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Gene Ellis

Fixing the eurozone is a labour worthy of Hercules - FT.com - 0 views

www.ft.com/...5d-11e3-8cb2-00144feab7de.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • But more important is the manner in which a damning verdict from the voters would make governments more cautious about eurozone integration, limiting the extent to which the strong support the weak and all feel they are in the same boat.
  • These four steps are: to set up a comprehensive banking union; to ensure hard-pressed companies in recession-hit southern Europe receive credit at interest rates comparable to those enjoyed by their competitors in the north; to reduce mass unemployment, especially among youth; and to make sustainable the public debts of Greece and other states deep in hock.
Gene Ellis

Tunisia's Government Mortgages Economic Future - Al-Monitor: the Pulse of the Middle East - 0 views

www.al-monitor.com/...onomy-crisis-foreign-debt.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • The average cost of Tunisia's external debt is nearly 4%, and is mainly denominated in euros and US dollars.
  • Today, Tunisia’s situation under the troika comes down to the fact that the country is borrowing to consume and not to invest.
  • Another fact that will render paying off the debt more difficult is that the redeemable portion of the foreign debt within 10 to 20 years or more is 81.3 % of all loans taken from abroad.
  • ...2 more annotations...
  • But where has the money gone? The answer is not difficult to guess. The debts were neither used for investment nor infrastructure or the creation of job opportunities. Instead, they were partly spent on reabsorbing the trade deficit and artificially replenishing reserve currencies.
  • This plan of action has been negative at all levels, to the extent that international financial institutions have already cut off their monetary support to Tunisia.
Gene Ellis

Optimism about an end to the euro crisis is wrong - FT.com - 0 views

www.ft.com/...9a-11e3-86ef-00144feab7de.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Adjustment is the key to ending the eurozone crisis. The optimists are saying that this process of regaining competitiveness is now taking place.
  • This judgment is profoundly wrong.
  • In other words, the eurozone is adjusting at the expense of the rest of the world.
  • ...6 more annotations...
  • But while the eurozone is a fixed-currency regime internally, it is nothing of the sort externally. The currency does exactly what textbooks say it should: it keeps on rising, thus offsetting the improvements in the current account. Last week the euro rose to more than $1.38 against the dollar.
  • The main problem with the rise in the euro’s external value is that it makes the internal adjustment harder. The crisis countries need to lower their export prices but the higher value of the euro raises the prices of exports to outside the eurozone.
  • It essentially says internal adjustment is not really happening.
  • Second, the prices of Spanish tradeable goods would have to fall against those of non-Spanish tradeable goods elsewhere in the eurozone.
  • Put bluntly: the scale of necessary adjustment is absolutely enormous. The IMF does not believe that this is going to happen.
  • In a monetary union adjustment is hard without any transfers and without a fiscal union.
Gene Ellis

