French President Nicolas Sarkozy promised on Sunday (7 March) that eurozone countries would help Greece if its financial problems worsened. Meanwhile, German Finance Minister Wolfgang Schaeuble said he plans to make proposals soon on a new European institution to help ensure the stability of the euro zone. Sarkozy was speaking after talks with Greek Prime Minister George Papandreou, who is looking to secure pledges of support from European capitals that will reassure markets and lower the debt-stricken country's high borrowing costs. "If Greece needs help, we will be there," Sarkozy said at a joint news conference.
Sarkozy was speaking after talks with Greek Prime Minister George Papandreou, who is looking to secure pledges of support from European capitals that will reassure markets and lower the debt-stricken country's high borrowing costs.
"If Greece needs help, we will be there," Sarkozy said at a joint news conference.
The European Commission has re-affirmed its willingness to come forward with a proposal for a European Monetary Fund, opening a Pandora's Box of questions regarding its potential design. "The commission is ready to propose such a European instrument for assistance, which would require the support of all euro area member states," the commission's economy spokesman, Amadeu Altafaj Tardio, said during a regular news conference on Monday (8 March) in Brussels. The college of 27 commissioners is set to have their first discussion on a potential European fund at their weekly meeting being held in Strasbourg this Tuesday.
"The commission is ready to propose such a European instrument for assistance, which would require the support of all euro area member states," the commission's economy spokesman, Amadeu Altafaj Tardio, said during a regular news conference on Monday (8 March) in Brussels.
The college of 27 commissioners is set to have their first discussion on a potential European fund at their weekly meeting being held in Strasbourg this Tuesday.
So here they make the biggest governance proposal in the history of the euro, and it looks like they messed it up. A treaty change is needed to implement Schauble's proposal, as Merkel now admits and the French also think it is not realistic. Schauble's big proposal is in the process of being relegated as a long term goal. The FT quotes Angela Merkel as saying that she supports the plan, especially the independence from the IMF, but she does not think it is realistic right now. The FT quoted Merkel as saying she thought the plan was "interesting". It is obviously not her plan.
What's the problem with such a treaty? Could be done within the Eurozone or would it have to include all 27 member states? The idea obviously would require a new treaty of some sort.
a full-scale negotiation of the EU's 27 member states would be needed to set up a European Monetary Fund, which would be able to bail out eurozone members subject to strict budgetary conditions. "Without treaty change we cannot found such a fund," Ms Merkel told foreign correspondents in Berlin on Monday. Any new Europe-wide treaty risks being hugely divisive so soon after the lengthy and painful ratification of the Lisbon treaty, which was initially rejected by a referendum in Ireland and only came into effect in December. Paris and Berlin were struggling to come up with a common line on the German initiative and the question of the need for treaty change has exposed differences between them. French officials welcomed the proposal for an EMF in principle, but warned it would probably require an overhaul of existing treaties, for which there is no desire in Paris. They see it as a long-term project.
a full-scale negotiation of the EU's 27 member states would be needed to set up a European Monetary Fund, which would be able to bail out eurozone members subject to strict budgetary conditions. "Without treaty change we cannot found such a fund," Ms Merkel told foreign correspondents in Berlin on Monday.
Any new Europe-wide treaty risks being hugely divisive so soon after the lengthy and painful ratification of the Lisbon treaty, which was initially rejected by a referendum in Ireland and only came into effect in December.
Paris and Berlin were struggling to come up with a common line on the German initiative and the question of the need for treaty change has exposed differences between them.
French officials welcomed the proposal for an EMF in principle, but warned it would probably require an overhaul of existing treaties, for which there is no desire in Paris. They see it as a long-term project.
From the FT article (not by Munchau) referenced by Eurointelligence.
German finance minister to present fund proposals soon. The European Commission has said it supports creating a European Monetary Fund (EMF) to help eurozone countries facing balance-of-payments difficulties. "The Commission is ready to propose such a European instrument for assistance, which would require the support of all euro area member states," a spokesman for Olli Rehn, the European commissioner for economic and monetary affairs, said. He said the Commission would present a formal proposal in the "next few months".
