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European Debt Crisis Explained

European Debt Crisis Explained
Related:  Euro Crisis History, Solving it & Financing

Options for Europe – Part 68 | Bill Mitchell – billy blog The title is my current working title for a book I am finalising over the next few months on the Eurozone. If all goes well (and it should) it will be published in both Italian and English by very well-known publishers. The publication date for the Italian edition is tentatively late April to early May 2014. You can access the entire sequence of blogs in this series through the – Euro book Category. I cannot guarantee the sequence of daily additions will make sense overall because at times I will go back and fill in bits (that I needed library access or whatever for). But you should be able to pick up the thread over time although the full edited version will only be available in the final book (obviously). Part III – Options for Europe Chapter 17 Overt Monetary Financing? Why is Overt Monetary Financing taboo and should it be? There is an urgent need for fiscal deficits at the Member State level to rise substantially. The substantive criticism of OMF is the obvious one.

China Pulls The Rug From Under Europe, Halts French Bank Transactions, Make A flurry of headlines out of China suggest global macro-economic volatility may be ready to take it to the next level. We discussed last week how China's oh-so-generous offer of help to Europe was merely a veiled threat playing US against Europe in a game of who-gets-the-funding. Well, tonight, it seems, they are making good on some of those threats. Aggravated by EU's lack of market economy recognition, they pull trading lines with French banks, express concern at the EUR's safety (preferring US Treasuries), and indicate a clear preference for bonds over stocks - all the while warning of growing trade tensions - consider the sabre-rattled. Initial comments from Commerce Minister Shen via Bloomberg: was quickly followed by the 'threat/promise': and then Reuters reports: And the piece-de-resistance of the night was, again from Reuters: China, the largest foreign holder of U.S. government debt, will keep buying U.S. Furthermore, as if he had just read our earlier debt vs equity post:

Explaining US Hypocrisy on Ukraine | Consortiumnews U.S. government hypocrisy toward the Ukraine crisis has been breathtaking, as has the U.S. press corps’ stubborn refusal to see the hypocrisy (i.e. the Iraq War and many other U.S. interventions). William Blum looks at the reasons behind the double standards. By William Blum When it gets complicated and confusing, when you’re overwhelmed with too much information, changing daily; too many explanations, some contradictory … try putting it into some kind of context by stepping back and looking at the larger, long-term picture. The United States strives for world domination, hegemony wherever possible, their main occupation for over a century, it’s what they do for a living. And who threatens United States domination? Since the end of the Cold War the United States has been surrounding Russia, building one base after another, ceaselessly looking for new ones, including in Ukraine; one missile site after another, with Moscow in range; NATO has grabbed one former Soviet Republic after another.

Unmittelbar betroffen: Die polnische Bank PKO hat Filialen auf der Krim geschlossen Was hat ein Schweinefuß mit der Krim zu tun? Und ist Stanislaw Karemba ein Opfer der Umwälzungen in der Ukraine geworden? Bis vor kurzem war Karemba noch Landwirtschaftsminister in Warschau. Dass er vergangene Woche seinen Platz im Kabinett räumen musste, lag an seinem mangelhaften Krisenmanagement bei der aus Weißrussland eingeschleppten afrikanischen Schweinepest in Polen. Aufgebrachte Bauern hatten protestiert, weil das von Russland verhängte Einfuhrembargo für polnisches Fleisch schon zu einem Preisverfall von 10 Prozent geführt hatte. Autor: Sven Astheimer, Jahrgang 1972, Redakteur in der Wirtschaft, zuständig für „Beruf und Chance“. Autor: Reinhard Veser, Jahrgang 1968, Redakteur in der Politik. Die Nerven sind angespannt, denn die Wirtschaftsbeziehungen zum Osten sind ein wunder Punkt für das größte der osteuropäischen EU-Länder. Mittlerweile schlägt man in Warschau vorsichtigere Töne an. Folgen

The "plan" outlined in a interview with Bloomberg is nothing more than a rehash of the plan that helped hurt the Soviet Union in the 1980's when a drop in currency revenue due to declining oil prices created substantial difficulties for the Soviet economy. Basically, Soros proposes that the US open up its strategic oil reserves and dump them all in the market. According to a Bloomberg report that he believes that "strongest sanction" against Russia "is in the hands of the United States" because US could sell crude from the Strategic Oil Reserve and depress prices . Today, during a panel discussion in Berlin, Soros stressed that the Russian government needs a price of over 100 US dollars per barrel in order to balance the budget. While the "Soros plan" looks good on paper it is nothing more than wishful thinking.

Die Ersparnisse in Sicherheit bringen: Kundinnen vor einem Bankautomaten in Athen. Foto: Keystone Die Verhandlungen zwischen Griechenland und den anderen Euroländern sind am Montag ohne Ergebnis zu Ende gegangen. Am Freitag will man sich wieder treffen. Was wird als Nächstes passieren? Das Wahrscheinlichste ist, dass Griechenland bald Kapitalverkehrskontrollen einführen und den Bezug von Sparguthaben beschränken wird. Wie die Einführung von Kontrollen vor sich geht, konnte man in Zypern vor zwei Jahren beobachten. Das Beispiel Zyperns verdeutlicht auch, dass die Einführung von Kapitalverkehrskontrollen nicht zu einem permanenten Austritt führen muss. Kapitalverkehrskontrollen erleichtern es aber durchaus, eine neue Währung einzuführen. Wann werden die Kapitalverkehrskontrollen kommen? Das Tempo der Abzüge kann sich allerdings beschleunigen, wenn die Bevölkerung das Vertrauen verliert. Tags: Euro, Geldpolitik, Grexit, Griechenland

EconoMonitor : EconoMonitor » International Debt and Financial Crises The latest issue of the IMF’s World Economic Outlook has a chapter on global imbalances that discusses the evolution of net foreign assets (also known as the net international investment position) in debtor and creditor nations. The authors warn that increases in the foreign holdings of domestic liabilities can raise the probability of different types of financial crises, including banking, currency, sovereign debt and sudden stops. A closer inspection of the evidence that has been presented elsewhere suggests that it is foreign-held debt that poses a risk. The role of international debt in increasing the risk of crises was pointed out by Rodrik and Velasco (working paper 1999), who showed that short-term bank debt contributed to the occurrence of capital flow crises in the period of 1988-98. Why are debt liabilities more risky for countries than equity? These results have consequences for the use of capital controls and the sequence of decontrol.

