Wednesday, December 21, 2011

Today's links

1--The ECB now wants export-driven growth for the whole of Europe, not just for Germany, credit writedowns

Excerpt: One claimed objective of the single currency area in Europe is (or should I say was?) to create a large single market for producers. But now the ECB is pressing national governments to gear their policies to enhance competitiveness so that they can “count on external demand” and increase their net exports!

 Mario Draghi, President of the ECB, and a key figure in the team now managing the European crisis, made this statement while responding to an Italian journalist, in the Q&A session of the ECB press conference of 8 December 2011....

The other way of easing the impact of fiscal restrictions is, for Draghi, that “if you enhance the competitiveness, you can actually count on your external demand, on your net exports” (ECB press conference from 35′40” to 36′20”).

Does he really intend to make European growth depending on (or should I say at the mercy of) high levels of aggregate demand abroad? Does he not see that this means that Europeans will net export their standard of living by giving away goods and services in exchange for credits abroad? It is of course a matter of accounting logic that nations that net export will find it easier to keep their fiscal deficit lower, so perhaps Draghi is telling us that the myth of a balanced budget should rule all European policies, and Europe will do anything it takes to achieve “fiscal discipline”? Even if this means stagnation?

Or perhaps Draghi is a true genius, and he is subliminally trying to show us how absurd are the consequences of the current mandate of the ECB and of fiscal rules?

2--Eurozone to push on with crisis steps, Fitch doubts outcome, Reuters

Excerpt: The euro zone will pursue measures to tackle its sovereign debt crisis this week by offering more cash to the IMF and long-term liquidity to banks, while moving towards tighter fiscal rules, after ratings agency Fitch cast doubt on it ability to forge a decisive response....

Euro zone leaders agreed on December 9 to write into national constitutions a rule that budgets have to be balanced or in surplus in structural terms. If they are not, automatic corrective measures would follow.
Such rules would sharply limit government borrowing, bring down debt and, euro zone politicians hope, help restore market trust in the sustainability of public finances.

But constitutional changes will take a year or more and markets want reassurance now that money invested in euro zone debt is safe, especially after banks were asked to accept a 50 percent loss on their Greek bonds in October as part of a second bailout of the country which sparked the debt crisis....

"Virtually all aspects of the deal appear to be being pulled and picked apart, from the degree of fiscal integration, the amount of firepower available for the bailout funds, and even to the support pledged to the IMF," the bank said.

"As a result the emphasis is likely to fall even more heavily on the ECB to keep the Eurozone system functioning."

The ECB, which is forbidden by EU law from directly financing government deficits, welcomed the December 9 agreement on more fiscal discipline in the euro zone, but doused expectations it would ramp up sovereign debt buying in return....

Euro zone policymakers said ECB's role in the crisis was impossible to communicate clearly because of legal and political constraints. But they said the bank would not, in the end, allow the crisis to threaten the survival of the currency bloc.

A declaration from the ECB that it would buy unlimited amounts of euro zone bonds for as long was necessary would immediately calm markets, but would probably be illegal under EU law and would ease pressure on politicians to reform their economies.

"The ECB simply can't and won't say that, and it's very unreasonable to even expect it," one euro zone official said.

Instead, the bank was likely to keep quietly buying enough Spanish and Italian bonds to keep both countires on the market but with financing costs sufficiently high to pressure their lawmakers to quickly accept tough reforms.....
Instead of unlimited bond buying, the ECB will offer banks this week an opportunity to borrow money for three years for the first time, extending the current one year maximum ceiling for refinancing.

France hopes banks will use the money to buy euro zone bonds, and ease the upward pressure on yields, but Italy's Unicredit bank said last week this "wouldn't be logical" for banks under pressure to reduce risk and rebuild capital.

3--Beyond Borders: Europeans Stash Money Elsewhere, WSJ

Excerpt: Southern European investors, fearful of the health of their banks and the future of the euro, are increasingly stashing their wealth in currencies, real estate and investment products outside the euro zone, say bankers and government officials.

In a troubling sign for European banks, investors in Greece, Portugal and Italy are asking bankers and lawyers for ways to protect their money in the case of a failure of euro-zone banks or a breakup of the euro itself. Some are converting deposits into currencies such as the Swiss franc. Others are buying real estate outside the monetary union, such as in London, or setting up trusts to hold their wealth in jurisdictions as distant as Singapore or the Bahamas, say bankers and lawyers.

the capital flight is likely to continue and could intensify, say experts. "Clients such as white-collar professionals and business owners see a risk in the Italian banking system," says Andrea Cingoli, chief executive of Banca Esperia, a Milan private bank with €13.5 billion ($17.6 billion) under management. "As a result, they are looking at their options overseas."