The European Commission has said it supports creating a European Monetary Fund (EMF) to help eurozone countries facing balance-of-payments difficulties.
"The Commission is ready to propose such a European instrument for assistance, which would require the support of all euro area member states," a spokesman for Olli Rehn, the European commissioner for economic and monetary affairs, said.
He said the Commission would present a formal proposal in the "next few months".
Supporters might reply that an EMF would deal with the "next Greece," rather than fix the current mess, but markets will inevitably see the message as weak and confused. No wonder speculators are salivating. No wonder Axel Weber, president of the Bundesbank, would prefer everybody to shut up. Discussions about "the institutionalisation of emergency help," he declared , are "unhelpful". Weber has a point. Most of the voices arguing in favour of an EMF are German. Other European states - especially smaller countries - will be suspicious. They might, in theory, welcome the creation of a fund that could help in a crisis. In practice, they will view the manoeuvre as a way for Germany to impose fiscal restrictions on its neighbours while neglecting to get its consumers spending again.
Weber has a point. Most of the voices arguing in favour of an EMF are German. Other European states - especially smaller countries - will be suspicious. They might, in theory, welcome the creation of a fund that could help in a crisis. In practice, they will view the manoeuvre as a way for Germany to impose fiscal restrictions on its neighbours while neglecting to get its consumers spending again.
British diplomats will today begin the final stage of a desperate rearguard action against new European legislation that London-based hedge funds and private equity firms warn could drive them out of business. While Britain has been fighting for some time for a significant watering down of the reforms proposed by the Alternative Investment Fund Management (AIFM) directive, time is running out to secure concessions on behalf of the City, where much of Europe's hedge fund and private equity sector is based. A source close to the talks warned "the UK is not going to get everything it wants". Britain has spent much of the weekend trying to win the support of smaller European countries. This Wednesday, the directive will move to the European Commission's Committee of Permanent Representatives for consideration. Britain's representative, the diplomat Kim Darroch, will have a final chance to persuade colleagues that amendments are necessary, but only small changes will be possible.
While Britain has been fighting for some time for a significant watering down of the reforms proposed by the Alternative Investment Fund Management (AIFM) directive, time is running out to secure concessions on behalf of the City, where much of Europe's hedge fund and private equity sector is based. A source close to the talks warned "the UK is not going to get everything it wants".
Britain has spent much of the weekend trying to win the support of smaller European countries. This Wednesday, the directive will move to the European Commission's Committee of Permanent Representatives for consideration. Britain's representative, the diplomat Kim Darroch, will have a final chance to persuade colleagues that amendments are necessary, but only small changes will be possible.
Proposed regulation in Europe would add a lot of restrictions to raising capital on the continent, but it is questionable if it will go through as planned, a senior executive at private equity giant Blackstone Group (BX.N) said on Tuesday. The industry is facing regulation in Europe that would require greater disclosure by private equity, and could restrict firms based outside the European Union which want to raise money from European investors. "It puts a lot of restrictions on your ability to raise capital in Europe if you're not a Europe-domiciled business; which is sort of restrictive to trade," said Garrett Moran, chief operating officer of Blackstone's private equity unit, at the Reuters Private Equity and Hedge Funds Summit.
The industry is facing regulation in Europe that would require greater disclosure by private equity, and could restrict firms based outside the European Union which want to raise money from European investors.
"It puts a lot of restrictions on your ability to raise capital in Europe if you're not a Europe-domiciled business; which is sort of restrictive to trade," said Garrett Moran, chief operating officer of Blackstone's private equity unit, at the Reuters Private Equity and Hedge Funds Summit.
