22 lutego 2011

Tydzień 8/2011 - wybrane fragmenty wiadomości - Noland

Global Credit Market Watch:
February 17 – Bloomberg (Kathleen M. Howley): “A record share of U.S. mortgages were in the foreclosure process at the end of 2010, matching the all-time high, as lenders and servicers delayed home seizures to investigate charges of improper documentation. About 4.63% of loans were in foreclosure in the fourth quarter, up from 4.39% in the previous three months, the Mortgage Bankers Association said… The combined share of foreclosures and loans with overdue payments was 14%, or about one in every seven mortgages.Global Bubble Watch: February 16 – Bloomberg: “Emerging-market central banks are failing to counter rising inflation, risking a ‘scary’ and ‘synchronized’ global monetary-policy tightening as early as next year, JPMorgan Chase & Co. said. Real interest rates in emerging markets remain at ‘recession lows’ because policy makers believe increases would pressure currency pegs to the dollar and risk exacerbating capital inflows, said chief economist Bruce Kasman…” February 15 – Bloomberg (Jack Jordan): “Money managers are more bullish on global stocks this month than at any time in the past decade, according to a BofA Merrill Lynch Global Research survey. A net 67% of respondents, who together manage $569 billion, had an ‘overweight’ position on global equities, the highest level since the survey first asked the question in April 2001. That compares with 55% in January and 40% in December. Meanwhile, a net 9% is ‘underweight’ cash, the lowest allocation since January 2002.” February 16 – Bloomberg (John Detrixhe and Jody Shenn): “Investors are ramping up their use of borrowed money to boost returns in credit markets… A Federal Reserve measure tracking lending against bonds not tied to the U.S. government rose 42% in the past two years to $127.4 billion. That’s within $500 million of a level last seen at the end of September 2008… A Fed survey of Wall Street’s biggest bond dealers published last month shows hedge funds demanding more credit and banks loosening terms. Goldman Sachs… says signs are emerging of a ‘gradual recovery’ in borrowing to buy safer, lower-yielding debt” February 15 – Bloomberg (Sapna Maheshwari): “Bain Capital LLC and Apollo Global Management LLC are taking advantage of the lowest borrowing costs in six years to extract money from companies they’ve acquired and shift potential losses to creditors. Borrowers have raised $6.7 billion through bonds and loans this month to pay dividends, accounting for 16% of sales, from $4.6 billion, or 7%, in January, according to Standard & Poor’s Leveraged Commentary and Data. They sold $47 billion of debt last year, or 9% of offerings, to pay owners, compared with $11.7 billion in 2008 and 2009.” Muni Watch: February 14 – New York Times (Steven Greenhouse): “Governors and mayors facing large deficits have set their sights on a relatively new target -- the soaring expense of health benefits for millions of retired state and local workers. As they contend with growing budget deficits and higher pension costs, some mayors are complaining that their outlays for retiree health benefits are rising by 20% a year -- a result of the wave of retirements of baby boomers and longer life expectancies on top of the double-digit rate of health care inflation. The nation's governors face a daunting $555 billion in unfunded liabilities to finance retiree health coverage. The Pew Center on the States calculated those long-term obligations last year, saying New Jersey had the largest amount, $68.9 billion, with California second, at $62.5 billion.” February 17 – Financial Times (Nicole Bullock): “Cash-strapped US states and cities face the prospect of downgrades after Fitch Ratings changed the way it analyses their burgeoning pension bills… The changes to the way it assesses pension liabilities come amid growing concern over the scale of municipal debt problems and the effect on state and city finances of generous, unfunded public sector pension schemes that will run for many years. Sharp falls in equities and other risky assets during the financial crisis reduced the funding levels of nearly all these pension plans, increasing the pressure on states and local governments when they have even less cash because of dwindling tax revenues… Revenues have tumbled while spending has been rising. ‘The key questions are whether states and local governments are funding their pensions, how much it is taking up of their general fund and concern about the crowding out of spending for other needs,’ said Laura Porter at Fitch.” February 14 – Bloomberg (Dan Seymour): “Statistics on letter-of-credit issuance to municipalities last year indicate the municipal credit market is in dire trouble. But the statistics only tell part of the story. According to the numbers, banks wrote just $11.79 billion of letters of credit guaranteeing municipal debt in 2010. The last time banks wrote so few LOCs was 1999. The latest figure represents a 49% drop from 2009 and an 84% plunge from 2008, according to Thomson Reuters. Former stalwarts of the market like Royal Bank of Canada and Bank of New York Mellon disappeared from the LOC league tables. Nine of the top 10 municipal LOC banks in 2009 curtailed their business in 2010.” February 16 – Bloomberg (Mark Niquette): “Ohio