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Gene Ellis

Citi Cuts Costa Rica Growth Forecast After Firings - Bloomberg - 0 views

www.bloomberg.com/...-intel-fire-3-000-workers.html

shared by Gene Ellis on 25 Apr 14 - No Cached
  • Citi Cuts Costa Rica Growth Forecast After Firings
  • Hours later, BofA said it would be exiting operations in Costa Rica, Guadalajara, Mexico and Taguig, Philippines, without saying how many jobs would be lost. Costa Rica’s foreign investment agency said the BofA move would result in 1,500 layoffs.
  • “This is a strong call to the country to keeps tabs on things like the rising cost of electricity, telecommunications, wages and social guarantees.”
  • ...4 more annotations...
  • The country of 4.7 million people climbed seven spots to 102nd in the World Bank’s annual “Doing Business” report this year, lagging behind China, Vietnam and Namibia. Moody’s Investors Service lowered its outlook on Costa Rica to negative from neutral in September, citing a rising debt burden and widening budget deficit. Moody’s rates the country Baa3, putting it in the same category as Turkey and Iceland.
  • In a Bloomberg survey published last month, Costa Rica was ranked fourth behind Russia, Argentina and Ukraine on a list of countries confronting the biggest loss of investor confidence. The survey cited data including the rising cost of credit default swaps and the currency’s performance against the dollar.
  • California-based Intel, whose processors run more than 80 percent of personal computers shipped worldwide every year, originally chose to establish operations in Costa Rica after studying sites in Indonesia, Thailand, Brazil, Argentina, Chile and Mexico, according to a 2000 case study by Harvard University’s Center for International Development. The company’s $600 million investment at the time represented about 4.2 percent of GDP, prompting the company’s then-Vice President Bob Perlman to say Intel’s arrival was like “putting a whale in a swimming pool,” according to the study.
  • n 2013, about 21 percent of Costa Rica’s exports of goods came from Intel, according to investment promotion agency CINDE
Gene Ellis

Even Greece Exports Rise in Europe's 11% Jobless Recovery - Bloomberg - 0 views

www.bloomberg.com/...ope-s-11-jobless-recovery.html

undefined greece exports rise europe recovery bloomberg

shared by Gene Ellis on 21 Mar 13 - No Cached
  • “The current- account deficits of countries that have been under stress diminished over the last years considerably.”
  • Just two of 14 euro-zone government leaders have kept their posts in elections since late 2009 and extremists such as Golden Dawn in Greece are gaining support.
  • “The internal rebalancing in the euro area is progressing,” said Fels. “Some of them, especially Spain but also Portugal not to speak of Ireland, are regaining competitiveness.”
  • ...18 more annotations...
    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      This is the same sort of response which companies would have made to a depreciation in the local currency without the euro, but with the added problem of deflationary effects on the rest of the economy.
  • Ford Motor Co. (F) (F) said at the end of last year it will increase capacity near Valencia as it shuts plants in the U.K. and Belgium.
  • While a slide in imports accounts for some of the correction, Greece boosted its exports outside the EU by about 30 percent in the fourth quarter of 2012 from the previous year, while Italy’s rose 13 percent in January from a year ago, he said.
  • In Ireland, U.S. companies such as EBay Inc (EBAY) (EBAY)., Google Inc. (GOOG) (GOOG) and Facebook Inc (FB). all have expanded in the past two years, taking advantage of a corporate-tax rate of just 12.5 percent compared to Spain’s 30 percent.
    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      'Beggar thy neighbor' kinds of effects.
  • The metamorphosis is known as internal devaluation
  • Prevented by membership of the euro from driving down currencies, governments and companies are squeezing labor costs to spur productivity.
  • reducing social- security payments
  • aising the retirement age, making it easier to fire workers in downturns and preventing unions from clinging to boom-time wage deals.
  • On average, the periphery is about halfway to eliminating large structural current-account deficits, which allow for declines related to recession-driven weaker import demand, estimates Goldman Sachs (GS).
  • The OECD today published an index showing that relative labor costs in Spain and Portugal have now dropped below Germany’s for the first time since 2005.
  • “It’s potentially good for the economy but only if it results in faster investment,”
  • “If not then there’s a downward spiral risk.”
    • Gene Ellis
      Gene Ellis on 21 Mar 13
       
