Is the end nigh for the Euro? [vol. 2]
Discussion
Digga said:
... if there is anyone to be looked at to create growth it is the treasury not the BoE.
...
What an ironic word that is, "treasury" ...
.It conjours images of a place of dreams, a location of treasure, national wealth.
So in the context of a reality of over a trillion of debt, quite tragic really
Edited by RichardD on Thursday 7th February 10:10
RichardD said:
Digga said:
... if there is anyone to be looked at to create growth it is the treasury not the BoE.
...
What an ironic word that is, "treasury" ...
.It conjours images of a place of dreams, a location of treasure, national wealth.
So in the context of a realirt of over a trillion of debt, quite tragic really
Digga said:
How much do you reckon a tatty (but celeb) red briefcase might fetch on fleaBay?
I have one for a trillion(*) dollars 
.(* Zimbabwian)
Back in Euroland, there seems to be news out there that is so insignificant it is buried away.
Like strikes in Greece
http://www.reuters.com/article/2013/02/06/us-greec...
Reuters said:
Greece ends seamen walkout but other strikes persist
Greek seamen on Wednesday ended a six-day strike that cut off dozens of islands and led to food shortages after the government ordered them back to work.
Greek seamen on Wednesday ended a six-day strike that cut off dozens of islands and led to food shortages after the government ordered them back to work.
RichardD said:
Back in Euroland, there seems to be news out there that is so insignificant it is buried away.
Yes, I think Richard Mk3 mell well have resurfaced for yet another winter of malcontent.Strikes in Greece, apoplexy in Spain over Rajoy's corruction allegations and the (generally) bent political system.
Let's see whether France & Italy follow.
Digga said:
es, I think Richard Mk3 mell well have resurfaced for yet another winter of malcontent.
Strikes in Greece, apoplexy in Spain over Rajoy's corruction allegations and the (generally) bent political system.
Let's see whether France & Italy follow.
Is that the same Italy where 90 million euros of public and EU money is to be spent on the restoration of Pompei?Strikes in Greece, apoplexy in Spain over Rajoy's corruction allegations and the (generally) bent political system.
Let's see whether France & Italy follow.
Huntsman said:
Digga said:
es, I think Richard Mk3 mell well have resurfaced for yet another winter of malcontent.
Strikes in Greece, apoplexy in Spain over Rajoy's corruction allegations and the (generally) bent political system.
Let's see whether France & Italy follow.
Is that the same Italy where 90 million euros of public and EU money is to be spent on the restoration of Pompei?Strikes in Greece, apoplexy in Spain over Rajoy's corruction allegations and the (generally) bent political system.
Let's see whether France & Italy follow.
Play up Pompei,
Pompei play up!
Barrons article
France, famously a noncombatant, is escalating the currency wars.
French President François Hollande Tuesday called for a "managed exchange rate" for the euro, a not-so-veiled push for a weakening of the common currency.
Until now, the European Central Bank has opted not to follow the policies of money-printing of its main counterparts, namely the U.S. Federal Reserve and, more recently, the Bank of Japan. As a result, the euro has soared against the dollar, the yen and other major currencies, worsening the severe recession besetting Europe's economy.
By contrast, the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds, with electronically printed money -- with the express aims of boosting their economies and lowering unemployment. An integral component of the policies, whether it is acknowledged or not, is to make their currencies "competitive" in order to provide a boost to exports and shield domestic producers from competitors from abroad.
The ECB, meanwhile, has declined to participate in the so-called currency wars. Indeed, since ECB President Mario Draghi made his now-famous declaration to do "whatever it takes" to save the euro late last July, the currency has soared to nearly $1.36 from a low just under $1.21.
Even more dramatically, the euro has jumped to over 127 yen from under 96 yen. What that means is that a Lexus or an Infiniti or an Acura suddenly has a 25% price advantage relative to a Mercedes-Benz or a BMW or an Audi. And the new Cadillac ATS and XTS, already estimable competitors, also have a significant price advantage over their estimable German and Japanese counterparts.
The rise in the euro has been taken as a vote of confidence in the viability of the common currency. Even more importantly, that confidence has been shown in the plunge in the yields of the bonds of the most debt-challenged governments, Spain and Italy, to viable levels in the mid-5% and mid-4% ranges.
