EC PRESIDENT CALLS URGENT MEETING FOR TOMORROW #2

Thanks Angelina,


For us, Europe is not only our destiny but also our desire. It is the
lesson we learnt. Please understand for us Europe is much more than a
currency or a single market... It is a political union we want."
'Economic situation"

Well, at least he is honest. How can you have Political Union across Europe when all the Countries have a different language and Customs,
why does Germany feel the need to dominate? Is it in their physche? Why embark on a single Currency without giving thought to the
consequence of not having a fiscal policy or central banking system. ?

Beware of the olive branch, it"s looking likely that France will lose it"s AAA rating, which leaves only Germany and Britain with top rating
and this is what Germany needs, another top rated Country for their borrowing.

Panda wrote:Thanks Angelina,


For us, Europe is not only our destiny but also our desire. It is the
lesson we learnt. Please understand for us Europe is much more than a
currency or a single market... It is a political union we want."
'Economic situation"

Well, at least he is honest. How can you have Political Union across Europe when all the Countries have a different language and Customs,
why does Germany feel the need to dominate? Is it in their physche? Why embark on a single Currency without giving thought to the
consequence of not having a fiscal policy or central banking system. ?

Beware of the olive branch, it"s looking likely that France will lose it"s AAA rating, which leaves only Germany and Britain with top rating
and this is what Germany needs, another top rated Country for their borrowing.

Yep, softly softly catchee monkey. I'm sure DC has his wits about him and he'll need them. As I said a couple of days ago, Germany will use France for just as long as it needs to.

Sarkozy faces an Election in 4 months time and it is doubtful that he will win. Similarly Angela Merkel faces an Election next year and if by that time the Economy is seen to be on course for a recovery and the fiscal policy is enshrined in the Treaty, she will win hands down.
However, if there is a massive deterioration Merkel will lose.

The Government has just agreed with the Banks, somewhat reluctantly, to seperate the Banking System into Retail and Investment banking
although not to come into force for 7 years. Some Banks are threatening to move their Business abroad, we shall see.

19 December 2011
Last updated at 17:14ECB chief Mario Draghi plays down eurozone warning


















Mario Draghi, the head of the ECB, says "I have no doubts whatsoever" about the strength of the euro






Continue reading the main story













Global Economy
















The
president of the European Central Bank (ECB), Mario Draghi, has said he
has "no doubts" about the euro's ability to survive the current crisis.

Speaking to the European Parliament's Committee on Economic and Monetary Affairs, he was asked about a Financial Times interview in which he warned of the costs of a eurozone break-up.

But he said he believed in the currency's "permanence".

He also said that trust needed to return to the eurozone.

Mr Draghi had told the FT that countries that left the
eurozone would create "a big inflation" and would find themselves in "a
much weaker position".

The newspaper compared his comments with the rhetoric of his
predecessor, Jean-Claude Trichet, who had dismissed a break-up of the
eurozone as "absurd".

Mr Draghi told the committee: "I have no doubts whatsoever
about the strength of the euro, about its permanence, about its
irreversibility.

"But you have a lot of people, especially outside the euro
area, who spend a lot of time in what I call morbid speculation, asking
'what if, what if'."

Mr Draghi replaced Jean-Claude Trichet at the ECB on 1 November 2011.

'Forbidden'
He said the ECB welcomed "the decisions of the heads of state
or government of the euro area to strengthen the EFSF (European
Financial Stability Facility) and the ESM (European Stability Mechanism)
in a number of areas".

He said the ECB's primary task was to safeguard price stability.

The ECB has come under increasing pressure to simply print
more money to help governments repay their debts, with France among
those calling for the central bank to become a lender of last resort.

But the bank has so far refused to do so, insisting that it is up to national governments to put their houses in order.

Mr Draghi said the European Union treaty "forbids monetary financing of states" by the ECB.

He also said that the issue of reducing the reliance on
credit rating agencies must be addressed, an area in which regulators
should lead the way.









More on This Story

fuzeta.......was that an invisible post you wrote???

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Ed Conway

December 19, 2011 5:37 PM

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  Recommend post (2)
  

