Category Archives: EU

The Wall of Shame (cont.)

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Today is year and in Japan,
which means the last few days could be mainly quarter end and year end maneuvers,
with a high probability of ‘buy the rumor sell the news’ types of unwinds coming up.

This would include the anticipation of another 200,000 new private sector jobs to be reported tomorrow am.
And the euro strength we’ve seen in front of the announced ECB rate hike next week.

There have been lots of promotional reasons to rush to get stocks on your books for year and/quarter end reporting,
as well as a bit of gold, silver, foods, and other commodities.

But fundamentally I see what’s going on below- a world heck bent on removing aggregate demand.

More noises from Japan on how they will pay for the rebuild, which looks to be a very modest appropriation tempered by fears of being at a fiscal tipping point.

UK austerity ratchets up April 1.

China still fighting inflation with further reduced spending and lending.

The euro zone demanding and getting austerity in return for funding, with signs in some members of austerity no longer bringing down deficits as revenues fall off from economic weakness. And no fiscal safety net if it does all go bad as markets have shown extreme reluctance to fund countercyclical deficits.

And food and fuel from monopoly pricing both eating into consumer demand and driving large segments of the world population into desperation.

Talk of Q1 US GDP down to maybe only +2%, housing still bumping along the bottom, and Q2 threatened by supply shortages due to the earthquake in Japan.

And the US debt ceiling showdown now possibly happing late next week as the deficit terrorists seal their congressional victory with the promised down payment on net spending cuts that won’t end there.

In fact, their army of support is now all but universal.

Everyone in DC and the mainstream media and economics profession agrees on the problem.

The only discussion is where the cuts should be, and who should pay more.

March 31, 2011
President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
The Honorable John Boehner
Speaker of the House
1101 Longworth House Office Building
Washington, DC 20515
The Honorable Nancy Pelosi
House Minority Leader
235 Cannon House Office Building
Washington, DC 20515
The Honorable Harry Reid
Senate Majority Leader
522 Hart Senate Office Building
Washington, DC 20510
The Honorable Mitch McConnell
Senate Minority Leader
361-A Russell Senate Office Building
Washington, DC 20510

Dear President Obama, Speaker Boehner, Minority Leader Pelosi, Majority Leader Reid, and Minority Leader McConnell:


As you continue to work on our current budget situation, we are writing to let you know that we join with the 64 Senators who recently wrote that comprehensive deficit reduction measures are imperative, and to urge you to work together in support of a broad approach to solving the nation’s fiscal problems. As they said in their letter to President Obama:

“As you know, a bipartisan group of Senators has been working to craft a comprehensive deficit reduction package based upon the recommendations of the Fiscal Commission. While we may not agree with every aspect of the Commission’s recommendations, we believe that its work represents an important foundation to achieve meaningful progress on our debt. The Commission’s work also underscored the scope and breadth of our nation’s long-term fiscal challenges.

Beyond FY2011 funding decisions, we urge you to engage in a broader discussion about a comprehensive deficit reduction package. Specifically, we hope that the discussion will include discretionary spending cuts, entitlement changes and tax reform.

By approaching these negotiations comprehensively, with a strong signal of support from you, we believe that we can achieve consensus on these important fiscal issues. This would send a powerful message to Americans that Washington can work together to tackle this critical issue. Thank you for your attention to this matter.”

We agree with this letter and hope that you will work together to agree on a comprehensive, multi-year debt stabilization package.

