EU Proposes Intrusive Control of Euro Zone Budgets

Another prelude to Germany supporting the ECB funding support that will end the solvency issue falling into place:

EU exec proposes intrusive control of euro zone budgets

By Luke Baker and Jan Strupczewski

November 23 (Reuters) — The Commission, the executive arm of the 27-member European Union, presented a draft regulation which would allow it to review draft budgets of euro zone countries by mid-October and ask for revisions if they were not in line with EU budget rules.

The budget drafts of euro zone countries would have to be based on independent forecasts.

The second regulation would create a legal basis for heavy surveillance of policies of a country either already getting emergency financial aid from the euro zone or facing serious financial instability.

“To return to growth, member states need to raise their game when it comes to implementing their commitments to structural reforms, as well as embrace deeper integration for the euro area,” Commission President Jose Manuel Barroso said.

“The goals driving this package — economic growth, financial stability, budgetary discipline — are linked to each other. We need all of them if we are to move beyond the current emergency towards a Europe in which solidarity is balanced by strengthened responsibility,” Barroso said.

Once the tighter oversight and control of euro zone national fiscal policy is in place, the 17 countries now sharing the euro could jointly borrow from the market through “stability bonds.”

The Commission outlined three main options for such joint debt issuance without making any recommendations on which might be best.

“The Commission makes clear that any move towards introducing stability bonds would only be feasible and desirable if there were a simultaneous strengthening of budgetary discipline,” it said in a statement.

relief rally musings

The German 10 year just traded above 1.9%.
The 10th plague is now beginning to threaten the Pharaoh.

If I were cynical I’d think it would go down something like this:

First, German insiders give the nod to their cronies.
The Great European Relief Rally begins.
The euro begins to firm, stocks start to rally, etc.
Then, noises start coming out of Germany to the effect that
they might consider ECB support if austerity could be guaranteed,
causing prices to suddenly gap higher as shorts try to cover with no sellers in sight.

ECB’S STARK SAYS DEBT CRISIS SPREADING TO ‘CORE’ COUNTRIES

Seems the logical consequence of hair cutting Greek debt and announcing it may happen to other member nations?

That said, would not surprise me to soon be hearing hints of something like:
‘ECB bond buying not necessarily inflationary if combined with austerity’ coming out of Germany,
triggering a massive ‘relief rally’ that will last until the reality of the austerity part sinks (syncs) in,
as the 10th plague infects the German bonds markets.

*ECB’S STARK SAYS DEBT CRISIS SPREADING TO ‘CORE’ COUNTRIES
*ECB’S STARK SAYS DEBT TOLERANCE IN EUROPE IS DECLINING
*ECB’S STARK SAYS INVESTORS ARE REASSESSING SOVEREIGN DEBT

Germany takes the world down, take 3?

Looks like for the third time in the last 100 years the world fiddles while Germany torches it?

Germany now stands pretty much alone in objecting to the ECB writing the check on the grounds that it’s inflationary, when it’s clearly not.

But, unfortunately, the rest of the world’s political and economic leadership doesn’t have what it takes to get through to them.

And the economic destruction this is causing far exceeds the destruction caused by all the shooting wars in history, as the death toll from the consequent global unrest mounts as well.

On Mon, Nov 21, 2011 at 7:05 AM, wrote:

Subject: BBK AGAIN REJECTS IDEA OF GIVING EFSF A BANK LICENCE

(BBK = Germany’s Bundesbank)

BBK AGAIN REJECTS IDEA OF GIVING EFSF A BANK LICENCE
BBK: RISING CONFLICT POTENTIAL WITH STABILITY-ORIENTED MON POL
BBK SEES GERMANY’S DEFICIT AROUND 1% OF GDP IN 2011, 2012
BBK: GERMANY’S GDP GROWTH TO SLOW TO 0.5-1.0% IN 2012
BBK: DEBT CRISIS IS JEOPARDIZING RECOVERY IN EUROPE
BBK: GERMANY’S INDUSTRY ADJUSTING FOR MILD DOWNTURN
BBK SEES GERMANY’S DEBT DOWN TO 81.1% OF GDP IN 2011

Fed’s Williams:Fiscal Policy Actions ‘Badly Needed’

A step in the right direction:

Fed’s Williams:Fiscal Policy Actions ‘Badly Needed’

Fri Nov 18 14:04:45 2011 EST

–The Federal Reserve’s actions have not been enough to deliver a robust recovery

–The recovery has been hurt by the decline in housing and stock prices, tightening of credit and uncertainty in Europe

–Fiscal policy actions to reduce uncertainty and stimulate recovery are ‘badly needed’

By Anusha Shrivastava

NEW YORK-(Dow Jones) — The Federal Reserve’s actions during the past four years have not been enough to deliver a robust recovery so fiscal policy actions are “badly needed”, said a central bank official on Friday.

