The best articles from the
ending week. Last week’s ‘best’ here.
EUROPE
Time travel in
Euroland – FatasMihov
Jeroen Dijsselbloem in an interview with CNBC yesterday
dismissed the role that fiscal policy and monetary policy can have to address
the economic crisis
Europeans must face up to prospect of massive debt
restructuring – The
Telegraph
Europe’s bourses have not done as
well as others from renewed investor appetite for equities, but even the
depression-hit eurozone periphery has seen big gains in share prices since the
sovereign debt crisis began to abate last summer.
The Resistible Fall of Europe: An
Interview with George Soros – Project
Syndicate
On May 12, George Soros was awarded the Tiziano Terzani
Prize for his 2012 book Financial Turmoil published in Italy
by Hoepli. The following interview is adapted from a press conference held in Udine,
Italy, on that occasion.
"The New Sick
Man of Europe: The European Union" – PEF
(pdf)
Of stereotypes and
the slow end of the European affair – alphaville
/ FT
Some charts from Pew’s latest survey of 8,000 people across
eight EU countries, most of whom are increasingly *insert euphamism* with Europe
Save Europe: Split the
Euro – View
/ Bloomberg
France
should champion a new strategy under the banner not of nationalism but of
European solidarity. A splitting of the euro system would be in the best
interests of both France
and Europe because it would speed the EU’s return to
economic growth -- the only sure guarantee of European stability and unity.
What the euro has meant – Free
exchange / The Economist
Most of the euro area would have been better off being Britain
or America over
this time, even in per capita terms, and Britain
and America
have hardly had outstanding performances. The remarkable thing to me is that no
euro-area economy is rushing for the exit, despite the fact that real output
per person has fallen 15% in Greece
and is lower in Italy
and Portugal
than it was 13 years ago. Perhaps the periphery imagines that they would have
done worse without the euro.
The harmful impact of short-term troubles on
long-term growth – Bruegel
Europe has a well-known long-term
growth problem, but there is a major risk that short-term troubles will damage
further the long-term growth potential, for six main reasons.
BANKING
There is no sovereign debt crisis in Europe
– MacroScope
/ Reuters
It is merely a sequel to the U.S.
financial meltdown that started, like its American counterpart, with
dangerously-indebted risk-taking on the part of a super-sized banking sector.
Too many European
banks and why the deleveraging has only just started – Macronomics
Stress you next year
– alphaville
/ FT
This is one way to respond to the mess Euroland is in over
who should make the calls for recapitalising banks…The European Banking
Authority is delaying its next banking stress test to 2014, to wait for both
new asset-quality reviews and the ECB’s Single Supervisory Mechanism
Banking union on the
cheap will fail – Free
exchange / The Economist
After the German elections, Europe
has a short window of opportunity to rescue the euro project. It is the moment
for Germany to
accept what it signed for in joining the Euro or exit.
NPLs and lights in
dark places – alphaville
/ FT
Chart from JP Morgan’s Flows & Liquidity team shows the
evolution of non-performing loan ratios (as percentages of total loans) across
three different Euro area blocks: Germany,
core and periphery.
Where do EU member states stand on bank bail-in
plans? – Open
Europe
The ECB, Spain,
Portugal and France
(amongst others) want a clear depositor preference regime – where uninsured
depositors are the last to be written down. On the other hand, Germany,
the Netherlands
and the UK want
more equality between senior bondholders and uninsured depositors… The few
points they do agree on include: complete protection for insured depositors, a
broad bail-in scheme and (somewhat ironically) the fact that this legislation
is urgent.
A Copernican Turn for Banking Union
– CEPS
(pdf)
Thomas Mayer / Deutsche Bank: Despite apparent consensus
that the creation of a ‘Banking Union’ is essential for the survival of the
euro, progress is painfully slow…a radically new approach is needed if there is
any prospect of moving beyond this impasse to reach full Banking Union. Instead
of trying to move from common bank supervision over to resolution and then on
to deposit insurance, he argues that policy-makers should go backwards and
start with deposit insurance, move from there to resolution, and end with
supervision.
PIIGS
Cyprus portrayed as Russia's favorite haven – Reuters
Documents seen by Reuters show that as Cyprus
headed towards financial meltdown in March, most notable among companies
transferring money from the country's two main banks were Russians and East
Europeans.
