econoTwist's

Archive for March, 2010|Monthly archive page

Easter Updates (7)

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 31.03.10 at 23:33

Here’s some essential reading for the Easter holidays, provided by high5finance:

Top Stories:

* Trading Outlook: April 5 – 9, 2010

* Gordon Brown: Global Bank Levy Accord Close

* Stocks, Commodities Rise

* Net Yen Shorts Surge As Euro Shorts Hit Fresh Record

* IMF: World Economy ”Not out of the Woods”

* Outlook: Investor Focus Turns to US Consumer, Fed

* ISM Survey: U.S. Service Industries Probably Accelerated

* Invasion of the Inflation Doves

* Australia Tries to Prevent Ship Breaking Up Near Reef

* 7.2 Earthquake Strikes Baja California

Latest News:

* U.S. Stock-Index Futures Advance

* Weighing the Week Ahead: Fed Fixation

* 300,000 iPads sold on day one

* Oil Surges to Highest Level in 17 Months

* Republicans dispute course of financial overhaul

* Suicide Bomber Kills Two Policemen in Russia

Latest Blog Posts:

Econotwist’s Blog: U.S. Republicans To Spend $50 million on “Tea Party”

StraightStocks.com: Today in Russian Business

Seeking Alpha: Complexity and Doom

Zero Hedge: A Cautionary Fable

The Huffington Post:The Unspoken Macro of the Citibank Saga

The Collector: Break through at Large Hadron Collider

Wall St. Cheat Sheet: Don’t Be a Fool: Watch the Bond Market, Not Bank Lending or Velocity

The EUobserver: Merkel´s treaty change

Latest Analysis:

* A Reason to Be Bullish?

* Time to Get Real About China

* Bulls Still Getting the Benefit of the Doubt

* American Bonds Most Likely to Crash

* Beijing Will Hike Rates, But Not So Soon

*A Few Caution Signals for the Bull Market

Recommended Reading:

* MasterCard, Visa, and the Card Sharks

* Credit card companies change tactics

* Russia’s Chechen War: It All Comes Down to Energy Rents

* Unserious About Iran

* The Biggest Victims of the Market Drop? Not Boomers

* The Recession’s 10 Most Outrageous Jobs Stories

* Is This an Economic Recovery?

* The Only iPad “Review” You Need To Read


The H5F-TV Toolbar – Download

Reblog this post [with Zemanta]
Advertisements

Wednesday Morning Kick Off

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 31.03.10 at 00:38

Here’s the Wednesday’s essential readings, provided by high5finance:

Top Stories:

* Trading Outlook: March 28 – April 2, 2010

* U.S. Stocks Rise as Economic Data

* Verizon report sends Apple shares to all-time high

* Commodities: Defining Moment

* Japanese Business Sentiment Approaches Pre-Crisis Levels

* Ireland Releases ‘Bad Bank’ Terms

* Greek CDSs Pricier than ‘Junk’ Rated Countries’

* Asian Stocks, Won Gain

* Nissan’s electric car will cost $25,000

Latest News:

* Wall Street gives back early gains

* Greek Debt Chief: E.U. Deal Talk Hurt More than Helped

* Chinese Users Report New Google Blocks

* Most European Stocks Fall on Iceland Downgrade; Michelin Drops

* U.K. GDP unexpectedly revised up

* Iceland’s Currency Credit Rating Lowered by S&P

Latest Blog Posts:

Econotwist’s Blog: Fitch Expects More European Sovereign Downgrades

MoonTalk: Sovereign Debt – Just Take The Punch?

StraightStocks.com: Faint Spells from Economic Indicators

Seeking Alpha: Germany’s Role in the European Debt Mess

Zero Hedge: 24 Hours Until The End Of MBS Purchases By The Fed; Then What?

The Huffington Post: The Trillion-Dollar Shadow

Dagens Ledelse: Biskoper på leit

Latest Analysis:

* The Need for a Financial Commission

* Is It Too Late to Get Back Into Stocks?

* The EU Is in Crisis Mode, Once Again

* Another Gamechanger from Apple?

