Archive for the 'EU' Category

That was then, this is now

Wednesday, July 15th, 2015

2014:

In 1998, Kas turned down an offer by Calvin Klein to raise funds for the construction of the New Acropolis Museum in lieu of showcasing the fashion house’s collection at the 2nd century AD Herod Atticus theatre beneath the Acropolis.

Greece is now required to sell $55 billion in state assets. We think the entire problem could be solved in a couple of minutes. They have all these old, run-down buildings that need fixing, right? Partha-something, acropo-whatnot. For the solution, try humming the tune to “It’s a small polis after all.”

Double dog dare you

Thursday, July 9th, 2015

At the Telegraph, look who’s inserted itself into the Greek situation to weigh in on one side. Can’t say we’re surprised, given the track record. Next up, Spain and Italy? Stay tuned.

61-39 isn’t 43-43

Sunday, July 5th, 2015

WSJ:

With more than 87% of votes counted, preliminary results showed more than 61% of voters had cast ballots against creditors’ demands in the historic referendum — a heavier-than-expected victory for the “no” campaign against the austerity policies demanded by Greece’s lenders, the rest of the eurozone and the International Monetary Fund. Mr. Tsipras might soon find it difficult to deliver on his promise to secure a more lenient bailout deal from Europe, where other governments, led by Germany, are in no mood to offer Greece more generous terms.

So there will be no civil war due to the 43-43 split forecast by pollsters, but there will be huge problems with this outcome. Let’s go back 5 years, when everyone was speculating about contagion: who’s next after Greece? Once again that may be an issue. For example Italy is awash in government debt at 135% or so of GDP. Increased concessions to Greece by the IMF, EU and ECB translate into an obvious political strategy elsewhere: hold a referendum.

How can either YES or NO work?

Friday, July 3rd, 2015

Bloomberg:

43 percent intend to reject the budget cuts demanded in exchange for financial aid, while 42.5 percent will accept the conditions. The survey of 1,042 people was conducted by the University of Macedonia Research Institute of Applied Social and Economic Studies. The margin of error was 3 percent. An Ipsos survey released late Friday showed a razor-thin margin, with “yes” at 44 percent and “no” at 43 percent.

Meanwhile, retail sales are off 25% from 5 years ago, international payments mechanisms are essentially frozen and the supply chain is broken — and the country is split down the middle on what to do. If the referendum were a vote on civil war…

Our two drachmas

Monday, June 29th, 2015

FWIW, we’ll be surprised if Greece does a deal with the EU etc to stay in the euro. Alexis Tsipras doesn’t seem to have that much room to compromise, given his newness and ideology (and rhetoric). Moreover, as we noted the other day, this has been playing out in slow motion for a decade or more. However, we don’t see 2008 at the moment, with all its craziness, because oil isn’t $147 a barrel, and the CDS’s can’t be as insane as they were back then. As always, prepared to be wrong, but that’s our view at the moment.

The glory that was

Tuesday, April 21st, 2015

Telegraph:

Tuesday’s trading helped cap off a torrid run which has seen more than 50pc wiped off the value of Greece’s lenders since the start of the year.

Just a reminder or two. This drama has been playing out for more than three years now. One of the questions asked half a decade ago is who’s next? Perhaps we’ll fine out soon whether any of these concerns and questions are still relevant.

Some French policies, now and then

Saturday, March 21st, 2015

Now, via WSJ:

“Making the end of March an absolute deadline is counterproductive and dangerous,” France’s ambassador to the U.S., Gérard Araud, said via Twitter after the latest round of negotiations in Switzerland concluded Friday. “No agreement without concrete decisions on issues beyond the enrichment capability question,” he said a day earlier, specifically mentioning the need for extensive monitoring and clarity on Iran’s past research work. Western officials believe they included the pursuit of nuclear-weapon capabilities. In a sign of France’s determination, Foreign Minister Laurent Fabius called his negotiating team in Lausanne on Thursday to insist no deal could be forged that allowed for the rapid easing of U.N. Security Council measures, according to European officials. France worries the quick repeal of the U.N. penalties could lead to a broader collapse of the West’s financial leverage over Tehran

Sounds like they’re hanging tough, but that’s nothing compared to their policy a decade ago.

