News - 2
Vision Strategy Commentary
The following postings and articles are from my thoughts on the progress of the global financial crisis. Most will have updates showing what happened. Where there is an annotation saying the posting did not appear or appeared much later, it is assumed by this site that in the absence of any other rule infringement, the comment was considered particularly sensitive and was being considered in some form. Postings on the Telegraph site are entered under a user name, but all other postings and articles are acknowledged at the time. I maintain this page and Archives myself and information for NEWS; contributors maintain the other pages.
Look on Archives for real time commentary on the October 2008 banking crisis and later activity up to the summer of 09.
January 2 - Wall Street Journal - US
Ben Bernanke has made a very important statement. Debt stabilisation and reduction is still highly relevant, even in an election year. The US is getting growth moving, and credit for those measures that are achieving it. US growth is globally significant, and unlike other nations, there was the time and opportunity to take the appropriate action. But now it is the time to balance this essential initiative with a workable deficit reduction plan, and this time, get it passed. The Chairman is completely right to say look across at Europe and take your necessary measures.
The US 243,000 job increase of Jan 3, was noticeably higher than expected and the US unemployment rate at 8.3% has now dropped below that of the UK, as forecast in my Telegraph blog of Jan 20, see below. Well done US, but still going to nag on about the reduction plan.
January 31 - Periscope Post - UK RBS
A fascinating problem. Laying aside the origins of Mr Hester's contract, the situations seems to be exacerbated by the size of the nation's holding in RBS. 82% is an overwhelming proportion and according to various reports, the 45 billion it took to buy it is now worth about half. This affords the interesting possibility, as a number of people including Alistair Osborne, have proposed, of completing the bank's nationalisation at reasonable cost, i.e. several billion. Small and medium business is still, evidently, complaining aabout credit flow, even though, the Merlin banks are starting to say they're coming in on, or above target next month. So how about an old idea I and others had, of a very large National Business Bank, focusing RBS on small and medium business, something that is tending to happen already. Set it up for 5 years, by which time, going by the Nineties, things should be considerably better, share prices are up and the UK get its money back. Full nationalisation is an idea that has been around for quite a while, perhaps its time has come. It's just one idea, of course, but something needs to be considered as media and political interest is going to surge again in March. A last thought - measuring the proposal by the present necessary yardstick of 'would it help growth' - yes, it could in conjunction with other measures and we're getting those coming forward, E.G. the £10,000 tax level and the EU proposal to redirect about 80 billion of funding to assist member states' growth measures.
Posted at 12noon. The Mail reported that the BoE said UK banks got back 11 billion more than they lent to business in 2011 and although it looks like the targets are being met, in effect, high charges etc are working against this; and RBS might not even meet the Merlin targets. On Jan 31, in the late afternoon, Sir Fred Goodwin, former boss of RBS had his knighthood taken away. Interestingly, (for us) he was informed of it (The Mail) by Sir Bob Kerslake, Head of the Home Civil Service,who was formerly the CEO of HCA, whose committees we used to attend.
January 30 – Telegraph - EU Davos
Very thought-provoking as intended. Liked the use of the word talk-fest, but seriously, what it implies is concerning.
Reuters reported yesterday that there was a confidential high level steering group at Davos discussing a combined war chest of 1.5 trillion euros. This cheered me up, having blogged there about a huge combined fire wall the day before, until the realisation struck that about half of that amount, the Eurozone part of the Eurozone/IMF initiative, would probably be composed of combining the EFSF and ESM. The ESM is being discussed and brought forward to June 2012 today at the summit, but its size, apparently, is not. So a key issue is being deferred, and the opportunity to move ahead in dealing decisively with the crisis is being shelved; which makes people take notice of Roger Bootle's headline, even when they are looking for an answer.
Posted at 10.25am in response to Roger Bootle.
January 27 - Wall Street Journal - US EU Davos
Very pleased to hear this. The necessary contribution from the Eurozone and EU seems to be coming into place. Italy's yields now reflect strong support and definite action. An IMF initiative matching an EFSF /ESM initiative would make a very effective stabilising force.
Posted 12.30pm in response to Geithner hints at US support for more IMF funds.
January 25 - IMF
Christine Lagarde has said, as reported on various sites, including the FT, that if private haircuts during the restructuring of Greek debt are not enough, then public holders of debt should also take part in its renegotiation. Mentioned something like this in Jan 19 blog. The running the EFSF and ESM as one, has been proposed by various people and still seems sound.
January 24 Additional Commentary - SKY
Tried to blog on SKY on Ed Conway's site but was prevented - hacking. Just wanted to say it was good news that the largest global economy's growth forecast wasn't cut. Hope the US rate will actually come out at something over 2%. ( 4th quarter annualised came out at 2.8%.) With the Eurozone safety nets coming into place, and they will, and the debt reduction plans generally in place, and agree that two more need to be , this is the time to focus on confidence building, job creation and growth by whatever measures that do not increase debt. Such as credit easing, further QE, regulation smoothing, major, already taken into account, projects, small business banks. The experts know what's needed. Debt reduction is vital, but there has to be hope for people and a way forward.
6.40pm - it's up there now, twice, kept hitting the button, don't know if the hackers gave up, or SKY retrieved it, but thanks anyway.
January 20 - Telegraph - US
A steady 2.5% consistent growth sounds good to me. It's more than recent forecasts and those unemployment figures are nearly down to the UK levels already and due to drop below. The long term reduction plan as Richard Blackden says, needs to be agreed. The pipeline has the potential to a win for both sides. I've got a fair idea of what the Republican candidates are against, but what are they for?
Posted at 3.25pm Newt Gingrich won South Carolina decisively Jan 22. He was concerned about 'negativity' in campaigns and the Telegraph quoted voters associating him with 'ideas'.
January 19 - Wall Street Journal - EU G20
Christine Lagarde's proposal to raise the IMF's capacity to one trillion appears timely and appropriate. If a financial vehicle is created then providers could choose three ways: for Eurozone use, not for Eurozone use and leave it to the IMF's discretion. Having a significant capacity like this and being ready to use it, should stabilise the world economy and people could get on with the essential issue of growth. Of course, a gesture by the powerful instiutions and countries of the Eurozone would also be appropriate. For example, private and public sector complete debt forgiveness for Greece, if some form of technical default became necessary, or yields to be capped and EFSF and ESM to be given an inpetus; there will be various alternatives, but in any case, a sizeable gesture to match the G20's.
Posted at 2.30pm. It caused a lot of reaction. George Osborne said Jan 27 he wasn't in favour of a vehicle specifically for the Eurozone. However, if the IMF funding is all in the same place and yet certain providers don't want their funding used in the Eurozone, how can it be prevented except by not contributing? UK's position has now been redefined into further funding in response to action by Eurozone, without any other specific conditions, apart from the usual ones of conditionality etc.