      An important point.
  • The smaller trade imbalances really reflect a collapse in demand for imports as consumers and companies hunker down,
  • It’s the mirror image of the euro’s first decade, when historically low interest rates in the periphery fueled inflationary spending booms, reflected in credit bubbles and deteriorating current accounts and government budgets.
  • “At this stage it is still demand destruction which has helped current-account deficit countries balance their accounts,” said Mayer. “It’s not a healthy situation.”
  • They also say countries will need to run even healthier current accounts than now if they are to stabilize the debts they owe abroad.
  • Gene Ellis on 21 Mar 13
     
    Good update article, as of March, 2013.
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
  • ...37 more annotations...
  • 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

Coming Full Circle in Energy, to Nuclear - NYTimes.com - 0 views

www.nytimes.com/...ing-full-circle-in-energy.html

coal nuclear

shared by Gene Ellis on 10 Jan 14 - No Cached
  • In a typical day, Mr. Durgin tells me, 21 trains depart the mine, pulling 135 cars each. Each car bears 120 tons of coal. At this pace, he says, there is more than 20 years’ worth of coal ready to mine under my feet.
  • North Antelope Rochelle is among the biggest coal mines in the world. It produced 108 million tons last year — about 10 percent of all the coal burned by the nation’s power plants.
  • North Antelope Rochelle and the other vast strip mines cutting through the plains of Wyoming’s Powder River Basin — whose low-sulfur carbon met standards imposed by the Clean Air Act — were the result
  • ...5 more annotations...
  • Today renewable energy supplies only about 6 percent of American demand. And most of that comes from water flowing through dams. Solar energy contributes next to nothing.
  • The arithmetic is merciless. To make it likely that the world’s temperature will rise no more than 2 degrees Celsius above the average of the preindustrial era — a target agreed to by the world’s governments in 2010 — humanity must spew no more than 900 billion more tons of carbon dioxide into the air from now through 2050 and only 75 billion tons after that, according to an authoritative new study in Britain.
  • The United States Energy Information Administration forecasts that global energy consumption will grow 56 percent between now and 2040.
  • “We have trillions of tons of coal resources in the world,” Vic Svec, spokesman for Peabody Energy, told me. “You can expect the world to use them all.”
  • The only way around this is to put something in coal’s place, at a reasonably competitive price. Neither the warm glow of the sun nor the restless power of the wind is going to do the trick, at least not soon enough to make a difference in the battle to prevent climate change.
Gene Ellis

Euro crisis based on 'design flaws' in monetary union, conference told - 0 views

www.thescore.ie/r-banking-union-634618-Oct2012

euro crisis based design union conference

shared by Gene Ellis on 14 Oct 12 - No Cached
  • Euro crisis based on ‘design flaws’ in monetary union, conference told
  • The European Central Bank’s current status, where it does not act as a ‘lender of last resort’ in a similar method to other central banks, was particularly criticised.
  • He said the current version of the treaty establishing the ESM, the new permanent bailout fund for the eurozone, would also not function as such a lender – and said it was “incapable of ending the crisis”.
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  • “What I am proposing is a guaranteed yet conditional [lender of last resort] which can reconcile moral hazard concerns with the need to protect sovereign borrowers from the kind of solvency issues we have witnessed since the onset of the economic crisis,” he said
  • McDonnell also called for a full banking union within the eurozone, saying a deposit insurance corporation should be established to fill this gap.
Gene Ellis

The Matchmaker - The Boston Globe - 0 views

www.boston.com/...the_matchmaker

shared by Gene Ellis on 29 Nov 12 - No Cached
  • Gene Ellis on 29 Nov 12
     
    Great piece on Nobel Prize winner on Al Roth and medical 'match-making.'  Use in Global Economic Relations.'
Gene Ellis

