THE Eurozone Economics Thread pt 1 (merged) Archived

[smiley]

But with that disclosure on the table, I still think that the Euro crisis is running out of steam.

It depends ... it depends on any combination of the following:

Amid these considerations, no one can predict the ultimate fate of the Euro ... however, a very strong argument can be made that the Euro's days are numbered.

In the end I think there is only one way to run a government budget. You run a surplus in good times and only in very special cases you may run a temporary defict (and pay it back). In no way you start of with a budget that is based on compensation of deficits by economic growth. I think we agree on that.

But you forget this is a beautycontest in a pig barn. You don't have to look a million bucks to make the cut.

For now the most critical thing to avoid a crisis is to get the European finances in a shape that is acceptable for the economic world. You can talk about all types of reform and austerity, but if you are unable to rollover debt then it is game over.

Acceptable means that you have to equal the countries around you, plus you have to do a bit better to restore confidence. Looking at the current situation I think is on track to meet that target thus averting a catastrophal breakdown. But that does not mean that there are no significant challenges in the (near) future. To name a few:

- aging populations.
- peakoil.
- a financial system that is generally unsustainable.
- a macroeconomic theory and belief system that is plainly wrong.

These will certainly hit us and probably all at once, but those I see as global problems rather than Europe specific.

[Daniel_Plainview]

UK Unemployment rises to 17-year high of 2.68m
Britain's economic recovery faced a further setback today as unemployment rose more than expected and the number of people working part-time because they could not find full-time jobs reached a record high, figures showed.

Unemployment rose by 118,000 between September and November to 2.68m - a 17-year high - taking the unemployment rate to 8.4pc, up 0.3pc on the quarter and more than analysts' forecast of 8.3pc.

However, the number of people claiming Jobseeker's Allowance last month increased by 1,200 to 1.6m, much less than the 10,000 increase expected, the figures showed.

In a sign that the labour market is deteriorating further, the number of Britons who are "underemployed" - working part-time because they cannot find full-time work - has jumped by 44,000 on the quarter to reach 1.31m - the highest figure since records began in 1992.

The number of people temping because they could not find a full-time job also rose by 10,000 on the quarter to 590,000, accounting for more than a third of the total number of temporary workers, the figures showed.

[eXpat]

Time To Cut Germany's Credit Rating? Egan-Jones Downgrades To AA-

Prone to controversial actions, ratings agency Egan-Jones axed Germany’s sovereign rating from AA to AA- and kept it on negative credit watch. While remaining the Eurozone’s strongest economy, German tax payers will be footing a significant portion of the bill for the different bailout mechanisms in place, from the EFSF to the ECB and even the IMF’s funding facilities.
Speaking with Forbes, Egan-Jones co-founder Sean Egan said “[Germany’s] credit quality has slipped and its debt-to-GDP ratio is increasing.” In the report, the analysts noted the Eurozone’s top dog has debt exceeding €2 trillion ($2.6 trillion) and cash of about €235 billion ($301 billion). Debt-to-GDP levels hit 83% in 2010, will probably hit 92% in 2011 and could reach 116.7% by 2013.

“Germany does benefit from flight to quality flows,” explained Egan, adding that mathematics doesn’t lie, and eventually, someone will have to pay the bill. “The major positive German has realized over the past year has been the significant decline in its funding costs, […] the two-year debt yield has declined from 2% to near 0 while the 10-year has declined from above 3% to below 2%,” read the report.

Regardless, rising fiscal deficits (which have moved north of 4% of GDP) and falling economic growth across the Eurozone, Germany’s major trading partner, will hamper the country’s ability to maintain growth at around 4% (as it did in Q4 2011).

http://www.forbes.com/sites/afontevecchia/2012/01/18/time-to-cut-germanys-credit-rating-egan-jones-downgrades-to-aa/
In 2008, when the first wave of the financial crisis struck, a lot of countries, such as US, most members of the EU etc, had better ratings, less debt, financial institutions were more solid, in short the financial system, was in much better shape. Next time is going to hit hard. Very hard.

[smiley]

Time To Cut Germany's Credit Rating? Egan-Jones Downgrades To AA-

Debt-to-GDP levels hit 83% in 2010, will probably hit 92% in 2011 and could reach 116.7% by 2013.

Provisional debt/GDP numbers for 2011 are already known for Germany (its 2012 now). Structural deficit was around 1.5% GDP and the debt declined to 81% GDP, but is possibly set to be revised to 79% due to one time repayments of bank resque funds.