This has been the main success of Draghi's declaration. Rising interest rates had threatened to tighten the financial vise squeezing heavily indebted governments; higher borrowing costs would only worsen their debt, putting them in a financial death spiral. Conversely, stabilizing and lowering borrowing costs gave these governments a small bit of breathing room -- although its citizens continue to suffer from unemployment rates of 20% and more with austere cutbacks in benefits.
Meanwhile, the ECB has been able to avoid printing money through its OMT -- for outright monetary transactions -- as long as European government bond yields have been held in check. There's been a reverse Catch-22: governments such as Spain and Italy would request the ECB buy their bonds under OMT only if they acceded to stringent conditions to reduce their budget deficits. But as long as their borrowing costs were held in check by a cooperative bond market, which was made confident by the ECB's pledge to hold the euro zone together, the governments were spared supplicating the ECB.
As a result, the ECB didn't have to engage in the money printing of its American and Japanese counterparts and the euro soared. To be sure, European assets were cheap as a result of reasonable doubts about the common-currency zone, and they rallied as those concerns were allayed.
But, more recently the ECB's balance sheet has stagnated and has shrunk. That's been the result of banks' repayment of loans under LTRO, the ECB's Longer-Term Refinancing Operation. Almost unnoticed, European banks have been able to replace those relatively expensive borrowings in part by issuing commercial paper in the U.S. money market.
With the return of confidence engineered by Draghi, financial commercial paper has jumped $100 billion, or 23%, according to Barclays, mostly issued by foreign banks or U.S. branches of foreign banks. The incentives seem obvious: why wouldn't European banks borrow more cheaply in depreciating dollars? But the resulting capital flows put European manufacturers at a disadvantage as a result of the stronger euro.
All of which is a long-winded prelude to explain Hollande's call for a cheaper euro. So far, the ECB has been able to engineer more salubrious "financial conditions" -- that is, lower interest rates -- without actually doing anything overt.
Its previous extension of credit to European banks via the LTRO was used largely by the banks to buy their governments' bonds. So, via that circuitous route, the ECB funded European governments' deficits without having to resort to outright "monetization" -- the direct purchase of bonds with newly printed money. It is, ultimately, a distinction without difference.
This bewildering shell game has helped to lower European interest rates but has left the euro significantly overvalued against the dollar and the yen, resulting in Holland's complaint. And in a world in which governments manipulate currencies to their advantage, to remain above the fray means the loss of business and jobs.
Last summer, in a Barron's magazine cover story ("The Euro's Fate," July 16, 2012) I argued that a cheaper euro, one that was worth closer to parity with the dollar, was a necessary if not sufficient condition for European recovery. Clearly, the markets have gone the other way.
But, in that time, Europe has become even less competitive. Forget German luxury cars; how can Fiats, Renaults and Peugeots compete with Toyotas and Hondas?
No wonder Hollande is calling for a currency policy that responds to these pressures. "The euro should not fluctuate according to the mood of the markets," he said Tuesday.
Free-market systems work though the information transmitted through prices. An economy's most important price is its currency's exchange rate. America's industrial renaissance arguably rests as importantly on the low price of the dollar as much as that of cheap energy. For Europe, those fortunes run the opposite way.
But for the ECB, it has worked out well so far. The high euro and low bond yields of problematic debtors such as Spain and Italy provide large leeway for the European Central Bank to join in the monetary expansion. In other words, Draghi has skillfully kept his chips while he didn't have to play them; now he can.
Of course, the ECB can't be seen as buckling under Hollande's demands, which are adamantly opposed by Germany. But at some point, it will become apparent that a strong euro is a problem rather than a solution to Europe's woes, especially when the rest of the world is debasing their currencies.
France, famously a noncombatant, is escalating the currency wars.
French President François Hollande Tuesday called for a "managed exchange rate" for the euro, a not-so-veiled push for a weakening of the common currency.
Until now, the European Central Bank has opted not to follow the policies of money-printing of its main counterparts, namely the U.S. Federal Reserve and, more recently, the Bank of Japan. As a result, the euro has soared against the dollar, the yen and other major currencies, worsening the severe recession besetting Europe's economy.
By contrast, the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds, with electronically printed money -- with the express aims of boosting their economies and lowering unemployment. An integral component of the policies, whether it is acknowledged or not, is to make their currencies "competitive" in order to provide a boost to exports and shield domestic producers from competitors from abroad.