* March Madness and Hedge Fund Survivorship Bias

*The True Causes Underlying The Moscow Metro Bombings

Recommended Reading:

* iPhone U.S. Monopoly May End

* Some Big Banks Showing Pension Shortfalls as Assets

* Serious Debt Problem Requires Serious Solution

* Obama Gets Aggressive

* CFTC Commissioners Gone Wild

* Stocks Soar, but Many Analysts Ask Why

* Greenpeace Unmasks Koch Industries’ Funding of Climate Denial Industry

Happy Trading !

The H5F-TV Toolbar – Download

Reblog this post [with Zemanta]

Fitch Expects More European Sovereign Downgrades

In Financial Markets, International Econnomic Politics, National Economic Politics on 30.03.10 at 23:30

Fitch writes in its newly released report on sovereign debt that the rating agency expects downwards rating pressure to continue in Europe through 2010. The survey show that the downgrade/upgrade ratio last year turned negative for the first time since 2002, and for some local governments the tax revenue shrunk by 20 percent.

“Fitch expects higher overall deficits to continue into 2010, and in some cases this will be at the operating balance level.”

Fitch Ratings


The global recession left a lasting impact on sovereign nations as well as local and regional authorities, faced with shrinking revenues and bulging deficits. As a result, the international public finance downgrade to upgrade ratio turned negative in 2009, with downgrades outpacing upgrades by 1.6 to 1, Fitch Ratings writes in the newly released  “International Public Finance 2009 Transition and Default Study”.

Last time the downgrade/upgrade ratio was negative, was in 2002, the report shows:

“The global recession left a lasting impact on sovereign nations as well as local and regional authorities, faced with shrinking revenues and bulging deficits. Despite these recent economic difficulties, the rate of downgrades among Fitch-rated international public finance issuers remained relatively modest in 2009, edging lower to 4.2% from 5.2% in 2008. Upgrades however contracted to 2.6% from 8.7% a year earlier. As a result, the international public finance downgrade to upgrade ratio turned negative in 2009, with downgrades outpacing upgrades by 1.6 to 1, up from positive results of 0.6 to 1 recorded a year earlier,” Fitch writes in the report.

The Pressure Is On Europe

Fitch’s international public finance coverage is weighted heavily with European issuers and therefore the sector’s outlook as discussed in the survey is greatly influenced by Fitch’s expectations for Europe.

Fitch believes downward rating pressure will continue in Europe in 2010, either through rating downgrades for those entities  that the agency considers to have long-term structural problems, or through continued revisions of Rating Outlooks to Negative.

“These are mainly sub-nationals that have a greater reliance on fiscal revenue related to economic activity in their territory, such as personal income tax, corporate income tax, or value-added tax; or taxes related to property transactions, such as stamp duty. The continued weak economic environment will result at best in a modest rise in tax revenue compared with 2008, or at worst in a decline, as experienced by a number of sub-nationals in 2009 ⎯ some registering declines in tax revenue of up to 20%.”

“In addition, capital expenditures will remain high as these entities adopt anti-cyclical measures to boost economic activity, in parallel with policies adopted by various central governments. Therefore, Fitch expects higher overall deficits to continue into 2010, and in some cases this will be at the operating balance level, as some sub-nationals have found it difficult to rein in operating expenditures.”

Geographically, Europe not only accounted for the preponderance of assigned international public finance ratings, but also for all Fitch’ rating actions in 2009.

Western and Eastern Europe split downgrades with a total of four each, while the eastern half of Europe alone captured all five upgrades for the year.

“Ukraine recorded the most downgrades with three, the result of the country’s sovereign downgrade in November; the cities of Kyiv, Odessa, and Kharkov received downgrades to ‘B−’ from ‘B+’. On the upside, two Turkish issuers, the Metropolitan Municipality of Istanbul and Toplu Konut Idaresi Baskanligi moved up the rating scale to ‘BB+’ from ‘BB−’, again on a sovereign rating action, this time the upgrade for Turkey (‘BB+’).”

No Defaults, Yet

Fitch Ratings recorded no defaults on public debt in 2009.

The last default of Fitch rated international public finances was in 2007.