GERMANY: Federal Transport Minister Peter Ramsauer, DB Chief Executive Rüdiger Grube and Sachsen-Anhalt Transport Minster Karl-Heinz Daehre watched the breakthrough of the 6 466 m western bore of the Bibra tunnel on March 3. The 6 970 m Finne tunnel was also holed through on the same day. Three twin-bore tunnels totalling 15·4 km are being built for the 123 km Erfurt - Leipzig/Halle high speed line which is set to open in 2015. The route forms part of the 500 km Nürnberg - Berlin Corridor 8 which is being developed at a cost of €10bn under Germany's post-reunification investment plan. Erfurt - Leipzig journey times will be cut from 70 to 39 min, while Berlin - München will be cut from more than six to around four hours.
GERMANY: Federal Transport Minister Peter Ramsauer, DB Chief Executive Rüdiger Grube and Sachsen-Anhalt Transport Minster Karl-Heinz Daehre watched the breakthrough of the 6 466 m western bore of the Bibra tunnel on March 3. The 6 970 m Finne tunnel was also holed through on the same day.
Three twin-bore tunnels totalling 15·4 km are being built for the 123 km Erfurt - Leipzig/Halle high speed line which is set to open in 2015. The route forms part of the 500 km Nürnberg - Berlin Corridor 8 which is being developed at a cost of €10bn under Germany's post-reunification investment plan.
Erfurt - Leipzig journey times will be cut from 70 to 39 min, while Berlin - München will be cut from more than six to around four hours.
On this and other in-construction lines: European Tribune - The EU's emerging high-speed networkS
Another recent news from Spain: I wrote in that diary about the international (Spanish-French) Figueres-Perpignan line, which is a fully completed project, but could not be used as the connecting line on to Barcelona won't be ready until 2012. Now, with a junction, the transport ministry wants to put it in service this year. *Lunatic*, n. One whose delusions are out of fashion.
The 5.9 percent annualized surge in fourth-quarter growth -- the fastest since 2003 -- was powered more by exports and business investment than the traditional drivers of consumption and housing. This new mix of demand will boost the economy by 3.7 percent in 2010 and pave the way for 3.5 percent annual average increases thereafter, said Joseph Carson, an economist at AllianceBernstein in New York, who coined the phrase. (...) "What's going to change is how we generate growth, not how fast we can grow," Carson said in an interview. "That's how I come up with a new mix rather than a new normal."(...) Advocates of both camps agree consumption will be restrained as households struggle with an unemployment rate that remained at 9.7 percent in February and a $12.6 trillion reduction in their net worth during the recession. They also agree that emerging markets, not the U.S., will lead the world economy in the recovery. Where they differ is on the extent that U.S. companies can tap into expansion overseas, boosting domestic growth in the process.
Good News for US Markets
Now that stocks and the dollar are moving in tandem again, it could be a signal for investors to put more money into US assets. For much of the 2009 rally off the March lows the two entities had been in reverse lockstep. When the dollar would fall, stocks would rise and vice versa.
For much of the 2009 rally off the March lows the two entities had been in reverse lockstep. When the dollar would fall, stocks would rise and vice versa.
It's worth mentioning that an appreciating U.S. dollar could cut into exports. The greenback got pummeled for much of 2009, but has been rising lately as the Euro and British pound suffer under the weight of Europe's economic problems. For now, futures prices suggest the dollar is expected to end the year up only about 1%.
First, US domestic sourced products are too expensive, considering the alternatives available from China, India, Indonesia, & etc. The prime culprit for this is the very high Cost of Living - comparatively - in the US.
Secondly, exponential growth is mathematically and physically impossible to maintain forever. At some point the whole thing shifts into a positive feedback loop in the negative direction until a new equilibrium is achieved.
Leading the way in November were food, grains and beverages exports, most notably soybeans, which increased $979 million, compared with October. Two big railroads--Union Pacific Corp. and Burlington Northern Santa Fe Corp.--flagged the upswing in soybeans in their latest results. Burlington Northern said Friday that although revenue from agriculture products was down 2% versus a year ago, volumes improved, "primarily driven by strong soybean exports."
