Tag: euro-zone

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What Would Margaret Thatcher Do? – WSJ.com

In his speech resigning from the cabinet in 1990, by which he toppled Mrs. Thatcher as Conservative Party leader and prime minister, her former close ally Geoffrey Howe accused her, in her obsession with preserving the British nation-state, of living “in a ghetto of sentimentality about our past.”

It does not look quite like that now. Indeed, it was Mrs. Thatcher herself, a couple of years after she left office, who identified the problem with European construction. It was, she said, “infused with the spirit of yesterday’s future.” It made the “central intellectual mistake” of assuming that “the model for future government was that of a centralized bureaucracy.” As she concluded, “The day of the artificially constructed megastate is gone.”

via What Would Margaret Thatcher Do? – WSJ.com.

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BBC News – David Cameron defends decision to block EU-wide treaty

Having failed to reach an agreement of all 27 EU members, the 17 eurozone countries and the other EU states apart from the UK are expected to sign up to the new deal, which includes:

• a commitment to “balanced budgets” for eurozone countries- defined as a structural deficit no greater than 0.5% of gross domestic product – to be written into national constitutions

• automatic sanctions for any eurozone country whose deficit exceeds 3% of GDP

• a requirement to submit their national budgets to the European Commission, which will have the power to request that they be revised

Mr Cameron said the abandoned treaty change involving all 27 members had been in danger of “distorting the single market”.

“I think I did the right thing for Britain,” he said. “We were offered a treaty that didn’t have proper safeguards for Britain and I decided it was not right to sign that treaty.”

via BBC News – David Cameron defends decision to block EU-wide treaty.

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EU Treaty Takes Shape – WSJ.com

[European Union] leaders, who are still deeply divided over key elements of their crisis strategy, decided they would move to form a pact among at least 23 of the members to tighten rules on national fiscal policy.

But details of the proposed treaty remained to be settled. The U.K. stood aside—after Prime Minister David Cameron failed with what officials said was a “shopping list of demands” designed among other things to protect national supervision of its banks—while Hungary, Sweden and the Czech Republic reserved their positions.

“We will achieve the new fiscal union. We will have a euro currency within a stable union,” German Chancellor Angela Merkel said at the end of the meeting. “We will have stronger budget deficit regulations for euro-zone members.”

via EU Treaty Takes Shape – WSJ.com.

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ECB cuts rates to 1.0 pct as debt crisis rages | Reuters

The European Central Bank cut its main interest rate by 25 basis points to 1.0 percent on Thursday as the euro zone’s worsening debt crisis outweighed the concern over persistently high inflation.

The ECB also reduced the interest rate on its deposit facility to 0.25 percent and the rate on the marginal lending facility to 1.75 percent, bringing all rates to match record lows reached in 2009.

via ECB cuts rates to 1.0 pct as debt crisis rages | Reuters.

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Euro Tumbles As JPM Predicts ECB Rate Cut To 0.50%, “Deep Euro Area Recession” | ZeroHedge

In a note just released by JPM’s Greg Fuzesi, the JPM analysts says that “with the Euro area economy entering a potentially deep recession, we now think that the ECB will cut its main policy interest rate to just 0.5% by mid-2012. We expect the interest rate corridor to be narrowed to +/-25bp, so that the deposit facility rate will be 0.25%. We recognise that the ECB did not cut rates below 1% during the 2008/9 recession. It never fully explained why it did not, but we think that the two most likely reasons will be less important this time.”

via Euro Tumbles As JPM Predicts ECB Rate Cut To 0.50%, “Deep Euro Area Recession” | ZeroHedge.

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EU to Banks: Raise Capital – WSJ.com

LONDON—European banks must come up with a total of €114.7 billion ($153.8 billion) in new capital by next June, the European Banking Authority said Thursday, as regulators took their latest stab at restoring confidence in the Continent’s beleaguered banking industry.

The capital shortfalls are spread across more than 30 banks in 12 countries. A total of 71 banks were subjected to the EBA’s exam.

via EU to Banks: Raise Capital – WSJ.com.

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Spain Weighing a Fast, Costly Cleanup of Banks – WSJ.com

According to analysts at Morgan Stanley, Spain could acquire the entire €176 billion pile of impaired real-estate assets at the 58% discount applied by Ireland’s bad bank, or a cost of €73.9 billion. This could be funded by swapping new government debt for the banks’ soured real-estate assets.

However, the state would have to raise sufficient funds from investors to provide the banks with an estimated €28.5 billion in new capital to absorb losses that the banks would take in selling the assets at a steep discount. In all, the cost of the plan to the Spanish state could be €102.4 billion, or around 10% of Spanish GDP.

via Spain Weighing a Fast, Costly Cleanup of Banks – WSJ.com.

Colin Twiggs: ~ Spain faces the same tough choice as the Irish: rescue its banks, by putting its own finances at risk, or endure a massive recession as the banking system implodes and the flow of credit dries up. The first choice may be the least painful but will mean many years of austerity in order to bring government debt back below 60% of GDP.

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Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns

Citigroup chief economist Willem Buiter:

There really is no politically feasible route back to sustained economic growth through monetary and/or demand stimulating policies for the EA, the UK, the US and Japan, for many years to come. As regards demand stimulus, expansionary fiscal policy will not be punished by the markets to the point of being self-defeating for all EA member states except for Germany (which will not do it on any significant scale for domestic political reasons). The US also may be technically able to use fiscal expansion to stimulate demand, but even if markets continue to be tolerant, political gridlock makes it impossible. Expansionary monetary policy is at the end of its rope in the US and Japan. The UK could cut the official policy rate by 50 bps and the ECB by 125 bps, and then they too are restricted to quantitative easing (QE), which I consider to be ineffective.

via Buiter: no politically feasible route to sustained growth for many years to come | Credit Writedowns.

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The euro zone’s terrible mistake | Felix Salmon

The FT is reporting today that the new fiscal rules for the EU “include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs”……The immediate result of this plan is that everybody will rush into the highest-yielding bonds in Europe, which is exactly what seems to have happened today……In order for markets to work, lenders need to suffer when they make bad lending decisions. If the Europeans didn’t learn from Ireland, couldn’t they at least learn from the Fed’s much-criticized decision to pay off all AIG creditors at 100 cents on the dollar? Blanket guarantees at par are pretty much always a really bad idea — and this one, if it comes to pass, will be the biggest one yet.

via The euro zone’s terrible mistake | Felix Salmon.

Colin Twiggs: ~ More evidence of moral hazard: giving bond-holders an effective put against the EU. Perhaps a partial guarantee (e.g. 90 percent) would be more effective in containing moral hazard as the bond-holder still has some skin in the game.

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Europe’s Debt Crisis: ECB Hints at Help Pending Euro-Zone Integration – SPIEGEL ONLINE

[ ECB chief Mario Draghi] seemed to hint at a possible way out of the downward spiral, saying that the ECB could be prepared to take additional steps to halt the crisis. First, however, Europe needed to move quickly toward greater economic integration.

“Other elements might follow,” he said, in reference to the coordinated central banks’ action taken on Wednesday. “But the sequencing matters.” He added that “a new fiscal compact would be the most important signal from euro-area governments for embarking on a path of comprehensive deepening of economic integration.”

via Europe’s Debt Crisis: ECB Hints at Help Pending Euro-Zone Integration – SPIEGEL ONLINE – News – International.

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