Here’s the rating agency’s official default list:

Republic of Sakha (Yakutia): The republic defaulted on domestic bonds, August 1998.

City of Odessa: The city of Odessa failed to repay its UAH61 million municipal bond and interest (UAH30 million), June 1998.

City of Buenos Aires: The city missed an interest payment on its euro medium-term note program (EMTNs), May 2002.

Province of Buenos Aires: The province defaulted on debt-service payments of its EMTNs in the amount of USD25.5 million, January 2002.

Province of Santiago del Estero: The province defaulted on debt-service payments due on provincial consolidated debt, February 2002.

Province of Tucuman: The province defaulted on debt-service payments due on provincial consolidated debt, February 2002.

Province of Mendoza: The province missed a bond interest payment of USD12.5 million, March 2002.

Province of San Juan: The province missed a bond interest payment of USD5.035 million on its 13.25% federally guaranteed bonds, July 2002.

City of Taranto: The city missed a debt installment repayment, January 2007.

Here’s a copy of the full report: “International Public Finance 2009 Transition and Default Study”

Related by the Econotwist:

G7-Countries In Deep Trouble

Force The Rich!

MoonTalk: Sovereign Debt – Just Take The Punch?

MoonTalk: Want To Buy A Greek Island?

MoonTalk: Sovereign Debt – The Only Solution?

Fitch: Global Sentiment Improving but European Concerns Persist

Traders Short Record Amount of Euro

Greece: From Bad To Worse?

The Arab World – Downgraded

All Eyes On Ukraine

Michael Milken Warns Against Sovereign Debt




Reblog this post [with Zemanta]

Greek Bailout “Backstop” Confidence Trick Already Backfiring

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 30.03.10 at 13:56

Greece paid a stiff premium to raise €5bn on Monday, signaling that the EU announcement last week of a possible rescue package has done little to lower the troubled country’s high cost of borrowing. Several politicians have expressed the hope that the “backstop” bailout arrangement would persuade the market to offer lower rates, but this could only ever succeed if the markets had some clarity on the likely interest rate of the “backstop,” and a firm political commitment for a bailout at that rate.

“The market are beginning are beginning to realize that the “backstop” is not an actual guarantee.”

Econotwist

The Wall Street Journal reports that Greece paid a stiff premium to raise €5bn on Monday, signaling that the EU announcement last week of a possible rescue package has done little to lower the troubled country’s high cost of borrowing. The market are beginning are beginning to realize that the “backstop” is not an actual guarantee.

Compared with Greece’s two previous bond issues in 2010, demand was relatively subdued. Greece is paying a coupon of 5.9% on the new bond, 3.34 percentage points above what Germany pays to borrow money.

The new €5 billion bond issue means Greece has now sold about €20 billion of bonds, or 43% of its 2010 target.

Backstop Trick Not Working

The “backstop” confidence trick is already backfiring, the Eurointelligence writes.

Several politicians have expressed the hope that the backstop bailout arrangement would persuade the market to offer lower rates, but this could only ever succeed if the markets had some clarity on the likely interest rate of the backstop, and a firm political commitment for a bail-out at that rate.

The German propaganda has been that those interest rates would be close to market rates. But since the market always supplies finance at market rates, the only conceivable circumstance of a Greek bailout would be a situation in which the markets would offer Greece finance, say at 6% or thereabouts, but the Greek government refused to take it, or were unable to service the debts. But in that case, the German “backstop” would be worthless.

The market are beginning are beginning to realize that the “backstop” is not an actual guarantee.

The Pending End Of The Euro Area

Gideon Rachman of the FT has been what we would consider a moderate eurosceptic, and it is no surprise that the euro crisis is capturing his attention.

In his latest column, he made compared the euro area to the film The Big Fat Greek Wedding. He makes one important point about the politics of it.

The EU is in the process of wasting a crisis:

“When the euro was launched, leading German politicians used to argue, with evident relish, that monetary union would eventually require political union. The Greek crisis was precisely the sort of event that was expected to force the pace. But, faced with a defining crisis, Ms Merkel’s government is avoiding airy talk of political union – preferring instead to force harsh economic medicine down the throats of the reluctant Greeks.”

