EUCOM Economic Analysis - Part I

[davidbfpo]

Convert the Euro to the Swiss France. Let the Swiss run the ECB, OK quite a Germanic influence still.

[Firn]

Finland preparing Euro break-up

It seems that the Finns see the survival of the Euro as a currency of the whole current Eurozone rather unlikely. The Finns are not among the "virtous Germanic" part of Eurozone, and have certainly nothing to do with the Swedish , but the share rather similar financial values as a public entity. [I have a couple of Finnish friends, what a great land for a naturalist, swimmer and hunter. I also adore the Sauna]

In any case so far one could make a lot of good money in the last months by good investment. I went in for the long term but as the short term went so well I sold part of the last investments in European stocks. One American one also became liquid. Overall I have to confess that I do like the stock market of the last five years. Big swings can mean big gains and while in general I could have done, as always, better but one has to be greedy only at the right time and I have problems to do so.

Said that one never knows what the future brings - I could be the stupid guy in only a matter of weeks.

[jmm99]

Tuomioja tells British newspaper Finland is making contingency plans for euro break-up:

Finland’s Minister for Foreign Affairs Erkki Tuomioja (SDP) has said in an interview with the British newspaper The Daily Telegraph that Finland is prepared for a possible breakup of the common European currency, the euro.

"We have to face openly the possibility of a euro-break up, It is not something that anybody - even the True Finns - is advocating in Finland, let alone the government. But we have to be prepared", the Foreign Minister said.

Finnish policy toward the euro has been under close international scrutiny.

Tuomioja said that Finnish officials have a plan ready in case the euro breaks up.

"This is what people are thinking about everywhere. But there is a consensus that a eurozone break-up would cost more in the short-run or medium-run than managing the crisis."

Tuomioja also said that a breakup of the euro would not mean the end of the European Union, and that it might ultimately make the EU function better.

Finland has made news recently over its severe policy toward the debt crisis. Finland is the only eurozone country to have demanded - and received - guarantees from Greece and Spain for its share of the bailout loans for those countries.

Meanwhile, Miapetra Kumpula-Natri (SDP), the chair of the Grand Committee of the Finnish Parliament, confirmed to the newspaper that the number of rescue packages is coming to an end.

"There is a feeling on the street that there has to be a limit. I can’t say whether it is 10 per cent of GDP, or what. It’s not written. But it is obvious that a small country can’t help big countries eternally", she says.

About its domestic politics - an op-ed, Finland will not voluntarily leave the euro.

Terveiset

Mikko

[Firn]

As I have written before I don't think that the Euro will go away. So far it is far more likely that one, perhaps two smaller countries will leave the Eurozone. It is rather obvious that a responsible state does prepare for such eventualities.

BTW: I enjoyed the blog of "Why nations fail" recently a lot and will likely buy the book soon. On Amazon two highly-rated reviews do address some of the issues I have encountered about their arguments, but the central idea is highly interesting. It has influenced my thinking about a country like Greece (or Suomi) quite strongly in the last days. In short so far not a personal Clauswitz or Ben Graham moment, but a great start.

[Surferbeetle]

The systemic and nonsystemic variables of the risk equation for the Euro appear to add up to semi-favorable conditions to me at this point in time. Although post WWII summer equity rally's have historically not lasted the summer (~'78, '80, '86, '95), and the upcoming calendar is challenging (Aug 24 - Frau Dr. M & Mr Samaras Meeting and Greek Bond Payment due same week, Sept 6 - Monthly ECB Policy Meeting, Sept 12 - Karlsruhe Court Decision and Dutch Elections, Sept 14 Eurozone Finance Ministers Meeting, Oct 12 - significant Spanish Bond Payment due, etc, etc) I am sufficiently optimistic enough to still be in the game with small positions in individual stocks (to which i add to as they continually break new lows ).

We will see what happens...

• Euro-Zone wappnet sich fr Grexit, 18.08.2012, 17:38 Uhr, Handelsblatt, http://www.handelsblatt.com/politik/...17530-all.html
  
  

  Auch Schuble wies die Euro-Skeptiker in die Schranken. "Wenn der Euro nicht zusammenbleibt, zahlen wir den hchsten Preis. Deswegen: Diejenigen, die so ein Haufen dummes Zeug reden, wissen nicht, wovon sie reden", sagte Schuble in Berlin.