January 18 - The Hill -US
Excerpt in reply to Bernie Becker - It's about growth and jobs. Removing the tax cuts at the $200/250,000 level would save about $87 billion a year... (which) would need to be sufficient stimulus to compensate.
January 15 - Telegraph -US
There have already been a number of representations leading up to the February consultation deadline, urging the US to consider easing the Volcker Rule; and there is no reason to think they will not be taken into account because the US would not wish to risk the possiblity of squeezing bond market liquidity in the present crisis, particularly after the rating downgrades in the Eurozone, and hamper their growth path.
Jan 16 - Congressional hearings being held on Jan 18 on this issue.
January 7 - Telegraph EU
Excerpts - One of the main issues causing (exacerbating) the Euro crisis, apart from the obvious ones, is the fact there is no route to leave the Euro, which has increased pressure when things get difficult and led to the supposition that any departure will, as things stand, be disorderly... much better to create a mechanism that deals with the possibility.
Jan 9 Telegraph - In reply to your question, Kamal, I think everyone would agree that in a democracy, the final decisions in a banking crisis would rest with the Chancellor.
Jan 17 Telegraph - The BoE rejected MPs' recommendations to put in place a powerful supervisory board, but agreed with their recommendations 'for a Chancellor to be in control when a crisis hits, if public funds are at risk.' MoneyMarket. Awaiting the provisions of the Memorandum of Understanding. Jan 27 - George Osborne said at Davos - 'In a crisis, when taxpayers' money is at risk, both the responsibility and crucially, the power to act, will rest with the Chancellor of the day.'
Jan 11 - Reuters EU - It's good to see someone influential like David Riley joining those already saying that the ECB should cap Italian yields. Italy is really trying and should be supported.
Jan 12 Successful bond sales for both Italy and Spain. Italian 10 year yields down to 6.581. Mario Monti said Jan 17 that it was in Germany's 'enlightened self-interest' to put its weight behind measures to lower the borrowing costs of highly indebted countries such as Italy. Telegraph.
January 2 2012 - Wall Street Journal - US EU UK
Yes, 'Go for it'; the UK should aim as high as is feasible and a bit beyond. Reality has a habit of stepping in, but ambition and confidence have the potential for achieving greater results than resignation and depression. Energy, enthusiasm and initiative can spread like wildfire, which for once is a desirable contagion. The US will be going for consistent growth in 2012 and unlike some of the major commentators, I have faith in US policymakers' recognition of the need to get things done this year. The Eurozone crisis will be managed in highly realistic ways and if long held concepts need to be adjusted, then that should happen.
Posted at 12.25pm bst, but didn't stay. January 3, the US manufacturing figures showed that the sector grew to 53.9 from 52.7. Welcome news. I wish Chancellor Merkel would say to Mario Draghi that the ECB committee has her backing if it wishes to bring those yields properly down.
January 5 - James Knightly at ING says that UK 'manufacturing, services and construction PMIs have all suprised on the upside.' Reuters. Hopefully this bodes well for the last quarter.
December 28 - Telegraph - EU
Agree with some of what Louise Armistead said, including the implications in the last few sentences. I also think the market aspect of the crisis is controllable, if the ECB does more to cap yields beyond the recent reassuring liquidity measures; such as buying bonds on a large enough scale to take the sting out of any sudden rises. Louise doesn't think the end of January summit will have the answers, maybe not all of them, but there should should be lots of ideas for growth, i.e. more rate reductions at the ECB and the EFSF should have firmed up and the IMF received funding for its vehicle and the ESM should be fleshed out and largely completed. It's the key, along with a new major treaty in the summer; this agreement in March is just a precursor. A plan is needed through this year and beyond for dealing with the revised relationships within Europe and a mechanism that allows any full Eurozone departing member state to enter an outer Eurozone safe area, either within or outside the Eurozone itself, where the return to the orginal currency is assisted and protected, for the general good.
Posted at last attempt at 7.50pm on December 28. For some reason, this posting wouldn't go up on the Telegraph site, as mentioned on a posting the next morning on Jeremy Warner's page that did go up. (I am hacked a lot)
The first sentence seems obscure; Louise's original article is not under her name so I couldn't check it, but it refers to her opinion that the US would step in if the Eurozone crisis got absolutely critical. I also referred to this possibility, which has been officially denied, in an earlier article, as did others.
This posting has been increased in length and content a little as there was an opportunity to do so. The last sentence seems expensive, but smaller GDP countries, not yet ready, were admitted to a currency that was based on not fully extrapolated rule book and it is the Eurozone's responsibility to restructure it so that the whole entity works, without those members, if necessary.
December 22 2011 - Telegraph - US
A suggestion has been made that the Republicans sit it out and then blame the Democrats,when the taxes rise. This is very risky. 2012 is an election year. How would it look if a good case for holding things up could be made against the challenging party? The Republicans could seem lacking in cohesion and responsibility, and therefore appear a more dubious choice. Perception is everything, especially where half the country has its Christmas holiday spoilt and has a good idea where to lay the blame. Perhaps there should be a vote on the two month extension and go for the whole year in 2012, when there will be the time to get a good compromise all round and everyone starts off calm and equal.
Posted at 10am on Telegraph online in response to Richard Blackden, the Telegraph's US business editor, who was concerned about an HSBC forecast of a 0.5% drop in growth, if the Tax holiday wasn't extended, as I was. I was also concerned about a drop in consumer confidence and as an activist, the possibility of unfairness. A compromise was reached the evening of the 22nd and the bill signed into law on the afternoon of the 23rd. A timely and effective compromise.
This commentary, and that of December 19, was posted under a username and therefore, not immediately available. Similarly, the commentary of December 14 on The Hill was not generally available at the time. This site assumes that commentary that is not printed or printed later, and does not contravene any other rules, is seen as sensitive and is being considered in some form.
December 19 2011 - Additional commentary US UK
The Republicans are saying that the 2 month tax cut extension won't pass. So they need to have an effective alternative because stopping the Senate bipartisan agreed extension might seem a 'coup,'(my imagery) but leaving a 160 million Americans to worry over the holidays would be a risky move.
This morning I wondered in a Telegraph posting if any EU member state in the teleconference would actually not offer funding to the IMF. The UK has declined to contribute to the IMF Euro bailout, but I was more thinking of the non-eurozone aspect of IMF work and the remaining funding put aside. Similarly of the US IMF funding put aside. If the IMF is creating a vehicle to deliver this support to Eurozone countries in need, will the 'ordinary' work of the IMF be compromised at all? Will it have a funding shortfall? Is that where those who prefer not to fund a Eurozone bailout might show their support.