The Monetary Union has been an imperfect project all along. This imperfection is not Ms. Merkel fault. But now comes the existential crisis, and the political reaction is to refuse to fix the system.

Auerback’s Conspiracy Theory

Any rational explanation of last week’s European Council agreement would have to come to the conclusion that Germany wants to drive the euro area into the ground.

“…it finally gave Berlin the leverage to fully impose its version of hair shirt economics on those allegedly lazy southern Mediterranean scroungers. Left conveniently unstated is the idea that the longer the PIIGS are forced to wallow in stagnant growth, the more persistent will be the very budget deficits and the larger the public debt to GDP ratios for which they are now being punished. It’s akin to someone having a high temperature because he/she is suffering from influenza and therefore denying that person medicine on those grounds. Trying to work against the automatic stabilizers with austerity programs will be futile unless you start dismantling some of the automatic capacity, which gives rise to these stabilizers.”

IMF Does Not Accept Any E.U.  Leadership

This is going to be interesting (and another signs of the incredible incompetence of European leaders):

When they decided the formula of burden sharing with the IMF, but with EU leadership, they forgot to clear this with the IMF beforehand.

Oooops!

“…If, and it’s a big if, Greece asks for support, we will provide support for Greece as one of our members, as we do with any other member,” Bloomberg quotes Strauss-Kahn. “it will be an IMF program decided by the IMF as it happens with each and every country. The IMF will define the conditionality, as we do with any country.”

So from his point of view, Greece is another Romania of Hungary (or more likely another Latvia).

Ireland’s “Bad Bank” Starts Operating

NAMA – Ireland’s “bad bank” – starts its operations today with €81bn in bad property loans left over from the financial crisis and is set to reveal larger-than-expected “haircuts”on €17bn of loans, the Financial Times reports.

The announcement will have direct implications for the level of capital the banks will need in the future.

Irish bank shares fell sharply on Monday amid fears that the new financial requirements could prove crippling.

Related by the Econotwist:

Markets To Test Greece

Greece Wants E.U. To Use Old Latvia Fund For Bailout

G7-Countries In Deep Trouble

Merkel: Kick’em Out!

Force The Rich!

E.U. Defends Hedge Fund Plans after Geithner’s Warning

Sarkozy, Brown Fails To Agree On Hedge Fund Rules

Is Europe’s Debt Crisis Over?

Greece: “Exploiting The Fear”

E.U. Working On Greek Rescue Plan To Be Funded By Governments

Socialism For The Rich – Capitalism For The Poor?

MoonTalk: Want To Buy A Greek Island?

E.U. To Reform Economic Policy

Beginning Of The End For The European Union?

Reblog this post [with Zemanta]

Tuesday Morning Kick Off

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 30.03.10 at 11:12

Here’s the Tuesday’s essential readings, provided by high5finance:

Top Stories:

* Trading Outlook: March 28 – April 2, 2010

* Here Is Why Companies Are Hoarding Cash

* Stocks, Commodities Gain as Yen, Dollar Fall

* Subprime-Mortgage Debt Rallies

* Setting Rules for Capital and Liquidity

* 3 investing moves you must make

* Half of Commercial Mortgages to Be Underwater

* The most valuable companies in America

* Oil gets boost from economic data, Moscow bombing

* 3 ETFs to Watch This Week

Latest News:

* Geithner: Commercial real estate loans problematic

* Greece Offers Five Times Spain Yield Spread in Bond Sale

* Treasury hires M Stanley bankers to offload Citi stake

* Rio Tinto-boss Sentenced to 10 yrs in Prison

* Citigroup Expands Its Hedge Fund Business

* Major banks face refinancing challenge

Latest Blog Posts:

Econotwist’s Blog: Goldman Sachs: “Damn American Bastards!”

MoonTalk: Sovereign Debt – Just Take The Punch?

StraightStocks.com: Ballad of a Heartbreaking Money Supply

Seeking Alpha: What’s Active Management, And What’s Not?

