Euro Crisis Returns

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Post by Yuri Yukuv Tue Mar 26, 2013 7:54 am

@BarrileteCosmico wrote:Having been to Italy many times I can tell you there's many restrictions and outright bans on the ability of Italian residents to open Swiss accounts, at least legally. Of course many Swiss banks encourage them to take alternative routes, but it might just be easier (and definitely faster) to stay within the euro-zone.

Not sure if Spain and Portugal have something similar.

Yeah Im guessing you are talking about middle class europeans and small to meduim sized corporations, in which you are probably correct.Im rather talking about large capital owned by institutions, super wealthy and large corporations which provide important incremental deposits.

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Post by Yuri Yukuv Tue Mar 26, 2013 8:10 am

There were some rumors about this but I guess it turned out to be true after all

despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.

Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.

The result, at least for Europe, is quite scary because let's recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in "unsecured" deposits with the island nation's two biggest banks.

As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.

From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.



No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

Just brilliant.

And if there was any doubt that the entire process of destroying one entire nation was simply to punish Cyprus, it can be completely cleared away now:

ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.

"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.

If one thinks there is any material Russian cash therefore left in Cyprus with this epic loophole in place, we urge them to make a deposit in the insolvent nation. One person who certainly will not be allocating any of his money into Bank of Cyprus is German FinMin Schaeuble:

German Finance Minister Wolfgang Schaeuble said the bank closure had limited capital flight but that the ECB was looking closely at the issue. He declined to provide figures.

Perhaps because if he did, it would become clear that the only entities truly punished by this weekend's actions are not evil Russian billionaires, but small and medium domestic companies, and other moderately wealthy individuals, hardly any of them from the former "Evil Empire."

Companies that had to meet margin calls to avoid defaulting on deals were granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

The stealth withdrawals by Russians of course means that the two megabanks are now utterly drained of capital, and that the haircuts on those who still have unsecured deposits with the two banks will be so big it will likely mean a complete wipeout of all deposits. As in 0% recovery on your deposits!

In other words, by now any big Russian funds in Cyprus are long gone, and the only damage accrues to the locals: for one reason because their money over the critical EUR100K threshold has been "vaporized", and for another because the marginal driving force and loan demand creator in Cyprus, the Russians, are gone and are never coming back again.

This is what passes for monetary real-politik in the New Normal - an entire nation becomes collateral when pursuing a wealthy group of people. And the "wealthy group" is victorious in the end despite everything...

If we were Cypriots at this point we would be angry. Very, very angry.
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Post by Art Morte Thu Mar 28, 2013 9:47 am

So, the banks in Cyprus are reopening today.

Interesting times... Especially after that Dutch finance minister's epic blunder that this Cyprus bail-out format of deposit holders facing part of the bill may well be used again elsewhere in Europe, if needed.

Anybody fancy bank runs in, say, Italy, Spain and France?

Also with these capital controls the Cypriot Euro will not any longer be as valuable as non-Cypriot Euros. How's that for a monetary union?

Just a matter of time before Cyprus becomes the first nation to leave the single currency?

Also, what a brutal extent with those capital controls:

• All savings accounts must run until their expiry date – no early withdrawals allowed.

• No cheques will be cashed, although cheque deposits will be allowed.

• Payments out of the country are suspended. Individuals will only be allowed to take €3,000 (£2,500) in cash on each trip out of the country.

• Unlimited use of credit cards is allowed within Cyprus, but there's a spending limit of €5,000 a month abroad.

• Import payments will be allowed when 'the relevant documents' are provided to the authorities and Cypriots can only transfer up to €10,000 a quarter for fellow citizens who are studying abroad.

• The measures will apply to all accounts, regardless of the currency used.

plus a €300 withdrawal limit per day.
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Post by BarrileteCosmico Fri Apr 05, 2013 10:53 am

15 years too late: Reviving Japan (the ECB should watch and learn)

After 15 years of deflationary policies the Bank of Japan now clearly is changing course. That should be clear to everybody after today’s policy announcement from the Bank of Japan. I don’t have a lot of writing here other than I will say this is extremely good news. Good for Japan and good for the global economy and what the BoJ is doing is nearly textbook style monetary easing. The only minus is that the BOJ is targeting inflation and not the NGDP level, but anyway I am pretty convinced this will work and work soon.

Anyway lets pay tribute to Milton Friedman. This is Uncle Milty in 1998 in his article “Reviving Japan”:


The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it. That would make much-needed financial and economic reforms far easier to achieve.

Defenders of the Bank of Japan will say, “How? The bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?”

The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia.

This is what the BoJ announced today:

Under this guideline, the monetary base — whose amount outstanding was 138 trillion yen at end-2012 — is expected to reach 200 trillion yen at end-2013 and 270 trillion yen at end-2014.

The monthly flow of JGB (Japanese Government Bonds) purchases is expected to become 7+ trillion yen on a gross basis.

The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years. In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases.

After 15 years the BoJ is finally listening to Friedman’s advice and I am sure it will do a lot to revive the Japanese economy. In fact the BoJ is doing more than listening to Milton Friedman. The BoJ is also listening to the Market Monetarist message of using the Chuck Norris Effect by guiding market expectations. Good work Kuroda.