December 15 2011 - The Telegraph - US
Haven't got a road map, Richard, but what I'd like to see in the US in 2012 is the consolidation of growth achieved and a modest increase from Bloomberg's estimate of 2.2%, perhaps up to 2.5%; and unemployment coming down to the UK level; and a sensible reduction plan agreed, before the automatic measures. And hopefully, not the political contention there was in 2011, a statesman-like feeling to Congress would be very encouraging for an election year and then noticeable growth in 2013. I think Chancellor Merkel's right, Eurozone problems won't be sorted out quickly, although short term, they should be brought under sufficient control to reach the longer term answers. So consolidation and consistent, modest, ongoing growth should be an achievable US target for 2012 in the present global economic climate.
Posted at 12.30pm on Telegraph on line in response to Richard Blackden. On December 17, there was the welcome news that the Senate had passed an omnibus bill. As the Blomberg headline put it Congress Clears $1 Trillion Budget in Rare Bipartisan Compromise. Bloomberg also reported that the Senate had passed a Payroll Tax Extension of two months, leaving the pipeline issue to be addressed by the end of February. The measure will now go to the House, probably on December 19. If a longer extension is not possible, this seems an effective way of preventing a general tax rise on January 1 and hopefully, it will pass.
December 14 - The Hill - US
The Senate now has the highly important task of finding an effective compromise so that this necessary legistlation is passed. The improving data out of the US is one of the main reassuring aspects in an uncertain world at present.
Posted at 10.30am GMT. The gist of the rest of it, the posting didn't appear, was that a de facto tax rise when the US was turning the corner was to be avoided if at all posssible.
December 12 - Reuters - EU
From the smallest committee upwards, it is assumed that exercising one's right to vote for, or against a proposal is not subject to retribution; and it seems unlikely that Chancellor Merkel would countenance any attempt to punish the UK financial and business sector, as has been suggested in the media. The intergovernmental agreement has to be ratified in each country whose leader has signed it and considered in those that might. This is the democratic process. How would it look if the one member state that had exercised its right not to sign, were punished. It could make those nations debating the issue very uncomfortable.
On the vague chance, unhelpful tariffs, regulation and quotas were to be directed at the UK. they could be put on hold. Safeguards were not possible at the EU Summit, but they are internally.
It is far more important to deal with existing Eurozone difficulties than over-reacting; natural disappointment can only be taken so far. In a posting while the summit was in progress, I stressed the importance of funding the IMF, now agreed at 200 billion, so that the G20 might join the endeavour. Move on and this is all still workable.
Posted at 10.23am. At about 11.45am, The Guardian live blog reported the German Government as tweeting that Britain 'remains one of our most important partners and friends. close agreement for example in foreign and economic policy.' The FT also earlier reported that Paris had said its relations with the UK were 'intact.'
The use of bold for the word, G20, in the last paragraph of the posting, is Reuters'. Bloomberg reported this morning that Brazil was looking for an arrangement to fund the IMF along with China, India and Russia. At 4.09pm GMT Reuters reported that the Russian Ambassador to the EU has said that 'his country is considering providing funding to the IMF to help tackle the euro-zone debt crisis.' This is all very encouraging.
December 9 - Persicope post - EU
It had seemed possible that the Eurozone leaders might compromise, but as they didn't, David Cameron did what he had to. Chancellor Merkel probably understands that; and as the Prime Minister said the EU has always had different parts. This intergovernmental agreement/treaty is outside the EU, but hopefully, will be effective in releasing the ECB cap on yields; everyone wishes the new agreement well with that. Moving on, the fire wall is being increased and work being done recapitalising the euro banks. In some way this is more immediately important than getting the majority agreement. Lots of extrapolation and detail ahead, but somewhere down the line there will need to be a new major restructuring treaty for the EU.
December 3 - Periscope Post - UK US EU Eurozone
Posted at 10.25am, 3.12.11 a longer than usual article entitled Deal with the Financial Crisis and this Decade will lead to Great Improvements, published 5.12.11
Dec 6 - the debate on the extradition treaties did not come to a vote as there was a general consensus that they should be reviewed. Well done.
However, I'm rather confused about the Lisbon Treaty. Is it going to be amended or is there going to be a new treaty in 2012? Reuters thinks it's amendments to the Lisbon Treaty and has a good facts box explaining what EU member states would have to do. But the Telegraph live blog, reports that Francois Filley, the French PM, says it's more likely a new EU treaty will be signed by the 17. So would that be in accordance with EU rules? If the treaty is outside the EU, any regulation emenating from it would not be enforceable in the non-Eurozone sector. Better to keep to the 27. The 10 are likely to say we are willing to negotiate on this.
Dec 7 - As many are saying, it depends on what the Eurozone leaders are asking for. A moderate Lisbon treaty change by the 27 would probably elicit the response from the UK and others of safeguards, but an attempt to create a new treaty for the 17, outside the EU, with its own institutions, would be a far reaching measure. EU officials seem wary of such a move, citing the Lisbon Treaty as not allowing it.
I always thought that the Lisbon Treaty would be altered through negotiation by the 27 to settle market uncertainty, but only as a prelude to another major EU treaty later on.
November 28 - Telgraph - EU US
Would this type of Fed action be feasible? When it seemed the IMF's financial power might be enhanced, the US objected, so would they be content to see the Fed taking over from them? If this is not a problem, then the idea is very interesting.
The main immediate internal EU issue seems to be that Germany (and France are) considering going outside the EU to arrange the fiscal cohesion that releases ECB firepower because it's quicker and it doesn't involve any repatriation. Up to ten member states bonding outside the Eurozone while the remainder watch is serious stuff. This is finance not borders. If the others joined one by one, then you've got the 17 again and all the caucusing problems compounded by the fact it's outside the EU, and calls for a referendum in the UK would be vociferous. Perhaps they should keep to treaty change and accept that some repartriation is inevitable.
Posted at 3.20pm in response to Should the Fed save Europe? November 30 - At 1.10pm bst on November 30, the central banks of US, UK, Japan, Canada and Switzerland announced 'co-ordinated action to enhance liquidity support to the global financial system.' The central bank of China took separate easing measures.
November 24 - Telegraph - EU
'The treaty alteration proposals are coming out fully in early December, at least two weeks, but even then the are not decisive, immediate action. On the net, in an interview, someone said, the Eurozone needs the paddles to jump start them and they're being offered dietry change. The ECB will intervene surely.
Posted at 11.20am in response to Jeremy Warner' Death of a Currency.
November 22 - Wall Street Journal - Eurozone, ECB
Perhaps the ECB should consider doing a major, possibly one off, bond purchase of the weekly limit of twenty billion to bring the Italian and Spanish yields down, allowing smalller amounts to hold the line at 6%, and calming the markets while politcal solutions are enacted.
Posted at 6.45pm bst on 22nd in response to No Relief for Europe's Bonds.
