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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

Collective central banking day

The Bank of England has just announced to inject another £50bn into the economy, driven by sluggish growth and poor output figures. Importantly, there is no word about this being the last tranche of QE either. The Bank’s main interest rate is being kept at 0.5%.

Meanwhile (literally at the same time), the People’s Bank of Chinacut both its benchmark interest and deposit ratesread article

The third central-bank-rate announcement of the day comes from the ECB, which cut all rates there are – most importantly it’s deposit interest rate, previously sitting at 0.25%. Exactly, and now it’s at 0%.

Mario Draghi, head of the Bank will hold a press conference after the announcement, at which he is expected to discuss the future of the EFSF bond buying program. That could put more pressure on the ratification process of the ESM throughout Europe. As a reminder, the Germans pulled the case in front of their supreme court, while the Dutch and Finish said they would veto the ESM’s proposed use.

But back to the Bank of England for a second… Despite Barclays‘ attempt to entangle the Bank in LIEborgate, the government has been little impressed. Instead, George Osborne is blaming the opposition, the Labour Party, mostly because it’s tradition or maybe because it sounds alike… Moody’s downgraded Barclays simultaneously, due to “senior resignations at the bank and consequent uncertainty.” Interesting way to put it.

In other news, it will only be a matter of weeks before Porsche will be a wholly-owned subsidiary of Volkswagen. The $5.6bn merger that will cost Porsche at least a little bit of its cool will be completed by August 1. Volkswagen’s purchase of 50.1% of the remaining stock, however, isn’t a takeover, but a restructuring of Porsche, which is important because it avoids any tax payments on the transaction. Moreover, Porsche’s earnings will offset the purchase price, and around €2bn of VW’s money is going to flow towards Porsche’s liabilities, returning the company from the red to the blackread article

Otherwise, Greek prime minister Antonis Samaras is meeting troika officials this afternoon to kick off the painful renegotiation of bailout terms.

So long.

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More bank scandals, more economic trauma

Wherever you look, today’s favorite scandal is still Barclays, mostly because CEO Bob Diamond said he would reveal “potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday.” I’m thinking party pictures and strippers. Next thing you know, Diamond quits, effective immediately. Bloomberg’s Nick Dunbar already dubbed him the Republican candidate for 2016.

But speaking of manipulative banks… JP Morgan has been subpoenaed twice in the past couple of weeks because they may or may not have inflated electricity prices in the USread article

Since yesterday’s atrociously bad ISM data, showing the rapid decline of the American industrial manufacturing sector, today continues in the same fashion. British construction activity fell to its lowest levels since December 2009, aka that really bad year, last month. Overall, the Global Manufacturing PMI has sunk to a three-year low, with manufacturing output falling in the US, UK, eurozone, China and Japan in June, says Markit. More QE in the US and UK can be expected shortly. Not even Brazil is doing well anymore, after a better than expected first quarter of the year, forecasts aren’t looking great.

Europe is not doing much otherwise, which I guess is a good sign, but here and there the possibilities of referenda on the EU membership are getting more real. In the Netherlands the situation is very political and contingent on voter support of extremist parties, such as Geert Wilders’s PVV, which presented its campaign program including a separation from the EU today, leading two of its parliamentarians to quit. read Dutch article read English article

In the case of the UK, the idea of a referendum is less surprising, because they like to pretend that they knew the European Union was a bad idea from the start. The prime minister’s opinion is a little muddled in his awful attempt of being diplomatic, but I still have a bit of a Cameron-appreciation-moment anyway, as he said

I don’t believe leaving the EU would be best for Britain. Nor do I believe that voting to preserve the exact status quo would be right either.”

Naturally, this only adds on to the constant back-and-forth in his agenda.

Also, Microsoft has admitted defeat in the online advertising battle with Google. At least sort of. In 2007, Microsoft bought AQuantive for $6.3bn, allegedly its most expensive acquisition. Now, the unit is being written down by $6.2bn. Since the acquisition, Microsoft’s internet business is meant to have recorded operating losses of $9bn. Ouch.

So long, and for the AmUricans, happy 4th of July.

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Across the board, things could be better

…and when I say ‘board’, I really mean ‘world’.