And finally a message to ECB boss Mario Draghi. If you want to end the euro crisis just copy-paste today’s BoJ statement. You have the same inflation target anyway. It is not really that hard to do.

http://marketmonetarist.com/2013/04/04/15-years-too-late-reviving-japan-the-ecb-should-watch-and-learn/
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Post by RealGunner Fri Apr 05, 2013 5:10 pm

Excellent read BC
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Post by Yuri Yukuv Fri Apr 05, 2013 9:54 pm

@BarrileteCosmico wrote:15 years too late: Reviving Japan (the ECB should watch and learn)

After 15 years of deflationary policies the Bank of Japan now clearly is changing course. That should be clear to everybody after today’s policy announcement from the Bank of Japan. I don’t have a lot of writing here other than I will say this is extremely good news. Good for Japan and good for the global economy and what the BoJ is doing is nearly textbook style monetary easing. The only minus is that the BOJ is targeting inflation and not the NGDP level, but anyway I am pretty convinced this will work and work soon.

Anyway lets pay tribute to Milton Friedman. This is Uncle Milty in 1998 in his article “Reviving Japan”:


The surest road to a healthy economic recovery is to increase the rate of monetary growth, to shift from tight money to easier money, to a rate of monetary growth closer to that which prevailed in the golden 1980s but without again overdoing it. That would make much-needed financial and economic reforms far easier to achieve.

Defenders of the Bank of Japan will say, “How? The bank has already cut its discount rate to 0.5 percent. What more can it do to increase the quantity of money?”

The answer is straightforward: The Bank of Japan can buy government bonds on the open market, paying for them with either currency or deposits at the Bank of Japan, what economists call high-powered money. Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand their liabilities by loans and open market purchases. But whether they do so or not, the money supply will increase.

There is no limit to the extent to which the Bank of Japan can increase the money supply if it wishes to do so. Higher monetary growth will have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately. A return to the conditions of the late 1980s would rejuvenate Japan and help shore up the rest of Asia.

This is what the BoJ announced today:

Under this guideline, the monetary base — whose amount outstanding was 138 trillion yen at end-2012 — is expected to reach 200 trillion yen at end-2013 and 270 trillion yen at end-2014.

The monthly flow of JGB (Japanese Government Bonds) purchases is expected to become 7+ trillion yen on a gross basis.

The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years. In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases.

After 15 years the BoJ is finally listening to Friedman’s advice and I am sure it will do a lot to revive the Japanese economy. In fact the BoJ is doing more than listening to Milton Friedman. The BoJ is also listening to the Market Monetarist message of using the Chuck Norris Effect by guiding market expectations. Good work Kuroda.

And finally a message to ECB boss Mario Draghi. If you want to end the euro crisis just copy-paste today’s BoJ statement. You have the same inflation target anyway. It is not really that hard to do.

http://marketmonetarist.com/2013/04/04/15-years-too-late-reviving-japan-the-ecb-should-watch-and-learn/

Yes, Abenomics has all the components of success. Further Kuroda charming the BOJ Governers means that there is political capital.

I am surprised you are in favor of friedman solutions, or Abenomics in general as I thought you held a more leftist view.
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Post by BarrileteCosmico Tue Apr 09, 2013 5:05 am

Abenomics also includes a certain keynesian aspect as well since I believe he is also putting into place a significant fiscal stimulus. But overall I'd say I'm a pretty big believer in money's ability to influence the economy.
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Post by VivaStPauli Tue Apr 09, 2013 12:37 pm

@BarrileteCosmico wrote:I'm a pretty big believer in money's ability to influence the economy.

Well I'm pretty sure we all believe that.

The problem with the bad rep Keynesian policies get is the shoddy execution they've received. The idea of deficit spending explicitly includes the notion that you'll build up reserves during economic upswings, something which no government ever does. It's easy to spend yourself out of a crisis, but to then have the balls and cut spending while you can afford it, and the economy is well - no politician is going to risk his popularity on that move.

One of the big reasons for the crisis of the left, and one of the many sources of much grief in the Eurozone.
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Post by BarrileteCosmico Fri Apr 12, 2013 11:56 pm

@VivaStPauli wrote:
@BarrileteCosmico wrote:I'm a pretty big believer in money's ability to influence the economy.

Well I'm pretty sure we all believe that.

The problem with the bad rep Keynesian policies get is the shoddy execution they've received. The idea of deficit spending explicitly includes the notion that you'll build up reserves during economic upswings, something which no government ever does. It's easy to spend yourself out of a crisis, but to then have the balls and cut spending while you can afford it, and the economy is well - no politician is going to risk his popularity on that move.

One of the big reasons for the crisis of the left, and one of the many sources of much grief in the Eurozone.

Sorry just seeing this now.