24.11.11 So no eurobonds and no lender of last resort for the ECB, (recent meeting) although I still think this is already happening to a certain extent. The general consensus seems to be that 20 billion is the weekly limit for ECB bond buying, although half has so far been the actual limit in the present crisis. Would the ECB, as an independent institution, be able to go for a purchase of that order, if they thought it necessary and the votes were there?
November 21 - The Hill - US
It's very sad to see an impasse again; it did look as if a repeat of the Debt Ceiling contention and the harm it did, could be avoided. I bow to Party of No Plans's greater knowledge, but surely the impasse can't be caused by Grover Norquist's influence? Mr Norquist is a private individual, a lobbyist and head of Americans For Tax Reform. How can he have such influence over elected representatives of the American People? Especially in such an urgent and far-reaching decision. There must be another explanation.
Posted at 12.30pm bst in reply to comments on Deficit Super Committee Members expect to announce Failure. Well, they did and now there's a year before the automatic cuts come in. So still time to sort this out. Senator Durbin has said the Gang of Six could reconvene and bring proposals to the open scrutiny of Congress.
Nov. 22 I read the text of CBS The Pledge programme on wltx.com, an interview with activist Grover Norquist. What I found disturbing was that Mr Norquist as is his right, declined to indicate specifically where his funding comes from. As a long term activist, I was very uncomfortable with that. I can see buildings rising out of the ground and people getting considerable facilities and my lobbying has never been funded and it is a huge amount of work. And what's this about pledge breakers being challenged in their constituencies? How is that funded? I find this whole thing very disturbing. Imagine saying to Conservative Party, or any other party that they should sign a pledge set up by a private individual and keep to it when voting in Parliament.
November 16 - Wall Street Journal - Eurozone
Maintaining the Italian yield at 7% or less, is of course necessary, and the ECB is the institution doing it, but fire fighting in short bursts, when the alternative is very risky, seems to be creating febrile markets. There was a suggestion recently that the line for Eurozone yields should be held at an affordable level. (6%?) I would amend this proposal so that it only applied to member states not receiving a bailout. It would take the heat out of the situation and have the potential to prevent contagion. Thiscould be seen as managing Eurozone stability and if being lender of last resort is definitely not within the ECB's remit, and it is not possible to give the institution emergency powers, then could its capacity be increased so that this very interesting suggestion (of German origin, I think) could be considered?
November 10 - Telegraph - Eurozone
Pleased to see in Finance's live blog that Italy's yield has dropped to 7.1 from more than 7.4, due to ECB bond buying. Let's see it get down below the 7 percent mark today. It's clear the ECB, as is their remit, are focusing on stability in the Eurozone and stabilising Italy is the way to bring it about. Not too worried about Greece; they will get their tranche. What's more important is that the ECB seem to be initimating that a stable Italy is their prime concern at present and they will continually act to that end.
Posted at 10am GMT. The yield did fall to below 7% and things stabilised; as they did in Greece.
November 9 - The Hill - US
Any movement towards making compromise possible has to be good. Both parties should be keeping their eyes on Europe and acting accordingly. Both the reduction plan and job and growth legislation need to go through.
November 9 - Wall Street Journal - Eurozone
Earlier this mornng, there were reports that Italian bond yields had hit the symbolic level everyone is concerned about and yes, they may be down again slightly by now and Italy may be able to sustain such a yield for a reasonable time and go even higher, but this is about perception and the markets are looking for direction. Hopefully, the ECB will be active today. This situation presently supercedes any supervisory inclination.
Posted at 10am bst. The ECB is buying 'aggressively' today. Chancellor, Angela Merkel is calling for treaty change.
November 6 - Telegraph - UK
A response to Telegraph View's 'Cameron must have a plan to take to the table.' Agreeing; and assuming that by the time it's needed, the Government ' will have a workable, country aproved plan that repatriates stated powers and furnishes the UK with water tight safeguards for being in the EU alongside a fiscally cohesive Eurozone.'
November 5 - The HIll - US
A not printed post on the 60 vote rule for the Senate and a compromise to pass job creation measures, in the light of more encouraging news on the reduction plan.
November 3 - Reuters - Eurozone
A moderated posting of suggestions at 11.25am bst, including the point that automatic funding cut-off also has the effect of ending any influence; and the extrapolation of Greece not confirming the October 26 package. 'a write down of 75% and require the EU and Eurozone's consent to leave the Eurozone and join the non-Eurozone sector within the EU...and the Agreement is adjusted to include a further 25% write down.... the IMF and ECB could be running stability patrols in the Eurozone.'
It was said on November 4 Greece might leave the Eurozone if so decided, something not thought possible. The referendum was cancelled and a new Prime Minister is being chosen November 7. Both the IMF and ECB are monitoring Italy's reduction process.
November 2 - Periscope Post - Eurozone
It will be interesting to see what the question posed in the referendum will be because that may make a difference, assuming the Greek Government gets through the Friday vote safely, not a certain outcome. It appears the Eurozone is pushing ahead with the October 27 agreement, whcih is the right thing to do. Incidentally, what constitutes a write down fit to cause a credit event? A 50% voluntary haircut seems just within what will not trigger one, so if the haircut rose to 75%, would that do it, voluntary or not? Because this might become important. Perhaps the Eurozone will say, look the agreement's happening, nearly entirely as agreed. In the eventuality that Greece decides to have a vote on the bailout package and votes no, (it might well be a vote on in or out of the Eurozone, not so risky,) the write down happens outside the Euro and it might be bigger but it will not be disorderly. This is going to be managed in an effective way and all the other extremely important issues that need to be considered by the G20 will get a hearing, like growth and job creation. To support this, an indication from the ECB on reducing interest rates and confirming the scale, to be as needed, in Eurozone bond buying, would be very helpful.
Posted at 5.30 bst. On October 3, the ECB lowered its rate by a quarter percent.
October - Telegraph, Periscope Post and The Hill - UK, Eurozone, US
Various excerpts from mid October onwards.
16.10.11 Telegraph on line in response to Kamal Ahmed. - 'It seems worrying that reams of directives, potentially hampering growth, are issuing forth from Brussells.' 28.10.11 - Periscope Post in response to Eurozone statement of same date. Reports of the decision on 'Leveraging of the EFSF seemed to indicate that it would either be insurance based, or based on the creation of a new financial vehicle, when both running together might be more effective in achieving that trillion plus target.... And then, there are the varing interpretations of Mario Draghhi's comments. I thought they indicated that bond buying was presently ongoing until such time as it was safe to go on pause, i.e. no set timescale.' 30.10.11 - Telegraph on line - in response to Matthew d'Acona. 'In any case, looking at it logically, how does one 'cudgel' (into line) up to potentially a hundred people?' 31.10.11 - The Hill - US - a short post, not yet published.