The ECB, meanwhile, has declined to participate in the so-called currency wars. Indeed, since ECB President Mario Draghi made his now-famous declaration to do "whatever it takes" to save the euro late last July, the currency has soared to nearly $1.36 from a low just under $1.21.
Even more dramatically, the euro has jumped to over 127 yen from under 96 yen. What that means is that a Lexus or an Infiniti or an Acura suddenly has a 25% price advantage relative to a Mercedes-Benz or a BMW or an Audi. And the new Cadillac ATS and XTS, already estimable competitors, also have a significant price advantage over their estimable German and Japanese counterparts.
The rise in the euro has been taken as a vote of confidence in the viability of the common currency. Even more importantly, that confidence has been shown in the plunge in the yields of the bonds of the most debt-challenged governments, Spain and Italy, to viable levels in the mid-5% and mid-4% ranges.
This has been the main success of Draghi's declaration. Rising interest rates had threatened to tighten the financial vise squeezing heavily indebted governments; higher borrowing costs would only worsen their debt, putting them in a financial death spiral. Conversely, stabilizing and lowering borrowing costs gave these governments a small bit of breathing room -- although its citizens continue to suffer from unemployment rates of 20% and more with austere cutbacks in benefits.
Meanwhile, the ECB has been able to avoid printing money through its OMT -- for outright monetary transactions -- as long as European government bond yields have been held in check. There's been a reverse Catch-22: governments such as Spain and Italy would request the ECB buy their bonds under OMT only if they acceded to stringent conditions to reduce their budget deficits. But as long as their borrowing costs were held in check by a cooperative bond market, which was made confident by the ECB's pledge to hold the euro zone together, the governments were spared supplicating the ECB.
As a result, the ECB didn't have to engage in the money printing of its American and Japanese counterparts and the euro soared. To be sure, European assets were cheap as a result of reasonable doubts about the common-currency zone, and they rallied as those concerns were allayed.
But, more recently the ECB's balance sheet has stagnated and has shrunk. That's been the result of banks' repayment of loans under LTRO, the ECB's Longer-Term Refinancing Operation. Almost unnoticed, European banks have been able to replace those relatively expensive borrowings in part by issuing commercial paper in the U.S. money market.
With the return of confidence engineered by Draghi, financial commercial paper has jumped $100 billion, or 23%, according to Barclays, mostly issued by foreign banks or U.S. branches of foreign banks. The incentives seem obvious: why wouldn't European banks borrow more cheaply in depreciating dollars? But the resulting capital flows put European manufacturers at a disadvantage as a result of the stronger euro.
All of which is a long-winded prelude to explain Hollande's call for a cheaper euro. So far, the ECB has been able to engineer more salubrious "financial conditions" -- that is, lower interest rates -- without actually doing anything overt.
Its previous extension of credit to European banks via the LTRO was used largely by the banks to buy their governments' bonds. So, via that circuitous route, the ECB funded European governments' deficits without having to resort to outright "monetization" -- the direct purchase of bonds with newly printed money. It is, ultimately, a distinction without difference.
This bewildering shell game has helped to lower European interest rates but has left the euro significantly overvalued against the dollar and the yen, resulting in Holland's complaint. And in a world in which governments manipulate currencies to their advantage, to remain above the fray means the loss of business and jobs.
Last summer, in a Barron's magazine cover story ("The Euro's Fate," July 16, 2012) I argued that a cheaper euro, one that was worth closer to parity with the dollar, was a necessary if not sufficient condition for European recovery. Clearly, the markets have gone the other way.
But, in that time, Europe has become even less competitive. Forget German luxury cars; how can Fiats, Renaults and Peugeots compete with Toyotas and Hondas?
No wonder Hollande is calling for a currency policy that responds to these pressures. "The euro should not fluctuate according to the mood of the markets," he said Tuesday.
Free-market systems work though the information transmitted through prices. An economy's most important price is its currency's exchange rate. America's industrial renaissance arguably rests as importantly on the low price of the dollar as much as that of cheap energy. For Europe, those fortunes run the opposite way.
But for the ECB, it has worked out well so far. The high euro and low bond yields of problematic debtors such as Spain and Italy provide large leeway for the European Central Bank to join in the monetary expansion. In other words, Draghi has skillfully kept his chips while he didn't have to play them; now he can.
