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Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.

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Obama to unveil $3.77tn budget

Yesterday…Slovenia‘s new Prime Minister Alenka Bratusek said the country didn’t require any help to deal with its banking crisis that the OECD seems to consider as serious but not urgent. Many Slovenian banks are already owned by the state; the OECD has recommended stress tests and the potential recapitalization or closure of failing institutions, but Bratusek is having none of it, saying the bad bank that will be set up until early summer will be able to take the toxic assets. read article

This morning…
EU is considering extending the bailout programs for Ireland and Portugal. According to Reuters, where this story came from, this will be discussed at the Eurogroup meeting on Friday.

To make everything worse, the ECB’s [first ever] Household Finance and Consumption Survey found that the average Cypriot is richer than the average German (by median net wealth). Even though the classic North-South divide re-appears in the median gross income figures, that won’t go down too well. read article

China reported its first trade deficit in over a year for March 2013, again it could be another hangover from the Lunar New Year holiday, leading to increased imports, while exports grew less. read article

Meanwhile in the US, President Obama will unveil a $3.77tn budget plan at 11am EST today, when he will speak from the White House. read article

So long.

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Portugal is this week’s Cyprus

Over the weekend…the collective attention was brought back to Portugal, where the country’s highest court ruled that spending cuts in public sector salaries as well as state pensions were unconstitutional. Sounds like a bit like something Greece would do. Needless to say those cuts weren’t just for fun and games, but indeed to keep Portugal out of the EU’s dog house and on track for its €78bn bailout package.

Luxembourg‘s Finance Minister Luc Frieden said that the country would stop opposing the sharing of banking data within the EU, going along with the trend of increasing transparency in [former?] tax havens. read article

This morning…
there is the weakening JPY reacting to Tokyo’s new harder better faster stronger QE measures that will increase monthly asset purchases to JPY7.5tn. In fact, then yen hasn’t been this weak since May 2009. read article

While Japan’s 2% inflation target until 2015 seems a bit fishy to some [most recently China], following the above, Christine Lagarde of the IMF is a big fan. According to her, it will improve global demand, and the inertial upswing in the US economy was proof enough of that. read article

As for the rest of the week, the Fed’s Open Market Committee is meeting on Wednesday, continuing the discussion regarding when and how America’s money tap can be turned off. Otherwise, there will be industrial and trade data from China and various European countries, as well as a review of bailout programs in Portugal and Ireland. in other words, Portugal is this week’s Cyprus.

Have a good week.

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Eurozone stuck in recession until 2014 (except for Germany, because they think positive)

It’s a Europe-centric Friday, with breaking news of poor performance all around Europe’s economies – we know, thanks for pointing it out again.

The Commission revised its growth expectation for the year, saying the eurozone’s economy will contract by 0.3% in 2013. Bye bye, 0.1% growth. Bye bye, post-recession world. It will be accompanied by an unemployment rate of 12.2% and inflation of 1.8%. At least there will be room for rate cuts. read article

In Spain, the budget deficit increased to 10.2% due to aid costs for the banking sector. The bailout package for Bankia alone added 3.2 percentage points to that. Incidentally, Bankia, which is reporting 2012 earnings next week, will report annual net losses worth €19bn+, the largest loss in Spanish corporate history. read article

The German Ifo business climate index came in higher than expected, because Germany is vehemently following its optimism strategy that includes ignoring any data or reality.

In good news, the ECB recorded a €1.1bn profit from interest payments on a €208bn debt portfolio of PIIGS bonds. Over the last year, income from sovereign bonds even amounted to €14bn. read article

Meanwhile, US consumer confidence is being rocked by rising prices on gas, which climbed 15% up to $3.75 per gallon last week. Car owners in Europe are weeping and cycle to the US embassy to apply for visas. read article

Over the weekend, we’ll see Italy’s general elections (24-25 Feb), aka the Silvio Berlusconi show. In case of a hung parliament, the election limbo would continue for months, and Italy would be stuck with a caretaker government that doesn’t want to implement policies. read article

Weekend reading:

– horsemeat economics, read article

– and then ‘cyberwarfare‘ became a thing, read article

– rethinking drug policiesread article

– in case you’ve read the Bloomberg editorial on $83bn annual bank subsidies, here’s a discussion of it read article

Have a good one.