October 26 - Reuters - EU
Mario Draghi issued a statement in Rome today, signalling that the ECB would continue to buy bonds. Very good news. A short posting was entered on Reuters at 3pm bst on October 25 in response to report - US stocks futures cut gains following Merkel comments on summit - and appeared the following day.
October 24 - Wall Street Journal - UK
This is very difficult. A referendum would be appropriate later, when treaty changes or new treaty proposals take place. By then the shape of the new Eurozone and European Union will be clearer and the results of a referendum on returning certain powers will inform UK negotiations. Today the vote will almost certainly be against, but hopefully, no punishments afterwards.
Posted on WSJ at 12.40pm in response to article Cameron Faces Rebellion over EU. The concept of a referendum on the repatriation of certain powers to the UK also featured in a major Comment piece in the Daily Mail on October 26.
October 20 - Wall Street Journal - EU
A way will probably be found of leveraging he EFSF (up to a trillion) without puting unbearable pressure on the ECB, even if it means stretching the rules. The Central Bank's bond buying programme is keeping things stable to a vital extent and must be maintained and not put in any doubt. The IMF could be the third pillar in the process, working alongside the other two. Greece could be stabilised by delivering its sixth tranche and its second bailout, with a proviso agreed by the banks that a significant new write down of Greek debt, beyond the 21%, would be considered next year in conjuction wth the ESM. The new write down could be part voluntary, part use of ESM powers and part credit transfer, then the volatility in the markets should ease and recapitalising the banks could be done in good order, allowing a higher percentage than at present to find capital in more traditional areas. 2012 is now going to be the defining year and all actions should be focused on that. The measures taken should not only be decisive, but supportive, enabling and forward thinking so that considerable restructuring can begin to take place in the Eurozone and EU.
Posted at 11.40am bst. The trillion referred to is pounds, with the
IMF, if it decides to join in, taking the capacity up to about 1.5 trillion. There has to be a plan if it is not possible to use the capacity of the ECB. The composition of the total write down, suggested at 50%, was seen as follows: 21% with the implementation of the second bailout and another 31% next year consisting of : part agreed, a small part imposed under the ESM if necessary, and part credit transfer. The transfer was seen as provided by the G20, the Eurozone, and the EU , since this affects just about everyone, according to capability and countries providing once if they appear more than once. This would protect the banking sector. Of course 50% haircut may be seen as too high a figure, which would make things easier. Okay, blue sky thinking, how I hate that phrase, but nothing should be completely out of the picture.
October 13 -Reuters - Eurozone
Is it being proposed that any increase in 'haircut' from the original 21% will be implemented without delay, if the terms of the second Greek bailout are reconfigured? It hasn't been made clear and it seems rather concerning if up to 50% is being suggested. Or is it being considered as a second stage, to be included in the new terms, but with a time lag?
Posted at 5.54pm bst
October 17 - It still isn't completely clear, but indications are that a write down of about 50% is proposed on a voluntary basis with no time lag. This seems the most problematic of the three strands of the crisis solving decisions. Leveraging the EFSF and recapitalising the banks appear to be formulating. But solving the issue of Greek debt remains difficult. There is a fourth strand - that of bringing the ESM forward and that could be responsible for a second stage writedown of about thirty percent next year, when more options would be available. A large haircut now would be very decisive, but depends on considerable voluntary co-operation, which might be considered too much and too soon with the 21% already agreed. It might be possible to implement the second bailout as it stands except for a clause stipulating a further write down and start the ESM ratification quickly. And any remaining tranches, as previously suggested elsewhere, could be combined into the second bailout, so getting as far as the ESM would not be an issue.
October 8 - Telegraph - Eurozone
It's very important that the new EFSF works well and can be leveraged adequately for what it has to do. So there must be no question of its 'backbone' countries not retaining their triple A status. Which seems to indicate that the July 21 agreement, that the new EFSF was to function without pre-conditions on access, should be followed. A number of coping mechanisms and safety nets are coming fogether now, the EFSF, the proposal from the IMF on short term lending, the ongoing ECB bond buying and the approaching ESM, have the strong potential to contain and remove the present situation of uncertainty. But how much better to signal also that Greece will be receiving its sixth tranche and the 21 July agreement will go through unaltered and do all the adjustment when everything is in place and has been very carefully considered.
This comment was posted at 12.20pm. The Troika approved the sixth tranche on October 11. Wall Street Journal. Jean Claude Trichet has said that the new EFSF should be flexible and open. It's understandable if policy makers prefer the EFSF to be the last resort for bank recapitalisation, but in instances where there are already indications that markets and governments will not be available, there should be ready access. Michael Kemmer of Germany's Banking Federation said on October 11 'Let us first get this 21pc through. That should help the Greeks out a fair bit and then we'll see.' Slovakia, the last of the 17 Eurozone member states to vote on the new EFSF, votes today, October 11. The ratification failed on the 11th and passed on the 13th October.
October 5 - Wall Street Journal - Eurozone
France and Spain are right. The Eurozone should confirm the July 21 Greek second bailout with the 21% 'haircut' and leave any further adjustment to the ESM in 2012, when everyone is ready and supported.
October 4 - Periscope Post - EU, Eurozone, UK, US, Japan
An article on Periscope - Booker and Barosso are right; inaction will lead to a eurozone crisis. This article went into popular on Finance.
Several items mentioned in the column are presently being considered or are happening i.e. 'it would be most supportive to see the BOE decide on QE, perhaps in tranches.' On October 6, the BOE issued 75 billion in QE over 4 months and October 9, Martin Weale of the MPC said there was 'a lot of scope for more QE'. Telegraph. It appears the November G20 is ' a suitable deadline for important decisions' and workable plans. The ECB didn't decide to lower its rate, but it was discussed and I still anticipate it happening soon, and President Obama's Jobs Bill is due to be considered by the end of the month. On October 5, the IMF said that the ECB should remain active on the bond market even after the EFSF gets its new powers. Reuters. October 12, PM Yoshihko Noda's Cabinet approved the outline of a third extra budget of about 12 trilliion yen for reconstruction following the March earthquake and tsunami. Mainichi news.
October 3 - Wall Street Journal - Eurozone
Surely there are extenuating circumstances. 2011 has been an extremely difficult year. If the Troika is otherwise sufficiently satisfied with reduction progress being made, then the Eurogroup finance ministers meeting will be in a position to release the tranche today and along with the IMF, bring this vital stage to a very necessary conclusion.
Posted at 8.30m bst. It did look for a while that meeting was making an effort to agree the tranche, but the decision was deferred to October 13, to allow for the Troika report. Then October 4, at the EU Finance Ministers' meeting, the Greek sixth tranche decision was deferred to November. Unbelievable. Markets have dropped, understandably.
