Category Archives: EU

Greece to Restructure Debts of Govt Pension Funds

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Looks like the govt is reducing the amount of euro they owe themselves,

But not reducing the liabilities those govt pension funds and other agencies owe others?

Greece to Restructure Debts of Pension Funds, Isotimia Reports

By Marcus Bensasson

January 17 (Bloomberg) — Greece’s Finance Ministry is planning to restructure debts of 30 billion euros ($39.9 billion) held by social security funds and state-run enterprises, Isotima said in a report, without saying where it got the information.

The government will replace existing debts with medium and long-term bonds with lower rates of interest than market rates, the Athens-based weekly newspaper reported yesterday.

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Euro-Area Inflation Accelerates to Fastest Since 2008

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Saudi crude oil price hikes are nudging up the various inflation indices some, but most core measures remain tame and the headline CPI increases will only be a one time event if/when crude prices stabilize, as aggregate demand remains relatively weak and inventories plentiful in general.

However, the anti inflation rhetoric from the CB’s, which still fail to recognize the currency is a (simple) public monopoly, will intensify as they all believe it’s inflation expectations that cause actual inflation, and so they are continuously in action to manage those pesky expectation things. Call it another example of ‘Aztec Economics’ (the Aztecs performed human sacrifices to make sure the sun came up every morning).

EU Headlines:
Euro-Area Inflation Accelerates to Fastest Since 2008

Europe Keeps Interest Rates Steady on Concern About Economic Growth

Trichet Puts Inflation Fighting Back on ECB Agenda

ECB’s Weber Says Inflation Risks ‘Could Well Move to Upside’

EU Bailout Rates May Need to Drop for Aid to Work: Euro Credit

Euro Will Be Even Stronger Currency, EU’s Almunia Tells Negocios

Euro-Area November Exports Increase 0.2%, Imports Rise 4.4%

Weber Says German Economic Growth Will Moderate Going Forward

German Inflation Expectations at Nine-Month High as CPI Surges

Spain Underlying Inflation Rate Rises to Highest Since Feb. 2009

Euro-Area Inflation Accelerates to Fastest Since 2008

By Simone Meier

January 14 (Bloomberg) — European inflation accelerated to the fastest pace in more than two years in December, led by surging energy costs, complicating the European Central Bank’s efforts to deal with the sovereign debt crisis.

Inflation quickened to 2.2 percent in December from 1.9 percent in the previous month, the European Union’s statistics office in Luxembourg said today. That’s the fastest since October 2008 and in line with a Jan. 4 estimate. European exports rose 0.2 percent in November from the previous month when adjusted for seasonal swings, a separate report showed.

Crude-oil prices have jumped 10 percent over the past three months, fueling inflation just as austerity measures threaten to hurt economic growth. ECB President Jean-Claude Trichet said yesterday that inflation in the euro region may remain above the bank’s 2 percent ceiling over the coming months, signaling he is prepared to raise interest rates if needed.

“Overall, the latest from the ECB reveals some increase in concern about euro-zone inflation dynamics,” said Simon Barry, chief economist at Ulster Bank in Dublin. “It doesn’t appear that that trigger is going to get pulled in the next few months, but the chances of a hike by the end of this year have risen.”

The euro declined against the dollar after the data, trading at $1.3354 at 10:02 a.m. in London, down 0.1 percent on the day after being up as much as 0.7 percent earlier.

Energy Prices

The increase in energy prices leaves households with less money to spend just as governments from Spain to Ireland toughen budget cuts. The ECB last month forecast euro-area inflation to average around 1.8 percent this year and about 1.5 percent in 2012.

Trichet, whose central bank has been forced to provide banks with emergency liquidity and purchase governments bonds to fight the crisis, said yesterday that he sees signs of “upward pressure” on inflation over the coming months. Inflation is “likely to stay slightly above 2 percent, largely owing to commodity-price developments, before moderating again towards the end of” 2011, he said at the press conference in Frankfurt.

