12th Jul - Weekender: Best of the Week

The best articles from the ending week. Last week’s ‘best’ here.

The main event of the week was the release of the minutes from the previous Federal Reserve’s FOMC meeting, which showed that “tapering” – slowing down and eventually ending the asset purchases – is to remain conditional on the economy. Bernanke’s press Q&A confirmed the message. This led to huge moves in the US-dollar, a new high in stock markets and lower interest rates.

The second development is the muddle-through toward a banking union in Europe, but the obstacles seem surmountable.

The third development is signs of political discontent in many debtor (Spain, Greece, Portugal, Italy), and to a lesser extent in creditor countries as well, as they start to realize that there will be losses. This counters the attempts to federalization.

Everyone seems to be waiting for the German elections, and expects some sort of serious solution attempt, perhaps as early as December. If no serious attempts are made after the elections, the calm in Europe will be quickly over.

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EUROPE

How knowledge transmission should work – mainly macro

The tenth anniversary of the UK’s 2003 decision not to join the Eurozone has just passed. With all my complaints about how bad macroeconomic policymaking has been recently, I thought it was worth analysing an example of a good decision.

Rationality and the Euro – Krugman / NYT

Simon Wren-Lewis, for once, has a happy story to tell. He looks back at Britain’s fateful decision, ten years ago, not to join the euro, and argues that the decision was made on the basis of — gasp! — actual analysis.

2013 Article IV Consultation, Euro Area Concluding Statement – IMF

IMF Warns Euro Zone Risks Reviving Stress – WSJ

IMF says 'imperative' for euro zone to revive growth – Reuters

The euro - political project and prosperity promise – BIS (pdf)

Introductory statement by Dr Jens Weidmann, President of the Deutsche Bundesbank, at the Rencontres Économiques d'Aix-en-Provence, Aix-en-Provence, 7 July 2013.

  CRISIS OVER OR NOT?

Eurozone crisis over? Not by a long, long way – The Telegraph

'The euro is no longer under existential threat,” Herman Van Rompuy said three weeks ago. “Financial stability has been restored.”

We can’t wave goodbye to the euro crisis just yet – The Telegraph

Since last summer, the euro crisis has apparently abated. Optimists have believed that it has finally been laid to rest.

Muddle through strategy – Hugo Dixon / Breakingviews

Eurozone: Europe gears up for a final, toxic confrontation – FT / Presseurop

Despite encouraging signs, there is no evidence that the crisis is fading, writes Tony Barber

Analysis: Euro zone's queasy feeling as it looks in Japan mirror – Reuters

Monetary policy that cannot get traction; weak banks that cannot or will not lend; an economy trapped in a twilight world of low growth, haunted by the specter of deflation.

Europe’s December Surprise? – Macro and Markets

In each of these cases, the argument has been made that concessions cannot be made to these countries ahead of German elections in September (and  a German constitutional court ruling  on the ECB’s bond-purchase program).  This of course creates expectations that things will be much better for these countries after elections. There is talk of a December European leader’s meeting being the forum for a “move towards more Europe.”

Political risks to reignite the euro crisis soon? – Nordea

… the odds have clearly risen that, in at least one country, the risks materialize, leading to a collapse of the government. Bond markets should become susceptible to such risks in the near future, warranting cautiousness towards the bonds of the weaker Euro-zone countries over the summer. Core bonds, in turn, should be well-placed to benefit once more.

  BANKING UNION

Speech  Benoît Cœuré: Monetary Policy and the Risk of a Lost Decade – ECB

Eurozone faces 'lost decade' unless action taken on banks – The Telegraph

The eurozone faces a Japanese style "lost decade" unless action is taken to address the deep-seated problems of its banks, ratesetter Benoît Coeuré has warned.

The EU’s new bank bailout agency: a preview – Brussels blog / FT

With Brussels gearing up for tomorrow’s much-anticipated unveiling of the European Commission’s proposal for a new EU agency to take over responsibility for bailing out and restructuring failing banks, we thought it was as good a time as any to post the outline of the plan presented to commissioners last month.