September 3o - The Hill - US
Very glad to see that Senator Durbin has expressed confidence that the Jobs Bill will gather sufficient votes to pass in due course, through bi-partisan co-operation. This must be most encouraging for those seeking employment.
This was posted at 12.20pm bst and moderated. President made the Jobs Bill the focus on his Saturday address on October 1.
September 29 - Wall Street Journal - Eurozone
Jose Manuel Barosso's call for a speedy response is appropriate.Firstly, or rather jointly, there is the Troika's audit today which hopefully will confirm that Greek compliance is suffcient, allowing the sixth tranche's very necessary transfer to the next finance meeting; and later, the decisions agreed on July 21 will be coming to the German and Estonian parliaments, with Malta tomorrow. Assuming that will make twelve having ratified the decisions, including the new more flexible EFSF, with another on Monday, the improved mechanism will be in a position to prepare and decide its starting date. Should there be a member state that seriously believes ratification is not within its grasp, and that is unlikely, it should agree to the others taking the next natural step, including a date being set for the new EFSFto move into position alongside the ECB. However, it was a little concerning that Mr Barosso made references to a possible transactions tax when the real need is to focus on what it immediately ahead.
This was posted at 12.20pm bst. the Eurogroup's Jean Claude Juncker said on September 30 that the new EFSF will be ratified at the latest by mid October.There are presently 3 member states left to ratify. I assume preparations are being made to implement ratification, speed being of the essence. The ECB has said that there is presently no end date for the bond buyng programme, so the relevant procedures seem to be coming together. If the Troika's hopefully positive decision could be made by Monday for the Finance Minister's meeting then that would keep the impetus going. This stage ( EFSF start up and 6th Tranche) is hugely important and then the decision making can move on.
September 26 - Wall Street Journal - Eurozone
Leveraging the EFSF in some way is probably an effective measure for the near future, perhaps to be decided and prepared by November, but for now, the most immediate concern is agreeing to give Greece its sixth tranche. This should be agreed this week, with the IMF leading. Also this week, nearly all the ratification of the improved EFSF should be completed and it should be up and running by October 14 in conjunction with the ECB, with the ECB buying bonds and EFSF providing the banking facility; this mechanism to be interchangeable if required. These essential stages should bring stability and allow for major planning to be finalised on extending the size of the EFSF and any other accompanying measures; and also on bringing forward the ESM, with all that means. Complete the first stages and the rest will fall into place.
This was posted at 10.25am bst. On September 27, Chancellor Angela Merkel remarked that issues like ratifying the improved EFSF should be dealt with first. September 28, Finland has now ratified, making 9 and Germany's vote is being held on the 29th. The Troika are due to return to Greece on 29th.
September 22 - The Telegraph - Eurozone
Should that be, in brackets, 1.4 trillion? If measures could be taken as needed, rather than as what can be agreed, all the remaining Eurozone Parliaments should consider the new EFSF next week, even if it means bringing people back from holiday, and for a while the ECB and the EFSF should run side by side, both taking stabilising measures, what a total capacity that would be; and the ECB could see to anyone anxious about rating issues. Whatever serious considerations there are on the Eurozone, they should be taken later. They need to be taken with cool heads, not market driven. The Greek tranche, a small 7 billion, is not a worrying problem.
This was posted at 3.20pm. The Troika returns to Greece week commencing September 26 and the signs are promising. Only three member states are still to ratify in October, so if the vast majortiy do ratify by October 1, there seems no reason the new improved EFSF should not make its arrangements to commence, on the understanding the others will catch up within a few days. Feeling confident a significant step forward is about to be taken.
September 20 - Telegraph - US UK
Very interesting suggestion in FXMM that the Fed might go beyond extending maturities and consider indirectly lending to the private sector through the discount window. Perhaps this is too advanced a measure, but it would have the potential to support the Jobs Act in the drive to stimulate growth. With UK's likely QE2, there have been suggestions that a percentage of the tranche, or possibly graduated tranches, might also be targeted. Innovative thinking is presently appropriate and the Central Banks are being pro-active in these demanding months before 2012.
This was posted at 5.50pm. On September 23, George Osborne referred to a rescue plan that would see the BOE lendng directly to SMEs. (A Daily Mail report)
September 17- Wall Street Journal - Eurozone
Short term Eurozone prospects have the potential to be positive. The Eurozone has the capability and will to cope satisfactorily with this stage of its difficulties. And hopefully, by mid October, the EFSF will be running, for which they are presently gearing up; and hopefully, the ECB will be the fund's mentor and partner to some degree until it is no longer necessary. By mid October also, Greece will have hopefully received its tranche, both of these events occurring because the July Summit decisions will have been ratified. Five Eurozone member states have ratified already, six or seven more will be considering and potentially ratifying by the end of September, and if the remaining states bring their decisions forward by whatever means, all this could be done efficiently and in good order, which I have confidence the Eurozone, by using its instinctive will to cooperate, will enable.
posted on WSJ at 12.20pm bst
September 14 Wall Street Journal - EU
Has a deadline date been set for ratifying the new EFSF? 30th September for example? If a significant majority do ratify it, perhaps in the circumstances, it could go ahead pro tem. Absorbing article, but there's a good chance Greece will receive support up to 2013, so default may not be an issue to be considered yet.
September 13 -Wall Street Journal - EU
Interesting comments; and heartening remarks today by Angela Merkel, which together with the indications from the IMF yesterday, point towards Greece getting its next tranche this month. This is almost a repeat of the July Summit. Greece did eventually have its bailout agreed and if the awaited tranche hadn't happened, somebody would have provided a bridging loan. So Greece will amost certainly get its September tranche, one way or another. In fact, it seems that what we are working towards is 2013 and the ESM. A lot of things are going to be sorted out then, like restructuring the Eurozone and the EU. Sometimes it's good to wait for things and get them right. In the meantime, there is a procedure to be gone through. Greece gets its tranche, bond buying continues, everyone gets a move on with the new EFSF, and perhaps later on eurobonds, if fiscal cohesion comes together. Look as if a path is laid out and the uncertainly and accompanying volatility will ease.
This was posted at noon. Later that evening, President Obama called for action in the Eurozone, saying 'It is diffcult to coordinate and agree a common path when you have so many countries' but called upon the zone's leaders to work for coordinated fiscal policy. China also called for action and the EC said they will soon be bringing forward proposals on eurobonds. Chancellor Merkel, President Sarkozy and theGreek PM to hold conference call on September 14.
September 12 - Telegraph - EU
If the commitment to the Euro is there, as has been said many times, then a Troika statement should be issued to the effect that the latest Greek measures allow for the assumption that Greece is on course to comply and the next trancheis safe, notwithstanding individual hesitations. The present situation is very unhelpful.