The eurozone finance ministers are meeting in Luxembourg today, including the new Greek minister Vassilios Rapanos. So who is this man who will reduce Greece’ deficit and have the country return to growth and glory (I’m just messing with you)? Good old Vassilios used to be a political terrorist, who was sentenced in military court in the 70s, then hung out with other economists in jail, and continued to be chief economic advisor to the minister of finance and a member of the EU monetary committee planning for the introduction of the euro. The man literally said “Jail was my university“. I wonder if his knuckles read T-H-U-G L-I-F-E… read article

The US Fed has prolonged its economic stimulus program dubbed ‘Operation Twist‘, which was meant to end this month, until the end of the year. The thought behind it is, besides high unemployment and sluggish growth, to shield the US economy from the European explosion. By changing the composition of bonds held by the Fed that were acquired during the last rounds of quantitative easing, i.e. by exchanging short-term bonds for long-term bonds, which may [or may not, this is up for discussion] lower interest rates across the board and stimulates lending. read article

In terms of indicators, both Germany and China aren’t doing well with PMI and production output down respectively, and Spain sold 5-year bonds at the highest cost in 15 years  [indicating that things are shit]. And what does that mean? Exactly, it doesn’t matter where you look today, you won’t find great news anywhere [unless you’re a royal, see below]

Meanwhile, the Queen seems to be the only one left making money… Due to rising property costs, her real estate portfolio has appreciated 4% YOY, totalling £8bnread article

Otherwise, the usual back and forth continues. The ECB says it will discuss eurobonds, Merkel says she definitely won’t (with her hand over her ears: “LA LA LA, I can’t hear you!), les French say it may take years to implement them. Nothing new on that front, but the conflict seems less hateful today. read article

Recommended reading: BBC political editor Nick Robinson interviews David Cameron in Mexico during the G20 meetings. On the menu: Europe’s past, Mexico City’s skyline and sympathy for Angela Merkel. read 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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Rajoy: We got more funds because we’re good at things

So let me kick this off by saying that I’m not really a soccer kind of person. I mean, I call it ‘soccer’. But over the weekend, as I was watching the game of the century, aka Ireland vs Croatia, I was pretty amused by the amount ofeconomic commentary mixed in with the football talk. Apparently, group C has been renamed the ‘group of debt‘. Personally, I think there should be additional points for fiscal responsibility. Oh wait, Germany just won.

At least Spain is having a good start into the week, having secured buckets full of money on Sunday. Oh happy day. It is important to note that this is the point where nobody will pay attention to the difference between ‘bailout’ and ‘assistance’ anymore. [Up to] €100bn are going to be pumped into Spain’s FROB (Fund for Orderly Bank Restructuring), conveniently €60bn more than the IMF’s necessary estimate. If that [and all the other European aid] is accounted for in Spain’s balance sheet, it raises the countries debt to GDP ratio from the reported 68.5% to 146.6%. Whoa. Spain will now face controls by the EU, which also invited the IMF to stick their nose into the country’s financials, but it avoided the sort of policy requirements forced upon Ireland, Portugal and Greece. It remainsunclear which European fund the money will come from. It’s possible that it will come from both the ESM and the EFSF, because that would be the compromise requiring the most amount of work, which seems like the EU’s style.

Obviously, bailing out the banking sector is one thing, but the fears about Spain’s sovereign debt levels remainRajoy framed the whole thing as a victory for Spanish budget management that had prevented a full European bailout of the government, the impossibility of which was not addressed in his statement any further…  read article

The FT’s macroeconomic commentator Gavyn Davies approves and calls the bailout a necessary step forward, before he points out all of the structural issues that won’t get solved by itread article

And then, after everything had calmed down a tad in the morning, Spanish yields exploded again, so here we go,bailout failout.

Greek election countdown, round 2: T-6

And as Greek politicians seems to be just as uncertain of the outcome of these elections as everyone else,Evangelos Venizelos decided to ignore the vote count and just start early on the compromising and coalition building. In a letter to all parties that could potentially secure any votes next weekend, he tries to advocate a unity governmentread article

In yesterday’s Sunday Telegraph, George Osborne commented on the European mess, the idea of a banking union and its impact on the UK. He opens saying “We are approaching a moment of truth for the eurozone,” which sure sounds epic, but I think we’re just approaching a moment of decision making under pressure in the eurozone. But his message is clear nonetheless, economic uncertainty belongs on the continent, which the UK is not and won’t ever be part of. Euroskeptics are having a field day. read article

So long.