Can Oregon save American health care? - 0 views

www.washingtonpost.com/...egon-save-american-health-care

oregon american health health care

shared by Gene Ellis on 18 Jan 13 - No Cached
  • Medicaid enrollment shrank by 46 percent as patients affected by the changes left the program — likely relegated to the ranks of the uninsured — between February and December 2003, according to research published in the journal Health Affairs.
  • Separate research has found that when Medicaid premiums rise by 1 to 5 percent of an uninsured family’s income, their odds of participating drop from 57 to 18 percent.
  • “For the last 30 years, both the private and public sector have done the same things to manage health-care costs,” said Bruce Goldberg, the Oregon Health Authority director who oversees the Medicaid program. “They’ve cut people from coverage, cut payment rates or cut benefits
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  • St. Charles noted that 144 patients tended to use the emergency room the most. Taken together, they averaged 14.25 trips each over 12 months. These patients drove much of the area’s Medicaid spending.
  • The majority had unmet mental health needs, even though most had Medicaid, which provides mental health coverage.
  • It stationed community health workers in emergency rooms, who could help assess why patients had turned up.
  • Of the 144 patients in the study, only 62 percent agreed to work with a community worker on a plan for their care. The others proved difficult to track down or did not want to participate.
  • Emergency department visits fell by 49 percent. On average, the program generated about $3,000 in savings per patient.
  • “I’m reassured by people talking about the role primary care providers need to play,” said Ern Teuber, the clinic’s executive director. “Still, when we start talking specific dollars, the perception is there isn’t enough money to go around and that somebody has to lose.”
  • It’s a huge issue, and there’s no doubt that hospital business models are going to have to change,”
  • “Medicaid by itself isn’t enough to change things,” he said. “For a lot of hospitals, it’s maybe 7 percent of their business. We have another 600,000 people the state covers.
Gene Ellis

Canada Aims to Woo International Students - NYTimes.com - 0 views

www.nytimes.com/...25iht-educlede25.html

shared by Gene Ellis on 25 Mar 13 - No Cached
  • International students are allowed to seek part-time employment off campus after six months of full-time study, as a way to help them defray costs. They can also obtain foreign work credentials: After earning a four-year undergraduate degree, they can apply to work in Canada for up to three years.
  • Other nations are not as generous: In the United States, international students are eligible to work only on campus, and many struggle to stay in the country after graduation. Tough visa rules have led to a foreign student “brain drain,”
  • In Britain, international students can work no more than 10 hours a week and need an endorsement from their school to work after graduation.
  • Gene Ellis on 25 Mar 13
     
    "choose"
Gene Ellis

After Bangladesh, Seeking New Sources - NYTimes.com - 0 views

www.nytimes.com/...adesh-seeking-new-sources.html

shared by Gene Ellis on 16 May 13 - No Cached
  • Dozens of impoverished countries make T-shirts and other very basic clothing. But only a few countries — really just China, Bangladesh, Vietnam, Indonesia and to some extent Cambodia and Pakistan — have developed highly complex systems for producing and shipping tens of thousands or even hundreds of thousands of identical, high-quality shirts, blouses or trousers to a global retailer within several weeks of receiving an order.
  • The clothing needs to be labeled correctly so that it travels smoothly through a large retailer’s distribution centers
  • The process requires formidable numbers of skilled workers who can oversee quality control as well as labeling and shipping of garments.
  • ...12 more annotations...
  • Big retailers and fashion companies have repeatedly tried and failed to develop alternatives, experimenting in India, Africa and Latin America, only to run into infrastructure bottlenecks and shortages of skilled managers or workers.
  • India was not organized for large-scale, timely production,
  • Africa did not have enough workers with the right skills for high-volume labeling and shipping,
  • and Latin America did not have enough workers interested in operating sewing machines.
  • In Guatemala, the quality was excellent, he said, but, “They can’t handle big orders and they’re slow on delivery.”
  • What may save Bangladesh from a sharp, immediate drop in export orders is simply that most Southeast Asian factories are already fully booked with orders from multinationals fleeing China’s ever-rising costs.
  • “For this year, it’s impossible — we’re already full,”
  • Indonesia’s national training center for seamstresses — women make up 98 percent of the students — is here in Semarang, producing 12,000 graduates a year. But even that isn’t enough. Four factories with a combined employment of 30,000 are to open in the next year in Semarang, and many more factories are being built nearby.
  • “It’s going to take time, but it’s going to eventually filter out all over the place,” he said. “It’ll take two or three years.”
  • Newly opened factories have started competing for scarce seamstresses by offering free meals and free health insurance
  • Dozens of impoverished countries make T-shirts and other very basic clothing. But only a few countries — really just China, Bangladesh, Vietnam, Indonesia and to some extent Cambodia and Pakistan — have developed highly complex systems for producing and shipping tens of thousands or even hundreds of thousands of identical, high-quality shirts, blouses or trousers to a global retailer within several weeks of receiving an order.
  • He said that he and a couple of other suppliers of elite retail chains always worried about Bangladesh’s reliance on high-rise factories,
Gene Ellis