Of course, the ECB can't be seen as buckling under Hollande's demands, which are adamantly opposed by Germany. But at some point, it will become apparent that a strong euro is a problem rather than a solution to Europe's woes, especially when the rest of the world is debasing their currencies.
Quite good timing of this article:
http://www.mindfulmoney.co.uk/wp/shaun-richards/wh...
"We also now know that quite a few banks have been repaying their LTRO funds after only a year of the three-year term. I think that this in itself is ominous as if you cannot make a profit on funds only costing you 0.75% per annum you must have a very grim outlook! Of the first LTRO some 140.5 billion Euros has already been repaid and of the second from the various announcements it looks as though the repayment amount will be in total over 300 billion Euros. We will not know properly until the end of this month but we do know that monetary policy will be tightening here too.
Also we see that banks are not helping busnesses expand and in fact are a contractionary influence at present. The annual growth rate of loans to non-financial corporations was more negative at -2.3% in December, from -1.9% in the previous month
I have looked at this topic in this way because if you were a Martian observing events from afar you would be expecting an easing of policy from the ECB today. In real economic terms the situation is worse than it was a year ago when the ECB responded with two interest-rate cuts and a just over a trillion Euro liquidity supply. But of course if we continue with the theme that central banks protect other banks rather than real economies we can recall this from last February’s ECB press conference.
'The soundness of bank balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy over time'
It always seems to be the banks does it not? And as I pointed out in my latest update on Spain the rise in mortgage rates seems to indicate that rather than passing the help they have received on they have done the reverse. Indeed the bank lending figures above sing from the same hymn sheet."
Andy Zarse said:
Quite good timing of this article:
http://www.mindfulmoney.co.uk/wp/shaun-richards/wh...
"We also now know that quite a few banks have been repaying their LTRO funds after only a year of the three-year term. I think that this in itself is ominous as if you cannot make a profit on funds only costing you 0.75% per annum you must have a very grim outlook! Of the first LTRO some 140.5 billion Euros has already been repaid and of the second from the various announcements it looks as though the repayment amount will be in total over 300 billion Euros. We will not know properly until the end of this month but we do know that monetary policy will be tightening here too.
Also we see that banks are not helping busnesses expand and in fact are a contractionary influence at present. The annual growth rate of loans to non-financial corporations was more negative at -2.3% in December, from -1.9% in the previous month
I have looked at this topic in this way because if you were a Martian observing events from afar you would be expecting an easing of policy from the ECB today. In real economic terms the situation is worse than it was a year ago when the ECB responded with two interest-rate cuts and a just over a trillion Euro liquidity supply. But of course if we continue with the theme that central banks protect other banks rather than real economies we can recall this from last February’s ECB press conference.
'The soundness of bank balance sheets will be a key factor in facilitating an appropriate provision of credit to the economy over time'
It always seems to be the banks does it not? And as I pointed out in my latest update on Spain the rise in mortgage rates seems to indicate that rather than passing the help they have received on they have done the reverse. Indeed the bank lending figures above sing from the same hymn sheet."
But there cannot be any recovery in this madness. The EU may flood the markets with money and deny that any problems exist anywhere but the most optimistic observer can see that that is just scotch mist. The failing economies within the EU cannot remain within a currency way beyond their economic capacity. They simply cannot afford to remain within the Euro and must fall away to rebuild. That is the reality of this situation and no panacea can address that hard unpleasant economic fact.
Mermaid said:
Barrons article
the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds
I wish I could print money out on my laser printer and swap them for assets like government bonds!!the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds
After a few years I'd own the government, which would be fab for a private company/individual
Globs said:
Mermaid said:
Barrons article
the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds
I wish I could print money out on my laser printer and swap them for assets like government bonds!!the Fed and the BOJ have aggressively expanded their balance sheets -- buying assets, such as their governments' bonds
After a few years I'd own the government, which would be fab for a private company/individual
'Sources in Brussels say that spending will be cut by €34.4billion over the next seven years from €1trillion to almost €960billion. That represents a decrease of around three percent, the first time a long-term EU spending plan has seen a net reduction. The cuts agreed on Friday fell mainly on a new fund for cross-border transport, energy and telecoms projects and on pay and perks for EU officials, a top target for Britain.'
CMD's position on the EU budget appears to have prevailed.
CMD's position on the EU budget appears to have prevailed.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff