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Gene Ellis

German and French banks call the shots - European, Business - Independent.ie - 0 views

www.independent.ie/...ks-call-the-shots-2607577.html

german french banks ireland debt

shared by Gene Ellis on 11 Jul 12 - No Cached
  • German and French banks call the shots Print Email  NormalLargeExtra Large ShareNew  0  0   Also in European Debt crisis: European shares edge lower and growth worries persist Bank of England's Tucker 'wasn't encouraged to lean on Barclays' Draghi keeps door open to further interest rate cuts Marks and Spencers sales hit by summer deluge Spain's debt tops 7pc danger level as Madrid gets more time European Home "Shocking" 2012 HoroscopeWhat Does 2012 Have In Store For You? Shockingly Accurate. See Free!www.PremiumAstrology.comExpat Health InsuranceQuick, Compare, Trusted Website Expatriate Health Insurance Quoteswww.ExpatFinder.com/Instant-Quoteshttp://www.googleadservices.com/pagead/aclk?sa=L&ai=BMEejVeb8T8fDKoSG_QaAhrTCB-q_1OYBmoqphxvAjbcB0NkREAMYAyDgw6kIKAU4AFD4gumFAmCpsL6AzAGgAairsfEDsgESd3d3LmluZGVwZW5kZW50LmllyAEB2gFfaHR0cDovL3d3dy5pbmRlcGVuZGVudC5pZS9idXNpbmVzcy9ldXJvcGVhbi9nZX
  • d, for reasons best
  • known to itself, the ECB -- in clear contravention of both previous market precedent and financial logic -- has insisted that the senior bondholders be repaid in full and has lent the Irish banks, institutions which it must have known were hopelessly insolvent, €70bn to do so.
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  • Top of the list are German banks, to whom we owe €92bn with a further €38bn of other exposures. Does the fact that Irish banks potentially owe their counterparts up to €146bn explain the German government's implacable opposition to any write-down of the Irish banks' debts? After the British and the Germans, it is the French banks -- with total Irish bank loans of almost €32bn and a further €23bn of other exposures -- who have the biggest exposure to Ireland. Does this provide at least a partial explanation for French president Nicolas Sarkozy's truculence when faced with Irish requests that senior bondholders be forced to accept a haircut?
Gene Ellis

A European Energy Executive's Delicate Dance Over Ukraine - NYTimes.com - 0 views

www.nytimes.com/...licate-dance-over-ukraine.html

shared by Gene Ellis on 19 Feb 15 - No Cached
  • A European Energy Executive’s Delicate Dance Over Ukraine
  • Major Western oil companies like BP and Exxon Mobil have extensive exploration deals in Russia that they fear could be jeopardized if the United States and European Union impose stiffer sanctions on the Putin regime.
  • “This is by far the toughest time for European energy security that I have seen,” said Mr. Scaroni. “This issue might stop the supply of Russian gas.”
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  • The goal is to be able to ship gas to Ukraine at an annual rate of more than three billion cubic meters by the time the heating season begins in the autumn, increasing the flow to up to 10 billion cubic meters annually by next spring. Last year Ukraine imported nearly 30 billion cubic meters of gas, according to a recent report by the Oxford Institute for Energy Studies.
  • Part of his message is that, even though gas demand in Europe has been weak because of sluggish economies, imports from Russia actually rose last year by about 16 percent as other sources of supply including Norway and Algeria declined. Europe, he warned, is simply not prepared to do without gas from Russia.
  • But with the gradual introduction of more competitive pricing in the European markets, the gas business has become much less attractive for ENI and other big gas middlemen. They are stuck with high-priced long-term contracts to a handful of suppliers like Gazprom and Sonatrach, the Algerian state-owned company, while their customers are able to secure gas at often lower spot market prices — assuming the gas is flowing.
  • The pipeline would be a major new source of Russian gas for energy-hungry Europe. But European Union authorities have become deeply skeptical about the South Stream plan, seeing it as just another way of making Europe more dependent on Russian energy.
  • Given the balance of interests, tighter sanctions by Western governments might more likely aim to stem the technology that Russia needs to increase its future production, rather than to cut off gas supplies to Europe,
  • hose outages in 2006 and 2009 are a top reason that the European Union had already been trying to chip away at Europe’s dependence on Russia even before the Crimea annexation.
  • One of the most acrimonious battles is between the bloc’s antitrust authorities and Gazprom. That standoff began in 2011 when the European Commission carried out surprise raids on natural gas companies across Europe, including Gazprom affiliates, seeking evidence of blocking access to networks, charging excessive prices and raising barriers to diversification of supplies.
  • That is partly because powerful Eastern European countries like Poland argue that such clean-energy policies would impede their ability to reduce Russian dependence by mining more coal or developing their own shale gas resources.
  • nd this month, the European Commission issued rules aimed at reducing the subsidies that governments use to support the wind and solar industries,
Gene Ellis