The world is heading for a repeat of the 1930s unless leaders
drastically reverse their economic strategy, a new report from a key
United Nations body has warned leaders. The report from the UN Commission for Trade and Development (pdf)
represents the sternest warning yet from a senior international
organisation that not only are the risks facing the world economy at
their most severe since the Great Depression, policymakers are already
committed to paths which would make such an outcome a near-certainty. It
warns countries – particularly those in the low-income bracket – to
prepare “contingency plans” for such an eventuality.
The policy
paper says: “Unless there is a rapid policy turnaround, the world is in
danger of repeating the mistakes of the 1930s. In today’s highly
integrated global economy, the contractionary contagion will affect all
countries. Emerging and developing economies need to prepare contingency
plans.”
The main concern of the paper is that certain countries
with large current account surpluses (such as Germany, although UNCTAD
refrains from name-checking the countries itself) are unnecessarily
slashing their deficits, which could contribute to a global depression.
The
report is worth quoting at length: “There is a very real risk of new
economic crises erupting and, in today’s highly integrated world
economy; their impact will not be limited to specific sectors or to
well-defined regions. The G20 initially recognised this fact, but recent
actions have not been consistent. In particular, the fiscal restraint
in the countries with current account surpluses and very low long-run
interest rates in Europe, point precisely in the wrong direction.
“A
fragile global economy has a significant interest in the implementation
of expansionary, rather than contractionary fiscal policies in key
economies. Only the former can open a path towards lower fiscal deficits
and falling public debt ratios. A ‘lost decade’ for the world economy
would risk the development gains achieved during the recent years, and
throw into question the ability of democratic governments to tackle the
most urgent challenges of our age.”
It also diagnoses the
eurozone’s current problems as being balance-of-payments issues – in
other words the high fiscal deficits and government debts are a consequence of
a deeper set of imbalances – not the heart of the problem, as some
policymakers have claimed. It says: “The vulnerable countries in the
Eurozone do not issue the currency in which they are indebted, and they
do not have a reliable lender of last resort. Moreover, there is added
currency risk from the (unstated) option to leave the Monetary Union.”
It
warns, too, that countries should be wary of imposing excessive
austerity on their economies, for fear of stifling any potential
recovery. The warning may be seized on by critics of the Chancellor’s
plans, although the Treasury is likely to emphasise that such
recommendations apply to countries other than the UK.

Panda wrote:fuzeta.......was that an invisible post you wrote???

Hello Panda. By mistake I plonked it in the middle of your post and Angelina's. I have tried to pluck it out and paste it underneath but I am not being successful . There is something wrong with my computer lately !!!! I will have to get a man in

What's the matter with Spain?








By Laurence Knight
Business reporter, BBC News





The next Spanish government will find itself on the horns of a nasty economic dilemma


Continue reading the main story













Global Economy

• 
  European anger at UK
  
• 
  How will the euro crisis end?
  
• 
  Crisis jargon buster
  
• 
  Germany's vision for Europe
  

Spain's recently-elected Prime Minister, Mariano Rajoy, faces a potentially unsolvable economic dilemma.

He may also face a major financial crisis, if the latest plan to rescue the euro fails.

Only last week Spain was staring into the same financial
abyss that had already swallowed Greece, Portugal and the Irish
Republic, and was sucking in Italy.

That was before markets came alive with talk of an imminent bailout of Italy by the European Central Bank.

The Spanish government's cost of borrowing money on the financial markets for 10 years - a popular barometer of lender fear - peaked at a rate of 6.7% before falling back on the rumours.

That's close to the level where other eurozone governments turned to their neighbours for a bailout.

In comparison, Germany only has to pay an interest rate of 2.1%.

Off-message
However, Spain's potential descent into the abyss is important
for more than the fact that it is - like Italy - an enormous economy
that may be too big to rescue.

It is because Spain does not fit the narrative.

Indeed, Spain's story lays bare the fact that the eurozone's
problems run far deeper than the issue of excessive borrowing by
ill-disciplined governments, which most politicians have focused on.

Until now it has been easy to blame southern Europeans for their economic woes.

Greece couldn't control its spending, and lied about its borrowing statistics.

Portugal also borrowed and spent too much.

Italy, while more frugal, simply has way too much debt - a legacy of government profligacy from way back in the 1970s and 1980s.

But Spain has been a model European. Unlike, say, Germany.

Breaking the rules
When the euro was first conceived in the 1990s, Germany
insisted on a "stability pact" to ensure that governments inside the
eurozone would keep their finances in order.




Spain's former Prime Minister Jose Luis Zapatero is only the latest victim of the crisis


Each government promised to keep their total borrowing each
year to less than 3% of their GDP - the total output of their economy.

And to join the euro in the first place, they were also supposed to have debts less than 60% of their GDP.

That latter requirement was dropped at the outset, because
otherwise Germany itself would have failed to qualify. Its debts, when
the euro was created in 1999, were 60.9% of its GDP.

Then the entire stability pact had to be scrapped, as Germany broke the 3% annual borrowing limit every year from 2002 to 2005.

What about Spain? When it joined the euro in 1999, it admittedly also broke the debt rule, with a ratio of 62.3%.

But the Spanish government then proceeded to run a balanced
budget on average - that is to say, its borrowing was zero - every year
until the eve of the 2008 financial crisis.

And as Spain's economy grew rapidly, its debt ratio fell to a
mere 36% of GDP by 2007. Germany's, by contrast, continued to rise.

So, given this record, why are markets telling us that they
fear Spain may not repay its debts, while they think Germany's debts are
the safest bet within the eurozone?

Continue reading the main story



Crisis jargon buster


Use the dropdown for easy-to-understand explanations of key financial terms:


GDP









GDP

Gross domestic product. A measure of
economic activity in a country, namely of all the services and goods
produced in a year. There are three main ways of calculating GDP -
through output, through income and through expenditure.