Euro-area core inflation, which excludes volatile costs such as energy prices, held at 1.1 percent in December, today’s report showed. Energy costs rose 11 percent from a year earlier after increasing 7.9 percent in November.

The euro’s depreciation has helped drive up import costs while also making goods more competitive abroad just as the global recovery gathered strength. In Germany, Europe’s largest economy, plant and machinery orders surged 43 percent in November from a year earlier and business confidence jumped to a record last month.

German ‘Engine’

Siemens AG, Europe’s largest engineering company, said on Jan. 11 that it’s confident of reaching its full-year targets. The Munich-based company is “off to a good start,” Chief Financial Officer Joe Kaeser said on the previous day.

Euro-area imports increased 4.4 percent in November from the previous month and the region had a trade deficit of 1.9 billion euros ($2.6 billion) after a surplus of 3.5 billion euros, today’s report showed.

“Germany will remain the region’s growth engine,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “Companies in countries with buoyant demand will find it easier to pass on higher costs while some nations remain very weak.”

Euro-area exports to the U.S. rose 18 percent in the 10 months through October from a year earlier, while shipments to the U.K., the euro area’s largest market, increased 11 percent. Exports to China surged 38 percent. Detailed data are published with a one-month lag.

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Japan buying euro bonds

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JAPAN FINMIN NODA: JAPAN WILL BUY EURO BONDS TO HELP BOOST TRUST IN EFSF SCHEME

EURO RISES AFTER JAPAN FINMIN NODA SAYS JAPAN TO BUY EURO BONDS

JAPAN NODA: TO BUY ABOUT 20 PCT OF BONDS PLANNED TO BE ISSUED JOINTLY BY EURO ZONE LATER THIS MONTH

Japan Joins China in Assisting Debt-Crisis-Hit Europe

By Toru Fujioka

January 11 (Bloomberg) — Japan plans to buy euro-zone
sovereign bonds, its finance minister said, joining China in
assisting a region hit by a fund-raising crisis.

Finance Minister Yoshihiko Noda told a news conference in
Tokyo today that Japan will use its foreign-exchange reserves to
buy more than 20 percent of bonds to be issued under a special
assistance program to help Ireland.

“It’s appropriate for Japan to make a contribution as a
leading nation to increase trust in the deal,” he said.

China has also expressed support for the euro zone, with
Vice Premier Li Keqiang last week expressing confidence in
Spain’s financial markets and pledging more purchases of that
nation’s debt. Chinese Vice Premier Wang Qishan said on Dec. 21
his nation has taken “concrete action” to help the European
Union address its debt crisis.

The euro climbed immediately after Noda’s comments, rising
as high as $1.2991, before trading at $1.2952 at 11:50 a.m. in
Tokyo.

>   
>   This is being done in an effort to weaken ¥ vs €.
>   

Yes, with the cover of helping the euro zone, just like China, who announced the same a short while ago to lead the way for Japan.

Japan has been actively seeking ways of weakening the yen to support their exporters.

They publicly bought some $ last year, and their US Tsy holdings have been falling, indicating something unannounced has been going on as well.

And their budget was somewhat expansionary.

Weakening the yen like this is one of the things somewhat subtly working to limit US aggregate demand growth, which should be a good thing for us (we can have lower taxes for a give size govt) but unfortunately our leadership simply lets aggregate demand languish.

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Pre Christmas update

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The good news is the US budget deficit still looks to be plenty large to support modest top line growth.

And as the deficit continuously adds to incomes and savings, the financial burdens ratios continue to fall, and the stage is set for a ‘borrow to spend’, ‘get a job buy a car’, ‘it’s cheaper to own than to rent’ good old fashioned credit expansion.

But most all of that good news may already be discounted by the higher term structure of interest rates and the latest stock market rally.

And there are troubling near term and medium term risks out there that don’t seem at all priced in.

The rise in crude prices is particularly troubling.

Net demand isn’t up, and Saudi production remains relatively low.

So the Saudis are supporting higher prices for another reason. Maybe it’s the wiki leaks, or maybe they just had a bad night in London.