Sincerely,
The Honorable Roger C. Altman
Former Assistant Secretary of the U.S.
Department of the Treasury; Founder
and Chairman, Evercore Partners

Barry Anderson
Former Acting Director, Congressional
Budget Office

Joseph Antos
Wilson H. Taylor Scholar in Health Care
and Retirement Policy, American
Enterprise Institute

The Honorable Martin Baily
Former Chairman, Council of Economic
Advisers

Robert Bixby
Executive Director, Concord Coalition

Charles Blahous
Research Fellow, Hoover Institute

Erskine Bowles
Former Co-Chair, National Commission
on Fiscal Responsibility and Reform

The Honorable Charles Bowsher
Former Comptroller General of the
United States

The Honorable John E. Chapoton
Former Assistant Secretary for Tax
Policy, U.S. Department of the Treasury

David Cote
Former Member, National Commission
on Fiscal Responsibility and Reform;
Chairman and CEO, Honeywell
International

Pete Davis
President, Davis Capital Investment
Ideas

John Endean
President, American Business
Conference

The Honorable Vic Fazio
Former Member of Congress

The Honorable Martin Feldstein
Former Chairman, Council of Economic
Advisers

The Honorable William Frenzel
Former Ranking Member, House
Budget Committee; Co-Chair,
Committee for a Responsible Federal
Budget

Ann Fudge
Former Member, National Commission
on Fiscal Responsibility and Reform;
Former CEO, Young & Rubicam Brands

William G. Gale
Senior Fellow, Brookings Institution William A. Galston
Senior Fellow and Ezra K. Zilkha Chair,
Brookings Institution

The Honorable Bill Gradison
Former Ranking Member, House
Budget Committee

The Honorable Judd Gregg
Former Chairman, Senate Budget
Committee

Ron Haskins
Senior Fellow, Brookings Institution

Kevin Hassett
Senior Fellow and Director of Economic
Policy Studies, American Enterprise
Institute

G. William Hoagland
Former Staff Director, Senate Budget
Committee

The Honorable Glenn Hubbard
Former Chairman, Council of Economic
Advisers; Dean, Columbia Business
School

David B. Kendall
Senior Fellow for Health and Fiscal
Policy, Third Way

The Honorable Bob Kerrey
Former Member of Congress

Donald F. Kettl
Dean, School of Public Policy,
University of Maryland

The Honorable Charles E.M. Kolb
President, Committee for Economic
Development

The Honorable Jim Kolbe
Former Member of Congress

Lawrence B. Lindsey
President and CEO, The Lindsey Group;
Former Director, National Economic
Council

Maya MacGuineas
President, Committee for a Responsible
Federal Budget

The Honorable N. Gregory Mankiw
Former Chairman, Council of Economic
Advisers

The Honorable Donald Marron
Director, Urban-Brookings Tax Policy
Center; Former Acting Director,
Congressional Budget Office

William Marshall
President, Progressive Policy Institute

The Honorable James T. McIntyre, Jr.
Former Director, Office of Management
and Budget

Olivia S. Mitchell
Economist

The Honorable William A. Niskanen
Chairman Emeritus and Distinguished
Senior Economist, Cato Institute; Former
Acting Chairman, Council of Economic
Advisers

The Honorable Jim Nussle
Former Director, Office of Management
and Budget; Former Chairman, House
Budget Committee; Co-Chair,
Committee for a Responsible Federal
Budget Michael E. O’Hanlon
Senior Fellow and Sydney Stein Jr.
Chair, Brookings Institution

The Honorable Paul O’Neill
Former Secretary of the U.S.
Department of the Treasury

Marne Obernauer, Jr.
Chairman, Beverage Distributors
Company

Rudolph G. Penner
Former Director, Congressional Budget
Office

The Honorable Timothy Penny
Former Member of Congress; Co-Chair,
Committee for a Responsible Federal
Budget

The Honorable Alice Rivlin
Former Director, Congressional Budget
Office; Former Director, Office of
Management and Budget; Former
Member, National Commission on
Fiscal Responsibility and Reform

The Honorable Charles Robb
Former Member of Congress

Diane Lim Rogers
Chief Economist, Concord Coalition

The Honorable Christina Romer
Former Chairwoman, Council of
Economic Advisers

The Honorable Robert E. Rubin
Former Secretary of the U.S.
Department of the Treasury