• Sovereign Debt Payment For Selected European Countries, By Wendy Soong - Jan 3, 2012 7:45 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...es-table-.html
  
• Eurozone shuttle diplomacy to pick up pace before critical month, By Andreas Rinke and Harry Papachristou, BERLIN/ATHENS | Thu Aug 16, 2012 1:43pm EDT, Reuters, http://www.reuters.com/article/2012/...87F0CA20120816
  
  
• EUR/USD - Erholung mit Potential?, 17.08.2012 08:58, Finanzen.ch, http://www.finanzen.ch/nachrichten/d...tential-185946
  
  
• Italiens Banken stark auf die EZB angewiesen, Freitag 17.8.2012, NZZ, http://www.nzz.ch/finanzen/uebersich...sen-1.17488824
  
• Bankenprsident kritisiert die Sparkassen, 14.08.2012, 10:45 Uhr, Handelsblatt, http://www.handelsblatt.com/unterneh...n/6994058.html
  
• Unholy mess, Spain’s troubled savings banks edge towards their day of reckoning, May 27th 2010 | MADRID | from the print edition, The Economist, http://www.economist.com/node/16231412
  
  
• Get ready for more Grexit speculation, Aug. 17, 2012, 5:38 a.m. EDT, By William L. Watts, MarketWatch, http://www.marketwatch.com/story/get...ion-2012-08-17
  
• Dark clouds loom over summer rally, By James Mackintosh, August 9, 2012 11:27 pm, Financial Times, www.ft.com

[Firn]

The Corriere della Sera gave good insight into on of the dark spots of the Italian economy, the very low % of employed. In fact only a bit over a third of the Italian population is - legally - employed. Even if we account for the "black" labour this is a very low level compared to other Eurozone countries. Germany for example has IIRC almost 1 in 2 employed, with only a slightly older population.

While the numbers of the unemployed generally captured the headlines this article, which is not available online, shows how much of the human potential of Italy has not been tapped. Especially the women are far less present in the labour market. (It is difficult to explain this due to the traditional wealth in children for which the mamma' had to care, as the fertility has been very low for many many years).

In short the relative low "unemployment" of Italy compared to a nation like Spain has to do with the specific circumstances of the country and the resulting black areas for the usual catchy statistics.

---

@Surferbeetle: I have recently sold quite a bit of stocks as the performance of many was just a bit too good, considering the current situation. It gives me enough liquidity to react to greater pessimism while the high % of stocks of my overall portfolio - not my portafoglio - should possibly continue to give high dividends and good long-term performance. Said that I have lost on paper almost 20% on the ETF on the European financial sector. Timing has been critical in this context, for example financial stock like Allianz have risen almost as much.

[Surferbeetle]

Firn,

End of the day, the remaining brain-cell is toast...

The world of finance is always an interesting place. Continuing to dollar cost average into low cost index funds since one can only count on oneself for heavy lifting/retirement. ETF's are ok, but for me, individual stocks are truly where it's at for the 'small beer fun stuff'. The 1st quarter LTRO allowed me to surf a number of lows to highs and make my numbers (+7% cash out) for the entire year while post LTRO conditions have been a bit rough (-6% paper loss to date). Nonetheless, this has been a great year for more hands on learning regarding the business models, supply chains, value chains, networks, regulatory frameworks, business ratios, and micro & macro economics of the euro finance sector.

My investment & trading thesis for the remaining portion of this year is that Frau Dr. M and company will find a way to approach an acceptable pareto optimum regarding conditionality and the dicke Bertha. The path will not be painless. Let's also leave some room for skepticism however, with Jeremy Grantham's 2nd Qtr Letter being a good place to start...http://www.gmo.com/websitecontent/GMOQ2Letter.pdf

The economic environment seems to be stuck in a rather unpleasant perpetual loop. Greece is always about to default; the latest bailout is always about to save the day and yet never seems to; China is always about to collapse but instead teases us by inching down; and I swear the Financial Times is beginning to recycle its reports! In the U.S., the fiscal cliff looms along with debt limits and the usual election uncertainties. The dysfunctional U.S. Congress continues for the time being in its intractable ways. The stock market rises and falls and rises and falls again. It is getting difficult to find anything new to say at client meetings. I, for one, wish that the world would get on with whatever is coming next.

