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Friday, October 5

5th Oct - Weekender: Best of The Week

The best ones from my past seven day’s postings.

Previously on MoreLiver’s

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Dad, you were rightFT
The structural foundations of the eurozone project were indeed flawed and the current crisis is forcing leaders to correct them

Europe’s Austerity MadnessKrugman / 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 CrisisEconoMonitor
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 RallyBB
Good themes and coming events-roundup

Growth without rebalancing is not enoughFree 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 treatmentFree 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 crisisThe World / FT

The Roots of the Euro Crisis Lie at the Doorsteps of the ECBEconoMonitor
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 crisisReuters
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 EZEconomist 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).

The leaked Van Rompuy plan for eurozoneBrussels 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

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 FindsZH
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 sectorOpen 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.

A week of Spain-related excitement is not over just yetalphaville / 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 AnalysisZH

Spanish Bank Stress TestsTF Market Advisors

Exclusive: Spain ready for bailout, Germany signals "wait" – sourcesReuters
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.

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 bluffalphaville / 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: DamagesBill 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.

Is China’s Communist Party Doomed?The Diplomat

FX Comment: action time?Nordea

Deflating the emerging markets bubbleSober Look

On The Edge Of A RecessionThe Short Side of The Long
The bull case is still intact Humble Student
Mr. October’s Interesting ChartsGlobal Macro Monitor
Charting the major stock markets, good and quick.

A new era for FXalphaville / 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 MarketsJ.P. Morgan
Excellent chartbook, the pdf download link is on the left of the page.

Nordea Economic and Market Outlook: From crisis to crisisNordea
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 marketsNordea (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.

(audio) BizDaily: Almost zeroBBC (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 1950–2010IMF / 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.

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 BobrikovOlli Pusa / US Puheenvuoro

Liittovaltion ‘It Wasn’t Me’Juhani Huopainen / US Puheenvuoro

Valuuttadevalvaatio+Inflaatio on terveellisempi vaihtoehto kuin sisäinen devalvaatio – lääketieteellisin perusteintyhmyri

Urpilaisesta uusi ulkoministeri?Jyrki Virolainen

Tuomioja ja aasinmyssyHannu 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 puoltaHenri Myllyniemi / US Puheenvuoro

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