The implicit Deutsche Mark is indeed “grossly undervalued” The warped mechanism of monetary union allows Germany to lock in a permanent ‘beggar-thy-neighbour’ trade advantage over Southern Europe, inflicting mass unemployment on the victim countries and blighting their futures.
Whatever you think of Peter Navarro’s trade philosophy, he is right that Germany’s chronic, huge, and illegal current account surplus – 8.8pc of GDP – saps global demand and seriously distorts the world economy.
Let us concede that this super-surplus is an accident of history, rather than the result of a strategic conspiracy by Chancellor Helmut Kohl in the early 1990s. The German people never wanted the euro in any active sense. Den Rest des Beitrags lesen »
Trump’s strategy as conceived and stated so far is economically unscientific
Donald Trump’s assault on trade is escalating. First the foes were China and Mexico. Now it is the world.
The Trump transition team has mooted an import tariff of 10pc across the board, doubling down on earlier talk of a 5pc duty. This is a sobering demarche. Such thinking is of a different character to Mr Trump’s campaign rhetoric, which mostly hinted at trade sanctions to force concessions.
A catch-all tariff is a change of belief systems. It overthrows the free trade order that has been upheld and policed by Washington since the 1940s.
Congress cannot stop Mr Trump imposing his will by „executive action“ under existing US law. The historic irony is that Capitol Hill delegated powers to the White House in order to cut tariffs and reach deals, free from meddling by pork barrel interests. Few ever supposed that these same powers might be used to curb trade.
The president may impose tariffs of up to 15pc for 150 days without having to demonstrate any damage. All he has to do is utter the words “macroeconomic imbalances” or invoke „national security“ and he can more or less do what he wants. Den Rest des Beitrags lesen »
Banca Monte dei Paschi di Siena began in 1472 as charitable lender to the poor
Italy’s ministers were in emergency session on Thursday night to thrash out the rescue terms for Banca Monte dei Paschi di Siena, finally ending a financial soap opera that has dragged on for years and done enormous damage to the country.
The impending nationalisation of Italy’s oldest bank has been welcomed by bouyant markets as a cathartic release, restoring confidence and opening the way for the recovery of the crippled Italian banking system.
“A solution is now in sight. I really believe Italian banks are turning the corner,” said Lorenzo Codogno, former chief economist of the Italian treasury and now at LC Macro Advisors.
The state bail-out is likely to entail urgent action to safeguard the bank’s liquidity, down to €10.6bn and vanishing at an alarming speed. This will be buttressed a “precautionary recapitalisation” with hair-cuts for junior bondholders under the EU’s draconian rules on burden-sharing. Den Rest des Beitrags lesen »
Italy has a new government, and Matteo Renzi is not in charge of it. The former prime minister kept his word and resigned following his constitutional reform plan’s crushing defeat at the polls. Is all now well in that beautiful land?
Not exactly, though we did see a glimmer of hope this week. Unicredit, Italy’s largest bank, announced job cuts and asset sales that may buy it some time. This does not, however, mean the crisis is over. At best, it means the beginning of the crisis is over. We have a long way to go.
Our first OTB selection today begins, “Chronic inability to separate the probable from the desirable has been the tragedy of 2016.” Those fateful words come from Financial Times columnist Wolfgang Münchau, who is normally very calm but now sees wishful thinking about Italy as a major threat. As much as some might wish Italy to remain in the eurozone, Münchau thinks it’s increasingly improbable. Timing is the main question.
A brief sample of his analysis:
One day Italy will be led by a party in favour of withdrawal from the euro.When that happens, euro exit would turn into a self-fulfilling prophecy. There would a run on Italy’s banks and its government’s bonds.Den Rest des Beitrags lesen »
The long-feared moment of bond tapering in the eurozone has arrived. The comfort blanket is being pulled away – gently – for the first time since the region first crashed into a debt crisis.
The European Central Bank has tried to cushion the blow with dovish rhetoric and a glacially slow exit but there is no denying that monetary policy has reached a critical turning point. „The ECB has delivered an unwelcome surprise,“ said Luigi Speranza from BNP Paribas.
Europe’s incipient tightening has begun just as the US Federal Reserve prepares to raise interest rate next week, probably the first of several rises over the next twelve months as the incoming Trump administration launches a fiscal boom.