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Liberté, égalité and working until the age of 40

In France, the retirement age for long term workers (41.5 years of pension contributions) and mothers of 3+ children was lowered from 62 to 60 yesterday, because working 35 hours a week is hard and pension funds are doing super well right now because of the good economic conditions. read article

Meanwhile, French unemployment rose to 10%, which is still less than the eurozone average of 11% [in April].

In Spain, or in Brussels rather, we’re still waiting to hear anything more explicit than edging towards a solution, which has, however, not been agreed on yet, because nobody really wants to deviate from their positions. Essentially, that means that Rajoy is still not ready to call it a bailout, because he’s afraid of stigmatizing Spain’s banksread article

Otherwise, David Cameron is meeting Angie Merkel in Berlin today to spread the egalitarian word. He, as so many others, wants her to put more money forward for a bigger European firewall, agree to eurobonds and finally put her foot down and cut the soft talk. We shall see how well that goes. Cameron doesn’t exactly have a track record for being diplomatic when it comes to talking to his continental counterparts about meaningful things, just as Merkel hasn’t been proactive on the compromise front recently. My guess: a statement on how much both nations agree that urgent action is required to strengthen the banking system and the economy and revive organic growth within the next years. I.e. things we’ve heard before. Please disregard. read article

Here’s some analysis to Merkel’s isolated position in Europe and the world and how she got herself there. read article

“There is a sense of concern [in Europe],” said Maria Draghi at the ECB’s press conference yesterday. Oh really? Here’s every chart on the ECB you’ve ever dreamed of.

Another chart, this time for Greek unemployment by age group. Do not open if you have a history of depression. view chart 

And finally, the number of the day: £752,785

That is the average house price in central London as of April 2012.

So long.

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You know it’s bad when it impacts the Eurovision Song Contest

The most exciting thing that happened yesterday was Goldman Sachs joining Twitter – for real. The first three tweets regarded an official ‘hello’, shareholder support and the firm’s global sustainability report. Nicest bank out there.

David Cameron‘s ability to learn from public embarrassment seems to be limited. Just about a month after being shunned by European politicians in Brussels, Dave is back on the failhorse, trying to solve the crisis of a currency union his country is not a part of. Moreover, the UK is not exactly known for it’s pro EU statements, so the call for closer integration is a bit off. For this week’s one and only context: the UK is backing the idea of eurobonds as well. read article

All that is angering Mario Draghi of the ECB, who likes his [relative] freedom and independence from the European governments, which would be cut down with every inch of closer fiscal integration. read article

Some Credit Suisse research suggests that Germany spent around €600bn on the euro crisis thus far, which is approximately a quarter of its GDP. Understandable that Angela Merkel wants to keep borrowing at a low cost instead of pooling money via euro bonds.

In Greece, most recently compared to an angsty teenager, the polls show just how confused the country is. While 70%of Greeks allegedly want their country to stay in the eurozone, the party that is trying to accomplish the very opposite (Syriza) is leading the polls with 30%. Time to step back and reconsider? read article

Both Spain and Greece have told their contestants in the Eurovision Song Contest not to win, as the countries don’t have the money to host the event next year:

Perhaps Spain should have taken a lesson from Poland, which isn’t even running this year because holding the European champonships is apparently a headache enough. read article

For some weekend reading, the Economist’s leader advocating “a limited version of federalism [as] a less miserable solution…” Now that just sounds great. On the other hand, like I’ve said before, half-baked is better than not baked at all, right?

Have a good weekend.

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Looking like an idiot, looking like George Osborne

The Eurogroup met in Brussels yesterday to discuss a proposed Capital Requirements Directive for European banksDenmark, whose banks are doing pretty poorly at the moment, suggested a compromise that would re-transfer responsibility for capital rules to member states. These European requirements would be on top of those prescribed by Basel III. But after much negotiation, there was one country, out of the 27 EU member states, which refused to sign the deal. Let’s think about who that might have been… a piece of legislation that taken power from Brussels and redistributes it to the nation states. Hmm. Germany? No. The UK, of all countries… George Osborne‘s prime reason for refusal was that the deal would have “look[ed] like and idiot. Poor man, he already does.

According to the WSJ

[…] Osborne had insisted on including new “macroprudential” regulatory instruments into the discussion on how much power member states should have in setting the rules for their respective financial sectors. Ironically, the government was unable to say what macroprudential powers it wants, as it says this is a matter for the new and independent Financial Policy Committee.