European Union Leaders Gather in Brussels Over Budget - NYTimes.com - 0 views

www.nytimes.com/...r-in-brussels-over-budget.html

shared by Gene Ellis on 05 Feb 13 - No Cached
  • He has threatened to veto any new budget that does not at least freeze spending,
  • “Europeans who are attached to the European Union are now in a minority.” Fifty-two percent of those surveyed said they felt little or no attachment, up seven percentage points since 2010. In Britain, only 27 percent felt attached to the union.
  • Ahead of this week’s negotiations, at least seven countries, mostly those that contribute more to Europe’s coffers than they get back in farm subsidies and other payments, have already warned that they may veto a budget that does not give them a better deal. Among these is Austria, where, according to Mr. Ehrenhauser, who sits on the European Parliament’s budgetary control committee, “there is a critical mass building against the European Union.”
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  • The rethink, which would have scrapped spending on agricultural subsidies, ran into heavy opposition and stalled
  • All long-term budget decisions require unanimous approval by the member states, a rule first established when the grouping, then known as the European Economic Community, had just six members, not 27. The power of veto makes any major change to spending all but impossible and entrenches the status quo, no matter how unworkable or unpopular.
  • “It is extremely difficult to change anything,” Mr. Sapir said. “Everyone is always fighting at the margins over narrow national interests. They try to make sure they get money for their own countries and that cuts go to other countries.”
  • After months of arguments, two broad alliances have emerged. The first comprises countries like Britain, Germany and Sweden that are big net contributors and want to keep a tighter rein on spending. The second, known as the “Friends of Cohesion,” after a class of development grants aimed at less wealthy areas, includes Poland, Spain, Portugal and others that want to make sure the union’s largess does not dry up.
  • The European Commission, however, has been far less forthcoming. It told Mr. Ehrenhauser that it could not give a breakdown of spending in recent years on wine because that would require “lengthy research” and “it cannot consider doing this at the present time because of other priorities.”
Gene Ellis

George Soros: how to save the EU from the euro crisis - the speech in full | Business |... - 0 views

www.guardian.co.uk/...ave-eu-from-euro-crisis-speech

shared by Gene Ellis on 09 Apr 13 - No Cached
  • The crisis has also transformed the European Union into something radically different from what was originally intended. The EU was meant to be a voluntary association of equal states but the crisis has turned it into a hierarchy with Germany and other creditors in charge and the heavily indebted countries relegated to second-class status. While in theory Germany cannot dictate policy, in practice no policy can be proposed without obtaining Germany's permission first.
  • Italy now has a majority opposed to the euro and the trend is likely to grow. There is now a real danger that the euro crisis may end up destroying the European Union.
  • The answer to the first question is extremely complicated because the euro crisis is extremely complex. It has both a political and a financial dimension. And the financial dimension can be divided into at least three components: a sovereign debt crisis and a banking crisis, as well as divergences in competitiveness
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  • The crisis is almost entirely self-inflicted. It has the quality of a nightmare.
  • My interpretation of the euro crisis is very different from the views prevailing in Germany. I hope that by offering you a different perspective I may get you to reconsider your position before more damage is done. That is my goal in coming here.
  • I regarded the European Union as the embodiment of an open society – a voluntary association of equal states who surrendered part of their sovereignty for the common good.
  • The process of integration was spearheaded by a small group of far sighted statesmen who recognised that perfection was unattainable and practiced what Karl Popper called piecemeal social engineering. They set themselves limited objectives and firm timelines and then mobilised 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.
    • Gene Ellis
      Gene Ellis on 09 Apr 13
       
      Excellent point!
  • Unfortunately, the Maastricht treaty was fundamentally flawed. The architects of the euro recognised that it was an incomplete construct: a currency union without a political union. The architects had reason to believe, however, that when the need arose, the political will to take the next step forward could be mobilized. After all, that was how the process of integration had worked until then.
  • For instance, the Maastricht Treaty took it for granted that only the public sector could produce chronic deficits because the private sector would always correct its own excesses. The financial crisis of 2007-8 proved that wrong.
  • When the Soviet empire started to disintegrate, Germany's leaders realized that reunification was possible only in the context of a more united Europe and they were prepared to make considerable sacrifices to achieve it. When it came to bargaining, they were willing to contribute a little more and take a little less than the others, thereby facilitating agreement.
  • The financial crisis also revealed a near fatal defect in the construction of the euro: by creating an independent central bank, member countries became indebted in a currency they did not control. This exposed them to the risk of default.
  • Developed countries have no reason to default; they can always print money. Their currency may depreciate in value, but the risk of default is practically nonexistent. By contrast, less developed countries that have to borrow in a foreign currency run the risk of default. To make matters worse, financial markets can actually drive such countries into default through bear raids. The risk of default relegated some member countries to the status of a third world country that became over-indebted in a foreign currency. 
    • Gene Ellis
      Gene Ellis on 09 Apr 13
       