Governor John Kasich has a toll-road to lease. Next door in Pennsylvania, Governor Tom Corbett is offering a deal on selling booze. And the Port Authority of New York & New Jersey has a bridge if you’re buying. U.S. state budget deficits that may reach $125 billion in the next fiscal year are forcing governors to turn to banks and builders including Macquarie Capital (USA) Inc. and Bouygues SA to help lease or sell assets ranging from turnpikes and lotteries to liquor stores while seeking investors in bridges, roads and other public facilities.Commodities and Food Watch: February 17 – Bloomberg (Madelene Pearson): “Gold imports by India, the largest user, climbed to a record in 2010… according to the World Gold Council. Purchases totaled 918 metric tons… That exceeds the projection of about 800 tons made last month by Ajay Mitra, the group’s managing director for India and the Middle East… “Indications of the first month of the year has seen a very strong demand, so the momentum continues,” Mitra said… Fourth-quarter imports rose to 265 tons from 204 tons a year earlier…” February 17 – Bloomberg: “Gold investment in China, the second-largest consumer after India, may gain 40% to 50% this year as investors increase purchases of the precious metal as a store of value, said the World Gold Council. ‘Chinese investors have shown great enthusiasm amid lack of other alternative investments,’ Wang Lixin, China representative for the council, said…” February 16 – Reuters (Fayen Wong): “Demand in China for physical gold and gold-related investments is growing at an ‘explosive’ pace and its appetite for the yellow metal is poised to remain robust amid inflation concerns, said an Industrial and Commercial Bank of China (ICBC) executive. ICBC, the world's largest bank by market value, sold about 7 tonnes of physical gold in January… nearly half the 15 tonnes of bullion sold in the whole of 2010, said Zhou Ming, deputy head of the bank's precious metals department… ‘We are seeing explosive demand for gold. As Chinese get wealthy, they look to diversify their investments and gold stands out as a good hedge against inflation…There is also frantic demand for non-physical gold investments. We issued 1 billion yuan worth of gold-price-linked term deposits in 2010, but we managed to sell the same amount over just a few days in January this year,’ Zhou said… The surge, which comes as Chinese investors look for insurance against rising inflation and currency appreciation… ‘Unlike the property market, investment in the gold sector is something the government is encouraging," he said.” February 15 – Bloomberg (Luzi Ann Javier and Susan Li): “Global food supplies will face ‘massive disruptions’ from climate change, Olam International Ltd. predicted, as Agrocorp International Pte. said corn will gain to a record, stoking food inflation and increasing hunger. ‘The fact is that climate around the world is changing and that will cause massive disruptions,’ Sunny Verghese, chief executive officer at Olam, among the world’s three biggest suppliers of rice and cotton, said… ‘We’re friendly to wheat, corn and soybeans and bearish on rice.’ …As food becomes less available and more expensive, ‘hoarding becomes widespread,’ Abdolreza Abbassian, a senior economist at FAO, said…” February 17 – Bloomberg (Tony C. Dreibus and Luzi Ann Javier): “Cotton topped $2 in New York for the first time ever and rose to a record in Zhengzhou on increasing demand from China and after Australia, the fourth-largest exporter, lowered its production estimate.” China Bubble Watch: February 15 – Bloomberg (Dawn Kopecki): “China’s inflation accelerated in January as prices excluding food rose the most in at least six years… Consumer prices rose 4.9% from a year earlier after a 4.6% December gain… A separate central bank report showed banks signed 1.04 trillion yuan ($158bn) in new loans, less than forecast while still the third-highest January total. ‘Inflationary pressures haven’t abated and China has already entered into an era of structural inflation,’ said Liu Li-gang, an Australia & New Zealand Banking Group economist… The acceleration in inflation reflects rising rents, a 48% surge in money supply in two years…” February 18 – Bloomberg: “China’s central bank raised reserve requirements for lenders for the second time this year to counter inflation and curb property-price gains. Reserve ratios will increase half a percentage point… Today’s move came 10 days after China raised interest rates.” February 17 – Bloomberg: “China’s central bank will use an extra measure of liquidity called ‘society-wide financing’ to help guide monetary policy, said Sheng Songcheng, the head of the agency’s statistics department. Focusing on money supply and yuan lending is no longer enough as financial products and markets evolve, Sheng wrote in an article posted on the People’s Bank of China website… The extra gauge includes banks’ off-balance sheet lending, local- and foreign-currency loans, and companies’ bond and stock sales… Inflation and asset-bubble risks in the fastest-growing major economy underscore the need for an accurate picture of how money is driving growth. Banks flooded the financial system with cash from late 2008, breaking records for lending, to drive the nation’s recovery from the global financial crisis… So-called society-wide financing, the