Haven't forgotten the priceless lessons of Iraq either...above ground, moving & breathing is always a win...

[Surferbeetle]

Haldane calls for rethink of Basel III, By Brooke Masters, Chief Regulation Correspondent, August 31, 2012 5:10 pm, Financial Times, www.ft.com

Mr Haldane acknowledged that adopting his ideas “would require an about-turn from the regulatory community from the path followed for the better part of the past 50 years”, but he likened the situation to trying to catch a Frisbee. “To ask today’s regulators to save us from tomorrow’s crisis using yesterday’s toolbox is to ask a border collie to catch a Frisbee by first applying Newton’s law of gravity,” he said.

Dave Matthews Band - Mercy, http://www.youtube.com/watch?v=Kww33eLc6Cs

[Surferbeetle]

Eurozone live: Draghi Day, September 6, 2012 7:51 am by Tom Burgis, Financial Times, www.ft.com

13.53 Draghi is batting off questions about what right he has to declare the euro “irreversible”. Now he’s asked about the “lira-isation” of the euro, a reference to what Draghi says is a “caricature” of a “southern cabal” running the show. The vote was near-unanimous, he reminds the questioner. He also insists that the bank is acting within its mandate — which forbids it directly to fund governments directly — because the bond purchases will be on the secondary market.

13.49 Draghi says there was one dissenting view on the board. He won’t say who that was. We couldn’t possiIT WAS THE GERMANSbly guess.

13.46 All the bond purchases will be sterilised, Draghi says. Each month, the ECB will publish its holdings by country.

The ECB’s previous bond-purchase programme, the SMP, is hereby terminated.

13.44 The programme will apply to bonds of maturity between one and three years. THERE WILL BE NO CAP FOR YIELDS.

The ECB will be treated the same way as any other bond buyer.

13.43 Now Draghi turns to the details of Outright Monetary Transactions (bond-buying to the likes of you and I).

Strict and effective conditionality attached to an EFSF/ESM programme. Either a full adjustment programme or a conditional credit line.

The involvement of the IMF shall be sought, in part to monitor the programme.

The ECB will consider buying bonds from a monetary policy perspective.

A CRUCIAL POINT If the government fails to comply with the bailout terms, the ECB will stop buying its bonds.

13.41 Good progress has been made, says Draghi, but need for reform remains across Europe. “On the fiscal front, it is crucial that governments take all measures to achieve their targets.”

[Surferbeetle]

Draghi: Do Exactly As We Say, And We'll Hand Over The Money, by Jacob Goldstein, 10:16 am, September 6, 2012, NPR - Planet Money, http://www.npr.org/blogs/money/2012/...the-money#more

Are you a eurozone country? Are you having a hard time borrowing money at a reasonable rate? Mario Draghi has a deal for you.

First, you have to admit you have a problem. You have to ask for help from the European Union and the International Monetary Fund. Then you have to do whatever they say.

Mario Draghi, President of the ECB, Vitor Constancio, Vice-President of the ECB, Frankfurt am Main, 6 September 2012, http://www.ecb.int/press/pressconf/2...120906.en.html

It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area. OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.

[Surferbeetle]

The Tragedy of the European Union and How to Resolve It, George Soros, SEPTEMBER 27, 2012, The New York Review of Books, http://www.nybooks.com/articles/arch...gination=false

I have been a fervent supporter of the European Union as the embodiment of an open society—a voluntary association of equal states that surrendered part of their sovereignty for the common good. The euro crisis is now turning the European Union into something fundamentally different. The member countries are divided into two classes—creditors and debtors—with the creditors in charge, Germany foremost among them. Under current policies debtor countries pay substantial risk premiums for financing their government debt, and this is reflected in the cost of financing in general. This has pushed the debtor countries into depression and put them at a substantial competitive disadvantage that threatens to become permanent.

The policies pursued under German leadership will likely hold the euro together for an indefinite period, but not forever. The permanent division of the European Union into creditor and debtor countries with the creditors dictating terms is politically unacceptable for many Europeans. If and when the euro eventually breaks up it will destroy the common market and the European Union. Europe will be worse off than it was when the effort to unite it began, because the breakup will leave a legacy of mutual mistrust and hostility. The later it happens, the worse the ultimate outcome. That is such a dismal prospect that it is time to consider alternatives that would have been inconceivable until recently.