Nomura Presents The Fair-Value Of European Currencies In A Euro Breakup Sce As investors proceed happily through the forest that is this week's potentially epic fail, Nomura asks the question on every European is asking - What's in my wallet? Investors holding EUR-denominated assets and obligations face potential redenomination of contracts into new currencies. Based on the current misalignment of the real exchange rate and future inflation risk estimates, the fixed income group sees very material depreciation risks in most of the periphery and one surprise but critically the research enables risk-reward trade-offs on intra-European trades. This potential 'fungibility' issue is exactly what we described last week as a potential driver of stress and Nomura's work provides a framework for quantifying that relative stress. Belgium, while not entirely surprising to us, faces a dramatic devaluation in a break-up scenario buit it becomes very clear just how concerned depositors and obligation-holders must be in Greece, Portigal, and Spain at a minimum.

This Time is Different, An Update « Oregon Office of Economic Analysis UPDATE: The information below was originally published September, 2011; an update was done in September, 2012 and the latest employment graph (data through November 2013) is here. The following provides an update on the great research that Carmen Reinhart and Kenneth Rogoff conducted regarding the build-up and subsequent bust of historical financial crises. While their work on crises was largely conducted in the time period leading up to and directly after the financial meltdown in late 2008, there does not appear to be any updates now that the U.S. economy has been in technical recovery for over two years at this point. Some of the facts and figures cited in This Time is Different and the authors’ academic papers were still a work in progress at publication date given that events were ongoing. In order to not bury the lede, first up is a quick summary of the U.S.’ current experience relative to historical financial crises, followed later by graphs for each individual measure. Like this:

EmailShare 48EmailShare The widely believed proposition that this financial crisis was "a tsunami that no-one saw coming", and that could not have been predicted, has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands. Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria: “Only analysts were included who: provide some account on how they arrived at their conclusions.went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.the prediction had to have some timing attached to it.” On that basis, Bezemer found eleven researchers who qualified: He identified four common elements: How come?

I have been trying update the position on US corporate profitability but have been unable to do so while the US government was shut down. Now it has opened up again, I shall get back to that task. In the meantime, I cam across a new analysis of the state of Eurozone corporate profitability hidden deep in the latest IMF report on Global Financial Stability (GFSR, which looked at the profitability of large and small corporations in five Eurozone economies. The IMF aggregated corporate earnings before tax and interest payments against assets based on firm-level annual data from the Bureau van Dijk’s Amadeus database. The sample includes more than 3 million non-financial firms, both publicly traded and private, from France, Germany, Italy, Portugal and Spain. The analysis finds that corporate profitability in those five countries remains well below the peal levels of 2007, with the exception of German companies. Like this:

Europäische Lohnkoordinierung oder nationale Währungen – entscheidet euch! Mit der Auflösung der nationalen Währungen und Einführung des Euro hat man bewusst Markt-mechanismen außer Kraft gesetzt. Die Ausgleichsfunktion nationaler Währungen im Bezug auf sich unterschiedlich entwickelnde Volkswirtschaften wurde ausgeschalten. Weniger Markt erfordert mehr Staat, doch ist dieses “Mehr” an Staat zurzeit erkenntlich? Schon 1988 hat Fritz W. Scharpf (Danke für den Hinweis an Matthias Garscha), emeritierter Direktor des Max-Planck Instituts für Gesellschaftsforschung in seinem Aufsatz “Weltweite, europäische oder nationale Optionen der Vollbeschäftigungspolitik?” vor einer einheitlichen Währung und ausbleibender Koordination gewarnt . Aufgrund dessen prognostizierte er die düstere Aussicht: Das fatale dabei ist, dass genau dies eingetreten ist, ähnlich wie Flassbeck es 1999 im Jahreswirtschaftsbericht der Bundesregierung beschrieben hat. Die Frage ist nun, wie aktuell das Problem der divergierenden Lohnstückkosten angegangen wird. Gefällt mir: Gefällt mir Lade...

Euro bonds are not the answer | Reuters Breakingviews By Hugo DixonThe author is a Reuters Breakingviews columnist. The opinions expressed are his own. Euro bonds are not the answer to the region’s raging financial crisis. The euro countries aren’t going to agree to guarantee each others’ debts in time to solve it. One can understand why fiscally-challenged governments such as Italy’s and Greece’s are in favor of euro bonds. But there’s precious little chance of these bonds being approved any time soon by fiscally-strong countries — led by Germany, the Netherlands and Finland. Germany may be prepared to consider green-lighting euro bonds once current debts are under control. Conventional wisdom, of course, is that fiscal union -– of which euro bonds would be a key element -– is needed to make monetary union a success. But this conventional wisdom is flawed. The least bad way forward is to make the discipline of the market more effective while giving struggling governments some help to make a transition to healthier economies.