No way to tell, but they are hiking prices, and there’s no way to tell when they will stop.

Crude prices are already up enough to be a substantial tax on US consumers that has probably more than offset whatever aggregate demand might have been added by the latest tax package.

Might explain the weaker than expected holiday retail sales?

Congress will soon have a deficit terrorist majority, with many pledged to a balanced budget amendment.

And the world seems to be leaning towards fiscal tightening pretty much everywhere.

The unemployment benefits program has been extended but benefits still expire after 99 weeks, and less in many states.

Net state spending continues to decline as state and local govs continue to reduce their deficits and capital expenditures.

Catchup in the funding of unfunded pension liabilities will continue to be a drag on demand.

A federal pay freeze has been proposed.

The Fed’s 0 rate policy and qe continue to reduce net interest income earned by the economy.

Bank regulators continue to impose policies that work against small bank lending.

Seems some income has likely been accelerated into this quarter from next year over prior concerns of taxes rising, distorting q4 earnings to the upside and maybe lowering q1 earnings a bit?

Euro zone muddles through with very weak domestic demand, and curves perhaps flattening as markets start to believe the ECB will fund it all indefinitely?

China slows as a result of fighting inflation?

Same with Brazil?

Maybe India as well?

Commodity price slump with demand flattening?

Fed low forever?

Stocks in a long term trading range like Japan?

US term structure of interest rates gradually flattens to Japan like levels?

Relatively weak demand gradually brings on alternatives to over priced crude?

Merry Christmas!!!

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China Frets About Spreading EU Debt Woes

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Yes, they want to support the euro with their fx reserves to support their exports to that region, but there is no equivalent of US Treasury securities that they can hold.

It’s as if they could only buy US state municipal debt, and not Treasury secs, Fed deposits, and other direct obligations of the US govt with their dollars.

So the only way they can support exports to the euro zone is to take the credit risk of the available investments.

Now add to that their inflation problems.

The traditional export model is to suppress domestic demand with some type of tight fiscal policy, and then conduct fx purchases of the currency of the target export zone.

The euro zone does the tight fiscal but can’t do the fx buying, so the policy fails as the currency rises to the point net exports don’t increase.

China does the fx buying, but has also recently used state lending and deficit spending to increase domestic demand, which increases domestic prices/inflation, including labor, which works to weaken the currency and retard net exports.

So China fighting inflation and the euro zone fighting insolvency both look to keep aggregate demand down for 2011.

And I don’t see the deficit terrorists about to take their seats in the US Congress doing anything to increase aggregate demand either.

So all that and the Fed still failing to make much headway on either of its dual mandates, 30 year 0 coupon tsy’s at about 4.75% (and libor + as well) look like a pretty good place for a pension fund to get some duration and lay low, at least until there’s some visibility from the new US Congress.

China Frets About Spreading EU Debt Woes

By Langi Chiang

December 21 (Reuters) — China urged European authorities to back their tough talk with action on Tuesday by showing they can contain the euro zone’s simmering debt problems and pull the bloc out of its crisis soon.

China, which has invested an undisclosed portion of its $2.65 trillion reserves in the euro, said it backed steps taken by European authorities so far to tackle the region’s debt problems, but made clear it would like to see the measures having more effect.

“We are very concerned about whether the European debt crisis can be controlled,” Chinese Commerce Minister Chen Deming said at a trade dialogue between China and the European Union.

“We want to see if the EU is able to control sovereign debt risks and whether consensus can be translated into real action to enable Europe to emerge from the financial crisis soon and in a good shape,” he said.

Concerns that Europe’s debt problems will spread beyond euro zone’s periphery to engulf bigger economies such as Spain and Italy have weighed on global financial markets this year and taken a toll on the euro.

In part to protect its investments, China has repeatedly expressed its support for the single currency.

In October, Premier Wen Jiabao promised to buy Greek government bonds once Greece returned to debt markets, in a show of support for the country whose debt burden pushed the euro zone into a crisis and required an international bailout.