Building Banking Union – ECB

Speech by Jörg Asmussen, Member of the Executive Board of the ECB, at the Atlantic Council, London, 9 July 2013

Europe’s Zombie Banks – Project Syndicate

Daniel Gros: Europe's banking sector is too large, has too little capital, and contains too many players that lack a viable long-term business model. It is the combination of the last two factors – an overabundance of banks with no sustainable way to turn a profit – that constitutes the most serious and most difficult problem.

Union Disunion: ECB to Begin Inspection of Euro-Zone Banks – Spiegel

The ECB is set to begin inspecting the balance sheets of large EU financial institutions, even as disagreement between Brussels and Berlin threatens the bloc's banking union plans.

Commission banking union plans met with skepticism – Open Europe

  ECB

Monthly Bulletin, July 2013 – ECB (pdf)

Statistics Pocket Book, July 2013 – ECB (pdf)

Is there a risk of a creeping rise in trade protectionism? – ECB (pdf)

The Eurosystem collateral framework throughout the crisis – ECB (pdf)

  PIIGS

Portugal: the bailout exit options – Brussels blog / FT

Potential Mistakes (Wonkish) – Krugman / NYT

The European Commission has, rather belatedly, woken up to the likelihood that it is understating potential output in debtor countries, overstating their “natural” rate of unemployment, and therefore underestimating the degree of fiscal austerity being imposed.

Spain: Disillusion is leading to the rise of two alternative parties – The Economist

Dramatic political change is sweeping Spain, or so polling suggests. For three decades Mariano Rajoy’s conservative Popular Party (PP) and the Socialists have taken turns to run the country.

The Coming Greek Writeoff – WSJ

The EU will never get its money back.

  MACRO NUMBERS

German Factory Orders Drop as Euro-Area Economy Struggles – BB

German economy struggles as exports and output tumble – Reuters

Finnish exports as expected – Nordea

Sweden: Very weak industrial orders and production for May – Nordea

Euro area house prices down by 2.2% – Eurostat (pdf)

Euro zone output down in May as recovery remains fragile – Reuters

  

 

UNITED STATES

The Derp and Fall of Inflation Fearmongers – The Atlantic

Nothing can kill zombie ideas. Not facts. Not figures. And certainly not failed predictions…Derp doesn't fall under the Fed's dual mandate.

Fed Minutes & Bernanke’s speech – MoreLiver’s Daily

Post-Minutes Confusion – MoreLiver’s Daily

Parsing Bernanke – Long Short / FT

Bernanke Talks: A Conversation at the NBER – WSJ 

  MACRO NUMBERS

Special: US June Employment Report – MoreLiver’s Daily

ASIA

China’s Local Debt Mystery – WSJ

Leaders in Beijing know that swelling local government debt is one of the greatest threats to China’s economy. What they don’t know, apparently, is just how big the threat is.

China’s Very Real Slowdown, Out in the Open – WSJ

China’s economy is slowing down. China reported that both exports and imports fell in June, something that hadn’t happened since October 2009 during the depths of the global recession.

The Misallocation of Credit in China – PIIE

The fundamental challenge facing the Chinese financial sector is how to improve the allocation of credit without creating financial instability.

The third arrow’s lofty aim: the cases for and against optimism – alphaville / FT

From a recommended Credit Suisse strategist note, first a reminder of what’s in Shinzo Abe’s ‘Third Arrow’ for rescuing the Japanese economy:

  MACRO NUMBERS

Why China’s June trade data are almost unremittingly bad – alphaville / FT

Chinese Exports Slump Most Since 2009 – ZH

 

OTHER

The Global Investment Climate – Marc to Market

1) The Fed has begun a protracted exit from the extraordinary monetary policy; while 2) other major central banks are not ready to follow suit. This is encouraging 3) an unwind of structural positions, that were predicated on low US interest rates, and 4) the replacement of the dollar as funding currency, which is leading to 5) portfolio adjustments away from fixed income, emerging markets and some commodities, including precious metals. The dollar, US and Japanese equities are favored by investors.

Analysis: Forward guidance more than passing fashion for central banks – Reuters

"Watch what we do, not what we say," was the central bank mantra for generations. But no more.

  BANK FOR INTERNATIONAL SETTLEMENTS

Basel Probes Banks’ Diverging Views of Risk-Weighted Assets – BB

Basel Report Sees Diverging Bank Views on Risk – DealBook / NYT

The Basel Committee on Banking Supervision, a body of central bankers, says it has found significant differences in how some of the world’s large banks continue to assess risks on their balance sheets.