The Honorable Martin Sabo
Former Chairman, House Budget
Committee

Isabel V. Sawhill
Senior Fellow, Brookings Institution

Allen Schick
Distinguished University Professor,
University of Maryland

Sylvester J. Schieber
Former Chairman, Social Security
Advisory Board

Daniel N. Shaviro
Wayne Perry Professor of Taxation,
New York University School of Law

The Honorable George P. Shultz
Former Secretary of the U.S.
Department of the Treasury; Former
Secretary of the U.S. Department of
State; Former Secretary of the U.S.
Department of Labor

The Honorable Alan K. Simpson
Former Member of Congress; Co-Chair,
National Commission on Fiscal
Responsibility and Reform

C. Eugene Steuerle
Institute Fellow and Richard B. Fisher
Chair, Urban Institute

The Honorable Charlie Stenholm
Former Member of Congress; Co-Chair,
Committee for a Responsible Federal
Budget The Honorable Phillip Swagel
Former Assistant Secretary for
Economic Policy, U.S. Department of the
Treasury

The Honorable John Tanner
Former Member of Congress

John B. Taylor
Mary and Robert Raymond Professor of
Economics, Stanford University; George
P. Shultz Senior Fellow in Economics,
Hoover Institution
The Honorable Laura D. Tyson
Former Chairwoman, Council of
Economic Advisers; Former Director,
National Economic Council
The Honorable George Voinovich
Former Member of Congress

The Honorable Paul Volcker
Former Chairman, Federal Reserve
System

Carol Cox Wait
Former President, Committee for a
Responsible Federal Budget

The Honorable David M. Walker
Former Comptroller General of the
United States


The Honorable Murray L.
Weidenbaum
Former Chairman, Council of Economic
Advisers

The Honorable Joseph R. Wright, Jr.
Former Director, Office of Management
and Budget
Mark Zandi
Chief Economist, Moody’s Analytics

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WARNING- Euro Zone Automatic Fiscal Stabilizers Deactivated!

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I now believe that system risk in the euro zone is being grossly under discounted.

The implied assumption for the major currency regions is that during a slowdown the automatic fiscal stabilizers- falling government ‘revenues’ and increased transfer payments- will kick in to increase deficit spending, and thereby add the income and savings to catch the fall and support the next expansion.

This has always been the case, and as we all know, the most accurate forecasts are the ones that assume it’s not different this time.

But the relatively new and evolving euro zone arrangements are qualitatively different.
Spending by euro zone national governments is now market constrained in Greece, Ireland, and Portugal, with the rest looking like they aren’t far away from those same market constraints.

In a slow down, this means as tax revenues fall, markets may not permit government spending to rise, unless the ECB immediately funds all the national governments as well as the banks. Just as we see happening to the US states.

Not that the ECB won’t eventually do that, but that they are unlikely to proactively do it.
In other words, it will all have to get bad enough for the ECB to write the check that only they can write.

This means the euro zone is now flying without a net.

And the potential drop in aggregate demand is far higher than markets are discounting.

And that kind of catastrophic collapse in aggregate demand in the euro zone will have immediate catastrophic global impact.

And the fiscal discussions going on in Japan and elsewhere tell me there is a clear risk even the operationally unconstrained nations will be very reluctant to immediately and proactively move towards fiscal expansion.
Instead, they will let it all deteriorate until their automatic fiscal stabilizers to kick in.
Much like what happened with the 2008 financial crisis, where the lack of a will to engage in an immediate fiscal response let that financial crisis spill over into the real economy.

Can all this be avoided? Yes, and the remedy is both simple, immediate, and would quickly lead to unprecedented global prosperity.

All the euro zone has to do is have the ECB write the check, and announce immediate and annual distributions of 10% of GDP to member nations to pay down their outstanding debts, and at the same time impose national deficit ceilings sufficiently high to promote desired levels of aggregate demand. And the penalty for non compliance would be the withdrawal of ECB support. This would remove credit concerns, without increasing government spending, so there would be no inflationary impact.

