Category Archives: Spain

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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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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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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China Raises Holdings of Euro Debt, Including Spain

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Yes, to support exports the region by supporting the value of the euro vs the yuan.

China Raises Holdings of Euro Debt, Including Spain
Published: Thursday, 6 Jan 2011 | 4:38 AM ET
By: Reuters
 

China has increased its holdings of euro debt, including Spanish debt, and has confidence in the European financial markets, according to the Chinese Commerce Ministry.
 

China’s Vice Premier Li Keqiang has said his country is willing to buy about 6 billion euros of Spanish public debt, Spanish newspaper El Pais reported earlier on Thursday, citing government sources.
 

The sources told El Pais Li had said at a meeting that China is willing to buy as much Spanish public debt as Greek and Portuguese debt combined.
 

They said that added up to about 6 billion euros in Spanish government bonds.
 

Li leaves Madrid today, where he has been on a three-day visit, before visiting the United Kingdom and Germany.
 

The report echo remarks by Li earlier this week, although the report is the first to give a figure.
 

“China is a responsible, long-term investor in the European financial market and particularly in Spain, and we have confidence in the Spanish financial market, which has meant the acquisition of its public debt, something which we will continue to do in the future,” Li wrote in an editorial in El Pais on Monday.
 

Spain has come under increasing pressure from international debt markets on concerns it may be forced to follow Greece and Ireland and seek an EU or International Monetary Fund bailout, but while bond yields have risen, demand for Spanish debt remains solid.

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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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Trichet cmnts

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Translation- they keep funding on an as needed basis, at least for now.

*DJ ECB Trichet: The ECB Is Meeting Its Resposibilities
*DJ ECB Trichet: Important That Deficit Targets Are Met
*DJ ECB Trichet: Spain Should Deepen Labor Mkt Reform
*DJ ECB Trichet: Bank Stress Tests Are Very Useful
*DJ ECB Trichet: Stress Tests Important To Do On Regular Basis
*DJ ECB Trichet: Investors Don’t Yet Appreciate Postive Actions Taken
*DJ ECB Trichet: We Permamently Watch Commodities Prices
*DJ ECB Trichet: Spain One Of Countries That Needs Deficit Cuts

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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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