In my judgment the best course of action is to persuade Germany to choose between becoming a more benevolent hegemon, or leading nation, or leaving the euro. In other words, Germany must lead or leave.

When it was only an aspiration, the European Union was what psychologists call a “phantastic object,” a desirable goal that captured many people’s imagination, including mine. I regarded it as the embodiment of an open society. There were five large states and a number of small ones and they all subscribed to the principles of democracy, individual freedom, human rights, and the rule of law. No nation or nationality was dominant. Although the Brussels bureaucracy was often accused of a “democratic deficit,” elected parliaments had to give approval of the major steps.

The process of integration was spearheaded by a small group of farsighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.

There is a close parallel between the euro crisis and the international banking crisis of 1982. Then the IMF and the international banking authorities saved the international banking system by lending just enough money to the heavily indebted countries to enable them to avoid default but at the cost of pushing them into a lasting depression. Latin America suffered a lost decade.

Today Germany is playing the same role as the IMF did then. The details differ, but the effect is the same. The creditors are in effect shifting the whole burden of adjustment onto the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center,” or “core,” and “periphery” have crept into usage almost unnoticed, although it is obviously inappropriate to describe Italy and Spain as periphery countries. In effect, however, the introduction of the euro relegated some member states to the status of less developed countries without either the European authorities or the member countries realizing it. In retrospect, that is the root cause of the euro crisis.

Imperial power can bring great benefits but it must be earned by looking after those who live under its aegis. The United States emerged as the leader of the free world after the end of World War II. The Bretton Woods system made it the first among equals, but the United States was a benevolent hegemon that earned the lasting gratitude of Europe by engaging in the Marshall Plan. That is the historic opportunity that Germany is missing by holding the heavily indebted countries to their Schuld.

It is worth recalling that the reparations payments demanded of Germany after World War I were among the factors giving rise to National Socialism. And Germany had its own Schuld reduced on three separate occasions: the Dawes Plan in 1924, the Young Plan in 1929—too late to prevent the rise of Hitler—and the London Debt Agreement in 1953.

Today Germany does not have imperial ambitions. Paradoxically, the desire to avoid dominating Europe is part of the reason why Germany has failed to rise to the occasion and behave as a benevolent hegemon. The steps taken by the ECB on September 6 constitute the minimum that is necessary to save the euro but they will also take us a step closer to a two-tier Europe. The debtor countries will have to submit to European supervision but the creditor countries will not; and the divergence in economic performance will be reinforced. The prospect of a prolonged depression and a permanent division into debtor and creditor countries is so dismal that it cannot be tolerated. What are the alternatives?

1. Establishing a more or less level playing field between debtor and creditor countries, which would mean that they would be able to refinance their government debt on more or less equal terms.

2. Aiming at nominal growth of up to 5 percent so that Europe can grow its way out of its excessive debt burden. This will necessitate a higher level of inflation than the Bundesbank is likely to countenance. It may also require a treaty change and a change in the German constitution.

By contrast, if Germany were to exit and leave the common currency in the hands of the debtor countries, the euro would fall and the accumulated debt would depreciate in line with the currency. Practically all the currently intractable problems would dissolve. The debtor countries would regain competitiveness; their debt would diminish in real terms and, with the ECB in their control, the threat of default would evaporate. Without Germany, the euro area would have no difficulty in carrying out the U-turn for which it would otherwise need Chancellor Merkel’s consent.

What can bring Germany to decide whether to stay in the euro without destroying the European Union or to allow the debtor countries to solve their problems on their own by leaving the euro?

External pressure could do it. With François Hollande as the new president, France is the obvious candidate to advocate an alternative policy for Europe. By forming a common front with Italy and Spain, France could present an economically credible and politically appealing program that would save the common market and recapture the European Union as the idealistic vision that fired people’s imagination. The common front could then present Germany with the choice: lead or leave. The objective would not be to exclude Germany, but to radically change its policy stance.