While that's true for the EU because Germany the ECB sets the rate of monetary policy it's not necessarily for anywhere else with an independent central bank and a free flowing currency due to monetary offset. If the government creates tons of new programs to boost output but the central bank tightens credit then the effect will be null. Likewise you could have austerity with loosened credit and these two would cancel each other out. This is because monetary policy affects aggregate demand the same way government spending does. Thus, an effective central bank will be able to keep aggregate demand at a stable place regardless of deficit spending. The government should focus more heavily in adopting measures which affect aggregate supply. The problems of the euro-zone is that they have an incompetent central bank that would rather see the euro-zone sunk than 3% inflation for a year or two.

Anyways, Soros today: Germany will enter Recession
http://www.telegraph.co.uk/finance/personalfinance/investing/9989823/Germany-will-enter-recession-says-George-Soros.html
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Post by VivaStPauli Sat Apr 13, 2013 1:47 am

Yeah sure but that's because the ECB is dominated by the mindset of the old German central bank (BZB). They're all monetarists. When you think inflation is worse than unemployment, this all makes sense. I just happen to think you're right. The ECB is hurting the efforts. Helping the abstract concept of keeping the worth of a currency stable is helping noone.
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Post by BarrileteCosmico Sat Apr 20, 2013 2:23 am

BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said the European Central Bank (ECB) should try to limit the amount of liquidity in the euro zone, although he also acknowledged the "precarious" economic plight of some countries in the region.

"There is much money in the market, in my view too much money," Schaeuble said in an interview for the German economic weekly Wirtschaftswoche released on Friday.

"If the ECB tries to use what leeway it has to reduce this great liquidity a little I would welcome that," he said, adding that the ECB had done well to bring inflation below 2 percent.

"We in Germany should not forget that many European countries are still in a precarious situation with economic growth," he added. But pumping liquidity into their economies without far-reaching structural reforms would not create the conditions for sustainable growth. Schaeuble said.

________________

I'm beginning to develop some very strong anti-German feelings...
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Post by RealGunner Sat Apr 20, 2013 1:28 pm

Why do you think people want to leave the EU so badly in the UK lol.
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Post by BarrileteCosmico Sat Apr 20, 2013 2:30 pm

I'd support a country trying to get away from the euro-zone, but the UK is not in the euro, it stands very little to gain from an exit and a lot to lose.
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Post by RealGunner Sat Apr 20, 2013 2:43 pm

Rather take our chances.
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Post by Yuri Yukuv Sun Apr 21, 2013 10:13 am

Are Germans really poorer than Spaniards, Italians and Greeks?

A recent ECB household-wealth survey was interpreted by the media as evidence that poor Germans shouldn’t have to pay for southern Europe. This column takes a look at the numbers. Whilst it’s true that median German households are poor compared to their southern European counterparts, Germany itself is wealthy. Importantly, this wealth is very unequally distributed, but the issue of unequal distribution doesn’t feature much in the press. The debate in Germany creates an inaccurate perception among less wealthy Germans that transfers are unfair.

Rarely have statistics been misused so much for political purposes as when recently the ECB published the results of a survey of household wealth in the Eurozone countries (2013a).1 From this survey it appeared that the median German household had the lowest wealth of all Eurozone countries. Figure 1 summarises the main results for the most significant Eurozone countries.

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Source: European Central Bank (2013).

From Figure 1 it appears that not only the median German household has the lowest wealth, but also that the differences within the Eurozone are enormous. The median households in countries like Belgium, Spain and Italy appear to be three to four times wealthier than the median German household. Even the median Greek household is twice as wealthy as the German one.

The publication of these numbers by the ECB quickly led many observers to conclude that it is unacceptable that the poor Germans have to pay for the rescue of the much richer Greeks, Spaniards and Portuguese (see, e.g., Wall Street Journal 2013, Financial Times 2013, Frankfurter Allgemeine 2013).
Is this the right conclusion?

A first thing to note is that the ECB also published the mean net wealth of households in the Eurozone. Surprisingly, the mean household wealth numbers were not given much attention in the media, despite the fact that when compared with the median numbers they provide important information about the distribution of wealth in the different member countries. We show the mean wealth numbers in Figure 2. It is striking to find that the mean household wealth of Germany (approximately €200,000) is not the lowest of the Eurozone anymore.

Figure 2. Mean household net wealth (1000€)

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Source: European Central Bank (2013).

A comparison of the median and mean wealth reveals something about the distribution of wealth in each country. If the largest difference is between the mean and the median, the greater is the inequality in the distribution of wealth. It now appears that the difference is highest in Germany. We show this by presenting the ratios of the mean to the median for the different countries in Figure 3. In Germany the mean household wealth is almost four times larger than the median. In most other countries this ratio is between 1.5 and 2. Thus household wealth in Germany is concentrated in the richest households more so than in the other Eurozone countries. Put differently, there is a lot of household wealth in Germany but this is to be found mostly in the top of the wealth distribution.

The inequality of the distribution of household wealth is made even more vivid by comparing the wealth owned by the median household in the top 20% of the income class to the wealth owned by the median household in the bottom 20% of the income class. This is shown in Figure 4. We find that in Germany the median household in the top 20% of the income class has 74 times more wealth than the median household in the bottom 20% of the income class. Judged by this criterion Germany has the most unequal distribution of wealth in the Eurozone.