The U.S. export to China ranges from jumbo jet to farm produce. However, high-tech exports are banned. The U.S. government intensified restrictive measures in 2007, according to Chen. Chen said the U.S. restrictive measures were not fair for the U.S. exporters, producers and consumers, notably against the background that President Obama pledged to double U.S. exports in five years to sort out unemployment.
Chen said the U.S. restrictive measures were not fair for the U.S. exporters, producers and consumers, notably against the background that President Obama pledged to double U.S. exports in five years to sort out unemployment.
The Powers That Be insist that a magic bullet called a special resolution authority will solve many of the problems with the "heads I win, tails you lose" taxpayer backstopped financial system with inadequate oversight. The prospect of taking terminally sick banks out and shooting them will supposedly reintroduce moral hazard and make banks behave responsibly again. The problem is that there isn't much evidence to support this optimistic belief. Investment banks were seen as normal enterprises, at risk of bankruptcy, before the meltdown, yet that did not prevent Bear, Lehman, and Merrill from getting themselves into trouble that ultimately proved fatal. And the leaders of these enterprises did not take meaningful financial hits (oh yes, they were less rich than they would have been otherwise, but none of them is at risk of spending his waning years subsisting on dog food), a lesson surely not lost on other bank CEOs. Then we have the wee problem that the idea of a special resolution authority looks not credible. We've harped more than once that as long as the firms crucial to debt markets remain deeply connected to each other, the idea that one can be taken out gracefully without impacting the others is a fairy tale. We'll believe this comforting story only if we see measures to cut back counterparty exposures, most importantly in the repo and credit default swaps markets. Bob Teitelman, editor of The Deal, gives a more detailed evisceration of the problems with the idea (I'm jealous that I didn't write this myself): The absence of resolution authority has become as handy an excuse for the mess as any, like the lack of a League of Nations after World War I.....Resolution authority, in short, is the Maltese Falcon of regulatory reform. What is this strange bird? Simply put (though nothing here is simple), it's the legislative authority to wind down a financial firm. In fact, this definition is about as far as anyone ever gets on the subject....In its grandiose form (as if its normal form isn't ambitious enough), the mere presence of resolution authority will scare the crap out of stockholders, creditors and counterparties and make them do their job, which is insuring that banks don't go all suicidal, blow themselves up and force regulators to do their jobs.... But something about resolution authority feels too good to be true. Resolution authority is modeled after the Federal Deposit Insurance Corp.'s power to deal with failing banks. That's fine, but when was the last time the FDIC tackled a promiscuously interconnected, global, highly leveraged giant? Given that we seem to have no idea how finance is wired, how can we be sure that we can halt contagion from spreading from a firm rotting faster than a day-old corpse?....Resolution authority might even trigger self-fulfilling prophecies -- setting off an early scramble for the exits, while regulators are still watching the feature. And what about overseas assets?.... Who believes that if Goldman, Sachs & Co. was flaming out, the feds would not flinch? Answer: no one with a measurable IQ. Resolution authority resembles proactive bubble defense: The optimal time to use it is before the anticipated corpse turns blue. But if Paulson had shuttered Lehman right after Bear collapsed, would he be praised, pilloried or prosecuted like a dog? Lehman would have howled, Congress would have whined, so try door No. 3. Resolution authority demands, well, resolution in the face of a spitting mob. And yeah, money; no free lunch here. To make it fly requires a hero -- Volcker played that role once on inflation -- willing to lose everything. Alas, such lunatics are rare, making resolution authority just a dusty prop from an old movie. Yves here. Aside from pointing out the obvious, glaring operational issues, Teitelman points out that there is a massive political problem: for resolution authority to prevent contagion, the sick financial firm probably has to be taken out and shot relatively early. Look how quickly Bear went into a death spiral, a mere ten days. Paulson, who was famously aggressive (like it or not, it did take nerve to put Fannie and Freddie into conservatorship) stepped back on Lehman (this seems to have been in part collective frustration of the officialdom team when the Barclays rescue was blocked by the FSA, of having not been prepared for that deal to fail, but it was also clear at the time that Lehman was not going to be rescued, that the bad press on Bear meant the next firm that foundered would not be helped).