With the exception of Greece, the amounts still are relatively small, but the risk of a bigger exodus remains high. "Are we going to see significant outflows of money from these countries? Not yet," says Marcello Zanardo, a London-based analyst with Sanford Bernstein. "But the line is very thin and the atmosphere is tense."...
Bankers say Italians are converting their euros into Swiss francs and depositing them in Switzerland for safekeeping. Safe-deposit boxes are virtually sold out. Others are buying gold; Ticino gold retailer Pro Aurum has seen a surge in sales of gold bars over the past six months.

Some are considering more radical options. Paolo Gaeta, a Naples-based lawyer specializing in trusts, has been busy helping clients deposit their wealth in new trusts established in Singapore, the Bahamas and the island of Jersey in the English Channel. "We are being bombarded by clients," he says....

Elsewhere, capital flight from Greece is intensifying. Since the start of Greece's debt crisis in late 2009, Greeks have pulled more than €60 billion of cash—about a quarter of total deposits—from their banks. Between September and early November, those outflows totaled nearly €14 billion, representing two of the worst months for deposit outflows since the start of the crisis.

4--Workers of Europe unite, you've only euro chains to lose, Telegraph

Excerpt: Europe's Left has suffered a calamitous six months. Socialist governments have met historic defeats in Portugal and Spain. Greece’s Pasok party was toppled by an EU technocrat Putsch. Ireland’s soft-Left Fianna Foil lost every seat in Dublin.

Almost 97pc of the European Union’s population is now governed by conservative or Right-leaning coalitions, or EU-imposed mandarins. All that is left to social democrats is Austria (8.4m), Denmark (5.5m), and Slovenia (2.1m).

The whole machinery of the European Union (EU) system is under the control of the Right, with variants of Rhenish corporatism in the Council, and pre-modern Hayekians at the European Central Bank (ECB). Whether you regard this Hegelian ascendancy as good or bad, it certainly has profound consequences.
For just as former Prime Minister Margaret Thatcher protested at Bruges that “we have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level”, the Left might equally protest that they have not fought the long, hard struggle for worker rights in their own democracies to see social welfare rolled back by Brussels and Frankfurt....

The consequences of this Rhenish Right ascendancy in EU institutions – not the same as Anglo-Saxon or Burkean “small platoon” conservatism, by the way – was in evidence at the Merkozy summit in Brussels. As the BBC’s Paul Mason put it, the deal has “outlawed expansionary fiscal policy” by enshrining near-zero structural deficits in international law, with constitutional debt brakes, mandatory sanctions and budget commissars for delinquent nations.

The 26 states that went along with this Merkel plan have given up the right to pursue counter-cyclical Keynesian stimulus, and have agreed to do so in perpetuity since it is almost impossible to repeal EU “Acquis”....

Note the outburst last week by Pedro Nuno Santos, socialist vice-president in Portugal’s Assembleia. “We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won’t pay. Debt is our only weapon and we must use it to impose better conditions. We should make the legs of the German bankers tremble,” he said.

The sacrosanct 40-hour week is being stretched to 42 hours in Portugal. Manuel Carvalho da Silva, head of the General Confederation of Portuguese Workers, said pay-cuts for public workers under successive austerity packages will amount to 27pc.

This is an “internal devaluation” of epic proportions...

The question for today’s Left is whether it is in their interests to keep apologising for an EU monetary regime that has pushed the jobless rate for youth to 49pc in Spain, 45pc in Greece, 30pc in Portugal and Ireland, 29pc in Italy and 24pc in France – yet 8.9pc in undervalued Germany – and that offers no credible way out of the slump for the Southern half.

Comrades across Europe, come over to the eurosceptic side. You have only your euro chains to lose.

5--Why the euro turkey is well and truly stuffed, Telegraph

Excerpt: Confounded by the triumph of remorseless debt over political will, EU leaders have succumbed to collective delirium, promising that future government budgets will be “balanced or in surplus” and that annual structural deficits will “not exceed 0.5 per cent of nominal gross domestic product”.

There is not one chance in a million that this can be achieved by more than a handful of EU states. When fantasy masquerades as action, the end is nigh....

Nouriel Roubini, professor of economics at New York University, sees it differently: “Papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings; addressing weak competitiveness and current-account imbalances requires currency adjustments that may eventually lead some members to exit the eurozone.”

6--European workers face austerity and dictatorship, WSWS

Excerpt: Little has been said about the implications of the measures agreed at last week’s European Union (EU) summit for the working class. The media focused almost exclusively on Prime Minister David Cameron’s wielding of Britain’s veto.

This virtual silence on the implications of the inter-governmental treaty now being drawn up underscores the contempt of Europe’s media and ruling elite for working people. The treaty measures presage a massive destruction of jobs, living standards and social services on which millions depend, as all of Europe is transformed into one giant austerity zone.

