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Friday, July 12

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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How knowledge transmission should workmainly 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 EuroKrugman / 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 StatementIMF
IMF Warns Euro Zone Risks Reviving StressWSJ
IMF says 'imperative' for euro zone to revive growthReuters

The euro - political project and prosperity promiseBIS (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.

Eurozone crisis over? Not by a long, long wayThe 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 yetThe Telegraph
Since last summer, the euro crisis has apparently abated. Optimists have believed that it has finally been laid to rest.

Muddle through strategyHugo Dixon / Breakingviews

Eurozone: Europe gears up for a final, toxic confrontationFT / 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 mirrorReuters
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.

Speech  Benoît Cœuré: Monetary Policy and the Risk of a Lost DecadeECB
Eurozone faces 'lost decade' unless action taken on banksThe 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 previewBrussels 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 UnionECB
Speech by Jörg Asmussen, Member of the Executive Board of the ECB, at the Atlantic Council, London, 9 July 2013

Europe’s Zombie BanksProject 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 BanksSpiegel
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 skepticismOpen Europe

Monthly Bulletin, July 2013ECB (pdf)
Statistics Pocket Book, July 2013ECB (pdf)
Is there a risk of a creeping rise in trade protectionism?ECB (pdf)
The Eurosystem collateral framework throughout the crisisECB (pdf)

Portugal: the bailout exit optionsBrussels 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 partiesThe 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 WriteoffWSJ
The EU will never get its money back.

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
The Derp and Fall of Inflation FearmongersThe 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 speechMoreLiver’s Daily
Post-Minutes ConfusionMoreLiver’s Daily
Parsing BernankeLong Short / FT
Bernanke Talks: A Conversation at the NBERWSJ 

Special: US June Employment Report – MoreLiver’s Daily

China’s Local Debt MysteryWSJ
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 OpenWSJ
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 ChinaPIIE
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 optimismalphaville / 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:

Why China’s June trade data are almost unremittingly bad – alphaville / FT
Chinese Exports Slump Most Since 2009 – ZH

The Global Investment ClimateMarc 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 banksReuters
"Watch what we do, not what we say," was the central bank mantra for generations. But no more.

Basel Probes Banks’ Diverging Views of Risk-Weighted AssetsBB

Basel Report Sees Diverging Bank Views on RiskDealBook / 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 Baselalphaville / 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”.

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

Alankomaiden vapaudenkaipuuSampo Terho

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

Turvapaikkaturismia, turvapaikkabisnestä vai yksittäistapauksiaPauli Vahtera / IL blogit

Talouden ennustamisen vaikeudesta ja käytännöstä poliittisen ulottuvuuden vuoksi – heittoa Euroalueen tulevaisuudestatyhmyri

MTV3:n kysely: Enemmistö haluaa Suomen pysyvän euromaanaMTV3
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 anatomiastaTyhmyri

Maamme on kriisissäHenri Myllyniemi / US Puheenvuoro

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

Nominaalisen talouden romahdus johtaa valtion velkaantumiseen – valtion talouden tervehdyttäminen on haluttaessa helppoatyhmyri

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