The problem is that there isn't much evidence to support this optimistic belief. Investment banks were seen as normal enterprises, at risk of bankruptcy, before the meltdown, yet that did not prevent Bear, Lehman, and Merrill from getting themselves into trouble that ultimately proved fatal. And the leaders of these enterprises did not take meaningful financial hits (oh yes, they were less rich than they would have been otherwise, but none of them is at risk of spending his waning years subsisting on dog food), a lesson surely not lost on other bank CEOs.
Then we have the wee problem that the idea of a special resolution authority looks not credible. We've harped more than once that as long as the firms crucial to debt markets remain deeply connected to each other, the idea that one can be taken out gracefully without impacting the others is a fairy tale. We'll believe this comforting story only if we see measures to cut back counterparty exposures, most importantly in the repo and credit default swaps markets.
Bob Teitelman, editor of The Deal, gives a more detailed evisceration of the problems with the idea (I'm jealous that I didn't write this myself):
The absence of resolution authority has become as handy an excuse for the mess as any, like the lack of a League of Nations after World War I.....Resolution authority, in short, is the Maltese Falcon of regulatory reform. What is this strange bird? Simply put (though nothing here is simple), it's the legislative authority to wind down a financial firm. In fact, this definition is about as far as anyone ever gets on the subject....In its grandiose form (as if its normal form isn't ambitious enough), the mere presence of resolution authority will scare the crap out of stockholders, creditors and counterparties and make them do their job, which is insuring that banks don't go all suicidal, blow themselves up and force regulators to do their jobs.... But something about resolution authority feels too good to be true. Resolution authority is modeled after the Federal Deposit Insurance Corp.'s power to deal with failing banks. That's fine, but when was the last time the FDIC tackled a promiscuously interconnected, global, highly leveraged giant? Given that we seem to have no idea how finance is wired, how can we be sure that we can halt contagion from spreading from a firm rotting faster than a day-old corpse?....Resolution authority might even trigger self-fulfilling prophecies -- setting off an early scramble for the exits, while regulators are still watching the feature. And what about overseas assets?.... Who believes that if Goldman, Sachs & Co. was flaming out, the feds would not flinch? Answer: no one with a measurable IQ. Resolution authority resembles proactive bubble defense: The optimal time to use it is before the anticipated corpse turns blue. But if Paulson had shuttered Lehman right after Bear collapsed, would he be praised, pilloried or prosecuted like a dog? Lehman would have howled, Congress would have whined, so try door No. 3. Resolution authority demands, well, resolution in the face of a spitting mob. And yeah, money; no free lunch here. To make it fly requires a hero -- Volcker played that role once on inflation -- willing to lose everything. Alas, such lunatics are rare, making resolution authority just a dusty prop from an old movie.
But something about resolution authority feels too good to be true. Resolution authority is modeled after the Federal Deposit Insurance Corp.'s power to deal with failing banks. That's fine, but when was the last time the FDIC tackled a promiscuously interconnected, global, highly leveraged giant? Given that we seem to have no idea how finance is wired, how can we be sure that we can halt contagion from spreading from a firm rotting faster than a day-old corpse?....Resolution authority might even trigger self-fulfilling prophecies -- setting off an early scramble for the exits, while regulators are still watching the feature. And what about overseas assets?....
Who believes that if Goldman, Sachs & Co. was flaming out, the feds would not flinch? Answer: no one with a measurable IQ. Resolution authority resembles proactive bubble defense: The optimal time to use it is before the anticipated corpse turns blue. But if Paulson had shuttered Lehman right after Bear collapsed, would he be praised, pilloried or prosecuted like a dog? Lehman would have howled, Congress would have whined, so try door No. 3. Resolution authority demands, well, resolution in the face of a spitting mob. And yeah, money; no free lunch here. To make it fly requires a hero -- Volcker played that role once on inflation -- willing to lose everything. Alas, such lunatics are rare, making resolution authority just a dusty prop from an old movie.