Figure 3. Mean/median

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Source: Own calculations based on European Central Bank (2013).

Figure 4. Wealth median top 20% / wealth median bottom 20%

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Source: European Central Bank (2013b).
Wealth of households and wealth of nations



The next question that arises is whether household wealth is a good indicator of the wealth of a nation. A significant part of a nation’s wealth can be held by the government or the corporate sector and not by the household sector. If the question is to find out how much capacity Germany has to make transfers to other countries a more comprehensive measure of wealth should be used. Such a more comprehensive measure of wealth is available. This is the total capital stock of a nation. This is a measure of the capacity of a nation to generate (together with human capital) an income stream.

We used available information on the capital stocks in OECD countries and updated this to 2012 (see Appendix for more information). We then computed the net capital stock per capita in the member countries of the Eurozone. We use two definitions. The first one is the domestic capital stock per capita (Figure 5). The second one is the sum of the domestic capital stock and the net international investment position vis-à-vis the rest of the world. We call this the total capital stock per capita (figure 6). We find strikingly different results when compared with the household wealth figures.2

Figure 5. Domestic capital stock per capita (euro)

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Source: authors’ own calculations, Eurostat and Database on Capital Stocks in OECD Countries, Kiel Institute for the World Economy.

Figure 6. Total capital stock per capita (euro)

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Source: authors’ own calculations, Eurostat and Database on Capital Stocks in OECD Countries, Kiel Institute for the World Economy.

The most important difference is that the northern Eurozone countries are the wealthiest countries in the Eurozone. This conclusion can be made by looking at the domestic and the total capital stock numbers (Figures 5 and 6). When concentrating on the total capital stock (Figure 6), it appears that Germany belongs to the top two countries in terms of per capita wealth. In contrast the southern European countries have the lowest wealth. Wealth per capita is more than twice as high in northern European countries than in southern countries such as Greece and Portugal.
Conclusion

From this analysis it follows that it is misplaced to conclude from the ECB study that Germany is poor compared to some southern European countries and that therefore it is not reasonable to ask German taxpayers to financially support ‘richer’ southern countries (see e.g. Wall Street Journal 2013). The facts are that Germany is significantly richer than southern Eurozone countries like Spain, Greece and Portugal.

There does seem to be a problem of the distribution of wealth in Germany:

First, wealth in Germany is highly concentrated in the upper part of the household-income distribution.
Second, a large part of German wealth is not held by households and therefore must be held by the corporate sector or the government.

Thus while it is may not be reasonable to ask the ‘poor’ median German household to transfer resources to southern European countries, it may be more reasonable to make such demands on the richer part of the German households and the corporate sector. Put differently, the opposition in Germany to making transfers to the south finds its origin not in the low wealth of the country. The facts are that Germany is one of the wealthiest countries of the Eurozone. The problem is that this wealth is very unequally distributed in Germany, creating a perception among less wealthy Germans that these transfers are unfair.

http://www.voxeu.org/article/are-germans-really-poorer-spaniards-italians-and-greeks
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Post by zizzle Sun Apr 21, 2013 7:45 pm

So basically this guy is predicting doom's day. Can we get an optimist to counter these arguments ?


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Post by BarrileteCosmico Sun Apr 21, 2013 10:40 pm

@Yuri: I've read that the differences were mainly attributable to the higher home-owning rates of periphery countries than in the core. If you were to compare home-owners to home-owners the stats look remarkably more similar, but capital stock is indeed a better measure. Another factor I often see attributable to this is the high rate of business ownership by individuals in the periphery which would also inflate their wealth.
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Post by Swanhends Tue May 07, 2013 4:09 pm

any updates on this whole situation? Haven't seen much news in mainstream media here in the U.S, and cba digging much deeper with the end of the semester and all
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Post by RealGunner Tue May 07, 2013 4:47 pm

The Cyprus situation

AFTER the protests and banners of March, when a proposed bail-out threatened losses on insured depositors, Nicosia is strangely calm (and wet). Some restaurants in and around the Cypriot capital are busy, others are deserted. But under the veneer of normality, the shock of that first, jettisoned bail-out and the bruising terms of the eventual deal are taking their toll. With access to bank accounts still restricted and capital controls in place, Cypriots are hoarding money. Trade credit has dried up, choking business activity.

New-car sales plunged by 59% in the year to March. Sunseekers tend to shun crisis-stricken countries: the number of tourists in the first quarter was 10% down on the same period of 2012. And this is just the beginning. An economy already in recession—GDP fell by 2.4% last year—is about to nosedive, undermining the assumptions on which the bail-out was based.

The longer that capital controls last, the greater the damage will be. The pre-crisis contributions of business services and financial services to output were similar (7.4% and 9.2% respectively). Whatever happens the banks must shrink, drastically. But Cyprus may yet be able to retain its appeal as a business hub in the eastern Mediterranean, providing legal and accountancy services from a qualified workforce. That hope will be dashed, however, if capital controls become entrenched, says Alexander Apostolides, an economist at European University Cyprus.

