheap Danish ARMs (direct
pdf)
G10 Weekly: No doubt, central
banks are dominating asset markets – Nordea
(pdf)
Equity markets are apparently pricing in a
different story than rates markets. In our view, this dislocation with rates is
rather a reflection of central banks’ balance sheet expansion but perhaps also
the lack of investment substitutes when core government bond yields offer
negative real returns.
OTHER
(audio) BizDaily:
Almost zero – BBC
(mp3)
Do almost zero interest rates actually get an
economy growing again? Business Daily hears from Japan's businesses - which
have had twenty years of low interest rates. And one of the architects of the
euro Otmar Issing says more integration is not the answer for Europe. Plus - Lucy Kellaway considers
whether sheer dumb luck is the best aid to your career.
Sovereign Debt Restructurings
1950–2010 – IMF
/ The Big Picture
60 years,
186 debt exchanges, 447 bilateral debt agreements. Coming soon to area near
you….
Yale Versus Norway – Greycourt
(pdf)
Comparison of the two ”elite” portfolio
strategies.
IN FINNISH
Näin Suomenkin pulittama hätäraha kiertää pankeille
– Jan
Hurri / TalSa
Suomen ja muiden euromaiden
"pelastuspaketit" ja EKP:n hätärahoitus näyttävät pääosin kiertäneen
kriisimaiden ulkomaisille rahoittajapankeille. Tältä ainakin näyttää, kun rinta
rinnan tarkastellaan kriisitoimien rahavirtoja ja ulkomaisten pankkien
kriisimaista kotiuttamia summia. Sattumaa tai ei, ne täsmäävät – ja ovat
lisäksi huikeita.
Olli Rehn – Brysselin Bobrikov – Olli
Pusa / US Puheenvuoro
Liittovaltion ‘It Wasn’t Me’ – Juhani
Huopainen / US Puheenvuoro
Valuuttadevalvaatio+Inflaatio on terveellisempi
vaihtoehto kuin sisäinen devalvaatio – lääketieteellisin perustein –
tyhmyri
Urpilaisesta uusi ulkoministeri? – Jyrki Virolainen
Tuomioja ja aasinmyssy – Hannu Visti
Euro hajoaa - entä sitten? – Brysselin
kone / YLE
Kansainvälisen politiikan
professori Heikki Patomäki Helsingin yliopistosta on niitä harvoja, jotka ovat
julkisesti kertoneet yksityiskohtaisesti mitä euron hajoamisesta voisi seurata.
Mutta miten Suomen käy mahdollisen euron hajoamisen jälkeen? Entä mitä
tapahtuisi jos Suomi eroaisi eurosta? Patomäen mukaan nykyisen kriisin jälkeen
EU joko hajoaa tai kehittyy kohti liittovaltiota. (suora mp3-linkki)
Eurobudjetti: paljon
huonoa - nolla hyvää puolta – Henri
Myllyniemi / US Puheenvuoro