China's 'crisis', European summits on who, how and when takes the banking losses, and the Fed Watch updated.
Previously on MoreLiver’s:
Special: Fed Watch (updated)
EUROPE
Obama in Germany, Merkel’s manifesto,
and a fiery letter from Cyprus
Charlemagne: Blaming
the referee – The
Economist
Europe’s leaders are turning against the European Commission
Five reasons the
euro-optimists are wrong – Wonkblog
/ WP
Myth 1) The European economy is about to recover 2) Markets are
regaining confidence in Europe 3) The ECB provides a safety net for the euro 4)
Europe’s economic recession will not undermine its politics 5) Everything will
change after the German elections
Mistrust stops euro
zone banks lending to peers across bloc – Reuters
Euro zone banks are refusing to lend to peers in other
countries in the common currency bloc, signaling a worrying fall in confidence
that appears to have worsened since the Cyprus
bailout earlier this year, data analyzed by Reuters showed.
Mervyn King: A
Governor looks back - and forward – BIS (pdf)
Speech by Mr Mervyn King, Governor of the Bank of England, at the Lord
Mayor's Banquet for Bankers and Merchants of the City of London, London, 19
June 2013.
GERMANY
Marcel Fratzscher: The
German Constitutional Court's recent hearing to consider the legality of the
ECB's outright monetary transactions program was peculiar, for the scheme is
the most successful monetary-policy measure of recent decades – not just in Europe, but anywhere. Why do so many Germans want to
kill what has saved the common currency?
Although the common
wisdom is that Germany's success is the hard-won reward for strict economic management, the
country owes much of its good fortune to the eurozone crisis. Immigrants and
investors’ cash are flowing into the country from the rest of Europe, in order to escape the dire conditions that
Merkel and EU technocrats helped create through their hard-line focus on
austerity, structural reforms, and price stability.
Many Germans believe it is time to abandon the euro. They're part of a
growing movement spurred by influential populists from the worlds of business
and academia. Their arguments stoke fear but offer no clear alternatives.
SUMMITS
Press release – 21
June Council Meeting – Consilium
(pdf)
Country-specific
recommendations, excessive deficit procedures, approved the extension of loan
maturities for Ireland and Portugal, and agreed a package of measures to combat VAT
fraud
Excessive deficit
procedure – Concilium
(pdf)
Council extends deadlines for Spain, France, Netherlands, Poland, Portugal and Slovenia
Country-specific
recommendations on economic and fiscal policies – Concilium
(pdf)
The Council approved, under this year's European Semester, draft
recommendations to 23 member states on the economic policies set out in their
national reform programmes, as well as draft opinions on each member state's
fiscal policies, as presented in their stability/convergence programmes.
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/137563.pdf
ESM direct bank
recapitalisation instrument – Concilium
(pdf)
Main features of the operational framework and way
forward
EU to decide who pays
when banks fail – Reuters
The EUsought on Friday to forge rules to force losses on large savers of
failed banks, a taboo that was broken in this year's bailout for Cyprus.
Flash Comment: Euro
area: Direct bank recapitalization – Danske
Bank (pdf)
The Eurogroup took an
important step towards breaking the vicious link between sovereigns and banks
yesterday when it agreed on ESM direct bank recapitalisation
Eurozone compromise – Open
Europe
Compromise on using ESM to directly recapitalise banks a stopgap at
best?
Why the ESM direct
bank recap deal is not done yet – Bruegel
EU fails to agree on
bank bailout rules – FT
Europe unable to break impasse on who pays when banks fail – Reuters
Europe failed to agree on how to share the cost of bank collapses on
Saturday, as Germany resisted attempts by France to water down rules designed
to spare taxpayers in future crises.
Another shameful day
for Europe as EMU creditor states betray South – The
Telegraph
Ambrose Evans-Pritchard: So much for the denials. The Cyprus "template"
for banking crises is to be eurozone policy for other countries after all.
UNITED STATES
The Last Mystery of
the Financial Crisis – The
Rolling Stone
Matt Taibbi: It's long been suspected that ratings agencies like Moody's
and Standard & Poor's helped trigger the meltdown. A new trove of
embarrassing documents shows how they did it
Federal Reserve and
implications of its latest moves, see my Special:
Fed Watch.
ASIA
Premier Li Keqiang’s three-month-old government is allowing the tightest
squeeze on credit in at least a decade to wean the nation off a cash binge that
threatened to destabilize the world’s second-largest economy.
Credit growth in the world’s most populous country has outstripped
economic expansion for five quarters, raising the question of where the money
has gone, SocGen economist Yao Wei wrote in two recent reports. In the first
quarter, for example, bank loans, shadow banking credit and corporate bonds
together accelerated more than 20 percent year-over-year, while gross domestic
product grew less than half that much. The gap has been widening since early
2012. Yao says the answer to
where the money is going is a growing “debt snowball” which doesn’t contribute
to economic activity. The result is both companies and the public sector face
burgeoning interest expenses.
China credit crunch: Q&A – beyondbrics
/ FT
Money rates falling after the People’s Bank of China, the central bank,
reportedly dribbled funds into the banking system. But, with the central bank
keeping quiet about its intentions, analysts expect the authorities to retain a
firm grip on the market. So what is going on?
Chinese finance:
undercover operations – beyondbrics
/ FT
It is still unclear precisely what happened in China’s financial markets
on Friday, where money market rates fell relieving an intense cash squeeze. The
People’s Bank of China reportedly injected funds into some banks. But who, why
and how much is something of a mystery.
But is that really China's predicament? China runs a
current-account surplus of $217 billion and holds $3.4 trillion of
foreign-exchange reserves. A somewhat weaker yuan would pose few dangers and
bring a number of benefits. Given this, can it really be true that the cash
crunch of the past two weeks reflects China's sudden need to
mount a punishing, high-interest-rate defence of its currency?
Is China's current cash
crunch the Lehman Brothers collapse with Chinese characteristics? The answer is
no, but it does highlight increasing stress in China’s financial sector.
Is China's current cash
crunch the Lehman Brothers collapse with Chinese characteristics? The answer is
no, but it does highlight increasing stress in China’s financial sector.
China Real Time provides an illustrated guide.
The current liquidity squeeze in China is intended by Beijing as a measure to curb
credit risk. We expect them to maintain a hawkish stance and the credit crunch
will persist for some time.