The central bank has already relaxed some domestic-banking restrictions. The cash limit on withdrawals remains €300 ($390) a day, but use of standing orders and direct debits has been restored. Electronic transfers of capital remain blocked. Far more important are still-stringent external controls. Cypriots cannot, for example, take more than €2,000 in cash when they leave the island.

Such controls can be lifted only when the banks at the heart of the crisis have been restructured. That is crucial for restoring confidence and averting a flight of money once it can move. The aim is to bury Laiki, the country’s second-biggest bank, and to resurrect Bank of Cyprus (BOC), its largest. But the process is complex and vulnerable to delay.

When the final rescue deal was announced on March 25th, Laiki was to be split into a “good” and a “bad” bank. The bad bank’s losses would be absorbed by shareholders, bondholders and uninsured depositors (the latter providing the biggest pot of money, worth an estimated €4.4 billion). That split is occurring. The assets and liabilities of the good bank, including Laiki’s insured deposits, have been moved to BoC. But instead of the bad bank retaining non-performing loans (where borrowers are behind on payments), all Laiki’s domestic loans are going to BoC, net of expected losses. That leaves BoC exposed if such loans turn out even worse.

BoC, for its part, is supposed to recapitalise itself from its €10 billion-worth of uninsured deposits, by converting a chunk of them into equity. When the revised bail-out was announced, it was hoped that the forced conversion might affect only 37.5% of these deposits. But it now looks as if 60% of uninsured deposits will be required to recapitalise BoC.

That’s because the harsh treatment meted out to Cyprus has inflicted huge damage. Before the bungled bail-out, a worst-case scenario envisaged the two big banks requiring €7.8 billion in recapitalisation; now €10.6 billion may be needed to clear up the mess, according to a leaked European Commission document. Some of the big BoC deposits, such as those held by local authorities and state schools, will be safeguarded, but others will not be so lucky. The central bank said this week that insurers, charities and private schools would incur losses of 27.5%.

Whatever the eventual scale of its recapitalisation, the credibility of the restructured BoC will still be shaky since it will be so heavily exposed to an economy laden with debt. Private debt of households and firms in Cyprus is close to 300% of GDP, the third-highest in the EU. Bad loans are set to soar as unemployment, currently 14%, rises and as property values sink

Before the bail-out, the European Commission was predicting drops in GDP of 3.5% in 2013 and 1.3% in 2014 (see chart). By early April it had changed this outlook to declines of 8.7% and 3.9%. But even this may be too optimistic, according to Fiona Mullen of Sapienta Economics, a local consultancy. She thinks that output will shrink by 15% this year; and she predicts a further drop of 15% in 2014, followed by a 5% fall in 2015. That would mean a cumulative four-year decline in GDP since 2011 of 33%, outstripping even Greece’s likely six-year decline of 24%. If such gloomy predictions turn into reality a labour exodus of biblical proportions rather than capital flight may be what really undoes Cyprus.


General Europe

EUROPE has just endured a seemingly endless winter, so it seems apt that the spring economic forecasts from the European Commission have a chilly feel to them. Three months after the commission's previous stab at the future, the outlook has cooled yet again. Small wonder that the European Central Bank acted yesterday to cut its main policy rate to 0.5%, though this overdue move will do little to warm the euro zone’s frigid economy.

In February the commission had expected a decline this year in euro-wide GDP of 0.3% followed by growth of 1.4% in 2014. Now it thinks the drop in output in 2013 will be 0.4% and that growth next year will be 1.2%.

The outlook has darkened in the northern core economies of the single-currency club as well as in the southern periphery. The Dutch economy for example will shrink by 0.8% this year rather than the 0.6% predicted in February. And French GDP will fall in 2013 by 0.1% (rather than rising by 0.1%).

In southern Europe, the biggest deterioration has been in Cyprus’s prospects, with GDP now expected to fall by 8.7% this year (as already indicated in a leaked document from the commission last month) rather than 3.5% as in February. That forecast is already far too optimistic: the Cypriot government expects a decline this year of around 15%. The commission still thinks that the Greek economy will at long last recover next year (growing by 0.6%) after declining again in 2013, by over 4%. Meanwhile the outlook for the beleaguered Portuguese economy has got worse again: output there is now predicted to fall by 2.3%, rather than 1.9% as set out in February.

The forecasts have not dimmed over the past three months as much as they did in the previous three: in November the commission thought that the euro area would actually grow this year (though only by 0.1%). And the new forecasts stick with its view in February that a recovery will get under way in the second half of this year. Arguably, the commission is still looking on the bright side. A survey yesterday of euro-zone manufacturing conditions in April from Markit, a research firm, was consistent with the sector continuing to contract.

