debt crisis Archives - Page 8 of 17

November 23, 2011

Germany’s economic and political generals are fighting the wrong war – Saul Eslake

The role which the European Central Bank needs to be allowed to play in resolving the European sovereign debt crisis needn’t amount to sustained financing of government deficits. It is perhaps better conceived of as being akin to central bank intervention in the currency markets.

When, in moments of one-sided speculation, or panic, foreign exchange markets push a currency to what by any reasonable yardstick appears to be extremely over- or under-valued levels, it’s not unusual for central banks to sell or buy that currency in sufficient volume to push it back in the opposite direction. If the central bank concerned is perceived as ‘credible’, the volume of purchases or sales required to achieve its objective will often be quite small. And if its judgement as to what constitutes ‘reasonable’ is correct, it will usually end up making a profit.

via Germany’s economic and political generals are fighting the wrong war – On Line Opinion – 24/11/2011.

November 23, 2011

German Bond Auction Spurs Worries – WSJ.com

A German government debt auction drew some of the weakest demand since the introduction of the euro, signaling diminishing investor appetite for even the safest euro-zone assets amid Europe’s worsening debt crisis….The German government was able to sell only €3.644 billion $4.92 billion of the €6 billion in 10-year bunds on auction for an average yield of 1.98%. Interest rates on Germany’s 10-year bonds rose sharply after the auction to 2.09%, their highest level in three weeks, leapfrogging the yield on the U.S. 10-year note.

via German Bond Auction Spurs Worries – WSJ.com.

November 23, 2011

David Cameron: our plan to cut debt is failing – Telegraph

The Prime Minister on Monday conceded that tackling Britain’s debts was “proving harder than anyone envisaged”, raising the prospect that the Coalition would be unable to close the deficit by 2014-15……Debt is “a drag on growth”, Mr Cameron told business leaders. “We are well behind where we need to be,” he said.

via David Cameron: our plan to cut debt is failing – Telegraph.

November 23, 2011

Menzie Chinn » “Solving America’s Debt Crisis”

In principle, solving the nation’s debt problems is easy. Almost all experts agree that a combination of reduced spending and increased tax revenues is needed. Cuts in spending and increases in tax revenues equal to about 5 percent of GDP are required to prevent an increase in the debt-to-GDP ratio. If a constant debt-to-GDP ratio were achieved with spending cuts alone, annual non-interest government spending would have to be reduced by about 20 percent. Alternatively, if a constant debt-to-GDP ratio were achieved by relying solely on increased tax revenues, taxes would have to be raised by about 33 percent. It is impossible to imagine that Congress would ever adopt spending cuts or tax increases of these magnitudes.

The logical conclusion is that only a balanced approach to solving our debt crisis, one that includes both spending cuts and increased taxes, is feasible. That being said, neither spending cuts nor tax increases will be politically easy to enact.

via EconoMonitor : EconoMonitor » “Solving America’s Debt Crisis”.

November 23, 2011

Fate of Euro May Hinge on Italian Savers – NYTimes.com

Compared with debt-saddled Greece, Spain and Ireland, Italy is much less reliant on foreign investors to finance its debt. And more so than in any other euro zone country, Italian citizens have been active buyers of government debt, with such bond holdings representing 10 percent of household assets. So far, the evidence suggests that Italian households are not panicking.

via Fate of Euro May Hinge on Italian Savers – NYTimes.com.

November 22, 2011

EU Banks Struggle to Attract Deposits – WSJ.com

Deposit levels at five of Spain’s top six banks declined in the third quarter, while five of Italy’s largest lenders also reported declines, according to a report by analysts at Citigroup. In some cases, individuals pulling their money out of a bank are instead buying the bank’s bonds, which have offered hefty interest rates lately. But corporate clients, who find it relatively simple to move cash from one international bank to another, appear to have been especially aggressive in scaling back their deposits at southern European banks. Spain and Italy’s largest banks each reported declines of at least 10% in the quarter that ended Sept. 30.

via EU Banks Struggle to Attract Deposits – WSJ.com.

November 22, 2011

The World from Berlin: Will Merkel Change Her Tune on Euro Bonds? – SPIEGEL ONLINE

The left-leaning Berliner Zeitung writes:

“People in the euro crisis have become accustomed to one constant: What Chancellor Angela Merkel categorically rejects today can still be implemented tomorrow. That makes the euro-bond debate … so exciting. A ‘no’ from Berlin doesn’t necessarily mean the last word.”

“There are many indications that Germany will have to finally give in again and accept one of two solutions: Either increased bond purchases by the ECB or euro bonds. But in exchange, Merkel will exact a price. She wants to use the acute urgency to construct a euro zone that corresponds to her vision…. If Europe allows this new currency union with rigid controls for countries that exceed debt limits, then Merkel will open herself up to things she has so adamantly rejected. But she’s begun a dangerous game. It could come to pass that that the currency union she wants to stabilize according to German plans may no longer exist. Then even the best treaty amendments won’t help.”

via The World from Berlin: Will Merkel Change Her Tune on Euro Bonds? – SPIEGEL ONLINE – News – International.

November 22, 2011

The Wages of Economic Ignorance – Robert Skidelsky – Project Syndicate

Despite austerity, the forecast of this year’s UK structural deficit has increased from 6.5% to 8% – requiring an extra £22 billion ($34.6 billion) in cuts a year. Prime Minister David Cameron and Chancellor George Osborne blame the eurozone crisis; in fact, their own economic illiteracy is to blame. Unfortunately for all of us, the explanation bears repeating nowadays. Depressions, recessions, contractions – call them what you will – occur because the private-sector spends less than it did previously. This means that its income falls, because spending by one firm or household is income for another.

In this situation, government deficits rise naturally, as tax revenues decline and spending on unemployment insurance and other benefits rises. These “automatic stabilizers” plug part of the private-sector spending gap. But if the government starts reducing its own deficit before private-sector spending recovers, the net result will be a further decline in total spending, and hence in total income, causing the government’s deficit to widen, rather than narrow. True, if governments stop spending altogether, deficits will eventually fall to zero. People will starve to death in the interim, but the budget will be balanced.

via The Wages of Economic Ignorance – Robert Skidelsky – Project Syndicate.

November 22, 2011

Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs

From a paper by Philip Whyte and Simon Tilford for the Centre for European Reform… a pro-EU group with a broadly free-market leaning.

Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption and enforcement of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.

via Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs.

November 22, 2011

Bond markets v. the Deficit Supercommittee – Evan Newmark

The bond markets will have their say. They have voted in Europe — electing new governments in Greece, Italy and Spain — and the time is fast approaching when they will cast their vote in the US as well.

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