Glossary in full




It doesn't seem entirely fair.

Boom and bust
The reason is that Spain is facing an impossible economic dilemma.

When Spain joined the euro, interest rates fell to the much lower levels typical in Germany.

While the Spanish government resisted the lure of cheap loans, most ordinary Spaniards did not.

The country experienced a long boom, underpinned by a housing bubble, as Spanish households took on bigger and bigger mortgages.

House prices rose 44% from 2004 to 2008, at the tail end of a
housing boom, according to ministry of housing data. Since the bubble
burst, they have fallen 17%.

During the boom years, Spaniards earned more and spent more.

That helped to flatter the government's finances. More economic activity means more tax revenues.

But it also helped push Spanish wages up to uncompetitive levels.

Unit labour costs in Spain - a measure of the cost of employing an average Spaniard - rose 36% from the euro's creation in 1999 until the end of 2008.

Contrast that with Germany, where unit labour costs rose just 3% over the same period.

Shrunken economy
Now Spain is bust.

Its workers are overpriced compared with German workers. Its
construction sector - bloated during the building boom - has collapsed.













What are bonds and what can they tell us about the borrowers who issue them?






Households are cutting their spending as they struggle to repay
their debts. And unemployment - always high in Spain - has shot up to
21.5% of the workforce.

The economy, which grew 3.7% per year on average from the euro's foundation until the end of 2007, has since shrunk at an annual rate of 1%.

So, although the Spanish government still has relatively
little existing debts, it is now having to borrow like crazy to fill the
gap left by the jump in unemployment benefits and collapse in tax
revenues during the downturn.

And the government may also have to throw a lot more money at
its banks, which are looking very exposed to the housing collapse
thanks to all the mortgages they have lent.

All of which makes financial markets nervous about lending to Spain.

Inflate or devalue
But here is the nasty dilemma facing the incoming Spanish government.

To get out of its economic hole, Spanish workers need to
regain their competitive edge. That will boost demand for Spanish
output, and help the economy grow.

And a growing economy is one that can support a heavy debt load.


Continue reading the main story Eurozone debt crisis

• Is the euro about to capsize?
  
• Will the ECB save the eurozone?
  
• Could Greece be Europe's Lehman?
  
• Europe's four big dilemmas
  
• The possible resolutions
  
• Crisis timeline
  

But how will they do this?

If workers agree to large wage cuts - which is unlikely
unless unemployment rises even higher - they will find their mortgages
even harder to repay.

So most Spaniards would spend less, and many might be unable
to repay the banks, all of which would make the economic downturn even
more severe.

On the other hand, if Spanish workers increase their wages,
they will become even less competitive and lose even more business to
their eurozone competitors.

There are two possible solutions.

First, German wages could rise much more quickly. That means
Spaniards could regain a price advantage without having to take a wage
cut.

To achieve this, the European Central Bank would probably need to raise its inflation target to a level higher than the current 2% rate. That is an absolute no-no at the ECB, particularly among its German members.

The alternative is that Spain could leave the euro and
devalue the newly recreated peseta. Spanish wages would fall with the
peseta's value, but so would their debts.

Leaving the euro would also largely eliminate the risk of the Spanish government running out of money, because the Spanish central bank would be free to bail it out - something the ECB has refused to do.

However, it is precisely the possibility of a break-up of the euro that now has financial markets most worried of all.















e o

fuzeta wrote:

Panda wrote:fuzeta.......was that an invisible post you wrote???

Hello Panda. By mistake I plonked it in the middle of your post and Angelina's. I have tried to pluck it out and paste it underneath but I am not being successful . There is something wrong with my computer lately !!!! I will have to get a man in

I know what you mean I used to post a reply in the middle of the previous post but now look for the "quote" before posting. Talk about
Sod"s Law, I posted on MM asking for help because I was having trouble with my computer, since none was forthcoming I had to take it to my local Computer shop, where they know me well.!!! One of the problems was every time I started typing the facebook logo appeared
right over the bit I was typing so I couldn"t see what I had typed. The young lad tried and nothing happened, in fact he tried three times.
I said I couldn"t understand it and he said if it happens again, make a note of where you are typing , ie, MM, e-mail etc. and bring it
back.I came home started answering some e-mails and b***er me the facebook logo appeared.!!!! Hope you get your computer sorted.

9:05pm UK, Monday December 19, 2011





Chancellor George Osborne has refused to contribute to the IMF's bailout fund for the EU, Sky News has learned.


Mr Osborne told his EU colleagues he will not provide any cash to
boost the 200bn euro fund, which is specifically aimed at the troubled
eurozone.



The conference call with 26 other EU finance ministers lasted three
hours but ended without Britain's agreement to put in up to 50bn euros.



Mr Osborne insisted that while Britain was ready to take part in
global efforts to bolster the IMF's coffers, it would not participate in
a fund only aimed at the beleaguered eurozone region.