And all the rest of the world has to do is recognize that federal taxes function to regulate aggregate demand, and not to fund expenditures per se. And then set taxation and/or government spending at levels that sustain desired aggregate demand.

They need to know the question is not whether longer term the budget deficit is sustainable- as it’s always nominally sustainable- but instead worry about sustaining aggregate demand at desired levels, both long term and short term.

But, unfortunately, I see the odds of a catastrophic collapse in aggregate demand as far higher than the odds of an awakening to a global understanding of actual monetary operations.

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Welcome to the 7th US depression, Mr. bond market

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Looks to me like the lack of noises out of Japan means there won’t be a sufficient fiscal response to restore demand.

If anything, the talk is about how to pay for the rebuilding, with a consumption tax at the top of the list.

That means they aren’t going to inflate.
More likely they are going to further deflate.
Yes, the yen will go down by what looks like a lot, maybe even helped by the MOF, but I doubt it will be enough to inflate.

In fact, all the evidence indicates that Japan doesn’t don’t know how to inflate, nor does anyone else.

Worse, what they all think inflates, more likely actually deflates.

0 rate policies mean deficits can be that much higher without causing ‘inflation’ due to income channels and supply side effects.
There is no such thing as a debt trap springing to life.
Debt monetization is a meaningless expression with non convertible currency and floating fx.
QE mainly serves to further remove precious income from an already income starved economy.

Only excess deficit spending can directly support prices, output, and employment from the demand side, as it directly adds to incomes, spending, and net savings of financial assets.

The international fear mongering surrounding deficits and debt issues is entirely a chicken little story that’s keeping us in this depression (unemployment over 10% the way it was measured when the term was defined) that’s now taking a turn for the worse.

The euro zone is methodically weakening it’s ‘engines of growth’- its own (weaker) members being subjected to austerity measures that are reducing their deficit spending that paid for their imports from Germany. And now China, Japan, the US and others will be cutting imports as well.

UK fiscal austerity measures are accelerating on schedule.

The US is also working to tighten fiscal policy, particularly now that both sides agree that deficit reduction is in order, beaming as they make progress towards agreeing on the cuts.

The US had 6 depressions while on the gold standard, which followed the only 6 periods of budget surpluses.
And now, even with a floating fx policy and non convertible currency that allows for immediate and unlimited fiscal adjustments,
we have allowed the deflationary forces unleashed by the Clinton budget surpluses to result in this 7th depression.

We were muddling through with modest real growth and a far too high output gap and may have continued to do so all else equal.

But all else isn’t equal.

Collective, self inflicted proactive austerity has been working against growth, including China’s ‘fight against inflation.’

And now Japan’s massive disaster will be deflationary shock that, in the absence of a proactive fiscal adjustment, is highly likely to further reduce world demand.

Hopefully, the Saudis capitulate and follow the price of crude lower, easing the burden somewhat on the world’s struggling populations.
If so, watch for a strong dollar as well.

And watch for a lot more global civil unrest as no answers emerge to the mass unemployment that will likely get even worse. Not to mention food prices that may come down some, but will remain very high at the consumer level as we continue to burn up our food supply for motor fuel.

And it’s all only likely to get worse until the world figures out how its monetary system actually works.

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Euro area takes huge step towards comprehensive policy package

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Euro area takes huge step towards comprehensive policy package

Euro area heads of state made far more progress than expected at last Friday’s summit. They reached an agreement on a number of elements of the comprehensive policy package which is due to be finalised on March 24/25.

Most important, in our view, was the decision that the cost of liquidity support can be reduced in order to help with debt sustainability. We have argued that the liquidity support that is being provided is too expensive to enable the peripheral sovereigns to achieve anything more than simply stabilise debt-to-GDP ratios at close to the peak levels. Even though the magnitude of the reduction in the borrowing cost envisaged at this stage (100 basis points) is not enough, it is a step in the right direction and it sends a signal that concessional lending could be used to enable the peripheral sovereigns to return to debt sustainability without disruptive debt restructurings.

