Thursday, June 10, 2010

Friday, June 4, 2010

Spain Spreads

From invertia: here it is.

CDS - here they are.

Tuesday, June 1, 2010

Euro External Demand

Here is one link.

The Role of External Demand in the Eurozone
by Jacob Funk Kirkegaard | May 27th, 2010 | 03:20 pm

The argument is widely heard in Europe and elsewhere: If only Greece and other struggling eurozone countries could let their currency depreciate, as other collapsing economies have done when hit by debt crises—in Asia and Latin America, for example. Such a step would in theory boost demand for these countries’ exports, limit their imports, and make it easier to lower their debts.

Greece, Spain, Portugal, Italy, and other European countries wedded to the euro can’t take that step, of course, without suffering a major disruption. But the view that a currency devaluation would offer a way out for Greece or other countries is in any case based on a simple fallacy. Just because eurozone members share their currency, the euro, with their eurozone neighbors does not prevent them from benefiting from the increased external demand for their goods driven by a decline in the euro itself.

Here is another:

Challenges for the Euro Area, and the World Economy
Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB
at “The Group of Thirty”, 63rd Plenary Session, Session I: The Crisis of the Eurosystem,
Rabat, 28 May 2010

It is a pleasure to be here today, in the Group of Thirty, to discuss the main challenges on the road to a sustained recovery. I actually ask myself whether the title of the first session – “Crisis of the Eurosystem” – adequately reflects what is happening in Europe and more generally in the global financial markets. My impression is that what we are now seeing primarily in the euro area reflects a broader phenomenon, namely the sustainability of public finances in advanced economies. To repeat a much used metaphor recently, we could say that euro area tensions are “the canary in the coal mine” of the challenges that policy-makers worldwide are going to face.

Let me elaborate by looking at the origin of the problem, i.e. the sustainability of public finances. In the aftermath of the Lehman failure, governments around the world seemed to rediscover Keynes. They injected huge amounts of borrowed money – public funds – to stabilise the economy after the shock of the Lehman failure. These policies worked, and averted a global depression. The success of those policies has led governments – encouraged by international organisations – to continue using expansionary fiscal policies to try pulling the economy out of the recession and getting it back to the pre-crisis level.

Here is another:

Germany vs. Europe (New York Times Editorial)
Published: May 26, 2010

Germany’s commitment to the European Union has been central to its postwar rehabilitation and its economic success. For years, Germany played the role in Europe that America so frequently plays globally — the locomotive whose dynamism and demand helps turn around recessions before they deepen into depressions.

Here is another:

The end of EMU: How Germany might leave

Julian D. A. Wiseman

Abstract: A country in the eurozone can, without being in breach of the Maastricht Treaty, create a new central bank controlling the monetary policy of a new currency. This loophole in the Maastricht Treaty is not widely known.

Here is another:

The PIGS’ external debt problem

Ricardo Cabral
8 May 2010

Markets are increasingly concerned that the Greek debt crisis could spread to other Eurozone countries including Portugal, Ireland, and Spain. This column notes that much of these countries' debt is held by non-residents meaning that the governments do not receive tax revenue on the interest paid, nor does the interest payment itself remain in the country. The solution lies with debt restructuring and rescheduling.

Financial markets are focused on the public finances of Portugal, Ireland, Greece, and Spain (the “PIGS”). The PIGS´ public profligacy is partly to blame for their current plight, but other factors are at play. Amid the hype, little attention is paid to the crucial difference between these nations’ public debt and their external debt.

* Debt held by a nation’s own citizens has less pernicious consequences (Scott 2010) – the interest paid is returned to the domestic economy.
* External debt, if used to finance non-productive expenditure, is a different matter. Non-residents receive the interest on such debt, making the nation poorer with every interest payment.

Rift in the ECB:

ECB FOCUS-Deepening rift hampers ECB public opinion battle

* Deepening split at ECB hampers efforts to sell bond buys


* Weber opposition "like blaspheming in public"

* Conspiracy theories developing along national lines

By Krista Hughes, Chief ECB Correspondent

FRANKFURT, June 1 (Reuters) - A deepening split at the top of the European Central Bank is undermining efforts to convince the public of the merits of buying government bonds and could suck the ECB further into the murky waters of European politics.

Axel Weber, head of the German Bundesbank, has made no secret of his objections to a policy designed to calm nervous markets and help stabilise the euro, but which he contends could fuel inflation.

He went a step further on Monday by calling for a strict cap on the programme, so far open-ended, which entails buying debt of weaker south European economies such as Greece, Portugal, Spain and Italy on the secondary market. [ID:nLDE64U16A]

And one on Merkel's leadership:

German leader Merkel goes from glories to disgrace

BERLIN – It was only nine months ago that Forbes magazine named German Chancellor Angela Merkel the world's most powerful woman for the fourth year in a row.

She impressed Germans and foreigners alike with her ascent to power — an East German pastor's daughter who took control of the male-dominated conservative party and won elections in Europe's economic powerhouse, becoming Germany's first female chancellor in 2005.

She was lauded for hosting the world's top leaders at the G-8 summit in Heiligendamm in 2007 with ease and professionalism. She repaired relations with the United States that were strained over the Iraq war, and she positioned herself as a political heavyweight on the continent. It seemed that no major political and economic decision could be made in Europe without Merkel's approval.

Resignation of Köhler is blow to Merkel's fragile coalition
By Gerrit Wiesmann in Berlin
Published: June 1 2010 03:00 | Last updated: June 1 2010 03:00
Horst Köhler, Germany's president, added to the pressure on chancellor Angela Merkel yesterday when he resigned over his contentious remarks that the country's military effort in Afghanistan protected German commercial interests.

The resignation - the first of its kind in modern Germany - came after his comments drew widespread criticism in a largely pacifist country wary of the return of martial traits.

Although the presidency is a ceremonial role, the search for a replacement will test Ms Merkel, who is already fighting to keep her fractious coalition of Christian Democrats and Free Democrats on side over the euro rescue and austerity measures.

The task comes as her Christian Democrats wrestle to stay in power in the big state of North Rhine-Westphalia, and cast about for a new lion on the party's right flank after Hesse governor Roland Koch quit unexpectedly.

Ms Merkel conceded she had been "surprised" by Mr Köhler's decision. "He was an important counsellor," she said. "It is his counsel I will now miss."

Despite the slim majority for the ruling parties in the presidential electoral college, Ms Merkel said in an interview on ARD and ZDF television last night that her coalition would propose a new president, according to Bloomberg.

Ms Merkel's success in placing Mr Köhler in Germany's highest office six years ago was a harbinger of the political change that followed in late 2005, when she ousted the Social Democrat Gerhard Schröder as chancellor. The same symbolism will dog the vote in the electoral college in June - any alliance of Ms Merkel's Christian Democrats with the Social Democrats would be another blow.

Mr Köhler, once head of the International Monetary Fund, said he was resigning after "unfounded" criticism of his remarks about the need for German soldiers overseas undermined "the necessary respect for my office".

Opposition politicians last week attacked him unusually bluntly after he said the task of "stopping regional instabilities" was vital for Germany because it would bring "free trade routes" and "jobs and income through trade".

The circumstances of his departure served to remind that Mr Köhler was a head of state who had never found his role. A series of staff defections in past months had suggested all was not well in the president's office.

Mr Köhler lacked the warmth of some predecessors. He spent most of his career as a bureaucrat, rising to become deputy finance minister for international affairs under Helmut Kohl before being nominated by Mr Schröder, to take charge of the IMF.