Weekend’s
picks on Europe, US and Asia. IMF tells Greece needs more money in the coming years and the external balances are not improving - adding that a Grexit and default would be helpful for Greece. FT's alphaville mentions that the euro area's internal adjustments have not happened. The bailout of Cyprus and the Italian elections together with terrible macro are the near-term sources of worry.
Previously on MoreLiver’s:
EUROPE
Brussels blog round-up for 12 – 18 January: Europe’s security shortcomings, ‘show’
passports, and is the eurozone returning to normal? – europp
/ LSE
Pictet On The Sudden Depreciation Of The Swiss
Franc – ZH
The European house of
mum and dad – alphaville
/ FT
Bad Economy Has Young Europeans at Home – Spiegel
Young
Europeans in countries hit hardest by the Continent's economic crisis are
finding it difficult to move out of their parents' home. Data shows that over
50 percent of those aged 25 to 34 in some countries have yet to move out.
At the
start of 2013, the eurozone’s “fiscal compact” entered into force, owing to its
ratification on December 21 by a 12th country, Finland, a year after German Chancellor
Angela Merkel prodded eurozone leaders into agreement. But will it enforce
budget discipline any more effectively than previous agreements?
In advance of David Cameron’s now postponed speech on Europe, Costas
Milas explores the ramifications which the prospect of an exit from the EU
might hold for the UK’s credit
rating.
Make-or-break elections for Merkel coalition
partner – euobserver
Regional
elections in Lower
Saxony on
Sunday are being seen as a barometer for Germany's general elections in autumn, with
Chancellor Merkel's junior coalition partner struggling for survival.
Russia lambasted
Japan and other
countries this week for deliberately weakening their currencies to gain
competitive advantage in global trade…So how come Russia itself is
buying dollars to weaken its own currency?
CRISIS
OVER OR NOT?
Eurozone crisis: It ain’t over yet – voxeu.org
All G7
economies are struggling in the post-crisis climate, but US GDP has recovered to pre-crisis levels,
while the Eurozone simply hasn’t. This column portrays the global crisis as a
transitory shock for the US, but as a quasi-permanent shock for
Europe. The policies that are needed get
the Eurozone back on track do not seem to be politically feasible. As tension
rises with every quarter of stagnation, prospects for the survival of the euro
are not only not improving, they are actually getting worse.
The ECB has
failed to correct or really to even ameliorate the deep, persistent imbalances
that are so pervasive across the currency union. Don't expect this situation to
improve anytime in the near future. It would seem that a broken monetary policy
transmission channel may turn into an EMU mainstay, hindering credit expansion
and generally curtailing Mario Draghi's ability to effectively arrest the
crisis for the foreseeable future.
The euro-zone crisis: Time to celebrate? – The
Economist
Government-bond
markets in peripheral countries are soaring
All pain and no (productivity) gains – alphaville
/ FT
One of the
reasons that the eurozone’s peripherals should be willing to put up with
austerity is that it’s helping address internal balances and address falls in
competitiveness. That’s the story being sold by the politicians at least.
Many are
arguing that all is well, crisis averted and the world can go on its merry way
to Dow 30,000. However, the reality is extremely different in the real economy
Markets Buy Mario Draghi’s Future Uncritically – WSJ
When ECB
President Mario Draghi strode into his Frankfurt press conference on January 10, he had a
vision to sell, writes columnist David Cottle.
CYPRUS
There is
growing resistance in Europe to the planned aid program for Cyprus, because it would also benefit
illegal Russian money parked in bank accounts in Cyprus. The government in Nicosia is willing to make concessions, but
Brussels is demanding more reforms.
GREECE
Greece: Letter of Intent, Memorandum of Economic and Financial Policies, and
Technical Memorandum of Understanding – IMF (pdf)
Greece: First and Second Reviews Under the
Extended Arrangement Under the Extended Fund Facility, Request for Waiver of
Applicability, Modification of Performance Criteria, and Rephasing of
Access—Staff Report
– IMF
PORTUGAL
Portugal: Letter of Intent, Memorandum of Economic and Financial Policies, and
Technical Memorandum of Understanding – IMF (pdf)
ITALY
Unappreciated
by many is the fact that the Italian economy has seen the largest contraction
(7%) since the crisis began within the euro zone after Greece.
Per capita income is back, according to former ECB's Bini Smaghi, to
where it was in the mid-1990s (talk about a lost decade).