Zero Hedge: SEC Sending Letters To 24 Large Financial Firms Demanding Repo Agreement Disclosure

The Huffington Post: Next, Banking Reform

Dagens Ledelse: Biskoper på leit

Latest Analysis:

Google vs. China: It’s Not Over Yet

* Turkey Knocks: Will EU Let It Enter?

* Betting on NatGas Rebound? Be Careful

* Pessimism Is Priced In – Bet the Other Way

* Fund Managers’ Hot Performance Isn’t So Hot

*Germany Cools to EU Unity, Turning Inward

Recommended Reading:

* Tea and Mockery

* German Victory in Brussels Blows Away EU Illusions

* Are Spain and Italy next in line?

* Day Traders 2.0: Wired, Angry and Loving It

* Bank-Tax Concept Gains Momentum

* Stocks Soar, but Many Analysts Ask Why

* The Jobs Puzzle Bernanke Can’t Solve

* Welcome to Europe

Happy Trading !

The H5F-TV Toolbar – Download

Reblog this post [with Zemanta]

Goldman Sachs: "Damn American Bastards!"

In Financial Markets, International Econnomic Politics, National Economic Politics on 29.03.10 at 23:16

As one of the last medias in the world to raise questions about the global activity of Goldman Sachs, the Norwegian newspaper Dagens Næringsliv last weekend published a comprehensive critical article about the famous Wall Street bank. In the article Norwegian fund manager, Jan Eiler Fleischer, calls Goldman Sachs for “damn American bastards”. The Nordic Goldman-boss, Casper von Koskull, is “shocked”.

“It proves absolutely nothing.”

Casper von Koskull


Goldman Sachs is no longer portrayed as an impeccable monetary castle, but as a greedy giant who continues the bonus party even after taxpayers helped them out of the financial crisis, the Norwegian newspaper observes, adding that the bank has become like a swear word among the bloggers by the name of “Goldman Sucks”.

“Goldman Sachs has had more than one finger in most of what has gone wrong in the financial sector over the past decade,” the newspaper concludes:

“Was it not the company’s former chief executive Henry Paulson who in 2004 fought for the investment banks would have to take as much risk as they would?”

“Was it not Goldman Sachs who in a predatory way sold securities they knew were garbage in 2007? Who laid the basis for the food speculation in 2008, and turned Greece into a casino in 2010?”

Dagens Nærlingsliv also points out that Goldman Sachs have been involved in major deals in the Norwegian markets.

Manipulated Investors

When the Norwegian state owned telephone company, Televerket, was privatized and listed at Oslo Stock Exchange in the mid 90’s, Goldman Sachs was brought in as a facilitator for Telenor‘s IPO.

Jan Eiler Fleischer

Head of equity at Gambak, fund manager Jan Eiler Fleischer, says he heard that the American demand for Telenor’s shares was strong. But according to Fleischer, it was the Goldman Sachs who spread rumors in the market that the issue was heavily oversubscribed.

“To get 100,000 shares, you had  to sign up for a million, I was told. So that’s what I did,” Fleischer recalls.

When the rumors turned out not to be true, Gambak, like many other funds, had been awarded too many shares and had to sell out heavily the day after Telenor’s listing.

This resulted in losses for the investors, but also a large turnover and a higher income for Goldman Sachs.

When asked about Goldman Sachs, Mr. Fleisher replies:

“Goldman Sachs? Damn American bastards! They made complete fools out of us.”

“It is one of the most dirty things I have ever experienced. Goldman Sachs and U.S. brokerages are extremely short sighted when they come to Norway. They don’t give a shit about us,” the Norwegian fund manager says.

Goldman Executive is “shocked”

One could imagine that the management of Goldman Sachs would be kinda used to the negative publicity by now, but managing director of the Nordic region, Casper von Koskull, is obviously not:

“I was shocked when I read the article in Dagens Næringsliv about the Goldman Sachs,” he writes in a Letter-to-Editor, published a week later.

Casper von Koskull

“This is a grossly distorted representation of Goldman Sachs. The allegations are so false, and the description of the company and its actions so far from the truth, that the article only be described as pure fiction.”