The Eurozone's Delayed Reckoning by Nouriel Roubini - Project Syndicate - 0 views

www.project-syndicate.org/...pe-s-crisis-by-nouriel-roubini

shared by Gene Ellis on 19 Dec 12 - No Cached
  • For starters, the European Central Bank’s “outright monetary transactions” program has been incredibly effective: interest-rate spreads for Spain and Italy have fallen by about 250 basis points, even before a single euro has been spent to purchase government bonds.
  • The introduction of the European Stability Mechanism (ESM), which provides another €500 billion ($650 billion) to be used to backstop banks and sovereigns, has also helped, as has European leaders’ recognition that a monetary union alone is unstable and incomplete, requiring deeper banking, fiscal, economic, and political integration.
  • But, perhaps most important, Germany’s attitude toward the eurozone in general, and Greece in particular, has changed. German officials now understand that, given extensive trade and financial links, a disorderly eurozone hurts not just the periphery but the core.
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  • GDP continues to shrink,
  • Moreover, balkanization of economic activity, banking systems, and public-debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.
  • Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.
  • but countries like Germany, which were over-saving and running external surpluses, have not been forced to adjust by increasing domestic demand, so their trade surpluses have remained large.
  • either the eurozone moves toward fuller integration (capped by political union to provide democratic legitimacy to the loss of national sovereignty on banking, fiscal, and economic affairs), or it will undergo disunion, dis-integration, fragmentation, and eventual breakup.
    • Gene Ellis
      Gene Ellis on 19 Dec 12
       
      This, indeed, is the crux of the matter.
  • German leaders fear that the risk-sharing elements of deeper integration
  • imply a politically unacceptable transfer union whereby Germany and the core unilaterally and permanently subsidize the periphery.
  • Of course, Germany fails to recognize that successful monetary unions like the United States have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidize the poorer ones.
    • Gene Ellis
      Gene Ellis on 19 Dec 12
       
      These are key features, built into the over-representation of the poorer, smaller, more agricultural, states; as well as in the central institutions.
  • But the fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond. Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits.
  • Gene Ellis on 19 Dec 12
     
    Late 2012 reading
Gene Ellis

Mastering business management studies online - 0 views

www.deccanherald.com/...management-studies-online.html

shared by Gene Ellis on 10 Jan 13 - No Cached
  • The free online mini MBA is a condensed version of a full fledged MBA & is aimed at providing a solid foundation in current business theory and practices.
  • Online video lectures and case studies by top management faculty will cover subjects like Fundamentals of Accounting, Principles of Marketing, Managing Human Resource, Essentials of Business Communication and Business Strategy.
  • “The pedagogy involves pre-recorded video learning modules with fully interactive and collaborative features like the discussion forums, online chats, quizzes and live virtual classrooms. The entire course content will be made available on an anytime, anywhere learning mode using the “portable classroom” model.
Gene Ellis

The euro crisis: The non-puzzle of peripheral pain | The Economist - 0 views

www.economist.com/...euro-crisis-0

shared by Gene Ellis on 18 Apr 13 - No Cached
  • Mystery mostly solved, then; the rich periphery's riches relative to Germany were largely a short-run phenomenon driven by a dramatic short-run divergence in house price trends.
  • Investors who bet that productivity growth would be much faster in the south were wrong.* All the prices and wages set on the basis of the expectation of faster productivity growth were correspondingly wrong and needed to adjust. Real effective exchange rates were badly out of alignment.
  • Two things began happening in the euro zone in 2007. Growth in the number of euros spent every year began slowing, and the distribution of euro spending within the euro area began shifting back northward.
  • ...11 more annotations...
  • The picture is one in which there are many fewer euros floating around the euro area than markets expected a half decade ago, and the distribution of those euros is moving northward.
  • It seems reasonable to argue that the distributional shift needed to occur, given the actual productivity performance.  The overall slowdown in euro spending growth, however, looks like an unnecessary and painful complication to adjustment.
  • This has all been the result of the commitment to keep just one euro. But that commitment is painful, and the alternative—more than one euro—is looking more attractive.
  • Where prices were rigid, as in goods and labour markets, fewer euros meant slow disinflation but rapid contraction in output and a big rise in unemployment.
  • Where prices were more flexible, as in asset markets, price adjustment was quick. Over the past two years, Spanish equities have fallen 24%, while German equities are up 8%.
  • Since 2010, Spanish home prices have dropped over 20%, while German home prices are up a smidge.
  • If there had been no single currency, the northward capital flight would have depreciated peripheral currencies. Had the periphery borrowed in its own currency, that would have imposed losses on its foreign creditors while also boosting its export industry. Had peripheral economies instead borrowed in dollars or deutschmarks their debt burdens would have ballooned with depreciation, potentially pushing banks and sovereigns into default—but the depreciation boost to competitiveness would have remained. Either way, the depreciation of the currency would effectively shrink the value of wealth in the periphery.
  • The northward euro shift had two nasty effects, then: it shrank asset values while also (via wage rigidity) creating substantial unemployment.
  • This threatened to accelerate into a full-scale run and collapse until the ECB intervened.
  • as markets observed the periphery's reduced ability to pay off its debts, they moved their euros northward even faster
  • For the periphery to raise its external surplus (necessary in order to service its large and growing debts) it must rely much more on import compression than on export growth.
Gene Ellis