Beware of ECBs bearing gifts

Saturday, February 21st, 2015

Stratfor:

Greece and its lenders reached a temporary deal late Feb. 20. The agreement was carefully crafted to make both Athens and the reluctant governments of Northern Europe happy, but it comes at the price of postponing a resolution of the crucial issues. As a result, a “Grexit” from the eurozone will be deferred in the immediate term, but the crisis is far from over.

Greece and the Eurogroup agreed to extend Athens’ bailout program for four months. The agreement keeps Greece under the protective umbrella of the European Central Bank, the European Union and the International Monetary Fund. The ECB will continue to provide liquidity for Greek banks, while the European Union and the IMF will make funds available should Greece need them.

However, this deal has left many questions unanswered. First, Greece promised to present a list of economic reforms — probably focused on cracking down on tax evasion and corruption and reforming Greece’s public administration — by Feb. 23. This list will be further detailed and then agreed upon with the European Union and the IMF by the end of April. In order for Greece to receive the next tranche of the bailout, the European Union and the IMF will have to accept these proposals. (This is probably the part of the deal that made the agreement acceptable for Germany.) Still, the key source of conflict between Athens and Berlin — the specific reforms that Greece will apply in exchange for the bailout money — has only been postponed.

Second, the size of Greece’s primary surplus was also omitted in the agreement. The European Union and the IMF promised Greece to take its economic situation into account when setting a deficit target, a small victory for Athens. This issue will also become problematic again in April, when Athens is supposed to present the exact details of what it plans to do.

In the coming days, Greek Prime Minister Alexis Tsipras will have to sell the deal to the most radical members of his left-wing Coalition

Alan Greenspan: “I believe they will eventually leave. I don’t think it helps them or the rest of the eurozone — it is just a matter of time before everyone recognises that parting is the best strategy. The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated — actually even just fiscally integrated won’t do it.” He’s right of course; it’s just a matter of time. It will be interesting to see if Tsipras can sell this mini-deal at home.

BTW, a decade ago we thought the euro was likely to fail; our reasoning was what is playing out now.

EQ test

Thursday, January 22nd, 2015

George Friedman:

The plan is an attempt to spur economic activity in Europe by increasing the amount of money available. It calls for governments to increase their borrowing for various projects designed to increase growth and decrease unemployment. Rather than selling the bonds on the open market, a move that would trigger a rise in interest rates, the bonds are sold to the central banks of eurozone member states, which have the ability to print new money. The money is then sent to the treasury. With more money flowing through the system, recessions driven by a lack of capital are relieved. This is why the measure is called quantitative easing.

The United States did this in 2008. In addition to government debt, the Federal Reserve also bought corporate debt. The hyperinflation that some had feared would result from the move never materialized, and the U.S. economy hit a 5 percent growth rate in the third quarter of last year. The Europeans chose not to pursue this route, and as a result, the European economy is, at best, languishing. Now the Europeans will begin such a program – several years after the Americans did – in the hopes of moving things forward again.

The European strategy is vitally different, however. The Federal Reserve printed the money and bought the cash. The European Central Bank will also print the money, but each eurozone country’s individual national bank will do the purchasing, and each will be allowed only to buy the debt of its own government. The reason for this decision reveals much about Europe’s real crisis, which is not so much economic (although it is certainly economic) as it is political and social – and ultimately cultural and moral.

The recent leaks have made it clear the European Central Bank is implementing quantitative easing in this way because many eurozone governments are unable to pay their sovereign debt. European countries do not want to cover each other’s shortfalls, either directly or by exposing the central bank to losses, a move that would make all members liable. In particular, Berlin does not want to be in a position where a series of defaults could cripple Europe as a whole and therefore cripple Germany. This is why the country has resisted quantitative easing, even in the face of depressions in Southern Europe, recessions elsewhere and contractions in demand for German products that have driven German economic growth downward. Berlin preferred those outcomes to the risk of becoming liable for the defaults of other countries.

