18th Oct - Weekender: Best of the Week

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

EUROPE

French Politics and Economics – Marc to Market

A second round of a local election in France (Brignoles) resulted in a victory by Le Pen's National Front… The latest Ifop polls shows Le Pen ahead in the national polls, with 24% support.  The UMP has 22% support and the Socialists 19%

Eurozone inflation hits its lowest levels for three years – Open Europe

  AUSTERITY

Quarterly Report on the Euro Area – Europa (pdf)

Euro Zone Isn’t Rebalancing Strongly, Commission Paper Says – WSJ

Mind the gap! And the way structural budget balances are calculated – Bruegel

The so-called structural balance of the general government aims to measure the ‘underlying’ position of the budget by excluding the impact of the economic cycle and one-off measures, like bank recapitalisation costs. It has a crucial role in designing fiscal consolidation strategies in the EU

Fiscal Consolidation in the Euro Area: How Much Can Structural Reforms Ease the Pain? – IMF

Euro Capitals Tighten Fiscal Leash as EU Starts Austerity – BB

  IMF

Europe’s Choice: Risk Stagnation or Pursue Integration – iMFdirect

IMF and Europe Part Ways Over Bailouts – WSJ

The euro zone and the IMF were thrown into each other's arms when Greece's debt crisis began early in 2010. Now, officials say, they could be heading for a divorce. As representatives from both sides meet at the end of this week in Washington to discuss Greece's need for extra cash and a lighter debt load, the clashes that have built up over the past three years are coming to a head.

The IMF and the legacy of the euro crisis – voxeu.org

Susan Schadler: The IMF loans to Greece, Ireland and Portugal are considered controversial by some analysts. This column argues that these loans – granted without having agreed on convincing paths to manageable debt levels – constituted a substantial departure from IMF principles. The situation is costly for Europe and, having now permanently changed the principles guiding large IMF loans, it will be costly for crises to come.

  BANKS

Europe prepares to come clean on hidden bank losses – Reuters

Euro zone countries will consider on Monday how to pay for the repair of their broken banks after health checks next year that are expected to uncover problems that have festered since the financial crisis.

Factbox: Europe's slow march to repair its banks – Reuters

Euro zone countries are trying to find a way to pay for the repair of their broken banks, testing governments' resolve to come clean on the problems that have festered since the global financial crisis.

Spanish banks fear new capital hit in European review – Reuters

Eurozone’s financial institutions more fragmented than ever – FT

The intrinsic (intractable?) bank bid for sovereign debt – alphaville / FT

Europe’s financial institutions are more exposed to their domestic government bonds than at any time since the eurozone crisis started. It has yet to be decided exactly how the European Banking Authority’s stress test of about 150 banks next summer will treat sovereign bond holdings. (Financial Times)

An unusable backstop: 10 reasons why the ESM might never take a stake in a bank – Brussels blog / FT

ECB’s Draghi: Knowing Too Much About Our Big Banks Could Set Off A Panic – Testosterone Pit

European regulators are desperate. The only thing known about the holes in bank balance sheets stuffed with decomposing assets is that they’re deep. No one knows how deep. No one is allowed to know – not until Eurocrats decide who will pay for bailing out these banks. How do we know? ECB President Mario Draghi said that.

Wealth-taxing, redux – alphaville / FT

A box on “one-off capital levies” — or wealth taxes — burrowed away on page 49 of the IMF’s latest Fiscal Monitor.

Draghi Turns Judge on Europe Banks as ECB Studies Balance – BB

Policy makers at the Frankfurt-based ECB will this week try to agree on the ground rules of its three-pronged probe into the health of the 130 banks it will start supervising next year. The process will stress-test balance sheets for exposure to sovereign debt as well as push institutions to admit to more of their bad debt than they have before, according to three officials who spoke on condition of anonymity. The check-up due in early 2014 is the ECB’s precondition for assuming the burden of overseeing banks.

The banks are OK: survey edition – alphaville / FT

We don’t know exactly what next year’s Asset Quality Review will involve yet, but we are starting to get a picture of what investors think about the ECB’s forthcoming burrow through bank balance sheets. In short, given that it might not be all over until the end 0f 2014, everyone is feeling pretty good about the banks right now, and that might explain a surge of appreciation for European stocks.

Germany digs in heels as Europe moves towards banking union – Reuters

EU finance ministers agreed on Tuesday to give the European Central Bank sweeping supervisory powers in the euro zone but Germany dug in its heels on how to deal with failing banks, the second stage in building a banking union.

  EUROPEAN CENTRAL BANK

Which role should the ECB give up? – Bruegel

We look at old and new competences of the ECB, identifying major synergies and conflicts of interests between them.

Goldman: LTRO-III is only a matter of time – Sober Look

Euro area economic outlook, the ECB’s monetary policy and current policy challenges – ECB

Mario Draghi, 28th Meeting of the International Monetary and Financial Committee,

in Washington D.C. on 12 October 2013

The ECB’s New Pressure Tactics on Member States’ Taxpayers – PIIE

As President Obama and Congress speed toward each other on a world-rattling collision course, the European Central Bank (ECB) is also replaying its own version of “political chicken” with member states in the European Union these days. At issue is the shape of the common currency’s necessary institutional reforms.