:: Read more about the on going crisis on Sky's in-depth eurozone page.


Sky's economics editor Ed Conway said: "Although we had known for a
while that George Osborne had been reluctant to give money specifically
for this eurozone bailout package, the fact he has gone ahead and done
it will come as another blow to what was supposed to be the plan to save
the euro."







UK'S IMF DECISION 'NO SURPRISE'















He added: "It leaves us going into the Christmas season with no
conclusive and no big bazooka that had been promised for so long. There
will be consternation, I think, among investors at this news."


Sweden, Denmark, Poland and the Czech Republic joined the eurozone
nations in contributing to the Washington-based fund, subject to
parliamentary approval.


A Treasury spokesman said: "The UK has always been willing to
consider further resources for the IMF but for its global role and as
part of a global agreement."


Paul Donovan, Global Economist, Managing Director UBS Investment Bank
told Sky's Jeff Randall: "It's not just the UK that’s not playing ball.


"The American's are saying the IMF is not bailing out California, so why should it start bailing out eurozone provinces."


Dan Morris, vice president and global strategist, JPMorgan Asset
Management questioned whether the IMF fund could be successful.


"The fundamental change that needs to take place is at the country level," he said.


"What is going on in Greece, Spain and Italy in terms of the
austerity and reform packages is really the key thing for the markets
right now."










France and Britain have been at loggerheads over the eurozone crisis





Mr Osborne's move comes days after David Cameron became the first British prime minister to use his veto by refusing to agree a new EU treaty aimed at easing the eurozone crisis.



The German foreign minister Guido Westerwelle pledged on Monday to
"build bridges" with Britain, insisting it was an "indispensable
partner" in the EU.


At a joint press conference in London with Foreign Secretary William
Hague, Mr Westerwelle said the union had to remain "united".


"For Germany the United Kingdom is an indispensable partner in the
European Union," he said. "We think we have a common destiny...


"No country - not Germany, not Great Britain, not France - no country
is strong and big enough to face the challenges of globalisation
alone."


Mr Cameron has faced accusations that he risks making the UK isolated
from the rest of Europe and unable to make decisions about the future
of world finance.


But
the Prime Minister has insisted he had to take the drastic step because
the treaty being discussed did not "adequately protect Britain's
interests".


Using the veto has put the Tories ahead of Labour in recent opinion
polls and bolstered Mr Cameron's standing in his own party but it has
angered his Lib Dem coalition partners.

THE ECOMONIC SITUATION IN GREECE IS SO BAD THAT SUICIDES ESPECIALLY AMONG MEN HAVE DOUBLED.

Badboy wrote:THE ECOMONIC SITUATION IN GREECE IS SO BAD THAT SUICIDES ESPECIALLY AMONG MEN HAVE DOUBLED.

I think Merkel should have let Greece default 2 years ago, it"s ten time worse now with other Countries needing bail-outs and the rest
of the World is fed up with Merkel and Sarkozy for the way they have handled it.

8:45am UK, Monday December 19, 2011





The new European agreement on closer fiscal integration will
come into force after just nine of the 26 participating countries
ratify it, according to a draft of the text.


The treaty - which David Cameron vetoed at a European Union level -
will still need to be voted on in each national parliament before it
applies in that country.


But in a move aimed at restoring market confidence, the overall
agreement can then come into existence without the participation of
countries which have particular national legal hurdles to overcome.


Ireland, which has held a referendum on every European treaty since
1986, will decide in March whether or not this agreement requires a
public vote.


Details of the draft agreement emerged after it was revealed British
officials are to join talks on plans for the pact - despite Mr Cameron
blocking the treaty.


:: Read more on the eurozone crisis at our dedicated topic page

It is reassuring. The more we can be engaged in that conversation the better.

Deputy Lib Dem leader Simon Hughes MP











The Prime Minister agreed the move to take part in "technical
discussions" during a phone call with European Council president Herman
van Rompuy.


It
comes as International Monetary Fund chief Christine Lagarde said
countries must work together to avoid a 1930s-style depression.


And amid speculation about a possible downgrade of France's credit rating,
the eurozone was dealt another confidence blow as ratings agency Fitch
said it was affirming France's AAA status but considering a downgrade
for six other countries.


The ratings of Italy, Spain, Ireland, Belgium, Slovenia and Cyprus
could be lowered by one or two notches, US-based Fitch said. Moody's
later downgraded Belgium's rating by two notches, with a negative
outlook.


The UK's decision to re-enter negotiations on closer fiscal
integration also coincides with national statistics institute Insee's
warning that France is entering a recession.


A Downing Street spokesman said: "The Prime Minister reiterated that
he wants the new fiscal agreement to succeed, and to find the right way
forward that ensures the EU institutions fulfil their role as guardian
of the EU treaty on issues such as the single market.







Simon Hughes: ‘We Need To Work With EU Colleagues’












"That's why we have today agreed to participate in technical discussions to take forward this work."