      Again, another excellent point!
    • Gene Ellis
      Gene Ellis on 09 Apr 13
       
      Not quite... Maggie Thatcher, a Conservative; and Gordon Brown, of Labour, both recognized this possible loss of sovereignty (and economic policy weapons they might use to keep the UK afloat), and refused to join the euro.
  • The emphasis placed on sovereign credit revealed the hitherto ignored feature of the euro, namely that by creating an independent central bank the euro member countries signed away part of their sovereign status.
  • Only at the end of 2009, when the extent of the Greek deficit was revealed, did the financial markets realize that a member country could actually default. But then the markets raised the risk premiums on the weaker countries with a vengeance.
  • 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.
  • In effect, however, the euro had turned their government bonds into bonds of third world countries that carry the risk of default.
  • In retrospect, that was the root cause of the euro crisis.
  • The burden of responsibility falls mainly on Germany. The Bundesbank helped design the blueprint for the euro whose defects put Germany into the driver's seat.
  • he fact that Greece blatantly broke the rules has helped to support this attitude. But other countries like Spain and Ireland had played by the rules;
  • the misfortunes of the heavily indebted countries are largely caused by the rules that govern the euro.
    • Gene Ellis
      Gene Ellis on 09 Apr 13
       
      Well, yes, but this is an extremely big point.  If, instead of convergence, we continue to see growth patterns growing apart, what then?
  • Germany did not seek the dominant position into which it has been thrust and it is unwilling to accept the obligations and liabilities that go with it.
  • Austerity doesn't work.
  • As soon as the pressure from the financial markets abated, Germany started to whittle down the promises it had made at the height of the crisis.
  • What happened in Cyprus undermined the business model of European banks, which relies heavily on deposits. Until now the authorities went out of their way to protect depositors
  • Banks will have to pay risk premiums that will fall more heavily on weaker banks and the banks of weaker countries. The insidious link between the cost of sovereign debt and bank debt will be reinforced.
  • In this context the German word "Schuld" plays a key role. As you know it means both debt and responsibility or guilt.
  • If countries that abide by the fiscal compact were allowed to convert their entire existing stock of government debt into eurobonds, the positive impact would be little short of the miraculous.
  • Only the divergences in competitiveness would remain unresolved.
  • Germany is opposed to eurobonds on the grounds that once they are introduced there can be no assurance that the so-called periphery countries would not break the rules once again. I believe these fears are misplaced.
  • Losing the privilege of issuing eurobonds and having to pay stiff risk premiums would be a powerful inducement to stay in compliance.
  • There are also widespread fears that eurobonds would ruin Germany's credit rating. eurobonds are often compared with the Marshall Plan.
  • It is up to Germany to decide whether it is willing to authorise eurobonds or not. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds. In other words, if Germany is opposed to eurobonds it should consider leaving the euro and letting the others introduce them.
  • Individual countries would still need to undertake structural reforms. Those that fail to do so would turn into permanent pockets of poverty and dependency similar to the ones that persist in many rich countries.
  • They would survive on limited support from European Structural Funds and remittances
  • Second, the European Union also needs a banking union and eventually a political union.
  • If Germany left, the euro would depreciate. The debtor countries would regain their competitiveness. Their debt would diminish in real terms and, if they issued eurobonds, the threat of default would disappear. 
Gene Ellis

European Union Leaders Agree to Slimmer Budget - NYTimes.com - 0 views

www.nytimes.com/...ropean-union-budget-talks.html

european union

shared by Gene Ellis on 09 Feb 13 - No Cached
  • Why should a Latvian cow deserve less money than a French, Dutch or even Romanian one?
  • In a system that requires unanimous approval of budget decisions, what Latvia wants for its dairy farmers — or Estonia for its railways, Hungary for its poorer regions or Spain for its fishermen — is no small matter.
  • The colossal effort that was required to agree to a sum of about 960 billion euros ($1.3 trillion), a mere 1 percent of the bloc’s gross domestic product, exposed once again the stubborn attachment to national priorities that has made reaching agreements on how to save the euro so painful in recent years.
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  • the ordeal as “not a pleasant experience,” but said, “It only happens every seven years, so we can tolerate it.”
  • Britain, Sweden and the Netherlands were among the Northern European nations that fought hard to reduce agricultural subsidies and increase spending on research and development to bolster the bloc’s global competitiveness.
  • The spectacle of European leaders haggling through the night over amounts of money representing rounding errors in their national accounts demonstrated vividly their reluctance to make collective policies that erode their nations’ sovereignty.
  • “What we’re seeing is that European integration is very important to European leaders as long as it doesn’t imply that someone has to be paying for someone else,”
  • farm spending remained the largest single portion of the budget, accounting for about 38 percent of the total — although that was down from about 42 percent in the previous seven-year budget period.
Gene Ellis