The longer Europe’s economic winter persists, the greater the social damage. Unemployment is now around 27% in Spain and Greece; and youth jobless rates in both countries are double that. Mario Draghi may have rescued the euro from bond vigilantes but even the ECB may not be able to save the single currency if popular pressures in the depressed south force politicians to reject the remedies imposed from the north.

via economist
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Post by BarrileteCosmico Tue May 07, 2013 7:30 pm

Rapid current-account rebalancing in the southern Eurozone
Recent data show that the current-account deficits of Greece, Italy, Spain, and Portugal have improved at a rapid pace and are actually close to being balanced. This column reviews recent research that shows this adjustment has been remarkably fast. Compared to mid-2008, these four nations have switched expenditures at a rate that is much higher than the typical rate observed during large rebalancing episodes. A key requirement for a return to a post-crisis Eurozone is thus on its way to being met.

http://www.voxeu.org/article/rapid-current-account-rebalancing-southern-eurozone

How Austerity Pushed American Colonists to Revolt
Andrew Edwards says austerity pushed the American colonists to revolt. “In the early 18th century, North America held a role in the British Empire that was similar to the one occupied by Cyprus or Slovenia in the euro area today. Americans were slavers, smugglers, rumrunners and fanatics — as “opulent, commercial, thriving” as they were irresponsible and fiscally profligate. But as the empire struggled to stay solvent after the Seven Years War, the government of Prime Minister George Grenville attempted to bring the colonists to heel in the name of fiscal austerity. “The Circumstances of the Times, the Necessities of the Country, and the Abilities of the Colonies, concur in requiring an American Revenue,” wrote Thomas Whately, a Grenville ally, in 1765. To be sure, the 18th century British Empire and the euro area are very different. But the similarities are still worth noting: A central unelected body (at least not by North Americans), attempted to solve a fiscal problem by inflicting misguided pain on the periphery.”

http://www.bloomberg.com/news/2013-05-03/how-austerity-pushed-american-colonists-to-revolt.html
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Post by Yuri Yukuv Tue May 07, 2013 8:02 pm

@Swanhends:

There has been a quite bloodless coup it seems, Reinhart & Rogof's paper has been widely dismissed as it turned out there were some excel errors involved and the ECB decided to lower interest rates to all time low. Further the puppets in spain & other periphery dont have much more political capital left.

Ill leave you with two articles talking about what has happened

French finance chief hails easing off austerityBERLIN (AP) —

French Finance Minister Pierre Moscovici on Tuesday hailed the European Union's decision to grant his country more time to tackle its deficit as a turning point in the region's approach to austerity, which is choking off growth through spending cuts and tax hikes.

Cutting budget deficits remains important but the 27-nation bloc must now move toward a more growth-friendly "doctrine of positive deficit reduction," Moscovici said, speaking at a Berlin university alongside his German counterpart, Wolfgang Schaeuble.

That means tightening the budget when the economy is stronger and easing off the cuts in times of weaker growth, such as now.

The EU Commission, the bloc's executive arm, hinted Friday that it will grant France two more years to get its deficit below the limit of 3 percent of annual output to account for the current economic downturn.

Otherwise, Paris would have had to resort to more drastic measures "either in the form of more taxes or in the form of yet bigger cuts which would have been absolutely harmful for the French economy," Moscovici said.

EU countries have focused on debt reduction as the main policy to restore market confidence in the region's public finances over the past three years. But the spending cuts and tax increases have been hurting the economy and proved less effective at reducing deficits than initially thought. As economies shrink, so do their tax revenues, potentially making it harder to close budget gaps.

Moscovici said France does not view the additional time the EU has granted it as an incentive to slow down the pace of its structural economic reforms, saying "it's not an invitation to laziness."

"France is a serious country, conducting credible policies," Moscovici added.

German Chancellor Angela Merkel and Finance Minister Schaeuble have so far championed a course of budget tightening and structural reforms to overcome the eurozone's debt crisis, insisting in many cases on austerity measures that deepened the recession in crisis-hit nations like Greece, Portugal or Spain.

"I know that the decision (by the European Commission) has raised questions in Germany," Moscovici acknowledged. But he stressed that it is in Germany's own interest that France, the bloc's second-largest economy, returns to growth.

"We need a strong France," he said, noting that only France and Germany together can push European integration forward. The two nations together count for almost half of the eurozone's population and its economic output.

"We are not everything in Europe, but without Germany and France nothing advances in Europe," Schaeuble added.

Schaeuble called the European Commission's decision on France "appropriate" and insisted that it was a misunderstanding to think Europe was divided, with some governments seeking austerity and others growth.

"We have always said we jointly want sustainable growth, for which solid public finances are a precondition," he said.

The bloc must make it a priority to fight unemployment, and youth unemployment in particular, or the EU stands the risk of "losing legitimacy and credibility," he said.

The eurozone overall is stuck in recession and unemployment is expected to hit an average of 12.2 percent this year, up from 11.4 percent in 2012.


France Declares Austerity Over as Germany Offers Wiggle Room

French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies.