The move will be seen as conciliatory towards both other EU countries and the PM's Liberal Democrat coalition partners.


Deputy Lib Dem leader Simon Hughes MP told Sky News he welcomed the news, saying: "It is reassuring.


"Unless the eurozone area sorts out its economy and we avoid
repetition of things like what happened in Greece and Italy and Spain
and Portugal then, to be honest, we won't avoid the consequences,
because they're our biggest trading partners.


"The more we can be engaged in that conversation the better.










David Cameron agreed the move in a telephone call with Herman van Rompuy (R)





"Our view has always been that, what the coalition agreement wrote
last year (and) we agreed with the Tory party, we should lead in Europe,
we should be positive about Europe, we should play a constructive role
in Europe, while at the same saying we weren't going seek any further
transfer of powers from the UK to the EU."


Mr Cameron's
spokesman earlier rejected reports that the Prime Minister was
agitating against the "fiscal compact" agreed by the other 26 member
states last week.


The first signs of cracks forming in the new EU finance deal have
been emerging, with the leaders of the Czech Republic and Hungary
announcing they will not sign the pact unless tax harmonisation plans
are dropped.







Recom

Mario Draghi is the third president of the European
Central Bank since it formed 12 years ago


1:34pm UK, Monday December 19, 2011


Newly-appointed European Central Bank president Mario Draghi has warned that
any country leaving the eurozone to escape the debt crisis would be worse
off.



Breaking an ECB taboo by considering a break-up of
eurozone countries, Mr Draghi told the Financial
Times, that leaving the euro was not the answer to the problem.

"This wouldn't help. Leaving the euro area, devaluing your currency, you
create a big inflation, and at the end of that road, the country would have to
undertake the same reforms that were due to begin with, but in a much weaker
position," he said.

In his first interview since taking on the top job on November 1, he told the
newspaper that a break-up would also create stresses and unknown consequences
for those nations remaining in the euro.

"You would have a substantial breach of the existing treaty. And when one
starts with this you never know how its ends," he said.

:: Read all the latest stories on the Eurozone
crisis

Mr Draghi remained adamant that the ECB should not start printing money to solve the
crisis and urged political leaders to move fast to make the European bailout
fund operational or face higher costs.


Euro-sceptics tip Greece to be the first to leave the
Euro



His comments are in stark contrast to those of his predecessor, Jean-Claude
Trichet, who refused to talk of a scenario involving a collapse of the currency
union, calling it "absurd".

But they come as there is increasing speculation that at least one
struggling, debt-laden nation will drop the currency amid the crippling debt
crisis.

Fitch Ratings on Friday warned it may downgrade Belgium, Italy, and four
other eurozone countries in the absence of a "comprehensive solution" to the
region's debt crisis.

London mayor Boris Johnson has tipped Greece as the first country to leave,
telling the BBC's Andrew Marr show on Sunday that the eurozone was likely to
break up in the next 12 months.

The Royal Bank of Scotland's chairman Sir Philip
Hampton shared the same view, telling Sky News' Jeff Randall Live show: "I think it's likely
that one country, a small country, will drop out."

Mr Draghi is due to meet the European Parliament economic affairs commission
in Brussels to discuss the debt crisis later today.

ECB Vice Chairman says he is worried about a credit crunch because of lack of funding.

Credit Suisse says it is further along than first thought before there is a turnaround in the Economy. U.K. Growth will be low in 2012 and recession in Greece
could worsen.
The new Spanish Prime Minister, Rojay says the outlook couldn"t be worse, there will be a E6.5 Billion in cuts and Spanish and Greece labour markets are
20% unemployed.
Spanish 3 yr Bond Yield is 3.51%, while Italy"s is 5.66%, Spain"s fiscal debt is 70% of GDP , Italy 120% of GDP which suggests Spain is better off.

Several Euro Countries raised E150 Billion to lend to the IMF and be recycled back to the stricken EU Countries. It"s all a sham of course and the U.S,
Canada, Brazil and a couple of other Countries might have something to say about it. I think LaGarde may well be accused of breaking the rules because
she is French and obviously not impartial. Britain did not contribute so I expect we will be in the doghouse again because David Cameron did say at one
time that Britain would contribute E50 Billion.