The major negotiation over this shift took place between European Central Bank head Mario Draghi and German Chancellor Angela Merkel. Draghi realized that if quantitative easing was not done, Europe’s economy could crumble. While Merkel is responsible for the fate of Germany, not Europe, she also needs a viable free trade zone in Europe because Germany exports more than 50 percent of its gross domestic product. The country cannot stand to lose free access to Europe’s markets because of plunging demand, but it will not underwrite Europe’s debt. The two leaders compromised by agreeing to have the central bank print the money and give it to the national banks on a formula that has yet to be determined – and then it is every man for himself.

The European Central Bank is providing the mechanism for stimulating Europe’s economy, while the eurozone member states will assume the responsibility for stimulating it – and living with the consequences of failure. It is as if the Federal Reserve were to print money and give some to each state so that New York could buy its own debt and not become exposed to California’s casual ways.

Economist:

When the European Central Bank’s (ECB) governing council meets on January 22nd, it will take a historic decision. Among the main central banks, the ECB alone has abstained from a big programme of quantitative easing involving the creation of money to buy sovereign bonds with the aim of spurring growth and inflation. The economic case for QE in the euro area is overwhelming: the feeble economic recovery that has followed Europe’s double-dip recession is faltering; headline inflation has turned negative and longer-term inflation expectations have also declined to a worrying extent. Mario Draghi, the ECB’s president, seems determined to adopt QE in some form, but he will have to compromise on the way that the risks are shared among the euro-zone national central banks in order to get the policy through.

Insiders expect a programme of sovereign-bond purchases of around €500 billion ($580 billion) to be announced on Thursday. Anything less would be likely to disappoint markets that have already been anticipating a move by the ECB to adopt QE, causing, for example, the euro to weaken. The need to purchase government bonds arises from the scale with which the ECB needs to intervene. The central bank wants to raise the balance-sheet of the Eurosystem (the ECB along with the euro zone’s 19 national central banks) from €2.2 trillion to €3 trillion. Since late last year it has been conducting a form of QE by buying private assets, mainly covered bonds, a particularly safe form of debt issued by banks, and also some asset-backed securities. Such purchases may reach around €200 billion over a year. But the amount of eligible and available covered bonds, of around €1 trillion, is dwarfed by the value of sovereign bonds, of over €6 trillion. At one time it seemed that the ECB might buy conventional corporate bonds, but it seems to have decided that the market is too illiquid for it to operate in at scale.

But a big bond-buying programme is tricky in a monetary union where there is not one federal government but 19 national ones, of widely varying creditworthiness, ranging from triple-A for Germany’s to junk for Greece’s. The indications are that Mr Draghi will have to bow to stipulations set by Jens Weidmann, head of the German Bundesbank, if he is to get QE approved. Most notably, purchases of sovereign debt will not be made under the usual risk-sharing arrangements at the ECB, whereby the 19 national central banks of the euro zone share any losses in rough proportion to the size of their economies. The Bundesbank would normally expect to shoulder a quarter of any losses incurred by the ECB. But in this instance, each central bank is likely to be largely responsible for buying the bonds of its own country and will have to bear any losses on them on its own.

That is a good deal for the Bundesbank, because German bonds are so safe. But it marks a big break in precedent and will be seen as unsatisfactory by many members of the governing council. The compromise is necessary because on this occasion Angela Merkel, Germany’s chancellor, is backing Mr Weidmann. That is in sharp contrast with the previous clash between Mr Weidmann and Mr Draghi, in 2012, over the (unused) policy of “outright monetary transactions”, a conditional commitment to buy bonds of countries under siege in the markets, which gave teeth to Mr Draghi’s pledge to do “whatever it takes” to save the euro. Mrs Merkel fears that QE will allow laggard governments, including those of Italy and France, to further delay indispensable structural reforms. The chancellor also worries that purchases made through the usual risk-sharing approach would in effect create by the backdoor “Eurobonds”, jointly issued bonds with the risk mutually shared among member states, to which she is strongly opposed.