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Budget time in Europe; US DoJ investigates Moody’s and Fitch

It’s budget time again in the land they call Europe and the usual suspects pulled an all-nighter in Brussels yesterday, trying to come up with a convincing plan, covering 2014-2020. For the first time in its existence, the budget has actually been reduced. In some last minute action, yet another €12bn were slashed last night. With €960bn on paper now, €33bn less than the current budget measures and down from €1.047tn initially suggested, the plan has to be approved by all 27 EU member states. read article

Over in the US, the Department of Justice has looked [an inch] beyond the obvious and is now considering legal action against Moody’s. The matter at hand concerns defrauding investors. At this point, however, the investigation is in its infancy, as too many resources are devoted to the S&P case. According to WSJ, New York’s Attorney General Eric Schneiderman, sworn enemy of what’s left in the post-Lehman world, has also requested insights into Fitch‘s business.

In other news, China reported some positive trade data, with exports rising 25% and and imports rising 28.8% compared to next year, suggesting that the rest of the world has, in fact, not totally collapsed yet. Although…

Futures were delighted by the data, until someone pointed out that January 2013 had some five more working days than 2012 due to the calendar shift of the Chinese new year, and that adjusted for this effect exports were a far more modest 12.5% while imports rose only 3.4%. 

Following yesterday’s news from the European Central Bank, the FT has more details on the Irish debt deal, including the refinancing of €28bn of promissory notes. Meanwhile, Gavyn Davis gives a critical analysis of the ECB’s policy choices. The aftermath for Carney‘s parliamentary presentation can be found here.

And finally, Boeing is struggling with the “exploding battery fiasco”, seeing its orders collapse to only 2 from 150 a year ago this January. read article

Weekend reading:

– Michael Lewis‘ review of Greg Smith’s “Why I left Goldman Sachs“, read article

– Iceland‘s recovery, read article

– Too fast to fail, high-frequency trading and financial collapse read article

– Michael Bloombergmayor of London?, read article

Have a good one.

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Central bank center stage: light winds from Canada

Today’s agenda is full, with the ECB press conference this afternoon, future Bank of England governor Mark Carney being quizzed in the UK parliament and the aftermath of the sudden overnight re-ignition of the rate-fixing scandal(s).

Starting with the latter, the Libor investigation has led to fines all around already, but now it uncovered the unfortunate wordings of some RBS traders (to be read here). FYI, I like both steak and sushi. Meanwhile, Japanese banks, as well as RBS’ Tokyo division, have been accused of manipulating Tibor, the Tokyo Interbank Offered Rate, which they have done, of course, because why would something like this be contained in London. On the continent, the investigation of Deutsche Bank’s Euribor fixing is progressing and has led to the suspension of five traders in Frankfurt. More fun to come.

While all that is happening, Mark Carney, former governor of Canada’s central bank and incoming governor of the Bank of England, is facing the Treasury Select Committee. Prior to the session, George Osborne declared how upset he is about the UK’s monetary policy, asking for more easing to stimulate growth. All questions are really just trying to get to the point of one thing: what’s going to change now? We already know about his nominal GDP-targeting idea, but what else? He stressed the importance of flexibility in meeting inflation targets again and gave the current BoE regime his support, praising its “entirely possible, in fact probable” positive impact on the economy. read article.

As for the ECB, Mario Draghi will hold a press conference at 1.30pm London time. Presumably on the agenda are the LTRO repayments, the euro and the latest ECB Bank Lending Survey, which indicated tighter lending conditions due to bank’s capital requirements. Maybe, Draghi will comment on Ireland’s debt burden, which the ECB reportedly eased.

Meanwhile, the People’s Bank of China noted the increased inflation risks due to QE exercised by the US and Japan, which “may push up commodity prices and make global capital flows more volatile.” China reports its January inflation rate tomorrow; it is expected to come in at 2%, as opposed to 2.5% in December.

In other news, India lowered its growth forecast from 5.5% (prior to last week at 5.8%) to 5% and Cathay Pacific decided to up the value of its cargo, switching from e.g. apparel to transporting diamonds and pharmaceuticals to boost revenues. Also, the EU-leaders summit kicked off in Brussels today.

So long.