overall amount of money feeding the economy, is more closely correlated than local-currency lending with major economic indicators such as gross domestic product and inflation, Sheng said. Using the measure, financing expanded 28% annually from 2002 to 2010, rising last year to 14.27 trillion yuan ($2.2 trillion), or the equivalent of 36% of GDP…” February 15 – Bloomberg: “Chinese banks extended 1.04 trillion yuan ($158 billion) of new loans in January, Xinhua News Agency reported… Premier Wen Jiabao’s government is grappling with elevated inflation and the risk of bubbles in the real-estate market after a boom in credit drove the nation’s recovery from the financial crisis. Asian central banks may need to raise interest rates further to limit the threat of overheating and prevent a ‘hard landing,’ International Monetary Fund Managing Director Dominique Strauss-Kahn said… ‘Excessive liquidity remains a big headache for policy makers and continued strong lending growth will complicate authorities’ efforts to contain inflation and asset prices gains,’ Fang Sihai, chief economist at Hongyuan Securities… Banks extended 7.95 trillion yuan of new loans last year, exceeding the government’s target of 7.5 trillion yuan.” February 17 – Bloomberg: “Foreign direct investment in China climbed in January, adding to record inflows last year that are complicating Premier Wen Jiabao’s efforts to tame inflation in the world’s fastest-growing major economy. Investment rose 23.4% to $10 billion last month from a year earlier…” Japan Watch: February 15 – Bloomberg (Mayumi Otsuma): “The Bank of Japan raised its economic assessment for the first time in nine months as faster overseas growth bolsters exports and production. ‘Japan’s economy is gradually emerging from the current deceleration phase,’ the central bank said…” India Watch: February 16 – Bloomberg (Madelene Pearson): “Metals demand in India, Asia’s second-fastest growing major economy, may double in five years and remain robust for a decade, fueled by rising car sales and higher spending on infrastructure projects, analysts said. Growth in demand for base metals may jump 10% to 15% this year, said Sumit Verma, an analyst at broker Geojit Comtrade Ltd. …‘Steel demand may double in the next five years and I will not be surprised if demand for non-ferrous metals such as copper and aluminum grow at twice the pace,’ said Kunal Shah, head of commodity research with Nirmal Bang Securities…” Asia Bubble Watch: February 16 – Bloomberg (Chinmei Sung): “India and China are among the majority of Asia-Pacific nations where inflation is outpacing benchmark interest rates, adding to the case for further increases in borrowing costs… The… ‘real rate’ is negative in nine of 15 markets, skewing incentives for people to spend rather than save. ‘Many Asian economies have negative real rates,’ said David Cohen, head of Asian forecasting at Action Economics… ‘So the region’s central banks will continue their recent tightening steps, and if they don’t, they could be punished by a flight of capital from their markets.’” February 18 – Bloomberg (Shamim Adam and Barry Porter): “Malaysia’s economy expanded 4.8% last quarter, pushing full-year growth to the fastest pace since 2000 and putting pressure on the central bank to raise interest rates… The economy grew 7.2% last year, the most in a decade.” February 17 – Bloomberg (Simeon Bennett): “Singapore’s economy may expand as much as 10.1% in the first quarter, the city-state’s Business Times reported…” February 17 – Bloomberg (Shamim Adam and Andrea Tan): “Singapore raised its inflation and export forecasts for 2011 after the economy expanded at a record pace last year, sustaining pressure on the central bank… Consumer prices may climb as much as 4% this year…” February 17 – Bloomberg: “Vietnam’s central bank raised the refinancing rate to 11% as part of its efforts to curb accelerating inflation, increasing borrowing costs for the first time since early November. The State Bank of Vietnam raised the rate from 9%, effective today…” February 15 – Bloomberg (Ben Sharples): “Asian utilities begin negotiations with coal producers this week and may be forced to pay as much as 36% more for their fuel after heavy rain in Australia, Indonesia, South Africa and Colombia disrupted output.” Unbalanced Global Economy Watch: February 16 – Bloomberg (Nicholas Larkin): “Countries in Latin America and Africa, including Bolivia and Mozambique, are most at risk of food riots as prices advance, the United Nations reported. The past month’s protests in North Africa and the Middle East were partly linked to agriculture costs… Other countries where expensive food imports may become a ‘major burden’ include Uganda, Mali, Niger and Somalia in Africa, Kyrgyzstan and Tajikistan in Asia and Honduras, Guatemala, and Haiti in Latin America, he said.” February 15 – Bloomberg (Sandrine Rastello): “Rising global food prices have pushed 44 million more people into ‘extreme’ poverty in developing countries since June, the World Bank estimates. The… World Bank said its food-price index jumped 15% between October and January, led by wheat costs. The gauge is now 3% below a 2008 peak, when a food crisis sparked riots in more than a dozen countries. ‘Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world,’ World Bank President Robert Zoellick