PIMCO | - ​​TARGET2: A Channel for Europe's Capital Flight - 0 views

www.pimco.com/...or-Europes-Capital-Flight.aspx

shared by Gene Ellis on 09 Jul 12 - No Cached
  • Its full name is more than a mouthful. Trans-European Automated Real-time Gross Settlement System is better known as TARGET2 for short. It is the behind-the-scene payments system that conveniently enables citizens across the euro area to settle electronic transactions in euro. And at just over €500 billion, its TARGET2 claim on the Eurosystem is also the largest and fastest growing item on the Bundesbank’s balance sheet, as well as a source of much misunderstanding and debate.
  • The allocation of TARGET2 balances among the seventeen national central banks, which together with the ECB make up the Eurosystem, reflects where the market allocates the money created by the ECB. The fact that the Bundesbank has a large TARGET2 claim (asset) on the Eurosystem, while national central banks in southern Europe and Ireland together have an equally large TARGET2 liability, simply reflects that a lot of the ECB’s newly created money has ended up in Germany. Why? Because of capital flight.
  • Since the euro eliminated exchange rate risk among its member states, Germany has invested a substantial portion of its savings in Europe’s current account deficit countries. Some of those savings are now returning home. That’s the capital flight.
  • ...7 more annotations...
  • The ECB stepped into the void left by foreign investors pulling their savings out of these current account deficit countries by lending their banks more money.
  • When large capital flight to Germany occurred before the euro’s introduction, the deutschemark would appreciate against other European currencies. While pegged against the deutschemark, these exchange rates were still flexible. That flexibility disappeared with the euro. When capital flight occurs today, the Bundesbank effectively ends up with loans to the other national central banks that are reflected in the TARGET2 claims on the Eurosystem. 
  • Debt overhangs persist, growth is mediocre and the governance structure – a common monetary policy without a centralized fiscal policy – is a challenge.
  • The ECB has allowed banks to borrow as much money as they want for up to three years. Indeed, at the end of February banks were borrowing €1.2 trillion from the ECB, twelve times the amount of their required reserves. With so much excess liquidity in the money markets, further capital flight is likely to cause a disproportionable share of this money to end up in Germany
  • Concerned about the stability of the euro, Germany’s savers are shifting their money into real estate. German residential house prices and rents rose by 4.7% last year, the fastest increase since 1993’s reunification boom. So far, Germans are not leveraging to buy houses. Growth in German mortgages is paltry at just 1.2% per annum according to the ECB as of December 2011, but in our view all ingredients for a debt-financed house price boom are there. Distrust in the euro is rising,
  • The ECB’s generous monetary policy will delay the internal devaluation adjustment of the eurozone’s current account deficit countries.
  • Mexico’s current account deficit fell by 5.3% of GDP in 1995, according to Haver Analytics, in the wake of capital flight following the government’s decision to float the peso in 1994, while its recession lasted only one year.
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