RWAs, straight outta Basel – alphaville / FT

The Basel Committee on Banking Supervision is back with another look at risk-weightings — that is, the risk weighting done by banks using their own models rather than the standardised BIS methods… “risk weights for credit risk in the banking book vary significantly across banks”.

  IMF WORLD ECONOMIC OUTLOOK

WEO Update – IMF

IMF Reduces Global Growth Outlook as U.S. Expansion Weakens – BB

IMF cuts global growth forecast as emerging markets slow – Reuters

Global Outlook—Still Three Speeds, But Slower – iMFdrirect

Olivier Blanchard: The world economy remains in 3-speed mode.  Emerging markets are still growing rapidly.  The US recovery is steady.  And much of Europe continues to struggle. 

When the facts change, the IMF, er, won't change its mind – The Telegraph

UK not included in the WEO update: perhaps to spare the IMF's blushes at having been proved basically wrong about the UK.

FINNISH

Alankomaiden vapaudenkaipuu – Sampo Terho

Pelkkä vähäinen hintakilpailukyky ei riitä yhteisvaluutan oloissa – klusteriedut, teollisuuden katoaminen ja talousmaantiede – tyhmyri

Turvapaikkaturismia, turvapaikkabisnestä vai yksittäistapauksia – Pauli Vahtera / IL blogit

Talouden ennustamisen vaikeudesta ja käytännöstä poliittisen ulottuvuuden vuoksi – heittoa Euroalueen tulevaisuudesta – tyhmyri

MTV3:n kysely: Enemmistö haluaa Suomen pysyvän euromaana – MTV3

Suurin osa suomalaisista haluaa, että Suomi pysyy jatkossakin euromaana. MTV3 Uutisten teettämässä kyselyssä enemmistö vastaajista - 58 prosenttia - haluaa Suomen pysyvän eurossa tulevaisuudessakin. Ainoastaan noin neljännes olisi valmis eroamaan eurosta.

Sisäisen devalvaation anatomiasta – Tyhmyri

Maamme on kriisissä – Henri Myllyniemi / US Puheenvuoro

Euroon kuuluminen on kuin omistaisi valtavan kartanon palvelusväkineen ja ylläpitokuluineen – ilman ylläpidon vaatimia tuloja – tyhmyri

Nominaalisen talouden romahdus johtaa valtion velkaantumiseen – valtion talouden tervehdyttäminen on haluttaessa helppoa – tyhmyri

  MAKROLUVUT

Kansantalouden tuotanto pieneni huhtikuussa 2013 – Tilastokeskus

Ruma pudotus: Suomen talous supistui peräti 4,2% – TE

Kansantalouden tuotanto painui miinukselle – YLE

Kansantalouden tuotanto romahti – "Todella surkea luku" – HS

Ekonomisti: Tuotannon luvut "synkkiä" – TalSa

Analyytikko Suomen taloudesta: Heikolta näyttää, mutta ei noin heikolta – YLE

Teollisuustuotanto väheni toukokuussa 5,9% y-o-y – Tilastokeskus

Teollisuuden uudet tilaukset vähenivät toukokuussa 8,6% y-o-y – Tilastokeskus

Bruttokansantuote supistui 0,8% vuonna 2012 – Tilastokeskus

Kotitalouksien nettorahoitusvarat hupenivat vuonna 2012 – Tilastokeskus

Kotitalouksien velkaantuminen rauhoittui Q12013 – Tilastokeskus

Rakennusyritysten liikevaihto väheni helmi-huhtikuussa lähes 2% y-o-y – Tilastokeskus

Veroaste 44,1 prosenttia vuonna 2012 – Tilastokeskus

Teollisuuden liikevaihto supistui helmi-huhtik. 6% y-o-y – Tilastokeskus

Petosten ja maksuvälinepetosten määrä lisääntyi tammi-kesäk. – Tilastokeskus

Palvelualojen liikevaihto kasvoi helmi-huhtikuussa 0,7% y-o-y – Tilastokeskus

Palkkasumma kasvoi maalis-toukok. 2,1% y-o-y – Tilastokeskus