So thats 12-14% off the mark for last year, for the 2013 prediction to come true you need something like a meteor strike. I don't know whether this is down to sloppy reporting by the author or that the Egan report is really that bad. But it makes you wonder.

for correct numbers and lnk to revision
http://www.imf.org/external/pubs/ft/weo ... selgr.aspx
http://epp.eurostat.ec.europa.eu/portal ... tors/peeis
http://www.reuters.com/article/2012/01/ ... I220120115

In 2008, when the first wave of the financial crisis struck, a lot of countries, such as US, most members of the EU etc, had better ratings, less debt, financial institutions were more solid, in short the financial system, was in much better shape. Next time is going to hit hard. Very hard.

This of course is totally true. Although I sometimes wonder. Since the dotcom crisis we have been muddling from one crisis to another. Maybe these things are like forest fires. If you throw a lot of water around every time you see smoke, you end up with a few acres of tinderwood. A forest needs a fire once in a while and maybe it is a good thing if the various goverments run out of water next time. A quick deep recession followed by stabilisation migh be better than all this bubble blowing for the past years.

[Daniel_Plainview]

Recall that the World Bank slashed its global forecast a few days ago... and now the IMF follows suit ...

IMF slashes global forecast on eurozone crisis, with drastic falls in Italy and Spain
The International Monetary Fund has slashed its global growth forecast for this year and exhorted the European Central Bank to boost liquidity to stave off a deeper eurozone crisis.

Italy's economy will contract by 2.2pc and Spain's by 1.7pc as fiscal austerity measures bite harder and banks curtail lending, playing havoc with debt dynamics. The eurozone as a whole will shrink by 0.5pc, down from growth of 1.1pc in the Fund's last forecast in September, an even grimmer outlook for the region than growth revisions released by the World Bank earlier this week.

The new figures are an admission that the IMF has been caught badly off guard by fast-moving events. It appears to misjudged the gravity of the crisis in Southern Europe. The new forecasts explain why the Fund is requesting a $600bn (£388bn) boost to its firepower. ... The IMF encouraged the ECB to continue moving to a "more accommodative monetary policy" to prevent a credit squeeze as European banks shrink their balance sheets to meet tougher capital ratios by June.

[Daniel_Plainview]

Portugal to need "debt haircut" as economy tips into Grecian downward spiral
Portugal's borrowing costs have jumped to record highs and are tracking the moves seen in the culminating phase of Greece's debt crisis, dashing hopes that the country will be able to stave off contagion by embracing drastic austerity.

Yields on Portugal's 10-year bonds climbed to 14.39pc on Thursday. Credit default swaps measuring bond risk have reached 1270 points, pricing a two-thirds chance of default over the next five years. While some of the latest damage reflects forced selling of Portuguese debt after Standard & Poor's cut the country's credit rating to junk status last Friday, there are deeper worries that sharp fiscal cuts by the free-market government of Pedro Passos Coelho may prove self-defeating.

Mr Passos Coelho has been praised by EU leaders and the International Monetary Fund for delivering on austerity, but the risk is that severe tightening - without offsetting monetary and exchange stimulus - will push Portugal into the same downward spiral that has already engulfed Greece.

Jurgen Michels, Europe economist at Citigroup, said Portugal's economy will contract by a further 5.8% this year and by 3.7% in 2013, a far sharper decline than official forecasts. The peak-to-trough collapse would be 13pc, a full-fledged depression. "As this gets worse it is going to be extremely difficult to go ahead with more austerity measures: political contagion will start to come through," he said.

Portugal has so far reacted calmly. It has avoided the sorts of riots seen in Greece, but patience is wearing thin. The CGTP labour federation held a protest march in Lisbon this week, vowing to resist "forced labour".

A new study by the Barometer for Democracy shows that confidence in Portugal's democracy has fallen to the lowest since the end of the Salazar dictatorship. Barely more than half retain faith in the system and 15pc pine for "authoritarian" rule.

While Portugal's public debt of 113pc of GDP is lower than Greece's, the private sector has much larger debts and the country's total debt-load is higher at 360pc of GDP - much of it external debt.

"There is huge private sector deleveraging going on and the banking system has big problems. It is unclear how much of this private debt is going to end up on the state's door-step," said Mr Michels.

"Without a sizeable haircut to its debt stock, Portugal will not be able to move into a viable fiscal path. We expect a haircut of 35pc at the end of 2012 or in 2013."

Portugal's Treasury faces modest debt repayment of €17bn this year. There is no imminent crisis since Lisbon is already under an EU-ECB-IMF Troika regime as part of its €78bn rescue and does not need to access markets until 2013.