Unfortunately, France is not in a strong position to form a united front with Italy and Spain in the face of determined opposition from Germany. Chancellor Merkel is not only a strong leader but also a skilled politician who knows how to keep adversaries divided. France is particularly vulnerable because it has done less than Italy or Spain to accomplish fiscal consolidation and structural reforms. The relatively low risk premium that French government bonds currently enjoy is due almost entirely to France’s close association with Germany. Asian central banks have been buying French bonds, especially since German Bunds have started selling at negative yields. Should France ally itself too closely with Italy and Spain, it would be judged by the same yardstick and the risk premium on its bonds may rise to similar levels.

The campaign to change German attitudes will therefore have to take a very different form from the intergovernmental negotiations that are currently deciding policy. European civil society, the business community, and the general public need to mobilize and become engaged. At present, the public in many eurozone countries is distressed, confused, and angry. This finds expression in xenophobia, anti-European attitudes, and extremist political movements. The latent pro-European sentiments, which currently have no outlet, need to be aroused in order to save the European Union. Such a movement would encounter a sympathetic response in Germany, where the large majority is still pro-European but under the spell of false fiscal and monetary doctrines.

[Firn]

@Surferbeetle: Good that somebody keeps this key thread running. I have been busy recently and have not spent much time in the net.

Something which catched my attention in the last days has been the drop in the share of equity buyers of homes in Germany and Austria mustered to finance their (IIRC first houses). The former has come from a report in the Suedeutschen Zeitung, the latter from insider sources in the sector.

The inflation fear, low rates and a relative good economic environment (yes, indeed) and perhaps the recent price hike ( the usual paradox) could all play a role. Who knows the cause(s), but if true it is an interesting development which might effect other pieces of the European economy.

More research is of course required...

[Surferbeetle]

Crisis fuels Catalan independence push, By David Gardner in London, September 11, 2012 5:21 pm, Financial Times, www.ft.com

Catalonia no longer fits within Spain and needs to explore the option of independence, according to a leading nationalist and former head of the Catalan regional government.

“It seems our understanding of our place within Spain has changed,” Mr Pujol says. He points to two main causes: first, a fiscal system whereby Catalonia, which has a relatively rich economy the size of Portugal’s, transfers up to 9 per cent of its gross domestic product to Madrid each year; second, the 2010 decision of Spain’s constitutional court to strike down reforms approved by the Catalan and Spanish parliaments that significantly enhanced home rule.

El clamor independentista colapsa Barcelona, Javier Oms | Víctor Mondelo | Germán González | Barcelona, Actualizado martes 11/09/2012 21:40 horas, El Mundo, http://www.elmundo.es/elmundo/2012/0...347377095.html

• Guerra de cifras: dos millones de asistentes para los convocantes, 1,5 para los Mossos y 600.000 para la Policía Nacional y la Guardia Civil

• La masa convocada reivindica bajo el lema 'Cataluña, nuevo Estado de Europa'

• Los organizadores serán recibidos por Artur Mas en los próximos dos días

• Cuatro encapuchados queman banderas de España, la Unión Europea y Francia

El independentismo catalán logra una histórica exhibición de fuerza, ÀNGELS PIÑOL Barcelona 11 SEP 2012 - 23:26 CET, El Pais, http://ccaa.elpais.com/ccaa/2012/09/...08_419590.html

Barcelona ha vivido este martes una exhibición independentista sin precedentes, pacífica y sin un solo incidente. La manifestación de la Diada reunió a centenares de miles de personas procedentes de todo Cataluña. Fue una explosión secesionista, en la que participaron gentes de todas las edades y extracción social, que recorrieron el centro de Barcelona reivindicando la independencia. Con dos millones de asistentes, según los organizadores; 1,5 millones, según la Guardia Urbana, y unas 600.000 personas, según los cálculos de EL PAÍS, a las siete de la tarde, la manifestación rompió todas las previsiones y superó numéricamente a la de 1977, que reivindicó el Estatuto, y dejó pequeña la de julio de 2010, en contra del fallo del Tribunal Constitucional que recortó varios artículos de esa norma.

Convocada por un grupo independentista, la Assemblea Nacional de Catalana (ANC), bajo el lema Cataluña, nuevo estado de Europa, la marcha, transversal y que abarcó políticamente desde Convergència a los ecosocialistas de Iniciativa (ICV-EUiA), sumó socialmente muchas sensibilidades con un denominador común: la independencia es la solución para Cataluña. Ya antes de empezar, el Paseo de Gràcia se vio desbordado, incapaz de absorber la marea humana roja, amarilla y azul, ya con senyeres o estelades (bandera independentista), ya fueran banderas o capas, que se dirigía al punto de salida. Al grito de in-inde-indepèndencia, Barcelona en realidad vivió varias manifestaciones simultáneas con cortejos en las calles paralelas al paseo.