It’s funny how easy it is to slip into central banker-speak.”So
said a private sector economist I know who had always maintained that
if and when he was recruited to a central bank he would avoid the kind
of Delphic pronouncements fellows like Alan Greenspan and Mervyn King
are so fond of.
Of course, he failed. When you’re a central
banker, with your finger somewhere near the button for your country’s
printing press, it seems you have no choice but to restrain your
language for fear of startling your audience.
So it’s no surprise
that Mario Draghi’s first print interview since taking over as president
of the European Central Bank is rather, well, enigmatic. The main news
line as far as the FT saw it this morning was
that Draghi for the first time countenanced a eurozone break-up,
warning against its consequences for even the weaker members who on the
face of it might benefit from devaluation.
I’d argue that this
isn’t quite as earth-shattering as you might be led to believe: the
possibility of a country leaving the single currency has been on the
cards since Angela Merkel and Nicolas Sarkozy threatened Greece with
just such a prescription in Cannes last month.
What I found more intriguing in the transcript of the interview was
his reaction when asked whether some of the newfangled measures carried
out by the ECB recently constituted “quantitative easing”. The
conventional economists’ view is that rhey don’t – at least not as per
the model being employed by the Bank of England and Federal Reserve, in
which the central bank creates money in order to buy government debt.
However
I’ve argued otherwise before: different monetary systems act in
different ways and what might constitute QE in one currency zone might
look rather different in another. Bearing that in mind, here’s Draghi:
Q: Is this Europe's version of “quantitative easing”?
A:
Each jurisdiction has not only its own rules, but also its own
vocabulary. We call them non-standard measures. They are certainly
unprecedented. But the reliance on the banking channel falls squarely in
our mandate, which is geared towards price stability in the medium term
and bound by the prohibition of monetary financing [central bank
funding of governments].
Coming back to what banks are
going to do with this money: we don't know exactly. The important thing
was to relax the funding pressures. Banks will decide in total
independence what they want to do, depending on what is the best risk /
return combination for their businesses. One of the things that they may
do is to buy sovereign bonds. But it is just one. And it is obviously
not at all an equivalent to the ECB stepping-up bond buying.
The ECB president is referring, in particular, to the theory that the ECB’s recent move to provide extra liquidity to the banking sector (in
massive amounts) might represent a back-door method of funnelling money
towards governments like Italy’s or Greece’s, which are struggling to
raise money in the capital markets.
As Nicolas Sarkozy himself put
it shortly after the ECB decision: “Italian banks will be able to
borrow [from the ECB] at 1%, while the Italian state is borrowing at
6-7%. It doesn’t take a finance specialist to see that the Italian state
will be able to ask Italian banks to finance part of the government
debt at a much lower rate.”
It’s what is known among economists as
“financial repression” – the phenomenon whereby the government induces
the private sector to accept a lower return on its investments than it
would normally do, with the consequence of eroding away the comparative
size of government debt. That’s how much of Britain’s WWII debt was
reduced – something covered in this recent working paper from the BIS.
But
this is in fact only one of three ways in which the ECB is carrying out
something like QE. The other two are: not sterilising its asset
purchases, something I explain at length here;
and not imposing any limit on the amount banks can borrow from the ECB
through their emergency liquidity operations (something they call “full
allocation”).
But while if one squints one’s eyes enough these
start to look a little like quantitative easing, they still don’t quite
hit the spot – for a simple reason. Essentially, what the BoE and the
Fed are doing right now is blurring the line between fiscal and monetary
policy. By buying up billions of pounds/dollars of government debt, the
central banks are taking inherent investment risks for which they have
had to be given special indemnities. This is simple enough if you have a
pretty limited range of potential investments (in the case of Britain,
almost all the money goes on government debt), but the ECB has 17 member
countries.
If it were to copy the Bank of England, it would be
duty-bound to buy up government debt from all the euro states in
proportional quantities. As the think tank Open Europe has argued today,
this would mean that “even a €500bn bout of QE – as some have called
for – would see only €90bn flow towards Italy, due to the need to spread
QE evenly across the eurozone. This would not make a significant dent
in Italy’s €1.9 trillion of sovereign debt.”
This, in essence, is
why it all comes back to politics in the end. What is needed to save the
euro is a transfer of wealth from the north to the south. This can be
done fiscally – in other words through a bail-out fund into which
Germany et al put comparatively more cash. It can be done monetarily –
by the European Central Bank specifically buying the debt of the most
troubled euro members and/or provoking enough inflation to erode German
living standards and counteract Greek deflation. But either of these
methods is a transfer of living standards all the same, and so ought to be decided by (preferably elected) politicians rather than central bankers.
It
is hard to see why the market would be convinced by any solution which
didn’t have this kind of certainty. And as Mario Draghi’s comments today
underline, so far what we have is a kind of hodge-podge of
half-measures which look a little like quantitative easing but without
any of the necessary firepower to take on such a seminal crisis.

Ed Newman sky news

ECB to lend to Banks @1.o% interest for three years.......does there come a time when the ECB is printing money which would devalue the Euro? Where
are they getting all this money from.?

Angela Merkel has gone on vacation as Europe crisis festers.

Europe crisis is dragging down American Corporate affairs.

German confidence rises as exports improve.....could it be the Euro depreciating.?

Danger! EU aid!
Is absent Ashton a part-timer? »

A dirty EU stitch-up by the big 3?