The treaty has been described as a plan for “slave states” inside the euro zone. More accurately, it is the blueprint for enslaving Europe’s workers, who are to be reduced to little more than indentured labour for the international financial oligarchy represented by the European Central Bank and the International Monetary Fund.
The legal framework is to be created to enforce “fiscal discipline” in every country, with the European Commission and the European Court of Justice empowered to control national budgets. “Labour market reforms” will be constitutionally enshrined to overturn workers’ rights, extend working hours, and slash pay, pensions and other entitlements. This is to be backed up with automatic sanctions—including stripping states that fail to comply of EU voting rights and even potentially expelling them from the euro zone....

The ruling elites know that such measures cannot be implemented democratically. Already they have engineered political coups in Greece and Italy, installing “technocratic” administrations led by bankers. Backed by all the major bourgeois parties, these governments incorporate the most reactionary forces, including, in Greece, the neo-fascist LAOS party. A key preoccupation of the EU summit was to find quasi-legal mechanisms to enact its fiscal measures without triggering constitutional requirements for referendums in some countries.

Britain was no less adamant than the other 26-member states that workers cannot be allowed any say on the policies being drawn up against them. The European ruling class is united in utilising the economic crisis as an opportunity to destroy hard-won social and democratic rights to make European capital more competitive against its Asian and American rivals....

The recent summit has exposed the EU as an instrument of European finance capital to jointly impose unprecedented attacks on the European working class—with or without the consent of the reactionary Cameron government.

The response of the working class must be: down with the European Union and down with the banks, for a united movement of the entire European working class against austerity and dictatorship!

Workers can place no confidence in the perspective, advanced by various national trade union bureaucracies and their petty-bourgeois “left” appendages, of brief national protest strikes called to pressure individual national governments. Workers across Europe stand on the eve of explosive class struggles and a revolutionary confrontation with the bourgeoisie, which will use the most desperate measures to retain power.

7--Romer on Financial Crises: Getting Argentina Wrong, CEPR

Excerpt: It is amazing how frequently people seem to ignore the data when they discuss the financial crisis in Argentina. In a generally solid column on financial crises and their aftermath in today's paper, Christina Romer tells readers that it took Argentina 8 years to recover its pre-crisis level of per capita GDP following its 2001 financial crisis.

This is clearly not true, if the reference is to the 2001 crisis. According to the IMF's data, real per capital GDP in Argentina exceeded its 2001 level in 2004. Argentina actually first sank into recession in 1998. Its per capita GDP did not exceed the 1998 level until 2006. This would be 8 years, however the reference then should not to the 2001 financial crisis, but the longer period of decline that preceded the financial crisis.

8--Will China Break?, Paul Krugman, NY Times

Excerpt: Consider the following picture: Recent growth has relied on a huge construction boom fueled by surging real estate prices, and exhibiting all the classic signs of a bubble. There was rapid growth in credit — with much of that growth taking place not through traditional banking but rather through unregulated “shadow banking” neither subject to government supervision nor backed by government guarantees. Now the bubble is bursting — and there are real reasons to fear financial and economic crisis.

Am I describing Japan at the end of the 1980s? Or am I describing America in 2007? I could be. But right now I’m talking about China, which is emerging as another danger spot in a world economy that really, really doesn’t need this right now. ...

The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth. At this point consumer spending is only about 35 percent of G.D.P., about half the level in the United States.

So who’s buying the goods and services China produces? Part of the answer is, well, us:... China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P.

The obvious question is, with consumer demand relatively weak, what motivated all that investment? And the answer, to an important extent, is that it depended on an ever-inflating real estate bubble. ...

And there was another parallel with U.S. experience: as credit boomed, much of it came not from banks but from an unsupervised, unprotected shadow banking system..: in China as in America a few years ago, the financial system may be much more vulnerable than data on conventional banking reveal.
Now the bubble is visibly bursting. How much damage will it do to the Chinese economy — and the world? ...

9--Super Mario believes in the confidence fairy, Ft Alphaville

Excerpt: (ECB chief Mario Draghi) There’s no trade-off between fiscal austerity, and growth and competitiveness. I would not dispute that fiscal consolidation leads to a contraction in the short run, but then you have to ask yourself: what can you do to mitigate this?

Improvement in budgetary positions should elicit some positive market response, lower spreads and lower cost of credit. But two further conditions have to be satisfied: Implementation at national level of the structural reforms needed to enhance growth and jobs creation. And finally, it is necessary to have the right euro area design, implementing the fiscal compact, so that the confidence is fully restored. Austerity by one single country and nothing else is not enough to regain confidence of the markets – as we are seeing today.

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