Una marea de manifestantes ha colapsado Barcelona bajo el lema 'Cataluña, Estado de Europa', 20MINUTOS.ES / AGENCIAS. 11.09.2012, http://www.20minutos.es/noticia/1585...alunya-estado/

National Day of Catalonia, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/National_Day_of_Catalonia

Jordi Pujol i Soley, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Jordi_Pujol_i_Soley

Mariano Rajoy, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Mariano_Rajoy

A Fistful Of Euros, Posted on August 12, 2012 by Edward Hugh, The Owl Of Minerva, http://fistfulofeuros.net/afoe/the-owl-of-minerva/

Just to round the commemorations off, in the August edition of their monthly bulletin the ECB finally let out that dirty little secret than every insider in the know has already discounted. The Bank have finally accepted that the much heralded Spanish labour reform isn’t going to work. At least not as planned. As the Financial Times put it, the Spanish labour market reform approved in February was “far-reaching and comprehensive” but came too late, the ECB implied, saying it “could have proved very beneficial” in avoiding job cuts if the measure had been passed some years ago.

_______________

Basque Country (greater region), From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Basque_...greater_region)

________________

Scotland, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Scotland

________________

Bavaria, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Bavaria

________________

Firn,

Property prices have been going up, up, and up in Switzerland.... store of value, medium of exchange, property rights, enduring rule of law, hmmm, looks like many people are heading back to the old school basics...

SNB Seen Targeting Bank Capital to Curb Property Boom: Mortgages, By Simone Meier and Klaus Wille - Aug 13, 2012 4:47 AM MT, Bloomberg News, http://www.bloomberg.com/news/2012-0...mortgages.html

Thomas Jordan’s fight to protect the Swiss economy is set to widen beyond currency markets and too- big-to fail risks as the central bank chairman considers how to curb the biggest real-estate boom in two decades.

[Ulenspiegel]

@Surferbeetle: Good that somebody keeps this key thread running. I have been busy recently and have not spent much time in the net.

Something which catched my attention in the last days has been the drop in the share of equity buyers of homes in Germany and Austria mustered to finance their (IIRC first houses). The former has come from a report in the Suedeutschen Zeitung, the latter from insider sources in the sector.

The inflation fear, low rates and a relative good economic environment (yes, indeed) and perhaps the recent price hike ( the usual paradox) could all play a role. Who knows the cause(s), but if true it is an interesting development which might effect other pieces of the European economy.

More research is of course required...

From a more northern German POV - my sister is bankster in the credit department of a bank in the Hannover region:

Since 2000 it has been a very rare event for her to provide a typical German credit financing, i.e. people have 25% own money and get 75% as credit. It was quite common during the last decade that customers only wanted around 30% credit, the rest was provided by other family members. So no real surprise for me that this developement continous at even lower level in the current situation.

Living in Austria, I know from friends that it has been quite common for years that Italians bought flats in some Austrian cities, esp. Salzburg. Again higher money influx simply led to an additional increase.

You can add, that the last two years many objects were bought by Austrian and German insurance companies, this lead to increased prices (>5% p.a.) in my home town Graz, that's a lot for Austria.

Common for Germany and Austria was that there was no real estate bubble, this may change in some cities but generally real estate is still considered worth the money by "professional" investors - I have a different opinion :-).

[davidbfpo]

This BBC News report provides some context on the Catalan issue:http://www.bbc.co.uk/news/world-africa-19566838

[Surferbeetle]

Ulenspiegel,

Comparing and contrasting typical German mortgage financing with US financing is pretty interesting, in particular with the not so distant NINJA (no in come, job, assets) mortgage history in the US. There seem to be lessons learned from this when one considers Basel III's strict capital requirements for banks...and the implementation fight and associated timetable is a story in and of itself.

David,

It looks like the negotiations regarding a greater say, or even the maximalist position of full autonomy, have been energized by the higher level EU machinations of late. It should go without saying, however, that using the mob to strengthen one's bargaining position is a dangerous route to take.