How Putin Forged a Pipeline Deal That Derailed - NYTimes.com - 0 views

www.nytimes.com/...eline-deal-that-derailed-.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • How Putin Forged a Pipeline Deal That Derailed
  • The pipeline, known as South Stream, was Mr. Putin’s most important European project, a tool of economic and geopolitical power critical to twin goals: keeping Europe hooked on Russian gas, and further entrenching Russian influence in fragile former Soviet satellite states as part of a broader effort to undermine European unity.
  • The bill that Parliament took up on April 4 was arcane. But it swept aside a host of European regulations — rules that Mr. Putin did not want to abide by — for a pipeline that would deliver gas throughout southern Europe. Continue reading the main story Related Coverage In Diplomatic Defeat, Putin Diverts Pipeline to TurkeyDEC. 1, 2014
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  • In France, the leader of the far-right National Front, Marine Le Pen, recently acknowledged that her party had received a loan for 9 million euros, or about $11 million, from a Kremlin-linked bank.
  • Faced with punishing sanctions, a petro-economy pushed to the brink by plunging oil prices and the wildly gyrating value of the ruble, Mr. Putin this month halted the project.
  • Geological surveys suggested that Bulgaria could be sitting atop an underground ocean of natural gas, enough to be self-sufficient for years, enough to eclipse the advantages of South Stream.
  • On April 4, 2014, soon after Mr. Putin annexed Crimea, Bulgaria’s Parliament gave initial passage to a bill that effectively exempted South Stream from a number of European Union regulations, most important, the one that would have forced Gazprom to allow non-Russian gas to flow through the pipeline.
  • “If I hear one more word about competition, I’m going to freeze your you-know-whats off,” Mr. Putin reportedly shouted.
  • The anti-fracking movement became so broad that in January 2012, Parliament banned not only the extraction of shale gas, but even exploration that would quantify the country’s reserves.
  • When the Bulgarian government refused, the European Union cut off tens of millions of euros in regional development funds.
  • In desperate need of the European funds, the prime minister announced the next day that South Stream would be halted until it had full European Union approval.
  • While “he overreached, and he underestimated the response” to his intervention in Ukraine, said Mr. Gray, the former American diplomat, the Russian leader has been “quite effective” in countries like Bulgaria.“He won a great deal by getting Nabucco stopped,” Mr. Gray said. “Ultimately, his goal is to keep as much control over the former parts of the Soviet empire as possible.”
Gene Ellis

Weaning Europe From Russian Gas - NYTimes.com - 1 views

www.nytimes.com/...g-europe-from-russian-gas.html

shared by Gene Ellis on 25 Apr 14 - No Cached
  • Weaning Europe From Russian Gas
  • European Union leaders at a summit meeting last week made a commitment to cut their dependence on Russian gas.
  • Russia gets about 14 percent of its entire export earnings from the gas it sells to other European countries.
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  • Some countries in Central Europe — such as Austria and the Czech Republic — and the Balkans would run out of gas they import through Ukraine.
  • that Russia cuts supplies of gas through Ukraine but continues pumping it through its other two pipelines to the West — one through the Baltic and the other through Poland.
  • In such a scenario,
  • The European Union also responded to the 2009 shutdown by building “interconnectors” between different countries. As a result, it is easier to shunt gas and electricity from countries that have excess energy to those that face a shortage — though these connections are still patchy and need to be built up.
  • n the short run, European Union countries can use more coal and less gas in their electricity generation.
  • The European Union can also increase imports of liquefied natural gas, mainly from Qatar. But there are problems. First, most of the Union’s L.N.G. terminals are in Western Europe, whereas it is the eastern part of the Union that is most vulnerable to a cutoff of Russian gas. So more terminals need to be built, which takes time. What’s more, L.N.G. is expensive — partly because Japan is buying lots of it after closing its nuclear plants in the wake of the Fukushima disaster.
  • Longer term, European Union nations should embrace shale gas. It is cheap and local. Britain and Poland have the most potential.
  • Meanwhile, countries such as Germany should abandon their knee-jerk aversion to nuclear energy.
  • The problem is not the carbon goal, said Raoul Ruparel of Open Europe, a research institute. Rather it is the renewable target, which results in uneconomic wind and solar power being built across the Union.
Gene Ellis