“What would be especially helpful at this juncture are fiscal policy actions that work in tandem with monetary policy to stimulate the economy,” said John Williams, president of the Federal Reserve Bank of San Francisco, speaking at the Central Bank of Chile in Santiago.

Williams, who expects the U.S. unemployment rate to remain above 7% for three more years, named three “powerful currents” slowing the pace of recovery.

There has been a “massive destruction of wealth” because of the financial crisis, stemming from a housing collapse, he said.

Second, there’s been a severe tightening of credit because of the decline in residential property prices and the wave of foreclosures.

The heightened uncertainty in Europe and overall health of its financial system is another contributory factor diminishing the appetite for risk such that investors are fleeing to safe assets like U.S. Treasurys, he added.

Given the weakness in the economy and the uncertainty impeding recovery, Williams called for fiscal policy actions that work with monetary policy to boost the economy.

One example of such a policy is the recently announced U.S. government initiative to make it easier for homeowners whose houses are now of lower value than when they bought them, to take advantage of very low rates and refinance their mortgages.

“This will trim monthly payments for some households and could reduce foreclosure rates,” Williams said. “It could also eventually provide a modest boost to consumer spending.”

SPR release winding down

This chart of West Texas crude prices vs Brent north sea crude prices was done a few days ago, with the spread subsequently narrowing further to under $10.

As previously discussed a few weeks ago, with the Strategic Petroleum Reserve release initiated by President Obama now winding down, the glut in Cushing that looks to have caused West Texas crude prices to fall to about a $25 discount to Brent crude and world prices in general looks to be coming to an end. Additionally, to help ensure it doesn’t happen again, it was announced the flow in a large pipeline will soon be reversed to allow crude to flow out of Cushing.

As a consequence the WTI price has been rising steadily and looks to me to be reconverging with Brent prices.

And seems to me, watching the news broadcasting, the increase is at best very disconcerting to the US consumer in front of the holiday shopping season.

chart

Posted in Oil

Spanish Voters Set to Throw Out Socialists in Election

As previously discussed, there is virtually no political support to leave the euro,
as it’s not intuitively obvious the euro is the problem.

It is intuitively obvious, however, that the problem was irresponsible govt
and so the move towards responsible govt- aka austerity- continues.

The euro economy can be easily ‘fixed’ and in short order.
The ECB can, one way or another, facilitate all funding needs and end the solvency issue.
And the Stability and Growth Pact (SGP) can be modified to allow deficits sufficient to sustain aggregate demand.

Currently Germany continues to be obstructing the elimination of the solvency issue,
even as market forces are now begining to weaken German bonds.
And there are no member nations yet supporting readjusting the SGP to allow higher deficits.

So my best guess is Germany will soon recognize what most of the financial community has recently been voicing- ECB bond buying combined with austerity is not inflationary- opening the door to the ECB bond buying being an EU sanctioned policy of the institutional structure to ensure solvency.

That will trigger a massive ‘relief rally’ that will fade as the reality of the depressing nature of the
austerity takes over.

It could also sideline the discussion of Greek haircuts and default discussion in general.

Spanish Voters Set to Throw Out Socialists in Election

November 20 (Reuters) — Spaniards are expected to throw out the Socialists they blame for a disastrous economic situation in an election on Sunday and to vote in a center-right party likely to dole out more bitter medicine in the form of public spending cuts.

Opinion polls show the People’s Party (PP), led by Mariano Rajoy, has an unassailable lead over the ruling Socialists, who have led the country from boom to bust in seven years in power.

Voters are angry with the Socialists for failing to act swiftly to prevent the economic slide and then for bringing in austerity measures that have cut wages, benefits and jobs.

Yet people are now resigned to further slashes in spending on health and education in the midst of a European debt crisis that has toppled the governments of Ireland, Portugal, Greece and Italy and pushed Spain’s borrowing costs ever higher.