But, it was also made clear that a lower borrowing cost of liquidity support is conditional on the behaviour of the recipient sovereign. In recognition of the commitments that Greece has made, the borrowing cost of the bilateral loans will be reduced by 100 basis points, and their maturity will be extended from 4 years to 7.5 years. In contrast, due to the reluctance of the new Irish government to discuss raising its 12.5% corporate tax rate, the borrowing cost of the EFSF and EFSM loans to Ireland have been left unchanged.

The comprehensive policy package which will be completed by March 24/25 is due to have five elements: an increase in the size and a broadening of the scope of the EFSF (which will provide liquidity support out to mid 2013); more details on the operation of the ESM (which will provide liquidity support beyond mid 2013); a reformed Stability and Growth Pact (which will guide fiscal policy across the region); a new macroeconomic surveillance framework (which will guide macro prudential and structural policies to limit intra regional imbalances); and a competitiveness pact (which will guide all policies towards lifting growth potential in the region).

Regarding the EFSF, Euro area leaders agreed that its lending capacity will be increased to 440 billion euros, although they did not specify how this would be achieved. In terms of additional functionality, only one thing was agreed: allowing the EFSF to intervene in the primary debt markets. This looks to be an alternative to providing liquidity loans, rather than taking over the role of secondary market support that the ECB has been doing. It looks like the ECB has failed in its attempt to have the EFSF take over this task.

Regarding the ESM, it was confirmed that it will have an effective lending capacity of 500 billion euros and that this will be ensured by a mix between paid in capital, callable capital, and guarantees. It will also have the power to purchase debt in the primary markets, but not the secondary markets.

On the reforms to the Stability and Growth Pact and the new macroeconomic surveillance framework, these will be finalised by the finance ministers before March 24/25.

On the competitiveness pact, Euro area leaders agreed on its broad contours (it is now called the pact for the euro). It is essentially about boosting growth potential in the region, motivated by the idea that ‘competitiveness is essential to help the EU grow faster and more sustainably in the medium and long term, to produce higher levels of income for citizens, and to preserve our social models’. It covers four areas: improving competitiveness (through inter alia a better alignment of wages and productivity, and through higher productivity); boosting employment (through increased flexibility and tax reforms); improving the medium term sustainability of public finances (through inter alia aligning retirement ages with demographics); and reinforcing financial stability (through legislation on banking resolution and regular bank stress tests).

Euro area leaders made some other announcements as well, including an agreement that the introduction of a financial transactions tax should be explored and there is a desire to develop a common corporate tax base.

Even though the final announcement on the comprehensive policy package is still almost two weeks away, the content seems pretty clear. No one should doubt that Euro area leaders are committed to ensuring the survival of the monetary union. On the question of whether sovereign debt restructuring is going to occur, the comprehensive policy package was never going to be able to fully resolve that issue. Whether or not any of the peripheral sovereigns end up restructuring their debt depends on both the extent of the fiscal effort they are willing to engage in and the extent to which the rest of the region is willing to subsidise the liquidity support. Both of these are still unclear, but the rest of the region has now sent a powerful signal that if the debtor sovereigns put in a good faith effort then debt restructurings could well be avoided.

David Mackie

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Brussels May Punish German Competitiveness, Die Zeit Reports

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And stupider.

Maybe the world should outlaw lawnmowers and require lawns be cut with toenail clippers to create jobs. I’d suggest they were trying to weaken the euro but surely that would be giving them too much credit…

Brussels May Punish German Competitiveness, Die Zeit Reports

By Jeff Black

February 2 (Bloomberg) — European Union officials are considering measures that would punish countries that run excessive trade surpluses or whose competitiveness is too high, Germany’s Die Zeit newspaper reported, citing a document.