SPAIN
Massive Fraud in Spain Threatens Entire
Government of Prime Minister Mariano Rajoy; Protestors in Madrid Shout
"Resignation" – Mish’s
UNITED STATES
The Future's so Bright ...– Calculated
Risk
It looks
like economic growth will pickup over the next few years…The key short term
risk is too much additional deficit reduction too quickly.
FEDERAL
RESERVE
The Federal Reserve's
Balance Sheet and Earnings: A primer and projections – FED
Using the FOMC's stated exit strategy principles and
the Blue Chip financial forecasts of the federal funds rate, the projections
have the Federal Reserve's portfolio beginning to contract in 2015, returning
to a more normal size in 2018 or 2019, and returning to a more normal
composition a year thereafter.
The Legacy of
Timothy Geithner – Economix
/ NYT
Mr. Geithner came to Treasury in the middle of a
severe financial crisis, a set of problems that he helped to create and then
worked hard to prevent from worsening. As president of the Federal Reserve Bank
of New York, starting
in 2003, he watched over – and failed to defuse – the buildup of systemic risk.
Fed's balance sheet grows above $3 trillion,
finally impacting the monetary base – Sober
Look
Fed Concerned About
Overheated Markets Amid Record Bond Buys – BB
Do 2007 Fed Transcripts Make Yellen Frontrunner
To Succeed Bernanke?
– Econospeak
DEBT
CEILING & FISCAL CLIFF
Why Congress can't even reach a mini-bargain -- and
why kicking the can down the road will remain the most likely outcome.
Squabbling
in Washington over the debt ceiling is again
raising the specter that the United States may be forced to delay payments on
its debt. While the stigma of a default would be damaging enough to investor
sentiment, the chaos from a breakdown in financial markets' systems that might
result would be even scarier.
Fiscal Cliff Update: a Short-Term Debt Limit
Extension Shifts the Battlefield – CFR
http://blogs.cfr.org/kahn/2013/01/18/fiscal-cliff-update-a-short-term-debt-limit-extension-shifts-the-battlefield/
The case for deficit optimism – Wonkblog
/ WP
For all the
sound and fury, Washington’s actually making real progress on debt.
MACRO DATA
Preliminary
January Consumer Sentiment declines to 71.3 – Calculated
Risk
Consumer Sentiment
Drops at Start of Year – WSJ
Consumer
sentiment at year low; fiscal debate weighs – Reuters
Housing Starts and Building Permits Hit Multi-Year
Highs – Bespoke
Growth in
personal income remains rather weak when compared to... – RCS
ASIA
JAPAN
Both barrels? – Free
exchange / The Economist
Japan seems to be preparing to embark on
a major effort to right its economic ship. As it does so, an interesting debate
is emerging over just what the Japanese economy needs.
http://www.economist.com/blogs/freeexchange/2013/01/japanese-economy
Shinzo and the Helicopters (Somewhat Wonkish) – Krugman
/ NYT
Way back in
the early stages of this crisis I argued that we’d entered a looking-glass
realm in which virtue was vice and prudence was folly. We’re still in that
realm — and Japan, of all places, seems to be the
first major government to figure that out.
Japan’s new
government, seeking to boost economic growth, could be about to shoot itself in
the foot by destroying its one great advantage: the low rate of interest on
government debt and private borrowing. If that happens, Japanese conditions
will most likely be worse at the end of Prime Minister Shinzo Abe’s term than
they are today.
CHINA
After the
global economic crisis weakened the external demand that fueled China’s economic growth over the last
three decades, the country’s leaders agreed that domestic consumption must
become the new engine of economic growth. But China cannot achieve stable, sustainable
growth unless it also upgrades its manufacturing sector.
China’s economy has bounced back. A
return to accelerating growth in the fourth quarter breaks seven straight
quarters of declining growth and draws a line under concerns that the world’s
second largest economy is heading for a hard landing. China Real Time charts it
out.
Business is
booming in Beijing's real estate offices -- good news for property
agents like Zhang Huanhuan, but a headache for China's policymakers as worries resurface
about the sustainability of investment in the sector.
In a
surprise move, China’s chief statistician on Friday
revealed that the nation’s labor pool is dwindling, and suggested maybe it was
time to adjust China's sensitive one-child policy and
retirement age. And for good measure, he gave out the closely guarded figure of
China’s Gini coefficiency – a yardstick of income
inequality.
Developed
economies are beginning to struggle with aging populations and more retirees. China may soon join them.
China’s economy has bounced back. A
return to accelerating growth in the fourth quarter breaks seven straight
quarters of declining growth and draws a line under concerns that the world’s
second largest economy is heading for a hard landing. China Real Time charts it
out.