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ECB Has ‘Serious Concerns’ About Irish Bank Proposals

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EU Headlines
ECB Has ‘Serious Concerns’ About Irish Bank Proposals

And they call the shots now.

Trichet Says Euro Remains Credible; States Leaving Is ’Absurd’
EU Nations Violating Deficit Caps May Be Fined Up to 0.5% of GDP

Fines have proven unworkable.

My proposal for annual distributions from the ecb to the member govts on a per capita basis with terms and conditions is far more easily enforceable.

It’s a lot easier politically to withhold payment than to fine and collect.

European financials see dollar funding gap widen

Euro banks in dollars are a higher risk than US banks in dollars so a higher price of funding makes perfect sense to me.

Their deposit insurance is not yet credible, and the ECB has limited ability to lend in dollars.

And it also means none of them should be in the libor basket if their rates exceed US banks.
But they are, and the Fed doesn’t want libor to go up beyond its desired rate targets, so this Fed is likely to again lend unsecured to the ECB and other CB’s for the purpose of keeping libor rates down on an as needed basis.

EU rushes to raise bail-out cash

It will ultimately come from the ECB

German Tax Intake Rises as Recovery Firms, Handelsblatt Reports

Growth that reduces the deficit also slows the expansion

Germany’s robust economy not enough to stop record debt
France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit

The are all in ponzi (required to borrow to make payments), including Germany.
The ratings agencies seem to be slowly coming around to viewing them as US States,
as they should have done from inception.

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European Manufacturing Grows Fastest in Four Months

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As previously suggested, Germany/France call the shots and grow nicely, with German exports to the periphery (including military) funded by the ECB that dictates the terms conditions that austerize the periphery’s populations.

Doesn’t get any better than that!

Europe Manufacturing Grows at Fastest Pace in Four Months, Led by Germany

By Simone Meier

December 1 (Bloomberg) — Europe’s manufacturing industries expanded at the fastest pace in four months in November, led by Germany, the region’s largest economy.

A gauge of manufacturing in the 16-nation euro area rose to 55.3 from 54.6 in the previous month, London-based Markit Economics said today. It had previously reported an increase to 55.5 in November. A reading above 50 indicates expansion.

Germany has powered the region’s recovery as global demand boosted sales at companies from Daimler AG to BASF SE. The European Commission said on Nov. 29 that while German growth will outpace the euro region’s expansion this year, the economies of Ireland, Spain and Greece may continue to shrink.

“Euro-zone economic activity lost momentum in the third quarter and it seems likely to be relatively muted over the coming months,” said Howard Archer, chief European economist at IHS Global Insight in London. “Tightening fiscal policy across the region, high unemployment, recurring sovereign-risk problems and slower global activity are serious threats.”

New orders at manufacturers rose at the fastest pace since July and payrolls increased for a seventh month, Markit said.

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ECB, ‘the euro’s monetary guardian’, confirms bond purchase strategy

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Yes, as discussed, looks like the ECB continues to facilitate funding by continuing the same bond purchase strategy, along with dictating terms and conditions.

For the member nations, compliance means continued funding.

Continued funding + compliance with deflationary austerity measures + no ECB buying of fx = euro strong enough to work to keep net exports from increasing.

And the possibility that the ECB decides to change course remains evidenced by the steep yield curves of member nations.

Trichet hints at bond purchase rethink

By Ralph Atkins in Frankfurt and Richard Milne and David Oakley in London

Published: November 30 2010 18:52 | Last updated: November 30 2010 18:52

Jean-Claude Trichet, European Central Bank president, has left open the possibility of the bank significantly expanding its government bond purchases and warned markets not to underestimate Europe’s determination to resolve the escalating eurozone crisis.

The hint that the ECB could recalibrate its response to the unfolding crisis came as the premiums that Italy and Spain pay over Germany benchmark interest rates hit fresh highs since the launch of the euro. The euro’s monetary guardian had already stepped up purchases of Portuguese bonds, traders reported.