The proposed measures, outlined in a position paper obtained by the newspaper, would require states to keep their current account balance within a “corridor” of plus or minus four percent of gross domestic product, Die Zeit said.

A similar boundary would apply for the yearly change in unit labor costs, a measure of price competitiveness, the newspaper said. In 2008, Germany’s current account surplus was 7 percent of GDP and its price competitiveness improved by 5.5 percent, Die Zeit reported.

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EU Daily | Europe Manufacturing Growth Quickens to 9-Month High

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As previously discussed, it doesn’t get any better than this from a German point of view.

And it could be several more months or quarters before the austerity hits them.

EU Headlines

Europe Manufacturing Growth Quickens to 9-Month High

Europe Unemployment Remains Near Highest in More Than 12 Years

ECB pauses bond purchases as crisis eases

German January Unemployment Falls to 18-Year Low

France Won’t Lift Sales Tax Rate Right Now, Lagarde Says

Spanish Bank Tackles Toxic Assets

Italian Unemployment Rate Holds Near 7-Year High in December

Central Bank cuts Ireland’s outlook over austerity

Greece confident over new rescue loan installment

Industry warns Europe on competitiveness

Spain’s Salgado Says EU Rescue Fund Should Be More Flexible

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(APW) EU Considers Loans to Greece to Buy Back Bonds

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They EU may as well buy the Greek bonds themselves and save the legal fees.

And probably get a higher rate, and, of course, the option to forgive if it ever suits them.

Amazing anything like this ‘option’ even gets this far as a trial balloon.

But it does.

EU Considers Loans to Greece to Buy Back Bonds
2011-01-28 14:20:53.271 GMT
By GABRIELE STEINHAUSER
Brussels (AP) — Lending Greece money to buy back its bonds
on the open market is “one option” under discussion as eurozone
governments overhaul their euro440 billion ($603 billion)
bailout fund, a spokesman for the European Union’s executive
Commission said Friday
Greece’s bonds are currently trading below face value,
meaning the country could buy them back at a discount and cut
its mounting debt pile.
The European Commission raised that idea in an internal
“working document” on improving the response to the debt
crisis, said Amadeu Altafaj-Tardio, spokesman for EU Monetary
Affairs Commissioner Olli Rehn.
However, he emphasized that the document wasn’t a proposal
from the Commission, adding “It will be up to the member states
to see to it that our response (to the crisis) is more
effective in the future.”
Speaking to journalists at the World Economic Forum in
Davos, Greek Finance Minister George Papaconstantinou confirmed
that the idea of bond buybacks was being discussed, but
stressed that Greece wasn’t “engaged in any official way in
those discussions.”
Greece was saved from bankruptcy with a euro110 billion
rescue loan from its partners in the euro and the International
Monetary Fund in May, after investors worried about the
country’s high government debt sent its funding costs soaring.
In the wake of that bailout, the European Commission, eurozone
governments and the IMF set up a euro750 billion fund to help
other governments in financial troubles. That fund in November
extended a euro67.5 billion emergency loan to Ireland.
Eurozone governments are currently discussing new crisis
measures, after the bailout of Ireland failed to stop concerns
over debt levels from spreading to Portugal and much larger
Spain. At the center of these discussions is the eurozone’s
euro440 billion portion of the bailout fund — the European
Financial Stability Facility — and whether it should be
expanded and given more powers.
In a paper published Monday, London-based consultancy
Capital Economics calculated that an EFSF-funded bond buyback
program based on the market price of Greek bonds last week,
could cut Greece’s debt pile from about euro260 billion to
around euro194 billion. That would mean that at the end of this
year, the country’s debt would stand at 126 percent of economic
output as opposed to 154 percent, Capital Economics estimated.
However, even that reduction might not eliminate fears over
Greece’s ability to repay its debts, Ben May, European
economist at Capital Economics, said in an interview.
On top of that, telling investors that there is a buyer for
their bonds would likely push up bond prices and there is no
guarantee that all investors would be willing to sell their
bonds at a discount. “So the savings would be much less than
the current market price would suggest,” May said.
To make the buyback effective, any loans from the EFSF
would have to come at very low interest rates, said May. For
its current bailout, Greece has to pay interest of more than 5
percent. Germany and other key funders of the EFSF have so far
opposed lowering interest rates.
—
Masha Macpherson in Davos contributed to this report.