TARGET2 as a scapegoat for German errors | vox - 0 views

www.voxeu.org/...arget2-scapegoat-german-errors

shared by Gene Ellis on 29 Oct 13 - No Cached
  • This coincided with the bubble years in peripheral Eurozone countries (2003-07). The effect of this is that Germany accumulated large net claims on Eurozone countries, which at the end of 2011 amounted to €634 billion.
  • These current account surpluses did not lead to TARGET2 claims during the bubble years because the counterpart of these surpluses were increasing claims held by (mainly) German banks against the other Eurozone countries.
  • the German banking system was lending the money to other Eurozone countries to allow them to buy surplus German products – a highly risky affair.
  • ...12 more annotations...
  • This created the illusion that no risk was involved; in fact the risks were increasing every year.
  • It should have been obvious that the debtor countries could get into payment difficulties as they were piling up debt made possible by the loans of German banks.
  • If there is a breakup of the Eurozone, Germany will face the risk that some debtor countries default on their debt. But again this risk is not affected by the size of the TARGET2 claims of Germany.
  • The risk that Germany faces as a result of its net exposure to other Eurozone countries is therefore entirely of the country’s own making.
  • Since 2009, when the TARGET2 balances started to take off, current account deficits of the peripheral countries as a whole declined from 9.1% of their GDP to 4.5%. These declines were mainly due to deep recessions in these countries.
  • Sinn (2012) argues that these deficits would have had to decline even faster had there been no financing through the TARGET2 mechanism. This is certainly true. But this is the same as saying that these countries should have pushed their economies into even deeper recessions.
  • The main reason why German TARGET2 claims have increased so much since 2010 is capital flows. The flows have taken two forms.
  • The first one came about when German banks unloaded their loans made to peripheral countries into the balance sheet of the Bundesbank.
  • The second one was the result of non-residents shifting their deposits from their local banks into the German banking system out of fear of a breakup of the Eurozone.
  • This led German banks to stop their credit lines to southern banks (and other northern EZ banks followed)
  • Thus in the scenario of a breakup, with or without TARGET2 claims, the risk of large losses for the German taxpayer is very similar.
  • the Bundesbank can eliminate the risk of such last minute accumulations of TARGET2 balances by converting euros into new German marks only for German residents.
Gene Ellis

Are Germans really poorer than Spaniards, Italians and Greeks? | vox - 0 views

www.voxeu.org/...-spaniards-italians-and-greeks

shared by Gene Ellis on 29 Oct 13 - No Cached
  • From this survey it appeared that the median German household had the lowest wealth of all Eurozone countries
  • The median households in countries like Belgium, Spain and Italy appear to be three to four times wealthier than the median German household. Even the median Greek household is twice as wealthy as the German one.
  • mean net wealth of households
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  • A comparison of the median and mean wealth reveals something about the distribution of wealth in each country. If the largest difference is between the mean and the median, the greater is the inequality in the distribution of wealth.
  • In Germany the mean household wealth is almost four times larger than the median.
  • In most other countries this ratio is between 1.5 and 2.
  • We find that in Germany the median household in the top 20% of the income class has 74 times more wealth than the median household in the bottom 20% of the income class. Judged by this criterion Germany has the most unequal distribution of wealth in the Eurozone.
  • Wealth per capita is more than twice as high in northern European countries than in southern countries such as Greece and Portugal.
  • The facts are that Germany is significantly richer than southern Eurozone countries like Spain, Greece and Portugal. There does seem to be a problem of the distribution of wealth in Germany: First, wealth in Germany is highly concentrated in the upper part of the household-income distribution. Second, a large part of German wealth is not held by households and therefore must be held by the corporate sector or the government.
Gene Ellis

The Man Who'll Perform Triage on Europe's Banks - NYTimes.com - 0 views

www.nytimes.com/...m-triage-on-europes-banks.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • “What makes it difficult is that it is very fragmented,” he continued. “It is diversified in different countries and they are not used to working together, so it’s a huge organizational effort, and it’s also a huge political effort in the sense of convincing everybody to converge to common styles of supervision.”
  • three parts.
  • a broad assessment of a bank’s risk profile
  • ...3 more annotations...
  • The second is the so-called “asset quality review,”
  • The third is what is known as a “stress test,”
  • For the supervisory process to be truly useful, experts say it must also be accompanied by a so-called single resolution mechanism — a system for winding down failing banks in an orderly way, to avoid market upheavals.
Gene Ellis

The euro zone's next big crisis: Deflation - Matthew Lynn's London Eye - MarketWatch - 0 views

www.marketwatch.com/...ig-crisis-deflation-2013-10-23

shared by Gene Ellis on 29 Oct 13 - No Cached
  • But in fact the real threat is this — deflation. Three years into a grinding recession, many euro-zone countries are now close to falling prices.
Gene Ellis

The roots of the Italian stagnation | vox - 0 views

www.voxeu.org/...roots-italian-stagnation

shared by Gene Ellis on 22 Jun 13 - No Cached
  • Gene Ellis on 22 Jun 13
     
    Excellent article on reasons for lack of Italian competitiveness.
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