In FranceHollande and Sarkozy fought for the hearts of French voters on national television, calling each other liars and ‘unpleasant. Overall, the debate doesn’t seem to have done much damage to either candidate though, i.e. Hollande is still leading the polls. read article

Otherwise, today is World Press Freedom Day, the ECB is meeting in Barcelona to discuss policy and HSBC has a bit of money laundering scandal on its hands.

More on Occupy as the new labor movement here.

Finally, Felix Salmon dissects the FT’s subscription pricing policy, which, at least in the US, seems to depend on the browser you’re using… Overall, however, the FT is priced way above other business papers, making it the absolute 1%er paperread article

So long.

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Sharing enemies – Europe’s best back-up plan

Yesterday saw the new EU budget proposal, Goldman’s CEO doing some marketing and the UK’s official double-dip recession.

Re: EU budget

The commission wants to increase the budget by 6.8%, which has led to outrage – pretty much everywhere. There is a slight chance that it was a reverse psychology kind of trick to have the European players re-bond over a common enemy, but history shows that few things out of Brussels are just that strategic. Still, the Netherlands, Germany, the UK and France disagree strongly. That’s because the commission is the institution which can’t seem to get enough ofausterity in EU member states, while demanding higher allocationread article

Re: UK recession

The British economy contracted in Q1 of 2012, with GDP shrinking by 0.2%. It’s official, this is a double dip. DavidCameron had to step up to defend his proposed austerity measures and cuts, leading to Business Insider calling him a moron (something I’ve been doing for months). read article

Meanwhile, George Osborne, another moronic musketeer, continued to play the blame-game as told, saying it was all the eurozone’s fault. Of course. read article

But Osborne and CaMORON also get critiqued from their own people – for being too posh.

Goldman Sachs’ CEO Lloyd Blankfein sat around with Bloomberg sharing his views about the economy and not Greg Smith. Greg who? Yeah, that’s probably why. Anyway, well done, Jake Siewert, this was nice. Blankfein also claimed to be fiscally conservative and socially liberal, like about 95% of people I know who have received any sort of education in economics. If you’re one of them, read what the Onion has to say about itread article

Otherwise, Mario Draghi managed to mitigate the bitch fight between Angela Merkel and Francois Hollande by stressing the need of a proper plan for economics growth, which in Europe means to make it a treaty that takes 7,000 years to be ratified and then gets rejected by a country like Ireland in the last minute.

Here’s a whole array of European confidence indicators, including a reason to disregard consumer sentiment, because the last time people on this continent had a good feeling about anything was around the year 2000. view image

Also, this is Bank of America’s Who Makes the Car – 2012 report, with pretty pictures and everything. Yes, ze tshermans are in it and so are the Japanese, yet the picture has shifted. Eleven years ago, American companies supplied 54% of components, now it’s down to 34%. That may not be surprising, but unless they come up with a couple of good ideas fairly soon, the American car industry will have disappeared and Detroit will be lost to Canada.

So long.

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It’s budget day!

The Daily News Brief is going on a short spring holiday and will be back at the end of next week!

So it’s budget day in sunny Britain. The day George Osborne takes his little red lunch box to work and talks business. The plan is, unsurprisingly, to stimulate growth, get rid of that deficit and make everybody better off. Unfortunately, it’s not the thought that counts. An increase in real estate tax (stamp duty) is expected, as well as adecrease of corporate tax to 24% and the cut of top tax rate from 50% to 45%. So far, the UK public borrowing decreased by around £9bn from 2010/2011; however, public debt in February was up by around £6bn from last year. Hmm. read article

Update: The most important thing has already been said:

It’s the determined policy of this government that we keep Wallace and Gromit exactly where they are.”

(regarding film tax credit)

Occupy London is still around, even after the protesters have been evicted from their holy camping grounds around St Paul’s. Here’s their statement (from the FT’s budget live blog):

In the shadow of Canary Wharf, set along the path of workers from the local financial services industry, Occupy Limehouse (corner of Branch Road and Horseferry Road, E14) has been chosen as an ideal location from which to carry on the Occupy movement’s critique of global capital. It is the first of a number of new autonomous tented sites expected to pop up around the capital in the coming months.

always thought Limehouse needed to be gentrified

How do we feel about journalists being paid for giving speeches at events of banks and all other financial institutions of the rainbow? read article

And finally, the case for philosophy in finance and why the UN should be more like a trading floor.

So long.

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