said… ‘The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food.’” February 15 – Financial Times (Javier Blas): “The number of chronically hungry people is approaching 1bn, the level last seen during the 2007-08 food crisis, in the clearest sign yet of the humanitarian impact of rising agriculture commodities prices in poor countries. Robert Zoellick, World Bank president, said… that the rise in food prices had already pushed an additional 44m people into extreme poverty… The rate of the increase suggests the number of undernourished people, which the UN said last year was 925m, will now hit 1bn by the end of this year as the effect of spiralling prices filters through. ‘The trends towards the 1bn are worrisome,’ said Mr Zoellick. ‘Global food prices are rising to dangerous levels. The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food.’” February 17 – Bloomberg (Theophilos Argitis and Rebecca Christie): “Group of 20 finance chiefs remain divided over the next steps to narrow global economic imbalances as they squabble over how to reach a diagnosis. French Finance Minister Christine Lagarde… said she’s hoping for an accord on which indicators should be used to analyze imbalances that economists blame in part for the financial crisis. While there’s broad agreement to use the current account as a key measure, some countries are opposed, said a Canadian official…” February 17 – Bloomberg (Robert Hutton and Thomas Penny): “Rising inflation and unemployment have taken the U.K.’s ‘misery index’ to a 17-year high, as Prime Minister David Cameron promises to press ahead with the deepest budget cuts since World War II. The misery index, devised by economist Arthur Okun, combines inflation and unemployment rates.” U.S. Bubble Economy Watch: February 15 – Financial Times (Gregory Meyer): “The prices of pork chops and hamburgers are set to rise as smaller animal herds and depleted corn stocks strain livestock markets. Lean hogs hit a nominal all-time high above 93 cents a pound… after a devastating outbreak of foot-and-mouth disease caused a spike in imports by South Korea. Live cattle, fattened for sale to meat packers, were at $1.093 a pound, a rise of 22% in the past year, and just below the record high… The resulting meat price increases show that food inflation, most severe in emerging markets, threatens to bleed into richer economies. In the US, consumer prices for meat, fish and eggs jumped 5.5% year on year in December…” February 15 – Bloomberg (Alex Kowalski): “Confidence among U.S. homebuilders stagnated in February, reflecting a still-depressed housing market. The National Association of Home Builders/Wells Fargo sentiment index registered a reading of 16 for the fourth consecutive month… Readings below 50 mean more respondents said conditions were poor.” Fiscal Watch: February 14 – Bloomberg (Daniel Kruger and Liz Capo McCormick): “Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits. Interest expense will rise to 3.1% of gross domestic product by 2016, from 1.3% in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015… Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration’s adjusted 2011 budget. ‘It’s a slow train wreck coming and we all know it’s going to happen,’ said Bret Barker, an interest-rate analyst at… TCW Group… ‘It’s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy.’ The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008Debt-service costs will climb to 82% of the $757 billion shortfall projected for 2016 from about 12% in last year’s deficit, according to the budget projections. That compares with 69% for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.” February 17 – Washington Post (Steven Mufson): “Interest payments on the national debt will quadruple in the next decade and every man, woman and child in the United States will be paying more than $2,500 a year to cover for the nation's past profligacy, according to… President Obama’s new budget plan. Starting in 2014, net interest payments will surpass the amount spent on education, transportation, energy and all other discretionary programs outside defense. In 2018, they will outstrip Medicare spending… The soaring bill for interest payments is one of the biggest obstacles to balancing the federal budget… The phenomenon is a bit like running up the down escalator. Without interest payments, the president’s plan would balance the budget by 2017. But net interest payments that year are expected to reach $627 billion, up from $207 billion in the current fiscal year.” February 15 – Financial Times (Michael Mackenzie): “It is no secret that China’s appetite for Treasuries has been waning. Official figures now bear out Beijing’s stated desire to diversify away from US government debt. The market impact is likely to be muted for now, given the Federal Reserve’s bond-buying under its ‘quantitative easing’ programme. But what happens when QE2 ends in June? …The US Treasury market occupies the centre of the global financial system… So far, robust demand for Treasuries from the UK and, to a lesser extent, Japan and US domestic investors has helped offset China’s waning appetite over the past year. The Fed effect has been supportive, too. The US central bank has become the largest single holder of Treasuries, with $1,160bn, as it continues buying securities.”
Noland:Pondering the End of QE2

