Category: Countries & Regions

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Euro Zone Weighs Plan to Speed Fiscal Integration – WSJ.com

BERLIN—Euro-zone countries are weighing a new plan to accelerate the integration of their fiscal policies, people familiar with the matter said, as Europe’s leaders race to convince investors they can resolve the region’s debt crisis and keep the currency area from fracturing.

Under the proposed plan, national governments would seal bilateral agreements that wouldn’t take as long as a cumbersome change to European Union treaties, according to people familiar with the matter. …. The EU treaty allows countries to engage in “enhanced cooperation” if at least nine countries agree, circumventing the need for a unanimous treaty change among all 27 EU members.

via Euro Zone Weighs Plan to Speed Fiscal Integration – WSJ.com.

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China’s ‘Princelings’ Pose Issue for Party – WSJ.com

The offspring of party leaders, often called “princelings,” are becoming more conspicuous, through both their expanding business interests and their evident appetite for luxury, at a time when public anger is rising over reports of official corruption and abuse of power.

State-controlled media portray China’s leaders as living by the austere Communist values they publicly espouse. But as scions of the political aristocracy carve out lucrative roles in business and embrace the trappings of wealth, their increasingly high profile is raising uncomfortable questions for a party that justifies its monopoly on power by pointing to its origins as a movement of workers and peasants.

via China’s ‘Princelings’ Pose Issue for Party – WSJ.com.

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20 Banks That Will Get Crushed If The PIIGS Go Bust

Now it looks like Commerzbank could be the next bank to fall in the crisis, which we found to have exposure to the PIIGS second only to Dexia of non-peripheral European banks in this exposure stress test.

….We took a list of the largest European banks by assets and compared their market cap, common equity, and total exposure to PIIGS debt (thank you for the bank statistics, EBA!). Then we calculated exposure to PIIGS debt (sovereign and private) as a percentage of the banks’ common equity. (Notice that HSBC, ING, and even Societe Generale are all absent from this list.)

So far our track record is pretty good–we predicted that Dexia was the most vulnerable bank outside of the PIIGS back in July. If the eurozone crisis continues to escalate, we will see more and more banks bow to the pressure of exposure and become unable to borrow money.

via 20 Banks That Will Get Crushed If The PIIGS Go Bust.

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Europe’s Last Best Chance – Michael Boskin – Project Syndicate

Reforming social-welfare benefits is the only permanent solution to Europe’s crisis. One hopes that, with the help of national governments, the European Central Bank, the International Monetary Fund, and the European Financial Stability Facility, the holes in the sovereign-debt-funding dike will be temporarily plugged, and that European banks will be recapitalized. But this will work only if structural reforms make these economies far more competitive. They must both lower the tax burden and reduce bloated transfer payments. Too many people are collecting benefits relative to those working and paying taxes.

via Europe’s Last Best Chance – Michael Boskin – Project Syndicate.

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NY Fed Issues Mea Culpa That Nobody Saw at 6PM on Black Friday | ZeroHedge

The 3 big reasons the Fed had gotten it wrong:

  1. Misunderstanding of the housing boom. Staff analysis of the increase in house prices did not find convincing evidence of overvaluation (see, for example, McCarthy and Peach [2004] and Himmelberg, Mayer, and Sinai [2005]). Thus, we downplayed the risk of a substantial fall in house prices. A robust approach would have put the bar much lower than convincing evidence.
  2. A lack of analysis of the rapid growth of new forms of mortgage finance. Here the reliance on the assumption of efficient markets appears to have dulled our awareness of many of the risks building in financial markets in 2005-07. However, a March 2008 New York Fed staff report by Ashcraft and Schuermann provided a detailed analysis of how incentives were misaligned throughout the securitization process of subprime mortgages–meaning that the market was not functioning efficiently.
  3. Insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy. Despite a good understanding of the risk of a financial crisis from mid-2007 onward, we were unable to fully connect the dots to real activity until 2008. Eventually, by building on the insights of Adrian and Shin (2008), we gained a better grasp of the power of these feedback loops.

[The author of the NY Fed report] then added that perhaps the biggest reason for the failure was “complacency,” with which I heartily concur, but to which I would also add hubris and stupidity.

via NY Fed Issues Mea Culpa That Nobody Saw at 6PM on Black Friday | ZeroHedge.

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Fiscal union is the only real solution | Credit Writedowns

A fiscal union led by Germany would in effect force debtor nations who want more German and ECB support to surrender more of their fiscal sovereignty, in a binding way, to EU Commissioners, who would have greater authority in shaping national budgets and fiscal policies.

Rather than ECB bond buying or a common bond issuance being a solution to the problems, those activities are only possible once the solution is in place. Needless to say monetary union was a significant surrender of monetary sovereignty. However, by retaining fiscal sovereignty, countries found an escape hatch. A move to fiscal union is to close this loophole.

via Fiscal union is the only real solution | Credit Writedowns.

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Euro Pressures Mount–Necessary for Eventual Resolution | Credit Writedowns

Germany is using this crisis to tighten its hegemony in Europe. It needs to close the fiscal loopholes. Many have recognized that this was a necessary birth defect in EMU–monetary union without fiscal union. A fiscal union–where countries, especially those that struggle to adhere to the Stability and Growth rule, have to cede a greater degree of fiscal autonomy. This will take the form not of German officials, but EU Commissioners having greater say in the fiscal policies of the debtors.

via Euro Pressures Mount–Necessary for Eventual Resolution | Credit Writedowns.

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China labour unrest flares as orders fall – FT.com

“There has been an intensification of labour unrest in the past week that is probably the most significant spike in unrest since the summer of 2010,” said Geoffrey Crothall of China Labour Bulletin, a Hong Kong-based labour advocacy group that monitors unrest in China.

….Factories are cutting the overtime that workers depend on to supplement their modest base salaries, after a drop in overseas orders.

via China labour unrest flares as orders fall – FT.com.

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Hormats Argues for ‘Competitive Neutrality’ Between U.S., China Firms – China Real Time Report – WSJ

U.S. Undersecretary of State Robert Hormats:

“What I am saying quite simply is that the U.S. is not passing judgment on whether or not China chooses to have state owned enterprises. Our concern is that to the extent they do, those SOEs should not receive benefits (e.g., preferred financing, exemption from anti-monopoly laws, generous export credits, etc) that put them at an artificial competitive advantage vis a vis private enterprises — of the U.S. or indeed any other country.

And I did not make the term ‘competitive neutrality’ up. This broad theme is incorporated in the (proposed trade deal called the) Trans Pacific Partnership and more specifically in Organization for Economic Cooperation and Development work.

My point is not to challenge the Chinese SOE model, it is to say that SOEs should operate within a system of global rules and norms, and that Chinese government support measures should not distort competition within that system….”

via Hormats Argues for ‘Competitive Neutrality’ Between U.S., China Firms – China Real Time Report – WSJ.

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A radical redistribution of income undermined US entrepreneurship | Bill Mitchell – billy blog

All components of private debt grew significantly in the decade leading up to the financial crisis which consumer debt leading the way. The household sector, in particular, already squeezed for liquidity by the move to build increasing federal surpluses during the Clinton era, were enticed by lower interest rates and the vehement marketing strategies of the financial engineers to borrow increasing amounts…..While this strategy sustained consumption growth for a time it was unsustainable because it relied on the private sector becoming increasingly indebted. ……With growth being maintained by increasing credit the balance sheets of private households and firms became increasingly precarious and it was only a matter of time before households and firms realized they had to restore some semblance of security by resuming saving.

via A radical redistribution of income undermined US entrepreneurship | Bill Mitchell – billy blog.

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