Portugal's prime minister has admitted that his country may require more
help. Writing in the Financial Times today, Pedro Passos Coelho
said there were "no guarantees", but insisted that he will deliver on economic
reforms. Full details and reaction shortly....Elsewhere... the International
Monetary Fund's spring meeting continues in Washington. Today we get the
Global Financial Stability Report.
In the UK, the latest unemployment data is released this morning, along with
minutes from the last meeting of the Bank of England's monetary policy
committee....City traders reckon European stock markets will open calmly after
yesterday's rally.The Bank of England was split last month over whether to leave
its quantitative easing programme unchanged, or pump even more electronic money
into the economy. Minutes from the last meeting were just released, showing
that David Miles wanted to increase the QE budget by another £25bn to £350bn.
The rest of the committee voted to leave the asset purchase programme unchanged.
According to the minutes, Miles took a 'finely balanced' decision that another
stimulus measure was needed....Adam Posen, though, the long-time dove on
the MPC, did not call for more QE. If anyone would want an extra dose, he seemed
the most likely.
GERMANY - Schröder's labor market reforms remain controversial today in Germany. They included the combining of unemployment and welfare benefits, drastic cuts for the long-term unemployed, the deregulation of temporary work and the creation of mini-jobs, essentially limited part-time work that has no effect on welfare payments. Critics say the changes meant primarily that the unemployed were now expected to accept poorly paid jobs. Some 41 million people have a job in Germany today -- the highest employment figure ever, which could provide Schröder with some delayed satisfaction. But the flip side of the coin is that 23 percent of them work in the low-wage sector, and that real wages have in fact declined by 3 percent in the last 11 years. By contrast, no one in the southern European countries was asked to make any sacrifices in the years leading up to the crisis. The boom on borrowed funds led to wage increases, but it also ensured that rigid labor market laws remained unchanged.
A de facto ban on dismissals persisted in southern Europe until recently, usually benefiting the individual, but not society as a whole. The unpleasant truth that employers only create jobs if they are also permitted to lay off workers in times of crisis was ignored.
Italy is a case in point. Even today, unlimited full-time employment and protection against dismissal are practically sacrosanct in Italy. A number of governments on the left and the right have already tried to tackle Italy's big taboo, a deregulation of the labor market, but have always ended up yielding to public opinion. Protection against dismissal is codified in Article 18 of the labor code, a symbol in the struggle between employer and unions for years.
9 comments:
I posted this a while back. People seemed to like it so shall post it here again as it seems the prime ministers of Europe are going to become rather busy and may need some advice.
A Prime Minister's Job
1 Declare that everything is great.
2 Declare that your country does not need a bailout.
3 Declare it again.
4 Deny that you need a bailout.
5 Deny it again.
6 Ask for a bailout.
7 Deny that you asked for a bailout.
8 Declare that the bailout was necessary to save your country.
9 Declare that austerity measures will save your country.
10 Go back to #1
The IMF's spring Global Financial Stability Report said that should markets lose faith in the effectiveness of eurozone policies, rising funding costs and increased stresses within the banking system could force banks to rapidly reduce their balance sheets to raise capital buffers.
Under the scenario, the supply of eurozone credit would fall by 4.4pc and growth in the region would be cut by 1.4pc.
The sell-off among 58 of the biggest banks in the European Union included in the IMF's analysis would be equivalent to 10pc of total assets, and the balance sheet adjustment would also involve a significant reduction in bank lending, it said.
The UK banks involved in the study were state-backed Royal Bank of Scotland and Lloyds Banking Group, as well as HSBC and Barclays.
A second global credit crunch would make it more difficult still for UK households and businesses to borrow from banks.
Another issue not mentioned here is that if the Euro-zone Banks sell Dollar assets, that will put downward pressure on the Dollar, which will translate into a rising exchange rate for the Euro, which is pretty much the last thing that the PIIGS need.
If the PIIGS push deeper into austerity, they badly need to increase net exports in order to counteract cuts in Government spending. A higher Euro exchange rate will make that much more difficult.
I'd predict that if this Euro exchange rate rise happens, Euro-fans will hail it as a sign of the strength of the Euro. It will instead be a sign of weakness in Euro-area Banks.
The PIIGS will only be able to compete on global markets if the euro looses at least 50% of it s value. Only such a scenario would bring jobs back from China, for ex. production of leather goods such as shoes, jackets and bags back to Italy and Greece.
I doubt though the Germans would ever let that happen. Above all they cherish their cheap Urlaub/annual vacation abroad, which only a strong currency will faciliate. And second they might loose car and machine exports to Italy and Spain.
Europe is not about solidarity or prosperity for all !
Exactly, what is a bank asset? Is it a property or a loan? Government Bonds? Gold Bullion? 3 of those are not tangible assets, are they? So they are only worth what some mug is prepared to pay for them. Furthermore, nobody seems to know just how much dodgy loans and debt these banks are carrying.
The IMF should have stayed with their original remit which was to help countries in financial distress. What they have done is help our a currency in distress and now, it seems, the banks within that currency zone. And our own Chancellor is assisting!
If this does not blow up into the worse financial crisis of all time, it will become the first true miracle, the world has ever experienced.
If this possible firesale of 3.8 trillion is just 10% of the bank's assets, then 100% must be 38 TRILLION.
Just the european banks.
Do you people realise that virtually every penny of that was stolen from the working people by the same banks over a period of years - and not so many years at that either - 200 perhaps?
A sniff in the ocean compared to the fortune thieved from the working people of europe by the principle banking family who appeared out of the Frankfurt ghetto - a money changer family called Bauer... reputed to have assets of some 500 trillion.
Enough to bring every country in the world out of bankruptcy - several times over.
Time the system was changed from fractional to full reserve or something more favourable to the people.
www.positivemoney.org.uk
TOP OF THE AGENDA
So, just how acute is the pain in Spain? We'll get an answer of sorts today as the country attempts to sell €2.5bn of bonds. Given the backdrop, a smooth, successful debt auction would come as something of a surprise.
Earlier this month Spain fell short when it tried to sell €3.5bn of bonds. Fast forward a few days and things are looking even more shaky - the Spanish stock market tanked 4pc yesterday amid escalating concerns around the country's economy.
Spain will likely be one of the subjects as IMF chief Christine Lagarde holds a press conference in Washington later as part of the organisation’s annual meeting. Ms Lagarde’s spirits should at least be buoyed by the overnight commitment of extra funds for the IMF from Poland and Switzerland. After she’s faced the press, it’s the turn of World Bank chief Robert Zoellick.
Back in the UK, Debenhams and WH Smith have given us our latest glimpse of the health of the high street. Kate Swann has performed her usual trick at WH Smith – like-for-like sales are down 5pc but profits are up a touch on stronger margins.
At Debenhams, like-for-likes are 1.4pc higher with profits also moving up a touch. The company has issued a cautious statement for the second half of the year, however, warning of the impact of store refurbishments and disruption caused by the Jubilee and the Olympics.
There are also solid trading updates from brewer SABMiller, property company Hammerson, housebuilder Persimmon, and Ladbrokes , the bookie.
Elsewhere on the corporate front, the Office of Fair Trading has sought to finally put to bed its long running investigation into alleged price fixing on fuel surcharges by British Airways and Virgin. The watchdog has announced a £58.5m fine for BA – reduced from an original £121.5m penalty after the airline raised objections. Virgin, somewhat controversially, gets off with a slap on the wrist after it acted as whistle-blower.
9.52am: The early reaction in the financial markets is that the Spanish auction (results at 9.45am) is a qualified success.
The bottom line is that Spain has successfully raised the €2.5bn it needed, and a bit more on top. Demand, as measured by the bid-to-cover ratio, was also firm. But the rise in the yield on the 10-year bonds underlines the concerns over prime minister Mariano Rajoy's efforts to cut Spanish borrowing without causing permanent damage to its economy.
Here's some early reaction to the auction:
Peter Chatwell of Credit Agricole:
It's a mixed auction. From the treasury's perspective, it is good, selling the maximum amount.....but, given the market volatility, I would not read too much into this. It's job done for this round.
Marc Ostwald of Monument Securities:
The most encouraging part is they sold more of the 10-year than they did of the two-year....What does it tell us? Well, they got over this hurdle and the next one is not far away.
But Spain's long-term problems are not solved by a single debt auction, of course. Unemployment is still painfully high (over 23%) and the country is still heading into a deep recession this year..... as Sony Kapoor of the ReDefine thinktank pointed out on Twitter
This crisis is mainly due to overborrowing by governments, which are not part of the market economy. As such, the politicians and eurocrats are to blame, for overborrowing and creating a currency, which was bound to lead to the financial ruin of southern Europe and Ireland.
Many of us warned that the euro would be a disaster and that national debt, in many countries, was running out of control. But few listened and those who raised the issue were generally regarded as doom-mongers, little Englanders or loonies.
The same thing is now happening, with house prices, as few appear to heed the warning that buying your first house now is major risk. The only thing which seems to stop them is the practical problem of raising the deposit.
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