_________________

Antrge auf Erlass einer einstweiligen Anordnung zur Verhinderung der
Ratifikation von ESM-Vertrag und Fiskalpakt berwiegend erfolglos, Bundesverfassungsgericht - Pressestelle -

Pressemitteilung Nr. 67/2012 vom 12. September 2012
Urteil vom 12. September 2012

http://www.bundesverfassungsgericht....bvg12-067.html

Das Bundesverfassungsgericht hat heute sein Urteil ber mehrere Antrge
auf Erlass einer einstweiligen Anordnung verkndet. Die Antrge sind vor
allem darauf gerichtet, dem Bundesprsidenten bis zur Entscheidung ber
die jeweilige Hauptsache zu untersagen, die am 29. Juni 2012 von
Bundestag und Bundesrat beschlossenen Gesetze auszufertigen und damit
die Voraussetzung fr die Ratifikation der mit ihnen gebilligten
vlkerrechtlichen Vertrge - des Vertrages zur Einrichtung des
Europischen Stabilittsmechanismus (ESM-Vertrag) und des Vertrages ber
Stabilitt, Koordinierung und Steuerung in der Wirtschafts- und
Whrungsunion (sog. Fiskalvertrag) - zu schaffen.

ber den Sachverhalt informiert die Pressemitteilung Nr. 47/2012 vom 2.
Juli 2012. Sie kann auf der Homepage des Bundesverfassungsgerichts
eingesehen werden.

Der Zweite Senat des Bundesverfassungsgerichts hat die Antrge mit der
Magabe abgelehnt, dass eine Ratifizierung des ESM-Vertrages nur
zulssig ist, wenn vlkerrechtlich sichergestellt wird, dass
1. durch die in Art. 8 Abs. 5 Satz 1 des ESM-Vertrages (ESMV) geregelte
Haftungsbeschrnkung smtliche Zahlungsverpflichtungen der
Bundesrepublik Deutschland aus diesem Vertrag der Hhe nach auf ihren
Anteil am genehmigten Stammkapital des ESM (190.024.800.000 Euro)
begrenzt sind und keine Vorschrift dieses Vertrages so ausgelegt werden
darf, dass fr die Bundesrepublik Deutschland ohne Zustimmung des
deutschen Vertreters in den Gremien des ESM hhere
Zahlungsverpflichtungen begrndet werden,
2. die Regelungen des ESM-Vertrages ber die Unverletzlichkeit der
Unterlagen des ESM (Art. 32 Abs. 5, Art. 35 Abs. 1 ESMV) und die
berufliche Schweigepflicht aller fr den ESM ttigen Personen (Art. 34
ESMV) einer umfassenden Unterrichtung des Bundestages und des
Bundesrates nicht entgegenstehen.

Die Bundesrepublik Deutschland muss zum Ausdruck bringen, dass sie an
den ESM-Vertrag insgesamt nicht gebunden sein will, falls sich die von
ihr geltend zu machenden Vorbehalte als unwirksam erweisen sollten.

[Ulenspiegel]

I was told by friends who lived in the USA for many years that in the States it is considered a good thing if you have a credit history; in Austria and Germany it is much better if you do not have one: Consumer credit or maxing out your credit card means for a German banker that you are not able to save, result is you end in a high risc group and pay higher interst rates for your mortgage. :-)

[Firn]

From a more northern German POV - my sister is bankster in the credit department of a bank in the Hannover region:

Since 2000 it has been a very rare event for her to provide a typical German credit financing, i.e. people have 25% own money and get 75% as credit. It was quite common during the last decade that customers only wanted around 30% credit, the rest was provided by other family members. So no real surprise for me that this developement continous at even lower level in the current situation.

Living in Austria, I know from friends that it has been quite common for years that Italians bought flats in some Austrian cities, esp. Salzburg. Again higher money influx simply led to an additional increase.

You can add, that the last two years many objects were bought by Austrian and German insurance companies, this lead to increased prices (>5% p.a.) in my home town Graz, that's a lot for Austria.

Common for Germany and Austria was that there was no real estate bubble, this may change in some cities but generally real estate is still considered worth the money by "professional" investors - I have a different opinion :-).

