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Friday, October 18

18th Oct - Weekender: Best of the Week

Best article links selected from the ending week’s posts. Last week’s edition here.

French Politics and EconomicsMarc to Market
A second round of a local election in France (Brignoles) resulted in a victory by Le Pen's National Front… The latest Ifop polls shows Le Pen ahead in the national polls, with 24% support.  The UMP has 22% support and the Socialists 19%

Eurozone inflation hits its lowest levels for three yearsOpen Europe

Quarterly Report on the Euro AreaEuropa (pdf)
Euro Zone Isn’t Rebalancing Strongly, Commission Paper SaysWSJ

Mind the gap! And the way structural budget balances are calculatedBruegel
The so-called structural balance of the general government aims to measure the ‘underlying’ position of the budget by excluding the impact of the economic cycle and one-off measures, like bank recapitalisation costs. It has a crucial role in designing fiscal consolidation strategies in the EU

Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain?IMF

Euro Capitals Tighten Fiscal Leash as EU Starts AusterityBB

Europe’s Choice: Risk Stagnation or Pursue IntegrationiMFdirect

IMF and Europe Part Ways Over BailoutsWSJ
The euro zone and the IMF were thrown into each other's arms when Greece's debt crisis began early in 2010. Now, officials say, they could be heading for a divorce. As representatives from both sides meet at the end of this week in Washington to discuss Greece's need for extra cash and a lighter debt load, the clashes that have built up over the past three years are coming to a head.

The IMF and the legacy of the euro
Susan Schadler: The IMF loans to Greece, Ireland and Portugal are considered controversial by some analysts. This column argues that these loans – granted without having agreed on convincing paths to manageable debt levels – constituted a substantial departure from IMF principles. The situation is costly for Europe and, having now permanently changed the principles guiding large IMF loans, it will be costly for crises to come.

Europe prepares to come clean on hidden bank lossesReuters
Euro zone countries will consider on Monday how to pay for the repair of their broken banks after health checks next year that are expected to uncover problems that have festered since the financial crisis.

Factbox: Europe's slow march to repair its banksReuters
Euro zone countries are trying to find a way to pay for the repair of their broken banks, testing governments' resolve to come clean on the problems that have festered since the global financial crisis.

Spanish banks fear new capital hit in European reviewReuters

Eurozone’s financial institutions more fragmented than everFT
The intrinsic (intractable?) bank bid for sovereign debtalphaville / FT
Europe’s financial institutions are more exposed to their domestic government bonds than at any time since the eurozone crisis started. It has yet to be decided exactly how the European Banking Authority’s stress test of about 150 banks next summer will treat sovereign bond holdings. (Financial Times)

An unusable backstop: 10 reasons why the ESM might never take a stake in a bankBrussels blog / FT

ECB’s Draghi: Knowing Too Much About Our Big Banks Could Set Off A PanicTestosterone Pit
European regulators are desperate. The only thing known about the holes in bank balance sheets stuffed with decomposing assets is that they’re deep. No one knows how deep. No one is allowed to know – not until Eurocrats decide who will pay for bailing out these banks. How do we know? ECB President Mario Draghi said that.

Wealth-taxing, reduxalphaville / FT
A box on “one-off capital levies” — or wealth taxes — burrowed away on page 49 of the IMF’s latest Fiscal Monitor.

Draghi Turns Judge on Europe Banks as ECB Studies BalanceBB
Policy makers at the Frankfurt-based ECB will this week try to agree on the ground rules of its three-pronged probe into the health of the 130 banks it will start supervising next year. The process will stress-test balance sheets for exposure to sovereign debt as well as push institutions to admit to more of their bad debt than they have before, according to three officials who spoke on condition of anonymity. The check-up due in early 2014 is the ECB’s precondition for assuming the burden of overseeing banks.

The banks are OK: survey editionalphaville / FT
We don’t know exactly what next year’s Asset Quality Review will involve yet, but we are starting to get a picture of what investors think about the ECB’s forthcoming burrow through bank balance sheets. In short, given that it might not be all over until the end 0f 2014, everyone is feeling pretty good about the banks right now, and that might explain a surge of appreciation for European stocks.

Germany digs in heels as Europe moves towards banking unionReuters
EU finance ministers agreed on Tuesday to give the European Central Bank sweeping supervisory powers in the euro zone but Germany dug in its heels on how to deal with failing banks, the second stage in building a banking union.

Which role should the ECB give up?Bruegel
We look at old and new competences of the ECB, identifying major synergies and conflicts of interests between them.

Goldman: LTRO-III is only a matter of timeSober Look

Euro area economic outlook, the ECB’s monetary policy and current policy challengesECB
Mario Draghi, 28th Meeting of the International Monetary and Financial Committee,
in Washington D.C. on 12 October 2013

The ECB’s New Pressure Tactics on Member States’ TaxpayersPIIE
As President Obama and Congress speed toward each other on a world-rattling collision course, the European Central Bank (ECB) is also replaying its own version of “political chicken” with member states in the European Union these days. At issue is the shape of the common currency’s necessary institutional reforms.

Draghi: The euro area economy - current prospects and challenges aheadBIS (pdf)

Three options for ending the debt-ceiling crisis… forever!WaPo

Long live the great US Congress – Our take on the market impactNordea
Flash Comment - US Congress passes debt dealDanske Bank
The deal will reopen the government today and increase the debt ceiling. It is, however, only a temporary relief, as the bill will fund the government until 15 January and raise the debt ceiling until 7 February. Hence, we can look forward to another round of negotiations early next year.

Schedule for backlog of US data releases TradingFloor
BLS Releases Updated Economic Data Schedule - B

The Fed now holds more securities than all US banks combined Sober Look

Regional Fed Bosses Struggle With Communication IssueWSJ

Yield Forecast UpdateNordea (pdf)
Long-end EUR rates to move higher on stronger recovery

Global FX Strategy: The debt ceiling and the dollarNordea (pdf)
Find our take on the dollar reaction to an expected upcoming debt ceiling deal, alongside updated stories on GBP, SEK, NOK and market quant in this week's edition of Global FX Strategy.

FX Forecast Update: October - Scandi upside limited in the near termDanske Bank (pdf)

This simple trading strategy points to rationale for currency warsSober Look
Select two countries with the worst performing currencies (against USD) over the past 4 months and go long equity indices of those two countries. Now select the two best performing currencies and short the indices of those countries (to the extent that's possible). Repeat the exercise once a month.

Global liquidity: selected indicatorsBIS (pdf)
Focusing on flow measures, global growth in international bank credit remains virtually zero, with declines in aggregate interbank credit offsetting positive growth in credit to non-banks…In turn, monetary indicators in advanced economies imply sustained policy accommodation, even though term premia (the extra compensation for bearing a bond’s duration risk) and, with them, long-term yields have risen from their earlier lows.

3 Numbers to Watch: US credit ratings, Fed presidents, FX carry TradingFloor
Credit raters are rattling their sabres at the American political leadership, and Fed presidents will probably complain how the lack of data postpones the tapering. The two-year yield spread of Germany and US is at interesting levels.

Five Questions About Unconventional Monetary Policy That’ll Be Answered Only 10 Years From NowWSJ

Economics: the biggest fraud ever perpetrated on the world?Pieria

Modeling the “safe asset mechanism”alphaville / FT
Both quantitative easing and forward guidance are unlikely to be very effective. The authors also add new dimensions to the commonly accepted New Keynesian wisdom on liquidity traps and fiscal policy, which they only partly agree with. The paper discusses a model of what the authors call a “Safe Asset Mechanism” — essentially a safe asset shortage characterised by a period of “excess” demand for safe assets.

Dudley: Key developments in the tri-party repo market – BIS (pdf)
Stein: The fire-sales problem and securities financing transactions – BIS (pdf)
Dudley: Unconventional monetary policies and central bank independence – BIS

Kriisimaissa palkat tippuvat mutta hinnat vain nousevatTyhmyri
Tämähän menee juuri kuin yhteismarkkinoilla pitääkin

Politiikkaradio: Onko Suomella varaa velkaantua?Yle
Suomen valtiolla on vuoden lopussa velkaa noin 93 miljardia euroa. Se on enemmän kuin koskaan aiemmin. Suhteessa bruttokansantuotteeseen valtion velka on samalla tasolla kuin 1990-luvun alkupuolella. Finanssineuvos, valtiovarainministeriön vakausyksikön päällikkö Mikko Spolander sanoo, että paniikkiratkaisuihin ei kannata ryhtyä, mutta velkaantumisvauhdin täytyy hidastua. Mikko Jylhä haastattelee.

Euroopan neljä polkua - entä jos seuraa katastrofi?SK
Euroalueen ennätyksellinen työttömyys on keskeisin talous- ja yhteiskuntapoliittinen ongelma, joka horjuttaa Euroopan vakautta. Seuraavassa esitän Euroopan neljä mahdollista ”etenemisreittiä”, joista jokainen voi sisältää samoja yhteiskunnallisia ja taloudellisia ilmiöitä.

Kolumni: Työeläkerahastot ovat Suomen suurin taloudellisen vallan keskittymä HS

Kroatian vientisektori kiittääJuhani Huopainen

Tutkimus: Eliitti hallitsee eurokriisin julkisuuttaPS

Jyrki Katainen ja työpaikan haku – hakupaperit vain ovat suomalaiselle veronmaksajalle kalliitTyhmyri

Setä Samuli sotkeutui omatekoiseen velkasotkuunTalSa
Yhdysvallat on maailman absoluuttisesti velkaisin valtio, mutta se ei ole Kreikka. Setä Samulilla ei olisi vaikeuksia hankkia tarvitsemaansa rahoitusta, ellei maan poliittinen kriisi panisi kapuloita rahoituksen rattaisiin. Toki Yhdysvallatkin luisuu kohti julkisen talouden todellista rahoituskriisiä, mutta sen aika ei ole vielä. Velkakatto on omatekoinen ongelma.

Eurooppa yhtenäistyyHenri Myllyniemi

USA:lle luottoluokituksen alennusJuhani Huopainen

Eespäin, eespäin tiellä taistojenPauli Vahtera / Libera

"Otetaan markka takaisin" KL
Sijoittajaksi vaihtanut, Ålandsbankenin varainhoitoyhtiön entinen toimitusjohtaja Stefan Törnqvist epäilee yhä euroa.

Sosialidemokraattien alamäkiTyhmyri
Syyt löytyvät toteutetusta politiikasta