Tim Geithner -- "we saved the economy but kind of lost the public doing it" -- in the New Yorker, out today.
Simon Johnson's take:
1. Mr. Geithner is quoted as saying, "Some on the left have fallen into a trap set by the Republicans, allowing voters to mistakenly think that the biggest part of the bank bailout had come under Obama rather Bush." Mr. Geithner should know - as he spearheaded the saving of banks and other financial institutions under both Bush and Obama. In fact, it's the continuation of George Bush's policies by other means that really has erstwhile Obama supporters upset. 2. "I think there are some in the Democratic Party that think Tim and Larry are too conservative for them and that the President is too receptive to our advice." Probably this is linked to the fact that Tim Geithner is not a Democrat. 3. Geithner also suggests that his critics compare government spending on different kinds of programs under President Obama: "By any measure, the Main Street stuff dwarfs the Wall Street stuff." This insults our intelligence. Wall Street created a massive crisis and we consequently lost 8 million jobs; any responsible government would have tried hard to offset this level of damage with all available means. This includes fiscal measures that will end up increasing out privately held government debt, as a percent of GDP, by around 40 percentage points. It's not the fiscal stimulus, broadly defined, that is Mr. Geithner's problem - it's the lack of accountability for the bankers and politicians who got us into this mess. But the Geithner issues reflected here run much deeper. The New Yorker's John Cassidy alludes to these but he may be too subtle. Here's the less subtle version. What exactly was the "Geithner stabilization plan" that frames the article - and is the basis for Secretary Geithner claiming to have saved anything? We are not really talking about the much vaunted but little used toxic asset/loan purchase program (the "PPIP"). "The plan" here means essentially the stress tests designed by Treasury and run by the Fed - which brought some transparency to banks' balance sheets, but which also used a relatively benign "stress scenario" (watch commercial real estate, residential mortgages, and credit card losses now unfold). The main feature of the plan, of course, was - following the stress tests - to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States. Of course this works in the short-term - investors like such guarantees. But there's a good reason we usually don't guarantee all financial institutions - or act happy when other countries do the same. Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance. You can't run any form of reasonable market system when some big players hold "get out of bankruptcy free" cards. All crises end - this is actually Larry Summers's famous line. We avoided a Great Depression primarily because, compared with 1929-31, we have a government sector that is large relative to the economy - and which does not collapse when credit goes into freefall. What exactly did the Obama administration do in ending the crisis that a Clinton or McCain administration - or even Bush - would not have done? The most plausible answer is: Nothing.
But the Geithner issues reflected here run much deeper. The New Yorker's John Cassidy alludes to these but he may be too subtle. Here's the less subtle version.
What exactly was the "Geithner stabilization plan" that frames the article - and is the basis for Secretary Geithner claiming to have saved anything? We are not really talking about the much vaunted but little used toxic asset/loan purchase program (the "PPIP"). "The plan" here means essentially the stress tests designed by Treasury and run by the Fed - which brought some transparency to banks' balance sheets, but which also used a relatively benign "stress scenario" (watch commercial real estate, residential mortgages, and credit card losses now unfold).
The main feature of the plan, of course, was - following the stress tests - to communicate effectively that there was a government guarantee behind every major bank or quasi-bank in the United States. Of course this works in the short-term - investors like such guarantees. But there's a good reason we usually don't guarantee all financial institutions - or act happy when other countries do the same. Unconditional bailouts lead to trouble, encouraging reckless risk-taking and undermining responsible governance. You can't run any form of reasonable market system when some big players hold "get out of bankruptcy free" cards.
All crises end - this is actually Larry Summers's famous line. We avoided a Great Depression primarily because, compared with 1929-31, we have a government sector that is large relative to the economy - and which does not collapse when credit goes into freefall. What exactly did the Obama administration do in ending the crisis that a Clinton or McCain administration - or even Bush - would not have done? The most plausible answer is: Nothing.