“By combining new and old speculation, allegations and accusations that are false facts, Goldman Sachs is presented as the creator and the “spin doctor” behind the entire financial crisis. This is as unreasonable as it is inaccurate.”

“The fact that a number of unsubstantiated allegations, speculations and accusations are recycled and boiled together in an article, makes them no more truthful than they have been before. On the contrary; it proves absolutely nothing,” von Koskull of Goldman Sachs underlines.

Related by the Econotwist:

AIG: What Did FED Bail Out and Why?

EU Wants Answers From Wall St. On Greek Debt

Ordnung muss sein

The Bailout Package Under The Christmas Tree

2010 Analysis: Zero Interst Rate until 2012

Wall Street: “God’s Work”

Gullringenes Herre


Reblog this post [with Zemanta]

Monday Markets Kick Off

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 29.03.10 at 19:35

Here’s some stuff to digest before diving into the last days of trading before the Easter holiday.

Provided by high5finance

Top Stories:

* Trading Outlook: March 28 – April 2, 2010

* Increasing Social Unrest:  Yesterday Athens — Today Moskow

* Stocks, Commodities Gain as Yen, Dollar Fall

* Dozens Are Killed in Moscow Metro Blasts

* Week Ahead: It’s All About Jobs and Rates

* Greek Aid Deal: Mixed Market Respons

* Experts Talk Consumer Confidence, Greek Rescue, Obama Foreclosure Plan

* Irish banks aren’t smiling

* Barroso: Estonia close to euro-entry approval

* Europe Economic Confidence Jumps More Than Forecast

Latest News:

* Treasury moves closer to selling Citi stake

* Greece Offers Five Times Spain Yield Spread in Bond Sale

* UBS Buys 3,000 Large S&P Contracts

* FDIC’s Bair Supports US, Euro Plan to Tax Large Banks

* Rio Tinto Employees Sentenced in Chinese Bribery Case

* European Stocks Close Little Changed

Latest Blog Posts:

Econotwist’s Blog: Markets To Test Greece

MoonTalk: Sovereign Debt – Just Take The Punch?

StraightStocks.com: With CPI numbers rising and falling, how do we know deflation is winning?

Seeking Alpha: Rumor: Google, Adobe to Get Chummier via Flash

Zero Hedge: Are Pig Farmers Doing All The Trading?

The Huffington Post: Paul Volcker, Elizabeth Warren, Ted Kaufman: We Need New Law

Dagens Ledelse: Biskoper på leit

Latest Analysis:

* Natural gas: Fuel of the future

* What To Expect This Earnings Season

* Reforms Are Needed More Than Bailouts

* Pessimism Is Priced In – Bet the Other Way

* Big U.K. Banks Likely to Remain Fragile

* Germany Cools to EU Unity, Turning Inward

Recommended Reading:

* Manure Raises a New Stink

* German Victory in Brussels Blows Away EU Illusions

* SEC Drops Derivatives Bomb on Active ETF Hopefuls

* The US-China-Australia love triangle

* Bank-Tax Concept Gains Momentum

* Stocks Soar, but Many Analysts Ask Why

* U.S. markets at a crossroads

* Welcome to Europe

Happy Trading !

The H5F-TV Toolbar - Download

Reblog this post [with Zemanta]

Markets To Test Greece

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Views, commentaries and opinions on 29.03.10 at 14:32

Greece is planning a €5bn bond issue this week to test – and reassure – financial markets that it in a position to raise finance all by itself. Greek bankers hoped that the package, in combination with the ECB’s decision to prolong re-finance operations, would ease the pain, and help it allow to raise the €5bn.

“Greece still needs to raise a big amount of money, and there is no guarantee that they can do it cheaply.”

Robin Marshall


According to The Financial Times Finance the Greek minister George Papacontantinou subsequently denied the story, and said that no decision had been taken. The Greeks are not so much concerned that they won’t raise the money, but the costs may be prohibitively high.

Bloomberg quotes the head of the Greek debt agency that the country would need to raise €15bn by the end of May (we have previously heard higher figures). The country faces €12bn debt repayments in April, with €8.2bn of five-year bonds and €3.9bn of bills maturing that month. It must repay €8.5bn of 10-year bonds in May.