Eurozone crisis will last for 20 years - FT.com - 0 views

www.ft.com/...97-11e1-963a-00144feabdc0.html

shared by Gene Ellis on 09 Jul 12 - No Cached
  • They agreed that there shall be no common bank recapitalisation until a full banking union is established. And the Bundesbank has reminded us that the latter is not possible without a political union. The logical implication is that we won’t solve the crisis for the next 20 years.
  • What we know now is that Germany will not agree to mutualised deposit insurance. It cannot even agree to give the European Stability Mechanism a banking licence so that it can leverage itself.
  • A narrow majority is still in favour of the euro, but a majority is against further rescues.
  • ...3 more annotations...
  • The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create.
  • With interest rates on 10-year government bonds over 6 per cent, neither Italy nor Spain can sustain their membership in the eurozone. This is what Mario Monti and Mariano Rajoy should have made clear to Angela Merkel at the summit.
  • The message I took away from the summit is that the eurozone will not resolve the crisis. In that sense, it was indeed a “historic” meeting.
  • Gene Ellis on 09 Jul 12
     
    Wolfgang Munchau article
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.
  • ...1 more annotation...
  • 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

Analysis: Euro zone fragmenting faster than EU can act - 0 views

www.theprovince.com/...story.html

analysis euro zone faster act

shared by Gene Ellis on 14 Jul 12 - No Cached
  • Deposit flight from Spanish banks has been gaining pace and it is not clear a euro zone agreement to lend Madrid up to 100 billion euros in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout.
  • Many banks are reorganising, or being forced to reorganise, along national lines, accentuating a deepening north-south divide within the currency bloc.
  • Since government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers.
  • ...10 more annotations...
  • European Central Bank President Mario Draghi acknowledged as he cut interest rates last week that the north-south disconnect was making it more difficult to run a single monetary policy.
  • Two huge injections of cheap three-year loans into the euro zone banking system this year, amounting to 1 trillion euros, bought only a few months' respite.
  • Conservative German economists led by Hans-Werner Sinn, head of the Ifo institute, are warning of dire consequences for Germany from ballooning claims via the ECB's system for settling payments among national central banks, known as TARGET2.
  • If a southern country were to default or leave the euro, they contend, Germany would be left with an astronomical bill, far beyond its theoretical limit of 211 billion euros liability for euro zone bailout funds.
  • As long as European monetary union is permanent and irreversible, such cross-border claims and capital flows within the currency area should not matter any more than money moving between Texas and California does.But even the faintest prospect of a Day of Reckoning changes that calculus radically.In that case, money would flood into German assets considered "safe" and out of securities and deposits in countries seen as at risk of leaving the monetary union. Some pessimists reckon we are already witnessing the early signs of such a process.
  • Either member governments would always be willing to let their national central banks give unlimited credit to each other, in which case a collapse would be impossible, or they might be unwilling to provide boundless credit, "and this will set the parameters for the dynamics of collapse", Garber warned.
  • "The problem is that at the time of a sovereign debt crisis, large portions of a national balance sheet may suddenly flee to the ECB's books, possibly overwhelming the capacity of a bailout fund to absorb the entire hit," he wrote in 2010,
  • national regulators in some EU countries are moving quietly to try to reduce their home banks' exposure to such an eventuality. The ECB itself last week set a limit on the amount of state-backed bank bonds that banks could use as collateral in its lending operations.
  • In one high-profile case, Germany's financial regulator Bafin ordered HypoVereinsbank (HVB), the German subsidiary of UniCredit, to curb transfers to its parent bank in Italy last year, people familiar with the case said.
  • In any case, common supervision without joint deposit insurance may be insufficient to reverse capital flight.
Gene Ellis