Posted at 10.40am in response to German Minister raises 'orderly default' for Greece. At 1pm WSJ reports, citing IMF source, that the Troika is expected to approve Greek Loan Tranche this month.
Septmber 6 - Wall Street Journal - Europe
The Eurozone is approaching a significant time in its history. But it's not there yet and in the interim, the ECB should be dovish on Thurday. I would go further and say it should signal a rate reduction, if not of a quarter percent now, which would be best, then by 2012. In addition, the ECB should indicate that whilst anticipating and expecting the Eurozone will move as quickly as it can on the EFSF, allowing for the decision tomorrow, the Central Bank will stand steadfast on bond buying. Breathing space is needed for the populations to catch up with the politicans.
The ECB was dovish, and Jean-Claude Trichet's statement on bond buying was reassuring, but with the focus on inflation, there was no indication of lower interest rates, although like others, I think this subject may be revisited later this year.
September 4 The Hill.com US
Brief post referring to the US stimulus package and reiterating some of the points in August 15's article in Periscope Post. This post was moderated. President Obama later brought forward a Jobs Bill of 447 billion balanced and exceeded by reductions.
September 2 - 2011 - US
Markets dropping again, more generally than before, but employment figures marking time in August is not surprising and unemployment didn't rise. September is another month with two hopeful dates in it, the President's speech and the Federal Reserve's two day meeting. The Debt Ceiling and rating cut froze August, but they're over now and September looks much more positive and pro-active.
29th August 2011 - Periscope post - Japan
I normally read articles on the UK. the US and Europe, but these reports on the resignation of the Japanese Prime Minister really stand out. Six Prime Ministers in five years. Is it a result of the country's difficulties, as some commentators have suggested, or is it as others have put forward, that the position of Prime Minister in Japan is difficult in itself? Have the parties held debates on the subject? Does the position of Prime Minister need strengthening? It must be very demandng to try to implement important medium term policy decisions if tenure is problematic. Elections permitting, perhaps as happened in the UK, the ruling party could agree that the next holder of this important office is given a set term, in this case, of say, two years and the parties abide by this.
August 29, Yoshihiko Noda was elected to be the new Prime Minister of Japan. The DPJ has been in power for exactly two years of a four year term. Yoshihiko Noda has expressed his wish to reach out to the Opposition parties. WSJ.
24th August 2011 - Wall Street Journal - US
Interesting comments and there have been various extrapolations elsewhere of what Ben Bernanke might say in his speech on Friday. My contribution is that he will offer something. Extendng maturities perhaps. The proposed executive stimulus package is very important, as is the Cuts Commision of which it may be part. If thereis no agreement by the November deadline, then QE3 in 2012; perhaps sooner, but it should be on the table.
So maturities didn't happen, but handing it over to fiscal policymakers did, which seems appropriate. I don't see QE as entirely off the table in the medium term, it just matters how the next stimulus stage goes. Little surprised nothing was offered to plug the gap between now and early September and the economic statement, but anticipate the meeting towards the end of September will make things clearer.
21st August 2011 - Telegraph on line - UK
Hadn't realised this level of ring-fencing was being considered. It seemed in the Interim Report that ring-fencing was preferred over complete separation and whilst protecting retail, banking would, within guidelines, continue to function as required to assist the recovery.
19th August 2011 Wall Street Journal - Eurozone, US
The falling markets are caused by unnecessary panic. The situation is controllable and swift action by policy makers laying out their plans for the next year is needed to bring about levelling out, the return of confidence, recovering losses and finally that essential element, stability. Ideas and proposals abound, some completely workable. Everyone appreciates how difficult it is when markets and politics collide, but as in the US, this is above party.
posted at 11.50am
Over the weekend of August 20 & 21, Chancellor Merkel restated her opposition to the idea of euro bonds and President Obama in his Saturday address, regretted 'the refusal by some in Congress to put country ahead of party.'
18th August 2011
The markets are dropping again, in the same pattern. Jeremy Warner has a good article on Telegraph Finance. Large number of followers and comments, but this market volatility every few days is so unhelpful. I think everyone had hoped it would get less frequent and abrupt. But my best, imaginative, highly unlikely to happen - see the last Periscope article - type scenario is that the financial transaction tax is put onto the Eurozone only back-burner. The ECB signals that it is going to lower its interest rate. And the two issues of the EFSF being bigger as well as more flexible and the euro bond concept are given the green light to be compared for viability.
Sept 1, El-Erian sees ECB cutting rates - Bloomberg.
August 19 10.30am
A lot of external comparisons seem to be in progress already. The EFSF is a slightly easier proposition with the possibility of a form of words saying that should the 440 billion be at risk of being exceeded, then extension procedures would come into effect. Perhaps the EFSF is the forerunner of some form of eurobond as the ECB bond buying is the interim for the EFSF, a sort of three stage process over the next year with the governance proposals running alongside. It could work.
15th August 2011 - Periscope Post - UK, US, EU
An article entitled Central Bank and the UK finding their feet - what should their roles be? was posted on Periscope this morning. This article was about the US, UK and the Eurozone. The markets were steady and rising today. The US made up its losses since the downgrade.
16th August 2011
The markets dropped this morning on the release of a low German growth figure, and anxiety about the meeting between Chancellor Merkel and President Sarkozy. We'll soon be acepting that erratic but mostly slow growth is part of the significant readjustment we're going through; the UK inflation rate comes under this heading. So nothing released today is unduly worrying.
The Eurozone leaders' meeting appears to be focusing on governance and enhancing and strengthening the EFSF. But such is the agitation for a Euro-area bond to be considered and the conviction that it is the long term answer that I wondered if a full report had been drawn up on this proposal; one that laid out the possible benefits and disadvantages, including what it would take to make the concept acceptable to the main economic Eurozone member states, particularly Germany? A report, which explored what this type of major restructuring would mean to everyone, could be presented to the next Summit. In the meantime, we have stage 1 with the ECB providing stabilising interim bond buying until Stage 2, the new improved EFSF
The main results of the meeting were the the size of the EFSF remains the same. France and Germany propose an EU Economic Council to provide economic governance for the euro area. The euro bond issue is only to be considered at the end of the integration process and the idea of a financial transactions tax has been raised again. The markets have dropped this morning August 17 and there is disappointment on the issues of eurobonds, EFSF and some on the transactions tax. However, there is confidence in the ECB bond buying and that slowing growth will keep the interest rate steady; and some anticipation that it might even be lowered slightly. Dow opened higher on good figures and Blomberg reported a new proposed stimulus and reduction package to be announced in early September.
6th August 2011 - Wall Street Journal - Eurozone and US
It would indeed be best if the EFSF could be up and running by Monday, but that does not seem possible. So Italy is evidently taking steps to bring forward its economic reforms in order to comply with the ECB's advice, so that it would be more likely that the Central Bank would buy its bonds. If buying does commence successfully on Monday, this would be of significant relevance to market stabilisation. The US downgrade, although a symbolic shock, will by then have somewhat abated in impact. It has been met with reasonable criticism and muted response, in the knowledge that the incentive it provides for political co-operation will have been taken to heart.
