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Europe Channel: Latest Posts
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The Wilder View
Economic news around the world: not good….still
The global central bank easing continues. The Bank of England is very near its lower bound, 0%. From Bloomberg:
The Bank of England opens a new front in its effort to ward off deflation today as it prepares to buy government bonds with newly created money. The central bank said today it will purchase 2 billion pounds ($2.7 billion) of gilts, its first deployment in a three- month plan that may see it spend 75 billion pounds. The results of the operation will be released after 2:45 p.m. in London.
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Europe
Quote for the day
“We have reached our limits,” said Axel Weber, president of Germany’s Bundesbank, in Frankfurt on Tuesday. “The expectation that we could neutralise this synchronised recession through short-term fiscal policy measures is false. We should not even try. There will be costs.” -
Asia
Has the Euro Become An Instrument Of Chinese Policy?
Macro Man is back in the saddle after being bed-ridden with the flu yesterday. He’s not really sure what to make of the fact that he had the most site hits in more than a month on a day on which he wrote nothing. Perhaps word got round that the site was more insightful than usual yesterday…
Regardless, he’s back, and it seems as if little has changed over the past few days. Equities still trade dreadfully, bonds are still unimpressive given equities and the economic data, and EUR/USD is still 1.27 +- two and a half cents. This is market that’s tailor-made for topping and tailing one’s self. so Macro Man is trying very hard to avoid falling into that trap.
The first snippets of February economic data are beginning to emerge from Asia, and for a China sceptic like Macro Man, the figures are decidedly unimpressive. In Taiwan, exports fell 28.6% y/y, worse than the expected 26.2% decline. “But wait!” he can hear you exclaim. “They were down 44% last month! Surely that’s an improvement!”
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Europe
Should unemployment benefits be financed by raising women retirement age? No
In his keynote speech delivered on March 7th, at the University “La Sapienza” in Rome, Dr Ignazio Visco, the Vice Director General of the Bank of Italy, argued that Italian GDP will likely contract at an annual rate of -2.6% in 2009, down from previous estimate of -2%. From estimates of the Okun’s law for Italy, a 1% fall in growth translates into a 1 ½ increase in the unemployment rate. If Visco is right, the unemployment rate is bound to rise from 6.7% to 10.6%, roughly a 1 million units increase, in one year. Out of these workers, roughly one half are not covered by unemployment insurance.
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Don't Shoot the Messenger
Are Austria’s Banks More At Risk Than Their Italian Counterparts?
“For Austria, the actual crisis is yet to come. The decline of the eastern European economy will hit Austria in 2009″. Peter Eigner, Professor of economic history at the University of Vienna”
The yield difference, or spread, between 10-year Austrian securities and benchmark German bunds has been rising substantially of late, and hit 137 points on Feb. 18, the widest yet recorded (see chart below). At the same time Austria now has a higher default risk than those Mediterranean “laggards” Italy, Portugal and Spain, at least according to credit-default swap prices as quoted by CMA Datavision. Austrian swaps were trading at 253.3 basis points on March 3, compared with 17.5 points 12 months ago. That means it costs 253,300 euros a year to protect 10 million euros from default for five years.
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Europe
Bank injection means we are all monetarists now
Many surprises have rained down on us over the past 18 months, mostly unpleasant. But among the seismic shifts in response to these shocks has been in Britain’s monetary policy.
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Europe
A central banker’s failed vision
Many people blame financial supervisors for their part in the credit crisis. Supervisors have failed to understand complex financial products, to spot excessive leverage and risk-taking, to predict the effect of incentive pay on the behavior of bank executives and to correctly assess the systemic risks of asset price bubbles. As a result, they haven’t fulfilled their public duty, which is to safeguard financial stability.
In their defense one can say that many others – in the financial press and in the academic community – have also been surprised by the timing and depth of the crisis, although it was not their primary job to spot the dangers. Calls for tighter regulation and supervision should therefore recognize that mistakes, ignorance and incompetence can never be completed eradicated. But the least we can try to do is to get the incentives right.
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Europe
Employee-buy-out: worthy but fraught with difficulty
Who said that the credit crunch did not create some innovative ideas apart from government bailouts for a variety of industries. It is fairly obvious that the car industry in general and GM in particular are in difficulties. And so are GM’s European subsidiaries. The German one is called Opel. For some time now German [...]
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Europe
One Down, One To Go
One down, one to go.
Yesterday proved to be eventful, to say the least, as the Bank of England formally adopted QE, announcing that they could purchase up to £100 billion Gilts and £50 billion private-sector bonds as a new way of prosecuting monetary policy. It’s hard to believe that it was only three months ago that the Bank “saw the light” about the state of the UK economy and the global financial system? You can’t say that they haven’t made up for lost time!
Amusingly, readers of the FT can find commentary that the Bank has either done too much (Martin Wolf) or not enough (Willem Buiter.) When everyone disagrees with you, that’s usually a sign that you’ve done the right thing. Certainly the Gilt market likes it; 10 year yields have plummeted 50 bps since the announcement.
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The Wilder View
International housing markets falling
According to the OECD, the sharp decline in global demand has not fully passed through to housing construction – residential plus nonresidential plus public – across many economies; and in some cases, it is still elevated by as much as 2%-3% of overall GDP.