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Return to the headlines, Iceland and Ireland don’t want to pay

Like the ghost from Christmas past, Iceland and Ireland are making headlines again, both on the topic of not repaying their debts. Iceland, which held a referendum concerning the repayment of bailout debt to the UK and the Netherlands in 2010, has been relieved from the remaining £2bn outstanding to the British government. The reasoning of the EFTA (European Free Trade Association) court? They’ve learned their lesson. Meanwhile in Ireland, the ECB rejected a debt relief proposal regarding the €30bn EU-IMF bailout of Anglo Irish Bank. At present, Ireland has to repay €3.1bn per year, ending in 2023. read article

Another potential problem looming for Irish banks is the next round of stress tests, set for this autumn. With the domestic economy still shrinking and mortgage arrears much higher than anyone expected, the banks may require additional capital.

The investigation into batteries used in Boeing’s Dreamliner took pressure off of manufacturer GS Yuasa, shifting the attention to the battery monitoring unit, produced by Kanto Aircraft Instrument. The Dreamliner fleet has been grounded since January 17. All Nippon Airways has cancelled 459 flights until January 31 so far. Until about five years ago, Japanese airlines used Boeing jets almost exclusively. Deregulation opened the market to Airbus, which seems to be winning more ground as the Dreamliners stay on the ground. read article

In other news, Queen Beatrix of the Netherlands is abdicating in April, leaving the throne to her son Prince Willem Alexander, Sarah Palin was paid almost $16 per word as a commentator on Fox News and the German governing coalition has agreed to hold the national elections on September 22.

Also, as opposed to what you might have gathered in some of today’s headlines, France’ Labor Minister did NOT say France was bankrupt, he was merely mocking the past government’s take on the country’s finances. 

Finally, a post-mortem of the Davos ‘thank god we got over this crisis’ meetingread article

So long.

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Remember when the Greek elections didn’t achieve anything?

(note: the headline regards the eurocrisis and not Greece by itself)

It’s funny how the lead up to some event is drenched in anticipation from virtually the entire world, but when it occurs the reaction is so unimpressive. In other words, Antonis Samaras can build a coalition on all he wants, all eyes are back on Spain [and Italy] and they were already yesterday.

So let’s go back to Spain. Yesterday, its bond yields exploded and stayed above 7%, and today, its short term borrowing costs (12-18 months) hit the highest levels since 1997. But that’s not all. The bad loans on the books of the country’s banks have reached the highest level in 10 years as well – 10 years ago, when the euro was introduced to make everything better…

ING said Spain would need another €250bn to get anywhere with its bank refinancing – €250bn the EFSF isn’t set out for. So then it goes back to the legal issue that is the ESM, which is not actually active yet and has different voting requirements from the EFSF. Here the ZeroHedge summary.

The bottom line seems to be this: while concerns used to focus on the willingness, or lack thereof, of European leaders to commit to strategy to battle the crisis, i.e. setting up the ESM, pushing eurobonds, injecting money here there and everywhere, it now (finally) shifted to a question of how much is actually possible. The answer is more or less unanimous: Spain can’t be paid for in the same way that Greece was. And we don’t even have to talk about Italy. So what are we going to do about it? Wrestle Angela Merkel down and force her to agree to eurobonds, i.e. piss off the one person who is paying for the whole charade (note: this is a simplification of actual circumstances)? Having said that, I’m pretty sure that Merkel knows exactly that she will have to give in to all the pressure unless she wants to foot a never-ending bill (see below).

In Greece, Pasok leader Evangelos Venizelos has allegedly expressed his support of NewDem leader Antonis Samaras, who is still in the process of pasting a coalition government together. And since Syriza said they’re out, Samaras just pitched another left-wing party, the Democratic Left, making the proposed government a center-center-left coalition. An agreement is meant to be reached today, and as we know Greeks are very precise and efficient people, so I’m taking this at face value (so far, the Democratic Left has not decided what to do). read article

In Mexico, the G20, first and foremost David Cameron, is pointing fingers at the bodiless mess that is European collective action. In Gideon Rachman’s words:

David Cameron is taking a break from irritating the Germans. Instead, he has decided to piss off the French.

It is going to be an entertaining week if this continues. The agreement that emerged from Monday’s meeting was to work on a “more integrated financial architecture” in Europe. I imagine Angela Merkel didn’t enjoy her stay.

Meanwhile, there are rumors that both Greece and Ireland will be granted a two-year extension of bailout terms, meaning forced austerity measures. Make a wild guess who’s not amused about that.