While I do strongly agree with the second part of your post I think I did not make my point clear about the equity ratio. I read a short notice in the Suedeutschen on which this recent
article seems to be based and it did fit my perception about a recent development in parts of Switzerland, Germany and Austria. A shallow googling seemed to strenghen this view. Basically there seems to be a run on "safe values" like houses in which an increasing amount of persons participate with little equity.

Some attractive areas have, has you have noted, indeed the problem that much non-local money flows into housing. Examples in Italy are the for example many villages in the Dolomites, creating a bad ratio between income and housing for the locals. The recent price declines seems strongly correlated with the redirection of the flow of legal or black money into similar objects in safer and more discrete locations. The infamous tax raid in Cortina d'Anpez is maybe a good symbol of the increasing focus on tax evasion and the strong tax increases in an already very heavily taxed country.

All in all it is not best of signs if something seems to become such a safe bet that considerable risk is taken by two sides to make it.

[Ulenspiegel]

While I do strongly agree with the second part of your post I think I did not make my point clear about the equity ratio. I read a short notice in the Suedeutschen on which this recent
article seems to be based and it did fit my perception about a recent development in parts of Switzerland, Germany and Austria. A shallow googling seemed to strenghen this view. Basically there seems to be a run on "safe values" like houses in which an increasing amount of persons participate with little equity.

Some attractive areas have, has you have noted, indeed the problem that much non-local money flows into housing. Examples in Italy are the for example many villages in the Dolomites, creating a bad ratio between income and housing for the locals. The recent price declines seems strongly correlated with the redirection of the flow of legal or black money into similar objects in safer and more discrete locations. The infamous tax raid in Cortina d'Anpez is maybe a good symbol of the increasing focus on tax evasion and the strong tax increases in an already very heavily taxed country.

All in all it is not best of signs if something seems to become such a safe bet that considerable risk is taken by two sides to make it.

OK, there are different aspects:

1) Switzerland is in a completely different position than Germany and Austria, real estate there is even with Swiss income extremly expensive in the whole country. They play in a different league.

2) The citizens of some German cities like Munich, Stuttgart, Hamburg, Berlin experienced the last 5 years high annual increases of real estate prices without the same increase of their income, here the situation is described correctly by the Sddeutsche. But these cities are not the avarage. Here banks are tempted to reduce the requiremets for own money. How this plays out will be seen.
Minor issues: Berlin price level in absolute numbers was much lower than the Munich level and berlin has a quite different structure of its surrounding areas, IMHO it is a little bit comparing apple and oranges.

3) Most cities shrink or fight to keep the current number of citizens (e.g. Hannover), here you need as investor good knowledge and feeling which neighbourhoods will prosper, which will stagnate, which will die, or even more tricky, which towns and villages near relatively attractive cities will survive. These B- or C-cities/towns have a very low price level and promise if correctly selected very nice ROI. Therefore, my bet is that a lot of the investments will make a loss because real estate agents working not longer on their home turf do not have these information.

[Fuchs]

The construction of houses in Germany varies a lot. The property to build a house on is about as expensive as the house in some regions, while it's almost fro free in others (and practically for free in certain regions where it's more typical to build a house on property that you got as a gift at your marriage and the like).

Decent old houses can be cheaper than a small car in some regions - especially in rural regions with shrinking population.

The construction of a new house varies even with equal quality a lot. Rural house construction often involves a lot of own work or work done by friends or relatives. The construction costs are in such cases not much higher than the material costs and in some regions even a car mechanic with an unemployed wife can build a family house before he turns 30.


Some cities (especially Frankfurt, Munich) have a well-deserved reputation for high cost of living in general and high cost of housing in particular. Wages for work in corporations in these areas tend to be clearly above average, while many public employees need to evade into cheaper surrounding towns and villages.


Germany does not tend to have bubbles in major markets. The only bubbles I remember right now were about exaggerations in new or revived sectors that experienced at least some degree of public subsidies or other incentives.

Houses are considered as an investment, but only so for securing the standard of life after retirement. They're durable enough to carry utility from *now* to 40 years in the future, while all other wealth during retirement depends on the economic output of that time (GDP in 40 years will pay for retirement money in 40 years). The demographic change means that this may become unsatisfactory.
We do usually not plan on selling houses we once owned unless they're inherited. We don't tend to buy or build a house when we expect to move to another job at a later time.