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Hawkish Comments from LBS

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The problem with the euro zone trying to keep the costs of imports down in this context is that it can only be done via a strong currency, which works against their desire to increase net exports, and even that doesn’t necessarily work if the foreign supplier has sufficient pricing power, as the Saudis do with crude prices.

It’s all about the struggle to optimize real terms of trade, which is difficult enough when the leadership understands the real issue as well as the monetary system.

Unfortunately they don’t seem to understand either one, and their real standard of living pays the price.

Karim wrote:

These are very hawkish comments from one of the more centrist and
pragmatic Governing Council members. ECB starting to realize that the
austerity measures taking place are only in 12% of Euro GDP (the PIGS).
The remaining 88% increasingly going in a different direction in terms
of macro performance.

 

5:31 ECB Bini Smaghi: “Core” CPI Losing Its Relevance
5:31 ECB Bini Smaghi: Deflation Risks Were Overestimated
5:30 *BINI SMAGHI: EURO AREA MUST `SIGNIFICANTLY’ CONTAIN COSTS
5:30 *BINI SMAGHI: RISING RISK OF `SECOND ROUND EFFECTS’ OF INFLATION
5:30 *BINI SMAGHI SEES HIGHER INFLATION FROM EMERGING MARKET PRODUCTS
5:30 *BINI SMAGHI: PAST SHOWS TENDENCY TO UNDERESTIMATE INFLATION
5:30 *ECB’S BINI SMAGHI: IMPORTED INFLATION CAN NO LONGER BE IGNORED

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Angry Irish Voters Ready to Exact Revenge

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Notice that they are angry at the government, not the currency arrangements, as previously discussed.

What’s saving the euro is that it’s not intuitively obvious that the currency arrangements could possibly be part of the problem.

Rates are low, there’s relatively little inflation, and and the foreign exchange value is reasonably strong and stable.

And it makes perfect sense that they are now paying for past govt abuses and policy blunders.

So the widespread dissatisfaction is directed at the national govts in question.

And there is little or no inclination to abandon the euro.

Angry Irish Voters Ready to Exact Revenge

January 21 (Reuters) — Irish Prime Minister Brian Cowen’s government, called “The Muppet Show” by one newspaper on Friday, can’t die soon enough for most voters.

espair has turned to fury among Irish people over an economic meltdown that has forced them to swallow ever deeper cutbacks and tax increases, while ministers emerge from their luxury state cars to speak of the country having turned a corner.

Ireland has witnessed no Greek-style riots but voters are impatient for the March 11 election, called by Cowen on Thursday, to exact revenge on the political class.

“We need to hurt them,” said Bernadette, a mother of four and owner of a wine importing business that has cut its staff to three from 15, “Unless you hurt them they won’t pay any attention to you.”

Voters regard the political class as at best complacent and at worst complicit in the nation’s transformation from economic star to euro zone basket case.

Cowen’s Fianna Fail party is set for a record rout in March, according to opinion polls.

While voters are likely to elect the mainstream opposition, some will opt for independents or the hard-left nationalist Sinn Fein party.

“They should all be gone. There should be an immediate general election. Everyone is sick of it, said postal worker Gerard Williams, 43.

“I’ll be voting for independent candidates. The big parties have lost the run of themselves,” Williams said as he walked through St Stephen’s Green in central Dublin.

Outside Cowen’s home county of Offaly, it is difficult to find anyone with a good word to say about him.