S&P says Cypriot
deposit grab may set euro zone precedent – Reuters
The grab on bank deposits that accompanied Cyprus's
bailout could be repeated elsewhere in the euro zone, and the bloc's banking
union may not be strong enough when it is introduced, Standard and Poor's said
on Wednesday.
UNITED STATES
Fed Maps Exit From
Stimulus – WSJ
Timing of Wind-Down Is Uncertain, but Focus Is on Managing
Unpredictable Market Expectations
Bernanke, Blower of
Bubbles? – Krugman
/ NYT
All in all, the case for significant bubbles in stocks or,
especially, bonds is weak. And that conclusion matters for policy as well as
investment.
Don’t confuse liquidity with credit – Mark Dow
There is zero correlation between the Fed printing and the
money supply
The Fed can keep buying for a while, if it wants to
– alphaville
/ FT
It will be a little while yet before the Fed approaches that
threshold, even if it increases purchases to $65bn a month. And the Fed also
has the option to shift its purchases along the curve if chooses to:
A gap-ing problem – alphaville
/ FT
The US
unemployment rate has continued to decline steadily, and at its current pace
would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly
the middle of next year. But the suggestion made by the research is that the
decline in the unemployment rate perhaps projects an overly optimistic image of
improvements in the labour market.
Plosser on the Exit – Tim
Duy’s Fed Watch
While the Fed is
moving closer to tapering asset purchases, tIming remains an issue. I think that most policymakers will not be
swayed to an early end by the "Fed's inflation credibility is at
risk" argument. But a subset is
likely swayed by the "financial stability is at risk" argument. And another subset may be swayed by the
"communications credibility is at risk argument" that is an element
of Plosser's speech. In short, the
majority favoring continuing asset purchases at the current pace is obviously
shrinking.
The end of QE? – alphaville
/ FT
Marc Ostwald at Monument Securities has spotted that an
important theme is developing: a rise in the number of warnings about QE
suspension and QE exit.
ASIA
Japan and the curious incident of the dog in the night-time – alphaville
/ FT
UBS’s Donovan’s point is that Y100 and above might not have
the effect everyone hopes it will on Japanese exports, and through them, the
economy.
Nothing Fails like Success – Marc
to Market
Far from a revolution that many observers have hyped, the
Abe's diagnosis and medicine is not new, even if the dosage is. The problem, as we have argued before, is not
too little investment in Japan
but really the opposite; too much investment.
The Real Experiment That Is Being Carried Out In Japan
– Fistful
of Euros
It takes a regime shift – Christina
Romer / Berkeley (pdf)
Recent developments in Japanese monetary policy through the
lense of the Great Depression.
JGBs: “Yes I would, Kent”
– alphaville
/ FT
The rise in JGB yields does not mean that the Bank of
Japan’s policy is doomed to fail…If we start to see a weaker Nikkei and a
stronger yen while yields keep heading up, maybe we should get worried. But
right now it seems yields are rising as policy goals are met and as what might
be termed ‘normal’ financial conditions return.
OTHER
New Normal ...
Morphing – PIMCO
Mohamed A. El-Erian:
The New Normal has morphed to include consequential elements of a
“stable disequilibrium”. In the midst of notable multi-speed dynamics, the
global economy as a whole is muddling along a road that will give way over the
next three to five years to one of two stark alternatives: either sustainable
global growth, institutional and political renewal in the West and safe
deleveraging; or growth shortfalls that cause financial instability, fuel
greater social tensions, accentuate political dysfunctions and complicate debt
traps. Our Secular Forum analysis identified eight key themes for long-term
investors, along with their portfolio implications.
How the Case for Austerity Has Crumbled – The
New York Review of Books
Krugman: In normal times, an arithmetic mistake in an
economics paper would be a complete nonevent as far as the wider world was
concerned. But in April 2013,
New CDS trigger event proposed to tackle bail-in
– IFR
Asia
ISDA is consulting on a proposal to add another credit event
for financial credit default swaps in order to adapt to sweeping changes in
regulation that will give supervisory authorities the power to bail-in the debt
of floundering institutions.