Europe Can't Handle the Euro - 0 views

www.nber.org/...wj020800.html

shared by Gene Ellis on 31 May 12 - No Cached
  • When leaders of the 11 nations that agreed to combine their currencies gathered in January 1999, they predicted great things: the single currency would shift global portfolios to euro assets, depressing the value of the dollar relative to the euro, and the new eurozone would be a strong player in the global economy, reflecting the size of an integrated European market. Instead the euro plummeted, Europes economy remains weak, and unemployment is more than twice the U.S. level.
  • The ECB will eventually be judged not by its words but by whether it achieves low inflation and does so without increasing cyclical unemployment. I am not optimistic about either part of this goal.
  • The ECB must make monetary policy for "Europe as a whole," which in practice means doing what is appropriate for Germany, France and Italy, the eurozones three largest countries. Last year demand conditions in those countries were relatively weak, while demand conditions in Spain and Ireland were very strong. That meant a monetary policy that was too expansionary for Spain and Ireland, causing a substantial acceleration of their inflation and threatening their competitiveness.
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  • Such disparities of demand conditions will undoubtedly persist in the future because European countries differ substantially in industrial composition and in a variety of economic policies.
  • the time will come when the ECB will set a policy that is too tight for the outliers, leading to substantially higher unemployment than if they were free to set their own monetary policies. Even without discretionary monetary policies, the interest rates in countries with weak demand would naturally decline, and the external values of their currencies would fall, both acting as offsetting stabilizers of the countries weak demand. But this will not be possible within the EMU, where a single interest rate and a single exchange rate prevail. Result: higher average cyclical unemployment.
  • In the U.S., a fall in regional demand leads to lower wages, which help to maintain employment; to movements of labor to regions where demand is stronger; and to a net fiscal transfer from Washington (because lower regional income means lower federal tax liability). None of this happens in Europe, where wages are inflexible, mobility is severely limited by language and custom, and there are no significant fiscal transfers.
  • Politicians can now blame the ECB for high unemployment and complain that it is a powerful force beyond national control. Instead of seeking to make labor markets more flexible, European governments are talking more about "social wages," about mandatory 35-hour workweeks, and about rolling back even the small reductions in social benefits Germany achieved under Helmut Kohls government. Worse yet, there are attempts to eliminate differences in labor practices and even differences in wages among the EMU countries.
  • Moreover, these policies reduce the international competitiveness of many European industries and encourage the adoption of protectionist policies to keep out non-European products.
  • Forcing a single monetary policy on all of Europe will cause the countries that suffer what they regard as unnecessarily high unemployment to resent the actions of others. Attempts to force a Europewide tax system, especially if taxes are used to redistribute incomes among European countries, will compound the potential for conflict.
  • EMU is meant to be a marriage made in heaven with no possibility of divorce.
Gene Ellis

New-Car Sales Fall 10.2% in Europe, Continuing Slump - NYTimes.com - 0 views

www.nytimes.com/...to-market-slump-continues.html

shared by Gene Ellis on 18 Apr 13 - No Cached
  • New vehicle registrations in the European Union fell 10.2 percent from a year ago, the European Automobile Manufacturers’ Association reported from Brussels,
  • Across Europe, more than 26 million men and women are unemployed, according to official data,
  • the overall economy is expected to contract in 2013 for a second straight year.
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  • “We expect the French, Italian and Spanish markets to continue their decline over the rest of the year in the absence of any major government intervention to encourage vehicle buying or replacement,” he said.
  • The data released on Wednesday showed that sales in Germany, the largest economy in the European Union, fell 17.1 percent.
Gene Ellis

European Banks Unprepared for Pandora's Box of Greek Exit (Bloomberg) - 0 views

www.italpreziosi.it/...as-box-of-greek-exit-bloomberg

shared by Gene Ellis on 09 Jul 12 - No Cached
  • Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.
  • Lenders in Germany and France saw an increase in deposits of 217.4 billion euros, or 6.3 percent, in the same period.
  • To prevent contagion, countries in the euro area would have to form a full-fledged political and fiscal union immediately and implement uniform guarantees on bank deposits throughout the region, Thomas Wacker and Juerg de Spindler, economists at Zurich-based UBS, said in a separate note. They said such a response can be ruled out.
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  • Bank of France Governor Christian Noyer told journalists in Paris last week that “whatever happens in Greece” won’t place any French financial institution in difficulty.
  • What’s changed is that banks in the so-called core EU countries of Germany, France and the U.K. used funds from the ECB in December and February to insulate their southern European units against losses should one or more country exit the euro. “If you’re a U.K. lender and you’ve lent 10 billion euros to your Spanish subsidiary and Spain exits, you’re suddenly only going to get paid back in 50 percent devalued pesetas and you’re on the hook for 5 billion euros,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
  • One way multinational banking groups are mitigating that risk is by replacing their own funding lines to subsidiaries in the region with ECB loans. Deutsche Bank, Europe’s biggest bank by assets, tapped “a small amount” of ECB cash to help fund corporate and retail business in continental Europe, where it has sizeable operations in Italy and Spain. BNP Paribas, Europe’s third-biggest bank, used the programs to help fund its Italian unit as it reduces intergroup backing.
  • European banks also have cut their sovereign-debt holdings and exposures to Ireland, Italy, Spain and Portugal.
  • ermany, France and the U.K. reduced exposure to Greece by more than half in the two years through the end of 2011 to $68.2 billion, BIS data show.
Gene Ellis