The article quotes investors as saying that uncertainty remains, and that it is not clear that Greece will be able to raise money at the rates it wants. The article also quotes Erik Nielsen of Goldman as saying that Greece will end up receiving some €25bn over the next 18 month, with the IMF share €10bn.

IMF to take lead if Greece fails

The FT has more details on the mechanics of the package to Greece. If Greece is cut off from capital markets, it will be the IMF which will take the lead, to be followed by a second and third tranche from the EU – even though the conditions of the loan would be decided jointly by EU and IMF. The reason is that most EU government cannot simply disburse money, but need parliamentary approval before disbursing the loans.

The article quoted a European official as saying that the conditionality would be on the lines agreed for Latvia, Hungary and Romania. The article also says the European Commission would be making a proposal for enhanced co-ordination of economic policy by the end of May, to serve as a basis “for joint task force reflection”.

Why The E.U. Deal Has Resolved Nothing

It was presented as big agreement, and it succeeded politically. But Wolfgang Munchau writes that this is not a sustainable crisis resolution policy. Lending to Greece at prohibitively high interest rates – which is what this agreement logically implies – is not a true backstop. Default still is – and at those conditions the point will come when Greece will find it financial more attractive default, perhaps after taking EU money, than to go through a program which cannot succeed.

The problem for Greece is that its economy is in far too weak a position to sustain such a massive fiscal retrenchment. It would require at the very least cheap bridging loans to the tide the country over.

Vassilis Zira, of Kathimerini, has listed the many grey areas in the agreement, which includes every almost every detail, such as the amount of the loan, the duration, the interest rate, terms and conditions.

He said the text was worded so that everybody was happy. He notes that the Germans said that they will only pay in the case of bankruptcy (i.e. post default?).

Edward Hugh makes an interesting additional point about the difference in loan rates between the IMF and the EU. If the EU loan were as low as the IMF loan, euro area countries like Spain would complaint, as they would be paying higher rates.

But if the IMF loan rate is significantly cheaper than that of the EU, non-EU emerging market countries will complain as the IMF would be subsidizing Europe.

A Voice From Conservative Germany

Writing in Frankfurter Allgemeine Zeitung Lueder Gerken, a conservative economist, argued that Germany’s exports surplus has nothing to do with the Greek crisis. Greece has benefits from Germany’s savings surplus, which has been re-channeled into the whole of the EU.

The problem with Greece is that unlike other EU countries it has not used the capital imports for investment for consumptions.

Why Leaving The Euro Is Impossible

Colm McCarthy of the Irish economy blog says leaving the euro is going to be a lot more complicated than people think.

“For Greece (or any other fiscally-challenged member) to ‘leave the Euro’ involves the launch of a new currency. From scratch. People talk as if the drachma lives on, cryogenically preserved in some icy Limbo for Currencies. So the Greek government could thaw it out overnight, at some devalued exchange rate, and Bob’s your Uncle. This is moonshine. The Euro zone is not a fixed-exchange rate system, it’s a common currency area. The drachma has been abolished. This parrot is deceased.”

If Greece left the euro, it would end up like euroized Montenegro, with the exception that, unlike Montenegro, it would have an unloved domestic currency, the new Drachma. The euro will continue to be the currency of choice.

Spain Is Delighted About The Euribor

It’s Monday, and while others newspapers report the foot-scores, Spanish newspapers report the Euribor rates – which in Spain form the basis for the majority of mortgages.

The three-month Euribor, the most important for the Spanish housing sector, has fallen from a peak of 5.4% in 2008 to 1.215% in March this year, which provides significant comfort to Spanish mortgage holders, many of whom must now in negative equity territory after the fall in their house prices.

Related by the Econotwist:

Greece Wants E.U. To Use Old Latvia Fund For Bailout

G7-Countries In Deep Trouble

Merkel: Kick’em Out!

Force The Rich!

Is Europe’s Debt Crisis Over?

Greece: “Exploiting The Fear”

Reblog this post [with Zemanta]