“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”
The gap between the French Socialist finance chief’s view and the election-year positioning of Germany’s Wolfgang Schaeuble underscores the divergence between their economies and the wrangling that has marked the crisis fight since Francois Hollande replaced Nicolas Sarkozy as French leader a year ago.
Coalition lawmakers in Germany are pushing back against the two-year extension for France to meet European Union deficit rules floated by Olli Rehn, the EU economic and monetary affairs commissioner.
“We made it clear to our government, the chancellor and finance minister that in the case of France a one-year delay to 2014 to fulfill the euro’s deficit rules is the absolute limit for us,” Norbert Barthle, budget-policy spokesman for Schaeuble’s Christian Democratic Union, said in a May 3 telephone interview from his constituency in southwestern Germany. “France must show that it’s willing to tackle structural reforms.”
Merkel’s Campaign
With German Chancellor Angela Merkel campaigning for a third term in a Sept. 22 vote, policy making among Europe’s elected leaders has ground to a crawl, with European Central Bank President Mario Draghi set to take the initiative. The risk is that they’ll back off policies needed to spur competitiveness and restore growth.
Europe must compete with countries like China and India, Merkel said during a discussion with high-school students in Berlin today.
“That’s why it’s not about what people always say: to save or not to save,” Merkel said. “We in Europe have to see that we finally get by with what we earn. Those are my analyses. Some may see it differently.”
She said talking about austerity policy sometimes leads people to forget that euro nations signed up to a binding treaty that limits debt and budget deficits.
More Time
Finance Minister Schaeuble said in a speech today in Hamburg that the European Commission decision to give some euro states more time to reduce their budget deficits was “right.” He said additional time granted must be used to revamp economic structures hindering growth.
“Markets should be fine with” slowing austerity “as long as governments keep focusing on structural reforms,” Joachim Fels, co-global head of economics at Morgan Stanley (MS) in London, wrote in a note yesterday. “All fingers crossed.”
The task was underscored last week when the commission predicted little relief through next year for the 17-nation euro area’s record unemployment. Average joblessness, now 12.1 percent, will remain above 12 percent through 2014, according to the commission’s May 3 predictions.
With French gross domestic product now seen by the commission as shrinking this year, Moscovici and Hollande have led the charge against German-inspired budget-cutting. Moscovici and Schaeuble are scheduled to meet in Berlin tomorrow, along with Bank of France Governor Christian Noyer and Bundesbank chief Jens Weidmann.
Bonds
Bond markets greased by the developed world’s central banks are providing room for Europe’s politicians to play to their domestic audiences. France sold 10-year bonds at a record-low yield of 1.81 percent last week; they yielded 1.82 percent today. Yields on Italian two-year notes fell below 1 percent for the first time on record. Spain’s 10-year yields fell below 4 percent for the first time since October 2010.
Meantime, following an interest-rate cut to a record low of 0.5 percent last week, Draghi said the ECB had an “open mind” about the unprecedented step of charging banks to keep cash at the central bank with so-called negative deposit rates.
Moscovici’s declaration amounts to an acknowledgment that France will avoid a sanction for missing 2012 budget-deficit targets and for failing to reach the European Union ceiling of 3 percent of GDP this year. The shortfall will amount to 3.9 percent of GDP this year and 4.2 percent next year with no policy change, the commission said.
‘Certain Flexibility’
There is a “certain flexibility” in allowing France, as well as Spain, to meet its deficit targets, Schaeuble told the Bild am Sonntag newspaper in an interview published yesterday. “This comes with clear conditions for the necessary reforms. The commission will make concrete proposals by the end of May which then will be discussed and decided upon among the euro area finance ministers.”
Mindful of a potential backlash from German voters in an election year, calls by senior coalition lawmakers like Barthle for euro area members to stick to the euro’s deficit rules may limit Merkel’s ability to help France.
“I can understand why certain conservatives in Germany are unhappy about this,” Moscovici said today on France’s i-Tele cable-news channel. “For them it’s not an ideological success. But Germany and France have a common responsibility in Europe. Germany needs a France that is successful.”
At the same time, Hollande pressed Merkel to overcome the demands of electioneering to keep the euro area’s campaign to shore up its finances by keeping the march toward a banking union on track.
“Ms. Merkel has upcoming elections in September, and cannot give the impression that she’s taking greater care of Europeans than of Germans,” Hollande said in a May 3 interview with The Wall Street Journal. “The risk is that Germany may want to wait until after its elections to move ahead on the banking union.”

Big defeat of germany if you ask me
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Post by Yuri Yukuv Tue May 07, 2013 8:43 pm

There will also be a collapse of the austerity camp in germany it seems


The endangered queenmaker

THE most successful political group in the Federal Republic of Germany has arguably been the Free Democratic Party (FDP). Since 1949, it has been in government—always as junior partner—more than either of the two main parties, the centre-right Christian Democratic Union (CDU) and the centre-left Social Democrats (SPD). The FDP’s classical-liberal values of individual freedom, limited government and rule of law inspired Germany’s post-war constitution. The party also fielded two respected presidents, Theodor Heuss and Walter Scheel, as well as Germany’s most influential foreign minister, Hans-Dietrich Genscher. In 2009, in the most recent federal election, the party got its best result ever, with 14.6% of votes.

How it has fallen. The party is now so low in the polls that it risks dropping below the 5% threshold required to enter the state parliament in Lower Saxony, which votes on January 20th, and even the Bundestag in September’s federal election (see chart). Its ejection would mean not only the silencing of a liberal voice in these chambers but also the end of the FDP’s traditional role as kingmaker. And that in turn could determine who will lead Germany as chancellor.