9 komentarzy:

  1. "The extra gauge includes banks’ off-balance sheet lending, local- and foreign-currency loans, and companies’ bond and stock sales"

    off-balance sheet

    bankk nadal upychaja aktywa poza bilansem
    niechc zorbia prawo ze maja wykazywac wszystko, a nie nazywaja po imieniu jakie instrumenty musza stac w bilansie a jakie nie

    ciagle wymyslaja nowe instrumenty albo zmianiaja im nazwy i nie wkladaja do bilansu

    gra w kotka i myszke
    a 36% pkb w pozyczkach poszlo

  2. @hukers,
    ale własnie to robią. Zamiast 7tln youanów pożyczek okazuje się że jest 14 trl:

    Using the measure, financing expanded 28% annually from 2002 to 2010, rising last year to 14.27 trillion yuan ($2.2 trillion), or the equivalent of 36% of GDP…”

    Chcą własnie nad tym zacząć panować. IDzie w Chinach w dobrą stronę na tym obszarze. tzn zdają sobie z tego już sprawę.

  3. "The amount of marketable U.S. government debt outstanding has risen to $8.96 trillion from $5.8 trillion at the end of 2008… Debt-service costs will climb to 82% of the $757 billion shortfall projected for 2016 from about 12% in last year’s deficit, according to the budget projections. That compares with 69% for Portugal, whose bonds have plummeted on speculation it may need to be bailed out by the European Union and International Monetary Fund.”

    Czytales te przewidywania? HA, jest jak byk ze przed 2013 stopy MUSZA wzrosnac. A moim zdaniem juz w 2012 (forecasty mowia ze juz od marca TEGO ROKU) zaczna, w UK prawdopodobnie juz pod koniec tego roku (choc sie przed tym bronia). Jesli obsluga im wzrosnie z tych 12% na 82% tych 757 miliardow, ile wzrosnie w EU i u innych. Na podstawie tych kilku zdan mozna stwierdzic ze POLSKA bedzie bankrutem, nawet jesli zrobimy reformy. Oni upupia caly swiat.

    "run cumulative deficits of more than $4 trillion through the end of 2015… Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010.."