It comes as China takes action to choke off a property bubble and rein in shadow banking. The world’s three big monetary blocs will all be draining liquidity at the same time. Den Rest des Beitrags lesen »
The blistering rally of Italian equities and sovereign bonds is a marvel to behold. Short-covering rallies are always the most glorious, and the most treacherous.
The market bounce after Brexit made perfect sense. Half the world immediately loosened policy to cushion an imaginary shock.
It even made more sense after the election of Donald Trump. His triple pledge of tax cuts, a building boom, and an imperial navy – if enacted – will flood the US economy with even greater fiscal stimulus than Reaganomics.
But it is hard to conjure any plausible story to justify a happy outcome from the turbulent events in Italy, at least for the holders of capital. „Nothing has changed for the better. You cannot find anything fundamentally positive about the referendum result,“said Lorenzo Codogno, former chief economist of the Italian Treasury and now at LC Macro Advisors.
„The whole world was short Italian banks, and everybody jumped to cover at the same time. That is what is this rally is about,“ he said. Den Rest des Beitrags lesen »
Italy’s wunderkind Matteo Renzi has wrapped himself in the Italian flag. The EU flag has disappeared as he fights for his political life
Markets are bracing for a string of failures in the Italian banking system and a possible EU bail-out, fearing defeat for Matteo Renzi’s reformist government in a crucial referendum this weekend.
Shares of Banca Monte dei Paschi di Siena (MPS) crashed 11pc on fears that a €5bn plan to recapitalise the broken lender could unravel if a ‘No’ vote leads to months of political turmoil, potentially bringing the anti-euro Five Star Movement closer to national office for the first time.
Italy’s biggest bank Unicredit fell 4.3pc and is approaching lows last seen in the financial panic in July. It has lost almost two-thirds of its value over the last year.
Sources in Rome say the Italian government may have to turn to the European Stability Mechanism (ESM) for a bank rescue, a humiliating and painful course that must be approved by the German Bundestag and other EMU parliaments. It would amount to a partial ‘Troika’ administration under terms dictated by the EU.
“We think the banks will have to raise €40bn in fresh capital. This is going to need an ESM bail-out,” said one senior Italian banker. Den Rest des Beitrags lesen »
The spectacular sell-off in the global bond and credit markets since the election of Donald Trump has left a trail of carnage among hedge funds and revived gnawing doubts about the fragility of the eurozone’s financial system.
Bank of America warned that there has been ‚violent rotation‘ within the structure of the bond market over the last week, with powerful implications.
Traders switched overnight from worries about deflation to an entirely different bet on surging reflation driven by Mr Trump’s expansionary policies. This has instantly shaved $1.14 trillion off Bank of America’s Global Broad Market Index.
The gauge captures roughly a third all debt contracts. The International Monetary Fund said the total outstanding stock of bonds and loans worldwide was $152 trillion at the end of 2015, far greater than the $69 trillion store of global wealth in equities.
„There are a lot of bad positions out there and we don’t know how much leverage there is,“ said Marc Ostwald from ADM. Den Rest des Beitrags lesen »
The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of monetary union has warned.
„One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB’s first chief economist and a towering figure in the construction of the single currency.
Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since has degenerated into a fiscal free-for-all that once again masks the festering pathologies.
“Realistically, it will be a case of muddling through, struggling from one crisis to the next.It is difficult to forecast how long this will continue for, but it cannot go on endlessly,“ he told the journal Central Banking in a remarkable deconstruction of the project. Den Rest des Beitrags lesen »
For years the complaint against offshore wind was prohibitive cost. The new worry is that it is suddenly becoming too beguilingly cheap.
The world’s biggest wind companies are driving down power contracts so fast in their coat-throat battle for market share that they may be making impossible commitments. The sums of money at play are huge, and the stresses may not come to light until the financial cycle turns.
A string of tenders this year have slashed strike prices to once unthinkable levels. The Danish giant Dong Energy stunned the industry in July by clinching an offshore deal in the Netherlands at a strike price of €72.5 per megawatt hour (MWh), half the sorts of levels agreed less than five years ago. Den Rest des Beitrags lesen »