In an editorial The Irish Times newspaper despaired: “God Almighty, no one thought it could have got worse! The Government is staggering like a drunken sailor towards collapse.”

The Irish Independent said previous comparisons between Cowen and the captain of the Titanic had been unfair: “Even the captain of the Titanic was able to rearrange the deck chairs.”

Cosy Culture

A botched attempt at a cabinet reshuffle forced Cowen to call the early election following scandals over his drinking habits and questionable choice of golf buddies.

Polls suggest the two main opposition parties – centre-right Fine Gael and centre-left Labour – will form the next coalition government.

But with Fianna Fail set for a hammering the field is also open for independent candidates and Sinn Fein.

Ireland’s crisis has its roots in reckless lending and lax oversight of bankers and property developers, groups actively courted by politicians for donations during the boom years.

Revelations that Cowen played golf with the former chairman of Anglo Irish Bank months before it was taken into state care cemented for many people their view that business and politics enjoyed a cosy culture.

The spectacle of ministers and parliamentarians resigning before the election with large pensions and reports of developers and bankers living well overseas have infuriated those who didn’t buy into the Prada bag culture during the boom years when Ireland was called the “Celtic Tiger” economy.

“It’s the ordinary man in the street, the middle classes, those in the private sector that are paying,” said Marion, 57, who worked in a multinational firm for 30 years.

“I didn’t benefit from the Celtic Tiger. I lived within my means. Will I even get a pension now?”

The downturn has forced Irish people, particularly young graduates, to seek work abroad, a bitter development for people who thought they had seen the back of mass emigration.

“There are no jobs; all of my son’s friends have left,” said Bernadette. “They are leaving because this is not a country to live in anymore. The government looked after the banks. For them, it’s like we don’t exist.”

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Is Core Europe Headed for a Hard Landing?

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Is Core Europe Headed for a Hard Landing?

By Michael Darda

Executive Summary: We are increasingly concerned that the eurozone — including the core — is headed for a sharp slowdown. This powerpoint presentation shows that:

• Leading indicators in the eurozone have rolled over. The OECD’s Euro-Area Composite Leading Index has declined for seven consecutive months;

• Euro-area monetary aggregates are weak across the board. Both M1 (narrow money) and M2 (broad money) are contracting on a three-month annualized basis in the eurozone;

• However, euro-area business confidence is nearly back to peak 2007 levels. Despite the ongoing struggles, business confidence is high in the eurozone. However, confidence levels tend to be elevated at cycle peaks and depressed at cycle troughs;

• Weak money growth and strained credit markets suggest a high risk that the euro-area nominal GDP recovery could be stopped in its tracks. Absent a powerful positive shock to the velocity of money, European nominal GDP growth is likely to slow sharply;

• Debt spreads in Spain and Italy are showing a troubling pattern of “higher highs and lower lows”. Despite backing off a bit recently, sovereign debt spreads in Spain and Italy are near record highs. Worryingly, each successive “peak” in spreads has been higher than the previous one while each “trough” has also been higher.

No question austerity will work- that is, it will force negative growth.
Question is just when.
Unless they make fiscal adjustments, but that seems unlikely.

I’m starting to feel a deflationary malaise coming on as the end of year/beginning of new year related activity subsides.

Headline CPI increases to me are mainly just relative value shifts that rob demand for other things,
and are not anywhere near pushing through to core measures which would pass them on to indexed compensation.

But the talk of inflation is just one more thing keeping global authorities thinking they don’t need another ‘fiscal stimulus’ as they continue to push spending cuts and ‘fiscal responsibility’.

Housing going nowhere. Jobs going nowhere as GDP growth only marginally exceeds productivity growth.

Financial sector finding it hard to make a buck as loan demand remains weak and competition is driving down net interest margins and spreads in general. (I’m thinking of holding a walkathon to help them out. Anyone want to kick in a few cents a mile?)

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