EUCOM Economic Analysis - Part I

**davidbfpo** · 12-01-2011

Hat tip to the Australian Lowy Institute pointing at a speech by the Polish Foreign Minister yesterday, which has some stark passages and I have selected this section, which historically is poignant and telling:

I will probably be the first Polish foreign minister in history to say this, but here it is: I fear German power less than I am beginning to fear its inactivity. You have become Europe’s indispensable nation. You may not fail to lead: not dominate, but to lead in reform.

There is nothing inevitable about Europe’s decline. But we are standing on the edge of a precipice. This is the scariest moment of my ministerial life.

Link:http://www.ft.com/cms/s/0/b753cb42-1...#ixzz1f8jH7ngU

**Fuchs** · 12-01-2011

The Poles had the choice between guys like him and the Germanophobe tin foil-hat populists of their previous government...

There's some truth in his words, but Germany can only fix the mess completely by reversing its course totally. ECB money as short term fix and permanently high inflation in Germany and some other well-off Euro zone countries as long-term fix.
We're not going to do that, for the pressure of the problem is not really on us.

In fact, the left wing in Germany is so deeply asleep that it didn't yet grasp that part of the problem are the low wage increases in Germany - a cause that they should fight against with enthusiasm.
In stead, we've go the un-economics Greens, the badly mauled social democrats who still didn't recover from betraying the worker class and the (on the federal level) boycotted far left party that's composed of the former left wing of the social democrats and the former (?) communists.
None of them raises a voice in favour of a 10% wage increase, and even if they did: There's an autonomy between employers and employees. The government or legislative simply does not dictate wages in Germany.

We would need to undo the reforms of the past 15 years in order to lower the competitiveness of the German export economy far enough to allow the Mediterranean region to recover from our trade pressure.

The tragedy is that a few countries with competitive industries pushed for ever greater competitiveness, while countries with rather uncompetitive industries were content with the bubbles enabled/caused by the common currency and the associated blind trust of many incompetent financial market players.

**Surferbeetle** · 12-02-2011

Dollar Funding Costs Decline for Second Day After Swap Rate Cut, By Namitha Jagadeesh - Dec 1, 2011 2:03 AM MT, Bloomberg News

The cost for European banks to borrow in dollars fell for a second day after central banks led by the Federal Reserve cut the cost of emergency dollar loans.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 121 basis points below the euro interbank offered rate at 9:02 a.m. in London, from minus 131 basis points yesterday. The gap had widened to 162.5 below Euribor yesterday, the most in three years, before the Fed move.

Lenders increased overnight deposits at the European Central Bank, placing 304 billion euros ($408 billion) with the Frankfurt-based ECB yesterday, up from 297 billion euros on Nov. 29. That compares with a year-to-date average of 81 billion euros.

The Fed’s Secret Liquidity Lifelines, Interactive Graphic by David Yanosfsky, Bloomberg News

The US Federal Reserve mounted an unprecedented campaign to head off a depression by providing as much as $1.2 trillion in public money to banks and other companies from August 2007 through April 2010. The emergency loans were intended to help recipients cope with cash shortfalls and keep credit markets from grinding to a halt. Bloomberg News sorted through 29,000 pages of previously secret documents and Fed spreadsheets detailing more than 21,000 loans to compile a database showing which companies got the emergency liquidity, and when.

See loans to foreign governments or banks owned by them.

**Surferbeetle** · 12-04-2011

Draghi Signals ECB May Step Up Debt Measures If EU Considers Fiscal Union, By Jeff Black and Simone Meier - Dec 1, 2011 5:27 AM MT, Bloomberg News

European Central Bank President Mario Draghi signaled the ECB could do more to fight the debt crisis as long as governments push the euro area toward a fiscal union.

“A new fiscal compact” is “definitely the most important element to start restoring credibility,” Draghi said in an address to the European Parliament in Brussels today. “Other elements might follow, but the sequencing matters. It is first and foremost important to get a commonly shared fiscal compact right.” Draghi didn’t specify what more the ECB could do and said the central bank’s bond purchases “can only be limited.”

ECB balance sheet hits new high last week, Nov. 29, 2011, 9:59 a.m. EST, Marketwatch/WSJ

The balance sheet of the Eurosystem, which comprises the Frankfurt-based European Central Bank and the 17 euro-zone national central banks, grew by EUR26.2 billion compared with the previous week, settling at EUR2.42 trillion. This was EUR503.6 billion larger than a year earlier.

Net lending to credit institutions decreased by EUR10.4 billion to EUR189.7 billion last week. Still, lending at its main refinancing operations rose. Last Wednesday, a main refinancing operation of EUR230.3 billion matured and a new one of EUR247.2 billion settled. Earlier Tuesday, the ECB said it lent EUR265.5 billion to banks in seven-day funds, the highest demand for seven-day funds since June 2009.

The Eurosystem's holdings of securities held for monetary policy purposes increased by about EUR9 billion to EUR263.3 billion, the ECB said. The increase was due to the net result of EUR8.6 billion in settled purchases under the ECB's Securities Markets Program, the formal name for its program of buying euro-zone government bonds on the secondary market, and EUR0.5 billion under the ECB's second covered bond purchase program, as well as the redemption of securities under the SMP.

ECB Website, Home > Monetary Policy > Instruments > Open market operations

The Eurosystem’s regular open market operations - i.e. one-week and three-month euro liquidity-providing operations - serve to steer short-term interest rates, to manage the liquidity situation, and to signal the stance of monetary policy in the euro area.

Currently, the regular operations are complemented by euro liquidity-providing operations with a maturity of (around) one month as well as US-dollar liquidity-providing operations. In addition, until 30 June 2010, the Eurosystem purchased euro-denominated covered bonds under the Covered Bond Purchase Programme (CBPP) and, since 10 May 2010, it has conducted interventions in debt markets under the Securities Markets Programme (SMP). The liquidity provided through the SMP is currently absorbed by weekly collections of fixed-term deposits.

**Fuchs** · 12-04-2011

“A new fiscal compact” is “definitely the most important element to start restoring credibility,”

"compact" or "contract"?

**davidbfpo** · 12-04-2011

To my amusement Jacques Delors, the EU Commission's President (1985-1995), has now come out to announce what went wrong:

the eurozone was flawed from the beginning....the lack of central powers to co-ordinate economic policies allowed some members to run up unsustainable debt.

Link:http://www.bbc.co.uk/news/world-europe-16016131 and the actual interview:http://www.telegraph.co.uk/finance/f...o-my-plan.html

Now we have bankers and politicians advocating a compact or union. Which is a typical European response, a grand scheme that promises much and later is found to have failed to deliver.

Instead of the public, let alone parliaments, evaluating such suggestions it will be the markets and methinks bankers. Now who got us into this mess?