    To zdanie chyba wszystko mowi? Czy ktos sie zastanawial co to oznacza? Stopy beda mialy szczyt na koniec 2015 roku. US PKB bedzie w tym czasie wynosilo 17,9 T USD. Wiec zakladaja ze beda sie rozwijac szybciej niz 3% rocznie. Deficyt na poziomie 22% PKB. Ale wzrost obslugi dlugu wzrosnie tylko niecale trzy razy. Wiec albo stopy nie beda wcale wysoko, w co nie wierze, albo beda programy typu UST--> (kupno) FED ---> (odsetki)UST. Poprostu FED powiekszy balance sheet poprzez zakup UST. Masz jakies inne pomysly?

    Hunkers, sluchaj Sipa bo Ci dobrze mowi. W Chinach wszystko prowadzi do liberalizacji, pozatym sa spoznieni co do inflacji poza "curve" to znaczy ze robia to celowo. Beda wypuszczac BONDY, juz coraz wiecej ludzi zaczyna o tym mowic i wreszcie to do nich dociera. Inflacja takze zmusza ludzi (negatywne realne stopy) do wydawania, czyli to czego chce rzad. Problemem dla Chin i dla swiata jest to co napisalem powyzej, to brzmi jak wyrok dla niektorych. Wiec jesli Chiny nie przyspiesza z emisja i otwieraniem rynkow, to koszty tej emisji im bardzo wzrosna. Wiec jesli zaczna emitowac beda to musieli robic juz w tym roku(i nie mowie tutaj o tych malych emisjach via HK, tylko o czyms konkretnym), ale wszystko wyglada na to ze sie spoznia.
    Po ostatnich rozmowach i kilku ciekawych sugestiach pozucam teorie "lewis turning point" i uwazam to za propagande. W chinach nadal jest nadpodaz taniej sily roboczej, a inaczej OGROMNE bezrobocie.

  4. looser
    nie ma sie co podniecac
    jakbys czytal prognozy ust to bys widzial wykresy kilku panstw ktore sa w tym raporcie przenalizowane, hiszpania, szwecja , grecja byly na wykresach i tam podawali jaki procent dochodow panstwa bylo przeznaczane na obsluge dlugu, szwecja miedzy 94 a 99 placila 4% i przezyla, trzeba ciac wydatki,
    3% pkb to jeszcze nie tragedia a pisza tu:
    "Interest expense will rise to 3.1% of gross domestic product by 2016, from 1.3% in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015"

    kto wie ile obecnia grecja placi?
    bedzie z6 czy 8% pkb ??

  5. Portugal already procured two thirds of funding needs

    Portugal’s finance minister Fernando Teixeira dos Santos said in an interview with the Nikkei newspaper (via Reuters) that Portugal had already secured two-thirds of total funds needed for bond redemptions in April and June, of which 70% comes from foreign investors. In April, €4.3bn come due, and another €4.9bn in June. After a three week break the ECB is back in the markets, presumably purchasing Portuguese debt, to stabilise spreads at below 4.5pp.

    Portugal’s government deficit dropped in January, as tax revenues rose by 15% compared to last year, Jornal de Negocios reports. Spending rose 0.9% with increases in all components of expenditure, except for current transfers and subsidies. The government said this rise was due to last year’s budget only taking effect in April. Without that effect, spending would have dropped 2.6%. Interest charges increased by 23%.

    ja jednak uważam że oni przeszli ten lewis point. mam sporo linkow ale nie mam czasu tego opisac na blogu po raz kolejny. musze wreszscie odpisac Ci tez na maila. jutro:) ogolnie w skrócie - nadal sie trzymam swojej wersji o SFP.

  6. Axel Weber dzisiaj w FT:

    Europe’s reforms may come at a high price

    By Axel Weber

    Published: February 21 2011 20:43 | Last updated: February 21 2011 20:43

    In the coming weeks, European policymakers will have to decide on an overhaul of governance of the European monetary union. As a guiding principle the European Council has clearly – and, in my view, rightly – stated that the main foundations of EMU and the European Union treaty have to be respected. This means the principles of subsidiarity, responsibility of individual member countries and no-bail-out remain essential for the EU. In this context, what cornerstones are to be considered in the matter of reforming EMU governance?