Merkel's good politics and bad economics - FT.com - 0 views

www.ft.com/...ed-11e1-a6c2-00144feabdc0.html

shared by Gene Ellis on 06 Sep 12 - No Cached
  • the ECB gears up to go full throttle into a business that, according to its statutes, is verboten: buying the debt of member states.
  • Of course, Mr Draghi mumbles about conditionality: cheap cash only in exchange for deficit-slashing and market reforms. Sure. And when Mr Monti and Mariano Rajoy, Spanish prime minister, instead bend to the wishes of their electorates, what then? Will Mr Draghi stop buying and let their bonds go through the floor? Of course not. You do not have to be a central banker to predict the obvious: no market pressure, no reform.
  • The ECB is about to turn into a money machine, into a lender of last resort, and damn the treaties that mandate an inflation-fighting commitment to “price stability”. The magic phrase now is “capping bond yields”, meaning the ECB buys up the debt of Italy and others in order to depress their borrowing costs.
  • ...4 more annotations...
  • Look beyond the debt crisis and take the longer view. European growth has been slowing for 40 years. During this period its share of global gross domestic product has shrunk by 10 percentage points; that of the US has held steady.
  • Otmar Issing, the ECB’s former chief economist, recalls how, before 1981, “the Italian Treasury set yields for government debt. All the bonds that couldn’t be sold at that price had to be bought up by the Banca d’Italia.” Hence easy money, exploding debt, double-digit inflation – and no change in the country’s frozen politics. Why reform when you can always devalue?
  • After the fall of the Berlin Wall, chancellor Helmut Kohl offered the D-Mark to President François Mitterrand in exchange for French acceptance of German reunification. This noble gesture of self-containment was not, of course, an entirely selfless act. As part of a hard-headed bargain in return for giving up the symbol of German economic primacy, Europe’s monetary and fiscal policy would be “Germanised”.
  • Mr Weidmann is right to fear the moral hazard contemplated by the ECB and its lackadaisical allies from Madrid to Berlin.
Gene Ellis

IMF's Blanchard: Global Economy Gripped By Meta-Uncertainty - WSJ.com - 0 views

stream.wsj.com/...SS-2-33475

shared by Gene Ellis on 17 Jul 12 - No Cached
  • In 2008-09, there was a collapse of global trade. We were all very surprised. Output was not doing well, but the collapse in global trade was enormous. We realized at the time that the elasticity of trade with respect to global output was not 1, as you might think, but more like 3 to 4. So this explained it. And then it recovered like crazy.
  • This is still true. If global output goes down by 1%, global trade goes down by 3% to 4%.
  • What Europe needs to do:
  • ...14 more annotations...
  • These countries have to do what they need to do. There’s no question there has to be fiscal consolidation. We can discuss the pace, but it has to happen. The other is competitiveness, which I see as much tougher of the two.
  • It has to be through a combination of structural reforms, hoping they will work, and nominal wage adjustments, although one cannot be incredibly optimistic about the scope there. We know that that’s going to take a while.
  • Take the big two, Italy and Spain. You can always dream of more, but I think they’re serious about doing it, both on the fiscal front and the structural-reforms front. I think it may well be that even if they do everything they can, and do it right, it’s still not enough. They have to have help — I would say when needed rather than if needed.
  • The banks have to be recapped, and they have to be recapped not using sovereign money. I think that is really very, very high on the agenda. I don’t think they can make it without help to the banks.
  • If the banks were healthier, I think they would lend at lower rates
  • And the sovereigns have to be able to borrow at reasonable rates. As long as they behave and they do all the things they’re asked to do, they have to be able to borrow at lower rates than they currently do. Some way has to be found to do it.
  • It’s not that I don’t care about the way it’s done. But I care about the result. These countries, if they’re doing the right things, they have to be able to finance themselves.
  • Some people say a euro depreciation would help Europe a lot. I think there is an argument for it, even in a multilateral context. You have to depreciate vis-a-vis somebody, so somebody has to appreciate. My sense is we would like most of the depreciation to be vis-a-vis emerging-market countries. Even if there was a depreciation vis-a-vis the dollar, I still think it would be a good thing.
  • We’ve done simulations. Other people have done simulations as well. 10% real depreciation would lead to a 1.4% increase in growth for a year — which at this stage, given the numbers, would be nice. The footnote, and it’s a very big footnote, is that … how much you benefit depends on how big your exports are related to your GDP and where you export — whether you export in the euro zone or outside. Unfortunately the countries that benefit the most are the countries that really don’t need it — Germany, the Netherlands. The countries that benefit the least are Greece, Portugal, Italy, Spain
  • There’s no question, the periphery countries have to improve their competitiveness. That’s not something even monetary policy at the level of the euro or fiscal policy can do. This they have to do through productivity improvements or nominal wage adjustments.
  • It is no secret that they have tended to respond to crises rather than be much more proactive.
  • And now there’s a sense in which they’re thinking about the full architecture.
  • At this stage I think there is a genuine commitment to thinking about the whole beast. That’s why these words — fiscal union, banking union — have come in.
  • Where I think there is still a problem is that all these things will take a lot of time. And some of these things may not happen because they’re unpopular. And meanwhile, there is a fire in the house. So they have to be willing to do more in the short term.
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