Nov-30

The ECB’s bond purchase programme has been controversial within its governing council since its launch in May, with Axel Weber, president of Germany’s Bundesbank, voicing his opposition publicly.

But the pace at which the crisis has spread has altered the debate within the ECB, which could justify stepping up its intervention by arguing governments’ borrowing costs were far out of line with fundamentals, signalling dysfunctioning markets.

Speaking in the European parliament on Tuesday, Mr Trichet would not comment “at this stage” on the bond programme “in the light of the current situation”. But the programme was “on-going” and decisions on its future would be taken by the 22-strong governing council, which next meets on Thursday. He also refused to rule out the possibility of eurozone governments issuing joint bonds, although the ECB was not endorsing such a step.

Since May, the ECB has spent just €67bn under its bond purchase programme. Financial markets, however, see the ECB increasingly as the only institution with pockets deep enough pockets to ease the crisis.

The ECB thinks financial markets are badly mis-pricing risk. Mr Trichet said that “pundits are under-estimating the determination of governments”. Eurozone growth was proving surprisingly strong, and Ireland’s bail-out at the weekend had shown the EU was capable of responding to crisis. “I don’t think that financial stability in the eurozone, given what I know, could really be called into question,” he said.

Willem Buiter, chief economist at Citi, said: “The involvement of the ECB is likely to rise, despite its statements – and probably wishes – to the contrary.” He argued recently that the ECB backed by governments could give the new European bail-out fund a €2,000bn loan.

Gary Jenkins, head of fixed income at Evolution Securities, argued the ECB could try “real quantitative easing” through purchases of €1,000bn-€2,000bn of bonds. “It might be politically unpalatable. But it would be an immediate way of creating a firebreak.”

Mr Trichet has insisted repeatedly that the ECB is not engaged in “quantitative easing” as it has withdrawn liquidity from the financial system equal to the amounts it has spent on bonds, neutralizing any inflationary risks. That policy would almost certainly continue under an expanded scheme.

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Trichet statement

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*DJ Trichet: Euro-Zone Govts Are Conscious Of Their Past Mistakes
*DJ Trichet: Efforts To Improve Governance Are Being Underestimated
*DJ Trichet: Ireland And Greece Are Solvent
*DJ Trichet: Euro-Zone Public Finances Compare Well With Japan, US
*DJ Trichet: Real Euro-Zone Economy Has Surprised Positively

As if he doesn’t know the actual analogy is with the US states.

This is shameless, bold faced intellectual dishonesty.

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euro update and why no one is leaving (yet)

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As before, all that’s been done in euro land is highly deflationary.

No new euro will be spent by any govt as a result of the latest goings ons.

In fact, it’s more austerity.

And the ECB continues to do just enough to keep it all muddling through (including dictating that the new facilities be set up and activated) as it dictates terms and conditions.

And with euro zone gdp still growing (modestly) austerity still has room to slow growth before it sends it into reverse.

So why isn’t there more clamor to leave?

Simple, it’s not obvious that the currency arrangements per se are the problem.

Inflation is reasonably low, and interest rates are low, so (to the uninformed, non MMT world) how can that be the problem?

For most, the problem is obvious- same old story- their corrupt, worthless, self serving govts grossly over spent, dished it out to their banker buddies, insiders, etc., on most everything they were involved in, and now the entire nation is paying the price.

And thank goodness there were market forces in place to shut them down and stop them from turning it all into a Weimar scenario!

And this time at least they haven’t had the usual massive inflation where everyone loses their purchasing power, including those still working.

For example, those in Spain with savings can buy a lot more house than before.

The ‘good’ (prudence is considered a virtue) have sort of been rewarded.

etc.

And look how good Germany has it.

Unemployment down to 7%, driven by exports, no inflation, and they have near total fiscal domination/control (via the ECB) over the other members where they get to force austerity.

What more could they ask for?

It’s their dream come true.

So it could soon be back to strong euro, slowing growth, muddling through, until they push too far.

But even negative growth is sustainable without insolvency for as long as the ECB keeps funding it all.

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