Draghi: The euro area economy - current prospects and challenges ahead – BIS (pdf)

UNITED STATES
  SHUTDOWN / DEBT CEILING

Three options for ending the debt-ceiling crisis… forever! – WaPo

Long live the great US Congress – Our take on the market impact – Nordea

Flash Comment - US Congress passes debt deal – Danske Bank

The deal will reopen the government today and increase the debt ceiling. It is, however, only a temporary relief, as the bill will fund the government until 15 January and raise the debt ceiling until 7 February. Hence, we can look forward to another round of negotiations early next year.

Schedule for backlog of US data releases – TradingFloor

BLS Releases Updated Economic Data Schedule - B

  FEDERAL RESERVE

The Fed now holds more securities than all US banks combined – Sober Look

Regional Fed Bosses Struggle With Communication Issue – WSJ

 

MARKETS

Yield Forecast Update – Nordea (pdf)

Long-end EUR rates to move higher on stronger recovery

Global FX Strategy: The debt ceiling and the dollar – Nordea (pdf)

Find our take on the dollar reaction to an expected upcoming debt ceiling deal, alongside updated stories on GBP, SEK, NOK and market quant in this week's edition of Global FX Strategy.

FX Forecast Update: October - Scandi upside limited in the near term – Danske Bank (pdf)

This simple trading strategy points to rationale for currency wars – Sober Look

Select two countries with the worst performing currencies (against USD) over the past 4 months and go long equity indices of those two countries. Now select the two best performing currencies and short the indices of those countries (to the extent that's possible). Repeat the exercise once a month.

Global liquidity: selected indicators – BIS (pdf)

Focusing on flow measures, global growth in international bank credit remains virtually zero, with declines in aggregate interbank credit offsetting positive growth in credit to non-banks…In turn, monetary indicators in advanced economies imply sustained policy accommodation, even though term premia (the extra compensation for bearing a bond’s duration risk) and, with them, long-term yields have risen from their earlier lows.

3 Numbers to Watch: US credit ratings, Fed presidents, FX carry – TradingFloor

Credit raters are rattling their sabres at the American political leadership, and Fed presidents will probably complain how the lack of data postpones the tapering. The two-year yield spread of Germany and US is at interesting levels.

ECONOMICS

Five Questions About Unconventional Monetary Policy That’ll Be Answered Only 10 Years From Now – WSJ

Economics: the biggest fraud ever perpetrated on the world? – Pieria

Modeling the “safe asset mechanism” – alphaville / FT

Both quantitative easing and forward guidance are unlikely to be very effective. The authors also add new dimensions to the commonly accepted New Keynesian wisdom on liquidity traps and fiscal policy, which they only partly agree with. The paper discusses a model of what the authors call a “Safe Asset Mechanism” — essentially a safe asset shortage characterised by a period of “excess” demand for safe assets.

Dudley: Key developments in the tri-party repo market – BIS (pdf)

Stein: The fire-sales problem and securities financing transactions – BIS (pdf)

Dudley: Unconventional monetary policies and central bank independence – BIS

FINNISH

Kriisimaissa palkat tippuvat mutta hinnat vain nousevat – Tyhmyri

Tämähän menee juuri kuin yhteismarkkinoilla pitääkin

Politiikkaradio: Onko Suomella varaa velkaantua? – Yle

Suomen valtiolla on vuoden lopussa velkaa noin 93 miljardia euroa. Se on enemmän kuin koskaan aiemmin. Suhteessa bruttokansantuotteeseen valtion velka on samalla tasolla kuin 1990-luvun alkupuolella. Finanssineuvos, valtiovarainministeriön vakausyksikön päällikkö Mikko Spolander sanoo, että paniikkiratkaisuihin ei kannata ryhtyä, mutta velkaantumisvauhdin täytyy hidastua. Mikko Jylhä haastattelee.

Euroopan neljä polkua - entä jos seuraa katastrofi? – SK

Euroalueen ennätyksellinen työttömyys on keskeisin talous- ja yhteiskuntapoliittinen ongelma, joka horjuttaa Euroopan vakautta. Seuraavassa esitän Euroopan neljä mahdollista ”etenemisreittiä”, joista jokainen voi sisältää samoja yhteiskunnallisia ja taloudellisia ilmiöitä.

Kolumni: Työeläkerahastot ovat Suomen suurin taloudellisen vallan keskittymä – HS

Kroatian vientisektori kiittää – Juhani Huopainen

Tutkimus: Eliitti hallitsee eurokriisin julkisuutta – PS

Jyrki Katainen ja työpaikan haku – hakupaperit vain ovat suomalaiselle veronmaksajalle kalliit – Tyhmyri

Setä Samuli sotkeutui omatekoiseen velkasotkuun – TalSa

Yhdysvallat on maailman absoluuttisesti velkaisin valtio, mutta se ei ole Kreikka. Setä Samulilla ei olisi vaikeuksia hankkia tarvitsemaansa rahoitusta, ellei maan poliittinen kriisi panisi kapuloita rahoituksen rattaisiin. Toki Yhdysvallatkin luisuu kohti julkisen talouden todellista rahoituskriisiä, mutta sen aika ei ole vielä. Velkakatto on omatekoinen ongelma.

Eurooppa yhtenäistyy – Henri Myllyniemi

USA:lle luottoluokituksen alennus – Juhani Huopainen

Eespäin, eespäin tiellä taistojen – Pauli Vahtera / Libera

"Otetaan markka takaisin" – KL

Sijoittajaksi vaihtanut, Ålandsbankenin varainhoitoyhtiön entinen toimitusjohtaja Stefan Törnqvist epäilee yhä euroa.

Sosialidemokraattien alamäki – Tyhmyri

Syyt löytyvät toteutetusta politiikasta