The OECD now forecasts the eurozone economy to be in a six-month recession lasting through the first quarter of 2012, followed by a slow recovery that will leave the 17-nation bloc with only 0.2 percent growth next year. Despite the OECD’s warning, European markets enjoyed one of their best sessions in weeks amid hopes that radical plans were being readied for the Dec. 9 meeting of EU leaders in Brussels. The Stoxx 50 of leading European shares ended 3.6 percent higher at 2,208.89.
Italy 3-yr auction yield jumps to record 7.89 pct | Reuters
The yield on a new three-year BTP soared to euro lifetime high of 7.89 percent at the closely watched auction which allowed Rome to raise 7.5 billion euros…..Only a month ago, Italy had paid a 4.93 yield to sell three-year paper.
via Italy 3-yr auction yield jumps to record 7.89 pct | Reuters.
Europe weakens
A monthly chart of Dow Jones Europe shows the index testing primary support at 210. A peak below zero on 63-day Twiggs Momentum indicates a strong primary down-trend. Failure of support would offer a medium-term target of 160*.
* Target calculation: 210 – ( 260 – 210 ) = 160
Italy’s MIB Index is headed for another test of primary support at 13000 on the weekly chart. Respect of the descending trendline suggests another primary decline. Reversal of 13-week Twiggs Money Flow below zero would also warn of rising selling pressure. And breach of primary support would signal a decline to 9000*.
* Target calculation: 13 – ( 17 – 13 ) = 9
The UK’s FTSE 100 index is also headed for a test of primary support at 4800. 63-Day Twiggs Momentum peaking below zero indicates a strong primary down-trend. Failure of primary support would offer a target of 4000*.
* Target calculation: 4800 – ( 5600 – 4800 ) = 4000
U.K. Seeks to Revive Growth – WSJ.com
[Treasury chief George Osborne] will also announce an extra £30 billion in new money to be spent on infrastructure such as railways, roads, classrooms and broadband connections, said a person familiar with the matter. Of this, £20 billion will be provided by pension funds. The Treasury has signed a memorandum of understanding with the National Association of Pension Funds to provide this cash. Another £5 billion will come out of savings in other government departments and be spent over the next four years. The other £5 billion will be spent after 2015, but plans will be set out now.
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.
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.
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.
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.
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.
Merkel Rejects Rapid Action on the Euro – NYTimes.com
PARIS — Quashing recent speculation of a softening in Germany’s hard-line stance on the euro, Chancellor Angela Merkel repeated on Thursday her firm opposition either to bonds issued jointly by the euro zone countries or to an expansion of the role of the European Central Bank as quick responses to the sovereign debt crisis.
“Nothing has changed in my position,” she said at a news conference…..[but] The German newspaper Bild reported Thursday that the Merkel government was inching towards accepting so-called eurobonds, at least in some form, even if the public stance remained against them, and that some of her party said they could be a tradeoff for treaty changes.
via Merkel Rejects Rapid Action on the Euro – NYTimes.com.
Colin Twiggs: ~ I am getting a sense that Angela Merkel already knows the outcome. As a consummate negotiator she is using the debt crisis to force her EU colleagues to make concessions that in normal times would be politically unthinkable. Germany does not want to abandon the euro which has served them well over the last two decades. They also does not want to risk inflation — so an ECB solution is ruled out. But euro-bonds may be acceptable to the German public — provided that there are strict controls throughout the EMU to ensure fiscal discipline. That, I suspect, is her desired outcome — she just has to make her EU counterparts feel the heat long enough that they fully appreciate the concessions she makes — and do not start back-tracking on their commitments.