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Friday, November 1

1st Nov - Best of the Week

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

Merkel's Europe - how her men run BrusselsReuters
Postwar humility "done with", as Germans seek EU power

The ‘official’ cost of austeritymainly macro
What ended the EZ crisis was not austerity but OMT: if that had been rolled out in 2010 rather than 2012, other periphery countries could also have adjusted more gradually. And of course fiscal consolidation in Germany and some other core countries was not required at all. If instead we had seen fiscal expansion there, to counter the problem of hitting the ZLB, then the overall impact of fiscal policy on EZ GDP need not have been negative.

On International Economic and Exchange Rate PoliciesUS Treasury
Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro – area countries have been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro area, as well as for the world economy.

Raw Nerve: Germany Seethes at US Economic CriticismSpiegel
German policymakers are striking back at the United States, after a US Treasury report blasted the country's massive trade surplus. Sensitivities in Berlin are still high over US spying on Chancellor Angela Merkel.

US Blasts Germany's Economic Model; Germany Blasts Right Back... And May Use Snowden As LeverageZH

Charlemagne: Fawlty EuropeThe Economist
Will the European Commission dare to utter the unmentionable to the Germans?

It’s Not Germany’s Fault Europe Is Turning JapaneseWSJ

Positive net capital inflows boost EURTradingFloor
Eurozone net capital flows continue to provide a solid backdrop to the EUR at a time when international investors are increasing their allocations to Europe.

Euro area Viewpoint: The strong euro mattersNordea
Since the summer of last year, the euro has gained some 10% in value against the USD, and around 8% in nominal and also real trade weighted terms. This is clearly reflected in foreign trade data.

Euro Gains Seen as ECB Bank Test Sparks Repatriation: CurrenciesBB
The euro, which reached a two-year high versus the dollar this month, is poised to extend its gains as the ECB’s audit of the region’s financial system encourages lenders to repatriate overseas assets.

This is your euro on AQRFT

‘Sharp euro zone inflation drop, record joblessness add to ECB conundrum Reuters
Euro zone inflation dropped sharply to nearly four-year lows in October and unemployment stuck at record highs in September, increasing pressure on the European Central Bank to do more to protect economic recovery.

Europe heads towards disinflationTradingFloor
There is a major a shift in European economic data indicating that Europe is heading towards disinflation, which from a policymaker's perspective is the worst of all evils in economics. Europe now has less inflation than Japan. Japanisation is ahead.

Lower oil prices and stronger euro push inflation down to 0.7% - Nordea
Or read the summary

Draghi on the edge of deflationFT
The Credit Suisse European economics team are growing concerned about Mario Draghi’s disinflation problem:

FI Viewpoint – LTRO updateNordea
Last week, excess liquidity fell below the EUR 200bn level for the first time since 2011. This is around the levels below which the volatility in the overnight rate used to increase and EONIA could start climbing towards the refi rate. With year-end coming up, the LTROs approaching one year to maturity, and the Asset Quality Review and stress test in focus ahead of next year, we could see continued large repayments and front-end EONIAs moving higher.

Press release October 2013 euro area bank lending surveyECB
The euro area bank lending survey Q3 2013ECB
No more credit tightening in the Euro areaNordea

This year in banking crises
Much has happened since VoxEU published an eBook on the banking union in Europe one year ago. In this column, the editor of the eBook reviews the developments and plans of the past year. Many of the issues flagged by eBook contributors are still relevant and have not yet been addressed. While immediate pressures seemed to have receded, the crisis is still very much with us and is still awaiting resolution.

Mediobanca hints at Italian euro exit unless Germany shifts on EMU policyThe Telegraph
The exchange rate is bringing Italy's worrying matters to a head.

An encouraging start for the ECB’s Big Bank ReviewBruegel
Thus, the conflict between the ECB and member states will escalate. It is likely to trigger significantly more financial-market volatility in 2014 than Europe has witnessed (so far) in 2013, in spite of sizeable internal shocks this year such as the February election in Italy and the March developments in Cyprus, and external ones such as the turmoil in emerging markets and the recent US fiscal drama.

ECB expected to cut the refi rate in DecemberDanske Bank

Pieces of good news from Spain, but don’t call it recovery yetNordea

Tapering is on hold, not off – FOMC previewNordea

Three Takeaways on the Fed’s Policy Statement – December Taper Not Off the TableWSJ

Tapering is on hold, not off – FOMC statementNordea

Quant finance blogsPortfolio Probe

Global FX Strategy: No more EURUSD upsideNordea
In the short term, we expect the USD to gain ground. The market expectations of tapering have been postponed to March – and even later – which can be changed by a few better macro figures from the US. (Our economists still call for a January taper.) The weaker payrolls in September may still be revised as they used to in previous years. Various short-term indicator models suggest that the EURUSD has overshot.

Forward Guidance: A new Vox
Forward guidance is the practice of communicating the future path of monetary policy instruments. This column introduces a new eBook on the subject that collects the views of central bankers from the 7Fed, ECB, Bank of Japan, and Bank of England together with those of scholars and market participants. Forward guidance could be the key to unwinding massive central-bank balance sheets without severe disruptions.

Fiscal Multipliers: Liquidity Traps and Currency UnionsEconomist’s View

Näin pankkiunioni höynäyttää meitä kohti liittovaltiota Jan Hurri / TalSa
Pankkiunioni on välttämätön lisä rahaliittoon, jotta velkakriisi ei toistu. Näin vakuuttavat europäättäjät. Heidän perustelunsa ovat kuitenkin keskeisiltä osin kyseenalaisia. Pankkiunionin sivuvaikutukset voivat jopa kärjistää velkakriisiä lisää – ja näin "yllättäen" pakottaa euromaat ottamaan lisää askelia kohti yhteisvastuuta ja liittovaltiota.

Navigaattori 29.10.2013Nordea
Yksityinen velkataakka ja pankkitestit hidastavat Euroopan kasvua * Ruotsin kruunu vahvistuu, mutta maltillisemmin * Nytkö lyhyet korot lähtivät? * Kasvava USA:n tuotanto painanut öljyn hintaa * Metsäyritykset ja Neste Oil tuloskauden yllättäjiä * Mitä Fedin elvytyksen jatkuminen merkitsee eurolle? * Paineet EKP:lle kasvavat * Kansainvälistä hajautusta sijoitusobligaatiolla

Rahoitusmarkkinaraportti 2/2013Suomen Pankki
Suomalaiset yritykset laskeneet liikkeeseen poikkeuksellisen paljon joukkolainoja * Asuntoyhteisöjen lainakanta yli kolmenkertaistunut kymmenessä vuodessa * Euroalueen pankkien hoitamattomat luotot kovassa kasvussa * Monet euromaat rajoittavat suuria käteismaksuja

Tuomas Saarenheimo ja HeSarin haastattelu – kerrassaan jännittävääTyhmyri