Rumours are growing here in the corridors of the Justus Lipsius of a profoundly dirty, retrograde deal between Britain, France and Germany on EU spending between 2014 and 2020.
Dirty dealing by the big three

A document has been glimpsed and a letter from David Cameron, Nicolas Sarkozy and Angela Merkel is rumoured to be in preparation for a big three stitch up of the next seven year financial framework.
I covered it here – the 0.85 per cent has gone after a meeting between Cameron and Merkel.
Here’s the rumour: France gets no reduction in the present CAP farm subsidy budget as a cah sum, Britain gets to keep its rebate (worth £3bn a year) and Germany gets “flat growth” in the rest of EU spending, that means it’s index linked.
Newer EU member states, mainly from poorer eastern European countries, have been horrified because it would mean that any spending cuts would come from budgets spent on competiveness and for economic development for Europe’s poorest areas.
If confirmed, the deal will be a major policy U-turn from the traditional British position that spending on farm subsidies would be better switched to budgets that improved the EU’s economic performance – a critical part of Britain’s strategy of building alliances with newer Eastern European member states.
I just asked a Downing Street spokesman if that policy still stood – he refused to confirm that it was still the government’s position. He told me to ask the Department for Environment, Food and Rural Affairs what the policy was, “ve te faire…” in other words.
There is nothing wrong with farm subsidies when they are needed, CAP is now longer really required as a European policy, it was good in its day. Food security (unless it is redefined along exists and national governments can decide if, like the French, they want to support a large rural economy and lifestyles. I like the French countryside and food so I think it’s a good idea, but it’s for France.
Regional policy is an EU success story – despite its problems – and it is, or could be a growth orientated policy that should be expanded at the expense of the CAP. To keep the British rebate (which I personally do not support) at the price of retaining the backwardness of the EU budget while simultaneously cuddling up to France and Germany to kick Poland and others is a very backward step.
A bad deal for Europe.

This entry was posted on December 16, 2010, 8:26 pm and is filed under Economic crisis. You can follow any responses to this entry through RSS 2.0. You can leave a response, or trackback from your own site.

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UK's AAA Rating Under Threat, Warns Moody's

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Any downgrade in the AAA rating would be a major blow for George Osborne





11:40pm UK, Tuesday December 20, 2011





Britain's gold-plated credit rating is under threat from the crisis in the eurozone, a leading ratings agency has warned.



Moody's end-of-year assessment said the UK's AAA score was currently
still safe but pointed to what it said were "formidable and rising
challenges" ahead.



It has concluded Britain's ability to absorb further economic shocks
while still keeping its stable outlook has deteriorated in the last year
because of weak growth.



Analyst Sarah Carlson said: "Since the last annual report, the amount of headroom for Britain has declined."



The verdict is a blow for Chancellor George Osborne
and the coalition, which is enforcing tough austerity measures in order
to stabilise Britain's public finances in the long term.

The outlook on the rating is likely to be sensitive to
future developments in the euro area's debt crisis, even though the UK
is not a member of the monetary union.

Moody's ratings agency











Any downgrade in the rating would be an embarrassment for Mr Osborne
but crucially would also drive up borrowing costs, which could
jeopardise the already stuttering economic recovery.



The report has been published amid a row between France and Britain over the state of their economies, sparked by David Cameron's veto of an EU treaty to address the eurozone crisis.


Britain has so far still been backed by investors and yields on its 10-year bonds are near record lows at just above 2%.



Moody's said its "currently stable outlook" relied on the Government being able to stay on track with its plans to slash the deficit.


It warned: "Any additional weakening in the macroeconomic outlook or a
need to support the banking system could temporarily set back the
government's fiscal consolidation efforts.



"As a result, the outlook on the rating is likely to be sensitive to
future developments in the euro area's debt crisis, even though the UK
is not a member of the monetary union."



:: Read more on our page dedicated to the eurozone crisis


Weak growth has already forced Mr Osborne to outline further
austerity measures stretching beyond 2015 as he aims to erase the budget
deficit.



The Treasury said the report showed the UK was not "immune to the problems facing our trading partners in the euro area".



A spokesman said: "The crisis is having a chilling effect across
Europe and it is important that the euro area continues to take decisive
action to fix their problems."



Britain has long been urging European leaders to fix the debt crisis in the eurozone but on Monday Mr Osborne refused to contribute to an International Monetary Fund bailout for the region.


The move came days after Mr
Cameron refused to sign up to a new EU treaty aimed at easing the
crisis after failing to win safeguards for the City of London.


Moody's did note that Britain is one of the most competitive large
advanced economies in the world and has a track record for reversing
debt increases over many decades.



"Its national currency and central bank provide the UK with
substantial flexibility in developing responses to economic and
financial shocks," the agency said.









R

The IMF urges a Firewall around Ireland which is vulnerable.

Hungary raises highest rate on EU Bonds as IMF talks stall.

EU Countries have 1.4 trillion to raise for the bonds maturing 2012-2014 and EU Banks are worried about their Balance Sheets.

The Loans are 10% of the ECB Balance sheet.

I suspect the ECB was forced to act because several Countries in the G20 said the IMF should not bail out Europe . EU set to meet in January to discuss
the state of the World economy.