8th August 2011 - 7.15am -
Late Sunday, August 7, The ECB issued a statement, in the context of Italian and Spanish pledges and G7 and Franco-German affirmations, that it 'would actively implement its bond-buying programme to fight the eurozone's debt crisis.'( Reuters, WSJ, Telegraph, etc )This has been generally taken to mean the the ECB will be buying Italian and Spanish bonds on a significant scale. This strengthened the Euro and is very good news that this important decision will be put into effect.
The LESSER issue of the US downgrade has caused some technical disturbance which should stablise as markets accept the US economy is set to remain in recovery, and there is no reason for sentiment to weaken.
9th August 2011 9.50 am
The bond markets have benefited from ECB intervention and the spreads have fallen where they needed to. So far so good, but the lesser issue of the downgrade has turned into a considerable panic, when this late summer could have been ordinary. The markets could have been quiet, waiting for the heavy lifting implementation of the early and late autumn, starting with the return of the Eurozone parliaments, only two or three weeks away. The big decisions were taken, everyone important was still in growth, lessons had been learned, further stimulus was available if really needed, and the downgrade could have been taken as a personal admonitory signal to the US, which from the President's statement yesterday has been well heeded. There was no need for alarm and the best thing thing the markets could do now is to level out and gradually recover. The US is not going to double dip; it won't be allowed to; nor will the UK or any other significant economy.
10th August 10 2011
Markets rose yesterday in turn and are continuing to rise. This is very encouraging, especially for the enhancement of confidence levels; and confidence is a staple requirement for growth, and growth is and always has been, one of the most important items at the top of the agenda.
Well, the rise didn't last as long as everyone would have liked. Jitters about France this time because it has a lot of Italian bonds, which are doing OK. And general jitters apparently about our old friend recession, when the Federal Reserve and the BOE have both said they have tools at their disposal and they will use them if it becomes necessary. The ECB is out there buying and it's being effective. The first US bond sale since the downgrade went well, the Italian T Bill sale went well. France's triple A rating has been reaffrmed. The banks have said they repudiate the speculation. Yes, these are difficult, nervous times, but decisions should be based on fact.
12th August 2011
Yesterday, August 11, the Ftse, Dax and Cacs opened up, but anxiety crept back about lunchtime and they fell again. However, better than expected jobless figures helped the Dow to open noticeably up and the others followed. Spanish yields dropped below five percent, what anaylists were looking for, and this morning, it was confirmed that there would be a short-selling ban on some Italian, French, Spanish and Belgian stocks. The European markets opened down today, but soon recovered. Perhaps volatility is settling down and will be more short lived. A good day before the weekend would be a real plus.
3rd August 2011 -Telegraph on Line - UK - a late Username Post
More QE is an interesting question. Growth is getting near to the level at which it should be considered. The IMF's suggestion of using temporary tax reductions to stimulate the economy is understandable, but raises the issue of reaction both by rating agencies and markets. More QE is a less problematic method, except for the possibility of raising inflation. Emulating the US QE2 staggered programme might be an option, for example, fifty billion in ten billion tranches, pausing, as they did, to evaluate the effect, both on the economy and inflation. This is a complex decision and has the potential to cause a lot of debate and extrapolation on both sides of the Atlantic, but also has a lot in its favour.
5th August 2011 - Wall Street Journal - Eurozone
The situation on the markets is very frustrating. The economic situation in reality is sufficiently stable for the rest of this year to provide slow but acceptable growth. What is needed is for the ECB to buy Italian and Spanish bonds and say so, the Sarkozy/Merkel talks to yield results about the EFSF today and for people to stop needlessly panicking about the US. This is not 2008. Get a grip.
There was a better than expected US jobless report. Italy is bringing forward the structural reforms needed to comply with ECB requirements. Standard & Poor's have downgraded the US one notch, but reaction so far is muted. See update on July 15.
4th August 2011 Wall Street Journal - Eurozone
Perception is what matters in the present situation. The markets may perceive that the ECB needs to buy Italy's bonds, whether or not that is necessary. This is obviously a greater step than with the peripherals. But if the ECB is to fill the role of interim for the new flexible, perhaps in time, larger, EFSF, then this would need considering. Or, the Eurozone members agree a temporary, immediate implementation of the new EFSF and any other facilities thought necessary, leaving the customary processes for ratification etc to proceed at the usual pace. There are probably conditions under which emrgency measures can take place. It may be unfair that this is happening to Italy and Spain, but perhaps the action by the ECB will be enough to stabilise the markets.
August 5
BBC reports there are rumours the ECB is preparing to buy Italian and Spanish bonds. President Sarkozy and Chancellor Merkel to speak later today. Rumours about the ECB are spreading. If the Central Bank is going to do it, a statement would be appropriate, waiting for the leaders to speak might not be.
3rd August 2011 - Wall Street Journal - Eurozone
Jose Manuel Barroso's comment about market over-reaction is appropriate. But as, as he says, a quicker implementation of the decisons taken at the July Summit would be very helpful; especially where the EFSF is concerned.
Implementation of the more flexible version of the EFSF requires some countries to ratify, but in the meantime the ECB is providng banks with unlimited, longer term funds (ctv.ca) and indicating that it is resuming buying government bonds; 'an interim role' (chief economist S&P) while Eurozone procedures are progressed.
15th July 2011 - Telegraph on line - US Debt Ceiling
I imagine there is a fall back plan, if all negotiations fail? It seems the Eurozone had one with the Greek austerity vote; and rightly so. The Fourteenth Amendment, section 4, has been suggested and various other forms of exerting executive power and probably other things people haven't realised can be done. What a great loss, though, if this unique opportunity to reduce the deficit, substantially, fails. All this to go through again, when so much has been achieved in compromise; but even raising the debt ceiling through presidential mandate could be seen as warranting a downgrade, since it appears a small deficit reduction agreement would trigger one. Has this been considered by the rating agencies? And a short default would be worse than the other two put together. Default, in fact, is not an option. A safety net procedure when all else fails, but how much better to get a big reduction plan through. Surely the Republicans can compromisde a little to enable it.
UPDATE August 6
After the Bill raising the debt ceiling was passed on August 2, Standard & Poor's have now downgraded the US rating by one notch. This was signalled and became more likely as the time taken to decide, elongated. Reaction so far has been muted in Australia, Japan, France and Russia without any apparent changes in investment policy. Moody's and Fitch have not downgraded.
Previous Commentary from July 15 to August 3. This set of US commentary was closely followed by a considerable number of people.