    First and foremost, it is up to the member countries themselves to consolidate their public budgets and to initiate comprehensive economic reforms. Financial assistance is a supplement to buy some time and to smooth this process. Against this backdrop the existing instruments for short-term crisis resolution are adequate and, despite repeated demands to the contrary, should not undergo significant adjustment.
    In terms of future crisis prevention, it will be essential to set the correct incentives for stability-oriented policies in member countries. Additionally, financial market regulation and surveillance have to be improved in order to significantly increase the financial system’s capacity to absorb shocks. Finally, in the event of a crisis nevertheless occurring, there is a need for a resolution mechanism which does not diminish the individual responsibility of member states and market participants.

    With this in mind, the decisions taken by the European Council represent a step in the right direction: the stability and growth pact is to be strengthened, although I fear that the proposals currently on the table fall short of what is required and run the risk of being weakened further in the political process. Macroeconomic surveillance will be enhanced in order to detect structural developments within member states that might be harmful for the rest of the monetary union. In this context, it is vital that the process remains focused on major imbalances and that any unproductive macroeconomic fine-tuning be avoided.

    Furthermore, if such preventive measures turn out to be insufficient, the European stability mechanism (ESM) will be available as a means of crisis resolution if there is a risk to the stability of the eurozone as a whole. The properties of this mechanism, as endorsed by the European Council in December 2010, are derived from the current design of the European financial stability facility. In particular, financial support will be granted at non-concessional rates only, and will be conditional on a tough adjustment programme.

    Going beyond the EFSF, collective action clauses should allow for an easier restructuring of debt in the event of insolvency. Further, taxpayers in other member states will be protected by a preferred creditor status. These basic features should allow a prompt response to crises without undermining the incentives for sustainable economic policy in member states or exposing taxpayers in other member states to undue risks.

  7. Against this background I am rather sceptical about some proposals to broaden the scope or to soften the conditions of the agreed framework. If implemented, these would result in a weakening of the responsibility of financial market participants and member states, diminished incentives for sound fiscal policies, and again a shifting of risks to the taxpayers of other member states. I therefore perceive a danger in reducing the interest rates of ESM borrowing significantly below the conditions of the EFSF, thereby introducing eurobonds more or less through the back door.

    As I see it, bond purchases on secondary markets should not be incorporated into the ESM. First, the conduct of such purchases would run into significant operational governance problems regarding their volume, timing and conditions. Second, given the direct support of the ESM, member states in distress would already be protected from high market interest rates.

    Third, secondary market purchases with the aim of a debt buy-back would not only be a very inefficient way of reducing the debt burden, requiring very large volumes to achieve a sizeable effect, but they would also constitute a transfer from other member states − a transfer that would be all the higher, the lower the interest rate charged for ESM buyback loans.

    Fourth, proponents of secondary market purchases argue that these would stabilise bond prices and, as a result, financial markets, too. While that may be true, I doubt whether purchases would be an efficient way of achieving that goal. We should not forget our experience of setting up banking stabilisation tools in several member states at the height of the financial crisis.

    At that time, asset purchases were regarded as costly instruments that were not well targeted given the problems at hand. Such considerations are all the more relevant in a more complex European context. Finally, secondary market purchases combined with the well-justified and necessary preferred-creditor status of ESM loans might even jeopardise financial market stability as the risks of the remaining private bondholders would increase sharply, thereby significantly heightening the pressure to sell.

    The current crisis has challenged the founding principles of EMU. Still, EMU can emerge stronger and more resilient than before. To that end, the decisions on EMU governance have to reinvigorate rather than circumvent the basic principles of subsidiarity, responsibility of individual member countries, and no-bail-out as laid down at the launch of monetary union. This is an opportunity that must not be lost.

    The writer is outgoing president of Germany’s Bundesbank

  8. @looser
    co do stóp procentowych to też uważam że pójdą w górę - tego rynek nie udźwignie, no chyba że masowo zacznie kasa wracać w ramach "ułaskawienia Obamy"

  9. Irish voters set to give a mandate for EU/IMF deal and further austerity measures

    This Friday the Irish will go to the polls and vote for a new government. Polls show a comfortable majority for Fine Gael, enough to rule without Labour as a coalition partner. The Irish Times comments that unless all the polls are completely askew, the elections will give a popular mandate for the bank bailout, the EU-IMF deal and the cuts, which has not been the case until now. The article goes on saying that behind all the excitement of a historic changing of the guard, this is the real big event.



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