The ECB offer to lend Banks for 3yrs at 1% has resulted in 523 Banks applying costing over E480 as opposed to the E293 anticipated. if all these applications are granted itmeans 20% if the ECB Balance sheet.

The Fed in the U.S. is doing the same , no mention whether it is the same terms but making it clear the U.S. Banks must put their houses in order.

The EU has just had a Law passed in the High court to impose a Carbon Tax on all flights landing in Europe , the U.S. China, Japan etc are furious and
say they will not pay. It is estimated it will add 3 to 5 Euros on the cost of a flight but with airport Taxes and , plus excess baggage charges there
are many who will not go abroad .

The BOE says there will be a delay in recovery late next year.

GEORGE OSBORNE MAY HAVE SOME BAD ECOMONIC NEWS IN THAT 1 IN 5 BUSINESSES IN SOME SECTORS OF THE ECONOMY ARE ON INSOLVENCT WATCH;SEE UK THREAD FOR MORE DETAILS.

EU leaders are to meet on 30 January Rompuy says to discuss jobs, growth etc .

Euro Banks will not have to do stress tests for 2 yrs .......what if they fail to repay the ECB loan in three years.

The ECB lent E489 billion, greater than expected.

Swiss Finance Minister Widmer reiterates a task force is considering capital control.

Italian economy shrunk 0.3% last quarter.

One analyst reckons there is a 1 in 3 chance of the Euro breaking up, European stocks down at the end of trading .

mand Is High for Euro Loans From Central Bank

By JACK EWING AND DAVID JOLLY

Published: December 21, 2011

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FRANKFURT — Banks lined up on Wednesday for almost half a trillion euros in cheap three-year loans from the European Central Bank as part of its unprecedented effort to keep credit flowing at a time when normal market funding in Europe is scarce and expensive.


Multimedia


Interactive Feature
Tracking Europe's Debt Crisis



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• Times Topic:European Debt Crisis
  

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European stocks and the euro initially gained, and bond yields fell for euro-zone governments like Spain and Italy that had been under pressure of late. But by afternoon, equities markets were down slightly and borrowing costs for Spain and Italy rose again.
In its role as lender of last resort to banks, the E.C.B. allocated 489.2 billion euros, or $644 billion, to 523 institutions, through what are known as long-term repurchasing operations. That was well above the roughly €300 billion average estimate of analysts polled by Reuters and Bloomberg News, though estimates had been widely divergent.
The injection of three-year funds was one of the new measures announced by the E.C.B. on Dec. 8 to calm European credit markets, which have become increasingly frothy as the euro zone crisis wears on. It was the first time that the E.C.B. has extended such loans for longer than about a year. Banks will pay the benchmark interest rate, currently 1 percent.
“This reduces the tail risk of a Lehman-type situation, where banks go into the new year facing a wave of refinancing and are unable to access the market,” Jacques Cailloux, chief euro area economist at Royal Bank of Scotland in London, said.
Mr. Cailloux said the initially positive market reaction showed investors were breathing easier, but “we’ll see if this is sustained. I don’t want to downplay the importance of the E.C.B.’s action, but the euro’s problems are bigger than that, with political and economic dimensions that still need to be addressed.”
The E.C.B., as part of its effort to prevent a credit crunch, also broadened the collateral it agreed to accept in return for the loans. The central bank is even accepting outstanding loans as security, a measure designed to help smaller community banks that may lack conventional forms of collateral like bonds.
Carsten Brzeski, an economist in Brussels with ING Group, said the size of the take-up by lenders was not surprising, because “there is obvious demand for liquidity, and it’s cheap. There’s almost a free lunch out there, so even banks that didn’t need liquidity would be thinking, ‘why not be part of it?”’
Mario Draghi, the E.C.B. president, said earlier this week that helping the smaller banks was crucial because they provide most of the credit to small businesses.
The three-year loans are also designed to compensate for a dearth of longer-term market funding, at a time when banks are facing the need to roll over an extraordinarily high amount of their own debt. Banks in the euro zone must raise more than 200 billion euros in the first three months of 2012, according to data compiled by Dealogic and cited by the E.C.B.
Banks often borrow money for relatively short periods and loan it for longer periods, profiting from the difference in interest rates. But this so-called maturity transformation means that banks must continually roll over their debts. An otherwise healthy bank can fail if it is not able to raise fresh cash.
Gilles Moëc, an economist at Deutsche Bank in London, said the E.C.B. action “is very positive for the banks,” but said “the jury is still out” on what it means for embattled euro zone governments.
Strong demand at recent Spanish debt auctions, which drove down yields, suggests that banks were loading up on the debt to use as collateral for the operation Wednesday, he said.
To the extent that banks continue buying sovereign debt — something they have been trying to move away from because of the euro crisis — government financing will be easier.
Economists said it appeared that only 190 billion to 200 billion euros of the E.C.B. funds Wednesday represented new lending. Rather, Mr. Cailloux said, most of the uptake represented banks “recycling liquidity that was already in the system,” shifting from shorter maturities into three-year loans.

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