The election in Lower Saxony is being seen as a test case for the national vote in the autumn. In Hanover, a CDU premier, David McAllister, governs in a coalition with the FDP. He is popular and easily leads the SPD and the Green party in the opinion polls. Nonetheless, if the FDP is thrown out, the arithmetical result may be that a coalition between the SPD and Greens prevails over the CDU and forms the state government. If so, the SPD’s Stephan Weil, a wonkish mayor of Hanover, would become the state’s premier.

Angela Merkel, Germany’s chancellor and boss of the CDU, worries that something similar could happen in Berlin. Her party and its Bavarian sister, the Christian Social Union (CSU), have a comfortable lead in the national polls over both the SPD and the Greens. She is much more popular than the SPD’s candidate for chancellor, Peer Steinbrück, whose campaign has distinguished itself through a series of damaging blunders. But without the FDP in parliament, the SPD and Greens together could yet win, unless Mrs Merkel can persuade either of these centre-left parties to become her junior partner instead.

Not only the FDP but everybody on the centre-right wants to avoid that chaos by resuscitating the FDP. But how? At an FDP gathering in Stuttgart on January 6th, the internal bickering and panic became public. Dirk Niebel, the federal minister of development, likened the FDP to Germany’s football team if a striker were forced to be goalkeeper, another a defender, and the goalie became midfielder.

This was code for blaming Philipp Rösler (pictured above with Mrs Merkel), the party chairman and economics minister. Born in Vietnam and German by adoption, Mr Rösler is bright but wooden, and inadvertently made Mr Niebel’s case by giving a sophisticated but impenetrable speech. If the FDP gets less than 5% in Lower Saxony, which happens to be Mr Rösler’s home state, he will surely have to go.

The closest thing to a “striker” the FDP has is Christian Lindner. Only 34, Mr Lindner leads the FDP in North-Rhine Westphalia, the most populous state, and is credited with rescuing the party in local elections there last year. But Mr Lindner is not currently a member of the Bundestag. And though talented, he is probably too young, says Volker Kronenberg at the University of Bonn, who was Mr Lindner’s politics professor. The more obvious replacement for Mr Rösler is Rainer Brüderle, the FDP’s parliamentary leader. Mr Brüderle, jovial and 67, could get sufficiently aggressive in this year’s campaign but would not block Mr Lindner’s future advancement, goes the thinking.

But the FDP’s failures are caused by more than personnel choices. As Hermann Otto Solms, a party elder and vice-president of parliament, argues, the party should have capitalised on its good showing in 2009 to force the coalition partners, the CDU and CSU, to enact more of its programme, above all tax reform. Instead, the FDP was outmanoeuvred by the Machiavellian Mrs Merkel. Its name is now attached to reforms—such as a cut in the value-added tax for hoteliers—that voters regard as small-beer at best or as pandering to special interests at worst.

If the FDP reminds liberal voters of its principles, it will survive in parliament, says Mr Solms. That includes occasionally baring its teeth at the CDU, he adds, by resisting the “social-democratisation” of German society and even centre-right politics. Mrs Merkel has been happy to poach leftist ideas from the SPD and the Greens, from contemplating a minimum wage and higher government pensions to intervening massively in the energy industry. Only the FDP today makes the liberal case for individual freedom and responsibility, says Mr Solms.

That is a difficult stance in Germany, where many voters are anxious about the euro and crave security and a bigger role for government, rather than more responsibility. The German press, which, according to Siegfried Weischenberg at the University of Hamburg, disproportionately favours the Greens and the SPD, does not make the FDP’s task easier.

Nonetheless, the FDP still has a chance of staying in the Bundestag. Jackson Janes, a Germany watcher at Johns Hopkins University in Washington, DC, thinks 10% of German voters are philosophically liberal. If the FDP were forced out of Lower Saxony’s parliament, he says, the shock would be such that even disenchanted supporters would mobilise in September.
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Post by Swanhends Wed May 08, 2013 11:48 am

@zizzle wrote:So basically this guy is predicting doom's day. Can we get an optimist to counter these arguments ?



Don't have time to watch the video yet, I will later though

However my first reaction: Maybe this is unfair, but I googled the dudes name and he is a "Blogger, Essayist, and Author" who has a bachelors and masters in history...

Not saying that automatically disqualifies his opinion, but it certainly doesn't make him look like the most credible source on economic recovery, that kind of background sounds like a poor man's Niall Ferguson (yikes)..I'll wait to give a final verdict until I get to see the video though
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Post by Swanhends Mon May 13, 2013 3:41 pm

Re: BoJ

Euro Crisis Returns  - Page 3 BKBIdd7CEAI5oSX

hmm
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Post by zizzle Mon May 13, 2013 3:50 pm

The Japanese basically doubled inflation, eased monitory policy, and devalued the yen and suddenly their market is doing great. Sounds all too familiar..
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Post by BarrileteCosmico Mon May 13, 2013 4:10 pm

Difference is that in the US the primary objective of QE2 at least was to avoid deflation whereas in Japan it is to get out of persistent deflation, which is proving quite trickier.
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