The problem is the slow-burn threat of debt-deflation. Interest costs for Portuguese companies are painfully high - if they can roll over loans at all - and the debt burden is rising on a shrinking economic base. Real M1 money deposits contracted at an annual rate near 20pc in the second half of 2011. ...

[SeaGypsy]

I know there is no easy reset button, but Daniel I would like to ask if you have worked out how much of a blow to the guts would EU/ Brit banks take were a fully honest audit done?

[Daniel_Plainview]

I know there is no easy reset button, but Daniel I would like to ask if you have worked out how much of a blow to the guts would EU/ Brit banks take were a fully honest audit done?

If there were a full-blown audit, where all fantasy accounting was removed, and all assets were marked down to their net realizable value, including appropriate reserves for questionable debt, etc., then I would venture that most of the large Euro banks would take a hit of 20%-25%, or more. Given that they're leveraged 25:1, that would decimate all but the most durable banks.

In that sense, the only glue holding the fragile house-of-cards together is: (1) dishonest, fantasy accounting; and (2) free, hot money from the central banks.

In the good old days, countries could hope that GDP growth would save them ... but now with contracting GDP on a massive scale, the house-of-cards will be tested unlike at any other time in history.

If this contracting GDP spreads and becomes a permanent trend, then it's game over.

[Plantagenet]

In the good old days, countries could hope that GDP growth would save them ... but now with contracting GDP on a massive scale, the house-of-cards will be tested unlike at any other time in history.

If this contracting GDP spreads and becomes a permanent trend, then it's game over.

As oil production falls off the plateau in the next few years and then starts dropping, oil prices will continue to rise and GDP will continue to fall.

Its game over now.

[dolanbaker]

http://www.thejournal.ie/greek-debt-tal ... /#comments
TALKS BETWEEN THE Greek government and private creditors aimed at lightening the country’s debt load have been suspended unexpectedly, and the creditors’ representative has left the country.

Prime Minister Lucas Papademos, along with Finance Minister Evangelos Venizelos, had met with private creditors’ representative Charles Dallara, managing director of the Institute of International Finance, for over four hours Friday, with the talks continuing past midnight.

But the Greek government said the talks – which had been expected to continue today – have now been suspended. A spokesman for Papademos said no new date for the talks has been set.

Another sign of "GAME OVER"!

[eXpat]

No other way around it...
Greek Economy on Track to Implode: Hanke

Whether or not Greece is able to reach an agreement on the restructuring of its debt, the country is set to “implode” as the economy contracts, according to Johns Hopkins University’s Steve Hanke.

“The game is completely over,” Hanke, professor of applied economics, said at the Bloomberg Sovereign Debt Crisis Conference in New York hosted by Bloomberg Link. “All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run.”

Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won’t be growth needed to support debt payments, Hanke said. Greece is pursuing talks on a debt swap with private creditors that would lower Greece’s debt to 120 percent of gross domestic product by 2020. European governments have sought to fill a deeper-than-expected gap in Greece’s finances by having investors accept a lower interest rate on exchanged bonds.

The International Monetary Fund cut its forecast for global growth today and warned that the European debt crisis threatens to derail the world economy. The fund, in an update of its World Economic Outlook report, lowered its estimate for global growth this year to 3.3 percent from a September forecast of 4 percent.
Regional Bailouts

To avoid a 1930s-style worldwide depression, IMF Fund Managing Director Christine Lagarde yesterday called on other countries to play their part. The IMF, which co-finances loans to Greece, Ireland and Portugal, identified a potential global financing need of $1 trillion in coming years and is seeking $500 billion in new lending resources from its member countries to address potential loan demand.

http://www.bloomberg.com/news/2012-01-24/greek-economy-on-track-to-implode-hanke.html

[Daniel_Plainview]

“The game is completely over. All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run.”

plus

Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won’t be growth needed to support debt payments.

equals

[dolanbaker]

“The game is completely over. All the calculations are nonsense and have been since day one. Since the crisis began the money supply has been shrinking and the economy is going to implode, no matter what they do in the short run.”

plus

Money supply is shrinking at an annual rate of about 16 percent in Greece, meaning there won’t be growth needed to support debt payments.

equals

Hopefully only the parasitic (shadow banking, etc) elements will collapse, freeing the real economy to continue operating at a lower "state" of activity.

[Daniel_Plainview]

Unemployment to soar as UK heads back into recession
Unemployment is set to soar again as businesses start cutting jobs alongside public sector retrenchment as the country heads back into recession.