PrudentBear - 0 views

prudentbear.com/...featuredcommentaryview

GEP com nytimes nytimes com global europe GDP crisis syndicate euro

shared by Gene Ellis on 09 Jul 12 - No Cached
  • German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.
  • Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.
  • Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.
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  • Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.
  • Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.
  • While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.
  • Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.
  • German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.
  • For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.
  • Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.
  • Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
  • In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”
  • Political will for integration
  • In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.
  • A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.
  • Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)
  • A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.
  • Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.
  • For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
  • But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.
  • by Satyajit Das
Gene Ellis

Past Rifts Over Greece Cloud Talks on Rescue - WSJ.com - 0 views

online.wsj.com/...4441404579119180237594344.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • It included no debt restructuring, such as forgiving principal, reducing the interest rate on the debt or stretching out the payment schedule to make servicing easier.
  • That spared the holders of the debt—chiefly European banks—the losses that would have come with restructuring.
  • Some of the IMF dissenters at the meeting and some IMF staff believe the interests of the European powers were placed above those of Greece, which has seen its economy contract by a fifth since 2009 and its jobless rate reach nearly 28%.
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  • "The Greek bailout was not a program for Greece, but for the euro zone itself,"
  • "In May 2010, we knew that Greece needed a bailout but not that it would require debt restructuring," IMF Managing Director Christine Lagarde said in a June interview. "We had no clue that the overall economic situation was going to deteriorate as quickly as it did."
    • Gene Ellis
      Gene Ellis on 29 Oct 13
       
      And this is the point, is it not?
  • Much of the debt was held by already fragile French and German banks, so European nations wouldn't consider it. And the U.S. feared its own trillion-dollar exposure to European banks.
  • "An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners," it said.
  • In retrospect, the report said, the "program served as a holding operation" that allowed "private creditors to reduce exposures…leaving taxpayers and the official sector on the hook."
  • Ms. Lagarde was French finance minister at the time and keen to avoid losses by her country's banks, which had lent heavily to Greece.
  • Several IMF directors had warned of just that outcome three years earlier. The program "may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece's private debtholders, mainly European financial institutions," Brazil's executive director, Paulo Nogueira Batista, said at the May 2010 meeting.
  • now confront the prospect of a third bailout in which they would also forgive some of Greece's debt.
Gene Ellis

European Debt Crisis - The New York Times - 0 views

topics.nytimes.com/...index.html

european debt crisis

shared by Gene Ellis on 24 Dec 12 - No Cached
  • European Debt Crisis Navigator A list of resources from around the Web about the European debt crisis as selected by Journalist's Resource, a project of the Shorenstein Center at Harvard.
  • The Eurozone Crisis: How Banks and Sovereigns Came to Be Joined at the Hip International Monetary Fund, November 2011
  • Gene Ellis on 24 Dec 12
     
    More resources on the debt crisis - a listing
Gene Ellis

Cross-Border Banking in the Balance by Erik Berglof - Project Syndicate - 0 views

www.project-syndicate.org/...-border-banking-in-the-balance

banking balance erik project syndicate

shared by Gene Ellis on 01 Jan 13 - No Cached
  • No region of the world has benefited more from cross-border banking, yet these achievements are now at risk
  • The threat to cross-border banks comes not only from their deteriorating balance sheets in the face of lower sovereign-debt quality and weaker growth prospects, but also from the policy response itself.
  • a European solution must take account of the network of foreign subsidiaries across Europe.
  • ...2 more annotations...
  • cross-border banking through foreign subsidiaries has been beneficial for investors, and for home and host countries alike – nowhere more so than in emerging Central and Eastern Europe, still the most important export market for the eurozone.
  • Along with institutional reforms at the European level – particularly the creation of the European Systemic Risk Board and the European Banking Authority – regulation and supervision have been reinforced in subsidiaries’ host countries.
Gene Ellis

Op-Ed Columnist - Learning From Europe - NYTimes.com - 0 views

www.nytimes.com/...11krugman.html

europe krugman

shared by Gene Ellis on 24 Apr 13 - Cached
  • It’s true that the U.S. economy has grown faster than that of Europe for the past generation. Since 1980 — when our politics took a sharp turn to the right, while Europe’s didn’t — America’s real G.D.P. has grown, on average, 3 percent per year. Meanwhile, the E.U. 15 — the bloc of 15 countries that were members of the European Union before it was enlarged to include a number of former Communist nations — has grown only 2.2 percent a year. America rules!
  • In 2008, 80 percent of adults aged 25 to 54 in the E.U. 15 were employed (and 83 percent in France). That’s about the same as in the United States. Europeans are less likely than we are to work when young or old, but is that entirely a bad thing?
  • Broadband, in particular, is just about as widespread in Europe as it is in the United States, and it’s much faster and cheaper.
  • ...4 more annotations...
  • Or maybe not. All this really says is that we’ve had faster population growth. Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there.
  • And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.
  • After all, while reports of Europe’s economic demise are greatly exaggerated, reports of its high taxes and generous benefits aren’t. Taxes in major European nations range from 36 to 44 percent of G.D.P., compared with 28 in the United States. Universal health care is, well, universal. Social expenditure is vastly higher than it is here.
  • So if there were anything to the economic assumptions that dominate U.S. public discussion — above all, the belief that even modestly higher taxes on the rich and benefits for the less well off would drastically undermine incentives to work, invest and innovate — Europe would be the stagnant, decaying economy of legend. But it isn’t.
Gene Ellis

Europe's Galileo GPS Plan Limps to Crossroads - NYTimes.com - 0 views

www.nytimes.com/...-plan-limps-to-crossroads.html

shared by Gene Ellis on 07 Feb 13 - No Cached
  • Galileo — first proposed in 1994, more than 20 years after America started its own system, and initially promoted as a big potential moneymaker — “can’t give a direct return on investment, but politically it is very important for Europe to have its own autonomous system,” said Mr. Magliozzi of Telespazio.
  • It is also designed to be far more precise than the American version.
  • Galileo has been financed almost entirely by the European Union since 2007. It is the first and so far only major infrastructure project managed by the European Commission.
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  • Critics mocked it as “the Common Agricultural Policy in the sky,” a reference to Europe’s program of subsidies for farmers, which eats up nearly 40 percent of the union’s total budget.
  • A 2011 report to the European Parliament listed a catalog of troubles, noting that Galileo had been particularly blighted in its early years by a familiar problem: political pressure from individual countries to skew the project in favor of their own companies and other immediate interests.
  • It quoted the OHB chief, Berry Smutny, describing Galileo as doomed to fail without major changes and “a waste of E.U. taxpayers’ money championed by French interests.” Mr. Smutny, who disputed the comments attributed to him, was fired by the company.
  • Astrium won an initial Galileo contract for four satellites. But contracts worth $1 billion for 22 more satellites have all gone to OHB, now one of the primary corporate beneficiaries of Galileo. British companies have also done well, a boon that has helped erode Britain’s initial hostility to the project.
  • Washington also asked why, when many European nations were increasingly unable to fulfill their military obligations as members of NATO because of defense cuts, they wanted to splash billions on a project that replicated an existing system paid for by the United States.
  • They acknowledge that Galileo, most of whose services will be free like those of GPS, will not earn much.
Gene Ellis

Bureaucracy's Salaries Defended in Europe - NYTimes.com - 0 views

www.nytimes.com/...icials-salaries-draw-fire.html

shared by Gene Ellis on 05 Feb 13 - No Cached
  • the monthly base salary of the most senior bloc officials is 18,370 euros, or $24,830.
  • the highest-paid European Union officials paid taxes equivalent to about 25 percent of their gross salary.
  • European Union officials generally pay low taxes,
  • ...3 more annotations...
  • Ms. Merkel’s monthly base salary is 21,000 euros,
  • Unlike European Union officials, the 27 members of the European Commission are political appointees. Their salaries are much closer to those of national leaders like Ms. Merkel, and in some cases may exceed them.
  • José Manuel Barroso, president of the commission, is paid a monthly salary of 25,351 euros, a residence allowance equal to 15 percent of that salary, and allowances for expenses like running a household and schooling for children. The seven vice presidents of the commission earn basic monthly salaries of 22,963 euros.
Gene Ellis

Op-Ed Contributor - The Greek crisis shows why Germany should leave the European Moneta... - 0 views

