Industrial production across the 17 countries that share the euro increased at an unexpectedly strong pace in August and for the second straight month.The increase is partly a result of big output increases in Ireland and Portugal, two countries that received bailouts from the European Union and the International Monetary Fund.The European Union’s official statistics agency Eurostat said Wednesday industrial production rose by 1.2% from a month earlier and was up 5.3% from a year earlier.
Merkel, Sarkozy Claim Broad Agreement to Shore Up Banks – WSJ.com
German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they have reached broad agreement on a plan to shore up Europe’s battered banks and restore stability to the euro zone.Speaking to reporters in the Berlin chancellery ahead of a working dinner as aides and ministers from both governments looked on, Mrs. Merkel and Mr. Sarkozy provided few details of the plan, pledging to unveil a comprehensive solution to the nearly two-year-old euro zone debt crisis by the end of the month. The plan will include a sweeping recapitalization of European banks endangered by a possible sovereign default in Greece as well as changes to existing European treaties to accelerate integration of the 17 euro-zone countries.
via Merkel, Sarkozy Claim Broad Agreement to Shore Up Banks – WSJ.com.
America’s Debt Crisis: Why Europe Is Right and Obama Is Wrong – SPIEGEL ONLINE
American economists, central bankers and fiscal policy makers have reinterpreted British economist John Maynard Keynes’s clever idea that government spending is the best way to counteract a serious economic downturn — and have turned it into a permanent prescription. In their version of the Keynesian theory, declining growth or tumbling stock prices should prompt central banks to lower interest rates and governments to come to the rescue with economic stimulus programs. US economists call this “kick-starting” the economy.
….The only problem is that this method of encouraging growth has not stimulated the US economy in recent years, but in fact has put it on a crash course. From the Asian economic crisis to the Internet and subprime mortgage bubbles, economic stimulus programs by monetary and fiscal policy makers have regularly laid the groundwork for the next crash instead of encouraging sustainable growth. In the last decade, the volume of lending in the United States grew five times as fast as the real economy.
With thanks to Barry Ritholz
ECB to Wield Anticrisis Tools – WSJ.com
Mr. Trichet said it would be inappropriate for the ECB to lend to Europe’s main bailout vehicle, the European Financial Stability Facility. A number of both U.S. and European politicians—not least the European Union’s Economic and Monetary Affairs Commissioner Olli Rehn—have urged that the EFSF be given a banking license, which would allow it to borrow from the central bank. However, a number of ECB officials have said this would break the terms of the EU treaty on monetary financing of governments. “We consider that governments have all capacity to leverage the EFSF themselves,” Mr. Trichet said. “We cannot substitute ourselves for governments.”
How did Europe’s bank stress tests give Dexia a clean bill of health? | Business | guardian.co.uk
It may seem like a lifetime away, but it is only in July that the European Banking Authority published the result of “stress tests” on 90 banks across 21 countries in the EU, covering around 65% of the banking industry.
Eight failed. Sixteen were border line with core tier one capital ratios – a key measure of financial strength – of between 5% and 6%.
So presumably, Dexia, the Franco-Belgian bank on which markets are currently fixated, was in one of the danger-zone categories?
Well no. Its statement issued on the day proclaimed “no need for Dexia to raise additional capital”.
…….The tests have proved to be meaningless even quicker than they were in 2010 when Ireland’s banks were given a clean bill of health, only to be bailed out four months later. In July, 2011 the EBA had been reckoning that the capital shortfall of the banks that failed was just €2.5bn. Now the markets reckon that the hole is more like €300bn.
via How did Europe’s bank stress tests give Dexia a clean bill of health? | Business | guardian.co.uk.
Europe Races to Stem Debt Crisis Amid Rescue Plan for Dexia – WSJ.com
Euro-zone governments suffered a blow Tuesday in their efforts to contain a deepening sovereign debt crisis as one of the Continent’s biggest banks, dogged by fears about its exposure to Greek and Italian debt, was on the verge of a government-backed breakup. Bank executives and government officials zeroed in on a drastic plan to break up Dexia SA, a Belgian-French bank that is one of Europe’s 20 largest in assets.
via Europe Races to Stem Debt Crisis Amid Rescue Plan for Dexia – WSJ.com.
Follow the Money: Behind Europe’s Debt Crisis Lurks Another Giant Bailout of Wall Street
A Greek (or Irish or Spanish or Italian or Portuguese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008. Financial chaos.
….The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That’s no big deal.
But a default by Greece or any other of Europe’s debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.
That’s where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.
Beginning of the end is near for Greek drama | The Big Picture
After yesterday’s meeting with European Finance Ministers, they are finally facing the reality that the July 21st agreement where Greek bondholders would face just a 21% cut to the value of their bond holdings was just not enough. Said early this morning, Juncker, the European FM head, said “As far as PSI private sector involvement is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21. These are technical revisions we are discussing.” What he calls ‘technical revisions’ is a nice way of saying a bigger haircut is going to be demanded, something hopefully on the order of 50%+. While bondholders European banks included won’t like it because of a harsher mark, the bonds are already trading at distressed levels.
via Beginning of the end is near for Greek drama | The Big Picture.
Wall St rallies on Europe hopes | The Australian
US stocks rallied this morning, as a report European Union finance ministers are discussing ways to recapitalise European banks fuelled a fierce comeback in the final hour of trading.
NEIN, NEIN, NEIN, and the death of EU Fiscal Union – Telegraph Blogs
Bundestag president Norbert Lammert said yesterday, lawmakers had a nasty feeling that they had been “bounced” into backing far-reaching demands. This can never be allowed to happen again. He warned too that Germany’s legislature would not give up its fiscal sovereignty to any EU body.
…..Something profound has changed. Germans have begun to sense that the preservation of their own democracy and rule of law is in conflict with demands from Europe. They must choose one or the other.
via NEIN, NEIN, NEIN, and the death of EU Fiscal Union – Telegraph Blogs.