Research by the Bank of England found that companies in Britain’s dominant services sector, which accounts for three quarters of the economy, are planning to reduce headcount.

“Having already pared back non-labour costs as much as possible during the recession, many business services contacts now felt that they would be forced to reduce staff numbers,” the report said.

Bankers, lawyers, accountants, retailers and hauliers are all expected to be caught up in the “shakeout”. Even manufacturers, which have been enjoying strong growth, have “reported that they were taking a pause from further recruitment, in light of heightened uncertainty about the outlook and a slowing in orders”.

The warning came after official figures confirmed that the economy has begun to contract again at a faster rate than expected, raising the prospect of a lurch back into recession.

The economy shrank 0.2pc in the final three months of 2011, figures from the Office for National Statistics (ONS) show, as the manufacturing sector slumped back into decline. Economists, including those at the Treasury’s independent forecaster the Office for Budget Responsiblity, had expected a decline of just 0.1pc.

Cont'd

[Daniel_Plainview]

UK heading for first double-dip recession since 1975
Britain is heading for its first double-dip recession in 37 years after the economy slumped in the final quarter of 2011 and officials warned of a new threat to jobs.

... UK Unemployment is already at a 17-year high of 2.68m, or 8.4pc.

Confirmation that the British economy is shrinking for the first time since the weather-affected 0.5pc contraction in the final quarter of 2010 sparked a rash of warnings of a second recession.

George Buckley, UK chief economist at Deutsche Bank, noted that a double-dip would be the first since 1975.

He added that the UK is facing seven lost years, with the economy still 3.8pc below its early 2008 peak and the recovery on course to be the slowest in over a century.

He said: "If the recovery continued at this pace, then it would take until the end of 2014 before GDP reached its peak again."

Shadow Chancellor Ed Balls said the collapse in growth was "a damning indictment of George Osborne's failed economic plan".

Mr Osborne refused to budge on austerity, though, blaming the eurozone.

"These are disappointing figures but they are not entirely unexpected," he said. "We have got the right plan, we have got to stick to it but we have got to accept that Britain's problems have been made worse by the situation in the eurozone."

While the Treasury intends to stick to its guns, the Bank indicated it is planning more quantitative easing (QE) next month. Minutes from the Bank's rate setting meeting said: "For some members, the risks of undershooting the [inflation] target meant that a further expansion of asset purchases was likely to be required."

The Bank has already injected £275bn into the economy through QE. Economists expect another £50bn to £75bn in a fortnight's time.

According to the ONS, manufacturers bore the brunt of the quarterly slump, declining 0.9pc – the steepest fall since the start of the recession in 2008.

However, some hope was offered by an improvement in the CBI industrial trends survey for January. Although orders remained below normal, economists said the data suggested the deterioration in the industrial sector had "troughed".

Comments:

Double dip recession. Economists really are brainless. This is a permanent second great depression but I am sure they will all argue otherwise. The same economists who thought boom and bust had been solved.

Double dip??? This is a Depression and It started in 2008.

Things will get alot worse than many care to imagine. Keep buying your Physical Gold/Silver

The UK has been in real recession for several years. Only that the money printing hides the true state of the economy.

For "double" read "multiple". For "recession" read "depression".

Face it - the western economies are finished. The jobs are gone - and not coming back. ... Once the printing stops, the dust will settle. ... Prepare for a VERY reduced standard of living in the coming years.

And it will be PERMANENT.

I completely agree with you. We are not in crisis, it is not single dip or double dip we are in a system failure. Politicians and financial leaders simply do not dare to say it because they only care about reelection. Unfortunately they are just hiding their heads into the sand.

There is no visionary leader today who would respect the public enough to start discussing the facts about the global world, how we are all interconnected and how much we all depend on each other.

We need true information which is widely available, explaining that we need to go back to a necessity and resource based lifestyle in order to build a sustainable future. If the public received this information in an open transparent manner they would accept the measures and changes. But since nobody dares to be honest we are heading for deeper crisis until we exhaust everything. ... It is time to understand where we are and plan for the long term rather than base everything on selfish, short term calculations.

We are in a depression and it will get much,much worse. There is so much debt that it is choking the world and there is no way out. ... Millions of people will never have any meaningful employment, there are too many people and, due to a combination of technological advancement and outsourcing of jobs to lower cost economies.....this will only get worse.

Fresh crisis? It's the same crisis. No double dip recession here. Just the same ongoing recession with fudged numbers and increasing debt to keep the music playing and the players on the dance floor. Last one out to turn off the lights please...

