This week's 'The World' has plenty on the bailout of Cyprus and IMF's latest assesment of the EU. Interesting compromise on Cyprus: small haircut on deposits, with bank stocks offered in return to the depositors.
Personally I believe a simple gift of EUR 5bn of free money would have been a better choice. The lending of 10bn raises the debt/GDP, lowers the growth prospects, forces austerity and has the danger of creating a negative spiral that could turn the island into a second Greece: a continuous source of headaches and disappointment to the EU. The haircut is small and Rehn states this is a one-off. Whether depositors in e.g. Spain believe this remains to be seen. If not, the bank jog could start again. That could push Spain to eventually apply for the ECB's OMT-program, and perhaps that is what the Brussels and ECB actually want.
Previously on MoreLiver’s:
EUROPE
The
European Parliament ponders absinthe, Germany set for a balanced budget, and is
the Netherlands heading for an EU referendum?
The spending
cuts planned in Berlin by finance minister Wolfgang Schäuble to
balance the budget a year early will make it impossible for others to grow
Economic Crisis Risk For Euro – WSJ
The
euro-zone debt crisis may be over, but the euro itself is still at risk from
the economic crisis that is being left behind.
Delusions at the European Commission – Krugman
/ NYT
They have
made a desert and called it a "delicate balance".
European bank bondholders: How many one-offs
make a trend? – The
Economist
Criminals exploiting EU travel freedoms, Dutch
data shows – euobserver
ECB
Draghi lectures euro zone leaders about labor
costs – Reuters
ECB President
Mario Draghi gave EU leaders a crash course in macroeconomics late on Thursday,
emphasizing his concerns about low productivity and high labor costs hurting
the euro zone's prospects, officials said (presentation
from ECB).
ECB bond-buying may be moving from deterrence
to stand-by – Reuters
One of the
biggest questions facing financial markets is the will-they or won't-they
hovering over the European Central Bank's bond-buy program.
IMF
ASSESMENT
IMF tells EU to act boldly and fix the banks – Reuters
The EU must
be bold in putting its banks on a stabler footing, starting with a tougher
health check for lenders this year, the IMF said.
If it’s not labeled, did it really happen? – A
Fistful of Euros
It blacks
out two of the labels on the chart. But the imperfect blackout allows through
various simple means to determine that the two dates that dare not speak their
name are that for the Greek debt exchange and the Outright Monetary
Transactions announcement.
Much achieved
to address the crisis but vulnerabilities remain and intensified efforts needed
EU
Financial System Stability Assessment 2013 – IMF
European
Banking Authority – IMF
Cross-Border
Issues, Central Counterparties, and Central Securities Depositories – IMF
European
Insurance and Occupational Pensions Authority Assessment – IMF
European
Securities and Markets Authority – IMF
Financial
Sector Stability Assessment – IMF
Stress
Testing of Banks – IMF
CYPRUS
Merkel said
Europe must act to support Cyprus as euro-area officials scrambled to
overcome differences on losses for investors and the role of the IMF in a bid
to end nine months of bailout talks.
Cypriot bank deposits hit in €10bn bailout deal – Brussels
blog / FT
Euro-area
finance ministers agreed to tax bank deposits in Cyprus in an unprecedented measure to
forge a 10 billion-euro ($13 billion) rescue plan. Cyprus will impose a levy of 6.75 percent
on deposits of less than 100,000 euros -- the ceiling for European Union
account insurance -- and 9.9 percent above that.
The euro
zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros
($13 billion), but demanded depositors in its banks forfeit some money to stave
off bankruptcy despite the risks of a wider bank run.
Cypriot
Finance Minister Michael Sarris said a planned levy on bank accounts in the
country to help shore up its finances will involve compensation for depositors
in the form of shares in the financial institutions.
Rehn Rules Out Future ‘Stability Fees’ on Euro
Bank Depositors – BB
European
Union Economic and Monetary Commissioner Olli Rehn said there won’t be a repeat
of the tax on bank deposits that was imposed as part of Cyprus’s aid program. Asked whether a
future EU-mandated bank levy can be categorically ruled out, Rehn said that “it
can and there is no concrete case where it should be considered.”
ITALY
Christopher
Emsden provides a Q&A on the steps required to form a fresh government in Italy.
Italian Austerity in the Polls: The Results – EconoMonitor
In my
previous post before Italy’s general elections, I argued that the economic
legacy of the Monti government was problematic, not so much in reason of the
doses of austerity inflicted on the country as to the poor deliverables
regarding the promises of “more equity and growth” and a reasonable perspective
of recovery. Now we have seen the astonishing response of voters. But was it
really unpredictable?
Beppe
Grillo, leader of the populist Five Star Movement in Italy, prides himself on his ridicule of
the parliamentary system. Yet while his anti-establishment rhetoric sounds
appealing, at heart it's actually anti-democratic. And very similar to that of
an infamous Italian from the past.
OTHER
PIIGS
Back in
2010 I wrote an article about the way German banks used Ireland as a dark pit for doing deals they
could not do elsewhere. It was called Ireland was Germany’s Off-shore Tart. It seems she was Belgium’s tart too.
Euro-area
finance ministers agreed to extend maturities on rescue loans to Ireland and Portugal, easing the terms on two recipients
of European bailout aid in a show of support for their commitment to austerity.
UNITED STATES
Financial Repression For Dummies – View
from the Blueridge
The Economist’s Stone – Project
Syndicate
This year
marks the 100th anniversaries of two distinct institutional innovations in
American economic policy: the introduction of the federal income tax and the
establishment of the Federal Reserve. They are worth commemorating, if only
because we are at risk of forgetting what we have learned since then.
Fed to signal no let-up in easing yet – Nordea
(pdf)
We expect
the Fed’s policy and forward guidance to remain unchanged after next week’s
two-day FOMC meeting, which concludes on Wednesday (summary).
Friday data
Feb Inflation
Rises By Most In One Year; Empire Fed Misses– ZH
Consumer Sentiment
Misses By Most Ever, Slumps To 15 Month Lows – ZH
Preliminary
March Consumer Sentiment declines to 71.8 – Calculated
Risk
Fed:
Industrial Production increased 0.7% in February – Calculated
Risk
ASIA
Can China Get Tough on North Korea? – The
Diplomat
BizDaily: Challenges for China – BBC
(mp3)
Does China need to change its business model
to compete in the global economy? The BBC's Ritula Shah visits Shenzhen, China's first Special Economic Zone. George
Magnus from UBS and Dr Qian Lu of the Economist Intelligence Unit discuss the rise of
the Chinese middle class. And Tim Harford tells the story of Bill Phillips,
known as the Indiana Jones of Economics.
The Deeply Odd Lives of Chinese Bureaucrats – WSJ
As a
bureaucrat, author Wang Xiaofang says he came across a rogue’s gallery of
real-life characters. As a writer, he figured out that you can talk about
Chinese officialdom – as long as you make it fiction.
Japan: Front-Runner Of Outright Monetization – ZH
Ryutaro
Kono of BNP Paribas: Japan: The challenges
facing a Kuroda-led BoJ