www.nytimes.com/...29Starbatty.html

shared by Gene Ellis on 09 Jul 12 - Cached
  • THE European Monetary Union, the basis of the euro, began with a grand illusion. On one side were countries — Austria, Finland, Germany and the Netherlands — whose currencies had persistently appreciated, both within Europe and worldwide; the countries on the other side — Belgium, France, Greece, Italy, Portugal and Spain — had persistently depreciating currencies.
  • Rather than pulling the lagging countries forward, the low interest rates of the European Central Bank have lured governments and households, especially in the southern part of the euro zone, into frivolous budgetary policies and excessive consumption.
  • the solution is clear: the only way to avoid further harm to the global economy is for Germany to lead its fellow stable states out of the euro and into a new and stronger currency bloc.
  • ...8 more annotations...
  • Unlike their northern neighbors, the countries in the zone’s southern half have difficulty placing bonds — issued to finance their national deficits — with international capital investors. Nor are these countries competitive in the global economy, as shown by their high trade deficits.
  • If Greece were outside the euro zone, for example, it could devalue its currency
  • Instead, the fiscal strictures of the euro zone are forcing the country to curtail public expenditures, raise taxes and cut government employees’ salaries, actions that may push Greece into a deep depression and further undermine its already weak international credit standing.
  • In short, th
  • e euro is headed toward collapse.
  • hat opportunity and pull out of the euro, it wouldn’t be alone. The same calculus would probably lure Austria, Finland and the Netherlands — and perhaps France — to leave behind the high-debt states and join Germany in a new, stable bloc, perhaps even with a new common currency.
  • If Germany were to take t
  • A strong-currency bloc could fulfill the euro’s original purpose. Without having to worry about laggard states, the bloc would be able to follow a reliable and consistent monetary policy that would force the member governments to gradually reduce their national debt. The entire European economy would prosper. And the United States would gain an ally in any future reorganization of the world currency system and the global economy.
Gene Ellis

At Anchor Off Lithuania, Its Own Energy Supply - NYTimes.com - 0 views

www.nytimes.com/...s-for-energy-independence.html

gas Russia Lithuania

shared by Gene Ellis on 10 Jan 14 - No Cached
  • The price of natural gas in Lithuania was 15 percent higher than the European average last year, according to the European Commission. Only Bulgaria, where Gazprom has a near monopoly, paid more. Gazprom also has an ownership stake in Lithuania’s natural gas distribution network. Part of Lithuania’s electrical infrastructure is still controlled from Moscow, too, and it is not yet possible to connect the country to the European grid.
  • Lithuania also does not use oil shale, which provides much of the electricity for Estonia, the third Baltic member of the European Union.
  • Lithuania used to rely on nuclear power to supply most of its electricity. But as a condition of joining the union in 2004, the country agreed to shut down its Chernobyl-style nuclear power station at Ignalina.
  • ...4 more annotations...
  • Klaipedos Nafta, a state-controlled oil terminal operator, is leasing the ship, formally known as a floating gas storage and regasification unit, from a Norwegian company, Hoegh, in a 10-year deal for 430 million euros, or $560 million.
  • Lithuania would need to import L.N.G. at prices 5 to 10 percent less than Gazprom charges for its gas to ensure the project breaks even; Lithuanian officials said the price of L.N.G. imports could be as much as 20 percent less than Gazprom charges.
  • “We will be able for the first time in our history to negotiate, because we have alternative sources,”
  • But Mr. Masiulis said his greatest challenge was overcoming the Lithuanian bureaucracy and fending off attempts to give the project “a shade of corruption.”
Gene Ellis

Eurozone crisis: can the centre hold? | Nouriel Roubini | Business | theguardian.com - 0 views

www.theguardian.com/...eurozone-crisis-euro-european

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Several developments helped to restore calm. The European Central Bank (ECB) president, Mario Draghi, vowed to do "whatever it takes" to save the euro, and quickly institutionalised that pledge by establishing the ECB's "outright monetary transactions" programme to buy distressed eurozone members' sovereign bonds.
  • And, even if such adjustment is not occurring as fast as Germany and other core eurozone countries would like, they remain willing to provide financing, and governments committed to adjustment are still in power.
  • For starters, potential growth is still too low in most of the periphery, given ageing populations and low productivity growth, while actual growth – even once the periphery exits the recession, in 2014 – will remain below 1% for the next few years, implying that unemployment rates will remain very high.
  • ...10 more annotations...
  • levels of private and public debt, domestic and foreign, are still too high, and continue to rise as a share of GDP, owing to slow or negative output growth. This means that the issue of medium-term sustainability remains unresolved.
  • At the same time, the loss of competitiveness has been only partly reversed, with most of the improvement in external balances being cyclical rather than structural.
  • The euro is still too strong, severely limiting the improvement in competitiveness that is needed to boost net exports in the face of weak domestic demand.
  • a continuing credit crunch, as undercapitalised banks deleverage by selling assets and shrinking their loan portfolios.
  • The larger problem, of course, is that progress toward banking, fiscal, economic and political union, all of which are essential to the eurozone's long-term viability, has been too slow.
  • all imply that banks will have to focus on raising capital at the expense of providing the financing needed for economic growth.
  • Moreover the ECB, in contrast to the Bank of England, is unwilling to be creative in pursuing policies that would ameliorate the credit crunch.
  • Meanwhile, austerity fatigue is rising in the eurozone periphery.
  • And bailout fatigue is emerging in the eurozone's core.
  • But the eurozone's political strains may soon reach a breaking point,
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