Of course the economy would grow if you keep piling on debt - that's how it's grown for the past 3 decades!!! But all good things must come to an end. You can keep piling on debt until nobody will lend to you...

Or you can try to cut back. Unfortunately the austerity will not work. It is too late for that...and the timing is not right. You do NOT cut back in the middle of a global financial disaster.

Anyway all moot - a Depression is baked in for next year latest

[Daniel_Plainview]

Portugal 10 Year Yield Passes 15% For The First Time, Is Where Greek 10 Year Was In August

As the world awaits resolution out of Greece and the debt exchange offer which even if passed today would have to cram 6 months of actual work into 54 days, the global bond vigilantes are not sticking around, and continue to attack the next weakest link - Portugal, whose 10 Year bonds just passed 15% in yield, and were trading well below 50 cents of par with CDS hitting a new record of 1350 bps. Naturally this has brought out the ECB's crack bond buying team (only at a central bank does a "trader" need only know how to buy, selling skills are optional) which tried to put the genie back in the bottle but now it is too late. After all, vigilantes are just wondering what form the Portuguese restructuring will take place considering that unlike Greece the bulk of its bonds have strong protections. So if one does use Greece as a benchmark how long does Portugal have? As the third chart shows, the last time 10 year GGBs passed 15% was back in August. So Portugal has 6 months. Give or take.

[Daniel_Plainview]

Investors fear mounting losses in Portugal as second rescue looms
Portugal is fighting a losing battle to contain its public debt and may be forced to impose haircuts of up to 50pc on private creditors, according to a top German institute.

A report for the Kiel Institute for the World Economy said Portugal would have to run a primary budget surplus of over 11pc of GDP a year to prevent debt dynamics spiralling out of control, even in a benign scenario of 2pc annual growth.

"Portugal's debt is unsustainable. That is the only possible conclusion," said David Bencek, the co-author, warning that no country can achieve a primary budget surplus above 5pc for long.

"We won't know what the trigger will be but once there is a decision on Greece people are going to start looking closely and realise that Portugal is the same position as Greece was a year ago."

Yields on Portugal's five-year bonds surged on Thursday to a record 18.9pc, reflecting fears that the country will need a second rescue from the EU-ECB-IMF Troika. Three-year yields hit 21pc.

... As Portugal nears the brink, a chorus of voices exhorted Europe to stop bickering over ideology and grasp the nettle at long last. "It is necessary to bring out the bazooka immediately, before the gunpowder gets wet," said Mexican president Felipe Calderon.

Mr Calderon said the G20 bloc will have to chip in to ensure that the crisis does not engulf Italy and Spain. "The failure of a containment strategy will mean not only the potential implosion of the euro, but an economic crisis with devastating consequences for the rest of the world. This is a task for all of us in the G-20," he said.

cont'd

[dorlomin]

Fears of an emerging credit crunch in the eurozone increased on Friday as data showed a sharp slowdown in bank lending to the private sector, despite recent unprecedented injections of liquidity.

The European Central Bank calculated in regular monthly data that growth in loans to the private sector slowed substantially to just 1.0 percent in December from 1.7 percent in November.

Last month, in a series of special liquidity measures precisely to avert a credit crunch in the 17 countries that share the euro, the ECB launched its longest-ever liquidity operations, lending eurozone banks as much as they wanted for a period of three years at super-cheap rates.

Link

[Daniel_Plainview]

Fears of an emerging credit crunch in the eurozone increased on Friday as data showed a sharp slowdown in bank lending to the private sector, despite recent unprecedented injections of liquidity. ... Last month, in a series of special liquidity measures precisely to avert a credit crunch in the 17 countries that share the euro, the ECB launched its longest-ever liquidity operations, lending eurozone banks as much as they wanted for a period of three years at super-cheap rates.

This is an extraordinarily important statement ... and it summarizes one of the primary driving forces for the ensuing and inevitable ENDGAME ...

The bottom line is that you can't magically create growth, and you can't magically eradicate debt; anyone who believes otherwise is destined to live in a world of unicorns and fairy dust.



Whenever inefficient central planning usurps efficient private enterprise, very bad things happen. If you don't believe me, just read the headlines.

[dolanbaker]

The bottom line is that you can't magically create growth, and you can't magically eradicate debt; anyone who believes otherwise is destined to live in a world of unicorns and fairy dust.

Well you could if the printed money was given to the working population who could pay down personal debt instead of the banksters. But the chances of that happening is up there with the fairies!

As for real growth, that really is in cloud cuckoo land.