So long.

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Central banks and money and guns

Just in: the chairman of Cyprus Popular, the country’s second largest banking group says Cyprus needs $6bn in financial aid.

In the UK, George Osborne decide to inject £100bn into the economy. Note: this is not QE, but a support program for the British economy. At the heart of it: an incentive to improve loan conditions, which could fund up to £80bn new loans they say. read article

The news come just as the UK’s trade deficit rose by £1.4bn from April to May, mostly because of decreasing exports to the European continent (-6.8%). read article

Meanwhile, central banks all over the place are waiting in the wings for some coordinated easing action, which may or may not be accelerated by the potentially disastrous outcome of Sunday’s Greek elections [Headline of the day: Central banks reach for their guns over Greek vote].

On that note, here’s Alphaville’s FAQs for Sunday’s electionsread article

But MarketBeat reminds us:

The bottom line is the crisis won’t come to a screeching halt after Sunday’s elections, no matter who wins.

WHAT?! But I got all excited…

Moody’s cut the rating of all big Dutch banks and issued a warning on Greece. And here I was thinking that ‘Greece’ had finally become its own rating class below which there is nothing… read article

Elinor Ostrom, the first and only woman to ever win the Nobel Prize in Economics died on Tuesday afternoon from cancer. She was 78 years old. She received the Nobel Prize that she shared with Oliver Williamson in 2009 for her work on economic decision making outside markets. Project Syndicate published one of her last research articles on Tuesday afternoon. read article

From the Harvard Business Review: Ireland vs Spain, not in terms of soccer but economic similarities read article

Weekend reading:

An article that is all the hype on nerdy opinion pages and economics blogs: Are You With the Dumb Money or the Smart Money?

Otherwise, there will be the obvious fun thing to watch. No, not soccer, I mean the Greek elections. Unless you’re Mexican, in which case you’re probably set to engage in some early G20 protests for Monday’s meeting, which promises to be something like an enlarged eurozone summit.

Have a good weekend!

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A European banking union?

In Ireland, it looks like the referendum on the fiscal pact will go through with a ‘yes’ vote. And the Irish government has done its fair share to encourage the approval, mostly by scaring its people with unpaid salaries, empty ATMs and a reputation similar to that of Greece. That’s politics, that’s how you convince voter, with well formulated arguments and… uhm. read article

Meanwhile, the EU Commission has come up with new options to make the EU a more [financially-]systemically-dependent construct. Yesterday, it brought up the idea of a banking union, in which the [national] banking bailout burden would be shared by all EU countries, i.e. Germany. And even better, the already pooled money in the ESM could be used for the bailout (it is not right now!). What a good plan. Except, Germany is REALLY against it, and so are Finland and the Netherlands. Another idea is a pan-European deposit insurance fund, which didn’t really get explained in much detail, but would put more distance between governments and banking bailouts. I can see how this could make sense in a healthy system with one outlier that needs bailing out. But at this point? Is this really a good plan? read article

WSJ says this is all well and good, but it’s not the best way out of the crisis for Europe, so why on earth are we considering this as a viable option?

After all the confusion about Bankia‘s bailout and the ECB’s involvement in it yesterday, Mario Draghi is using the complications in a press statement today to push for the idea of the banking union. Very convenient. Can somebody clean up Bankia now, please?

Otherwise, Robert Zoellick, president of the World Bank, is joining the pro-eurobonds team and those four Greek banks that were excluded from ECB operations are allowed to come and play again.

After Christine Lagarde’s comment on tax evasion in Greece, she got a lot of bad press. Well, it wasn’t really the smartest move. Many a journalist called her a hypocrite, but wait, does that mean Christine Lagarde evades taxes? Good god, someone get her out of the IMF! Oh no wait… She just doesn’t PAY taxes, because she’s a diplomat. That’s a pretty sweet deal, admittedly, but it’s not like she came up with it. So no, sorry, her own tax affairs, unless involving any sort of evasion, do not impact the legitimacy of her criticizing Greeceread article

The Pew Research Center has released what is probably my favorite chart of the month showing Germans to be the most hard working and least corrupt Europeans (for the German readers: Entschuldigung, kann uns mal eben jemand das Wasser reichen? Danke.). That is, unless you ask the Greeks, which obviously perceive themselves as most hard working… read article

So long.

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