Some way will also have to be found to deal with the problem of Greece, which in elections on January 25th may choose a new government that seeks some form of debt relief and tries to backtrack on reforms. One possible solution might be to stipulate that junk-rated sovereign bonds will be bought only if the country concerned is abiding by the terms of a euro-zone bail-out programme (Greece’s is due to expire at the end of February).

Markets may shrug off these messy details in their elation that QE is at long last under way, injecting money into the euro-zone economy and signalling the ECB’s commitment to arrest the fall in inflation. Most members of the ECB’s council will grudgingly take the view that it is better to get a big amount of QE along these lines than a much smaller dose with the usual risk-sharing arrangements. The effect of the QE that the council undertakes may also be stronger if, as is now expected, the bonds purchased will be held to maturity. But a package along these lines will set an unfortunate precedent, for it will embody the very fragmentation within the euro area that the ECB has been seeking to combat. That will add to the danger that the long-awaited QE programme may be coming too late to arrest the slide into a deflationary mindset.

WSJ:

In order to appease those who are worried that taxpayers across the Eurozone will end up carrying the can if one country defaults, the majority, if not all, of these purchases are likely to be undertaken by the national central banks. These will buy their own government’s debt in proportion to the size of the economy and will be limited to a maximum of about a quarter of outstanding debt. The ECB will provide the money for the purchases.

Man, this is hard to understand. It looks like the ECB will give Euros to the 19 other central banks, and those banks will buy their governments’ debt from banks and other institutions, up to 25% of that debt, which varies all over the place, depending on the fiscal discipline in the 19. Total sovereign debt is 6+ trillion Euros, so the program could be as large as 1.5 trillion Euros if all participated. Then the theory is that banks will lend the extra money and institutions will also invest or lend. Uh-huh.

We won’t bother quoting from the negative piece in the Telegraph on this, but this all doesn’t make too much sense to us. Aren’t the low-productivity countries with high debt just getting another kick at the can, another reason to spread more money around without any structural changes? It’s hard to see how this ends well.

Near term result, via WSJ: “Euro Slides to 11-Year Low Against Dollar.”

Odds and ends

Thursday, September 18th, 2014

Here’s the Ayaan Hirsi Ali video. Some comments from it are here. Here’s a kerfuffle about letting American fighters for the Islamic State back in the good ol’ USA. Oh, yes, just in case you thought this wasn’t coming to a town or village near you, think again. Of particular note is the response to the Australian police raids. Question: can you think of a cure for all this that can be spoken in polite society today?

Neither a borrower nor a lender be?

Monday, May 19th, 2014

The FT reported that PE firms in Europe are paying 10.4x EBITDA now, versus 9.7x in 2007. The US PE prices look to be about 9.1x versus 9.6x in 2007. Debt ratios are 5.6x versus 6.1x in the good old days. 2007, eh? We recall the Bear Stearns conference call back then, when virtually no one knew what was coming over the next 13 months. Compared to 2007, the economic fundamentals do not seem as good today. What do these high PE prices portend?

A tale from CDG

Saturday, May 3rd, 2014

30 years ago or so our Concorde flight from Charles de Gaulle to JFK had engine trouble shortly after takeoff. After returning to the airport, we all waited together for another plane. Seated nearby were Felix Rohatyn and David Rockefeller, who told a little story. He had called on François Mitterand at the Élysée Palace, and was really PO’d that Mitterand kept him waiting for half an hour. Rohatyn nodded his disapproval of the impolite behavior. Rockefeller went on with the story, saying that during his meeting he invited Mitterand to his country estate. Rohatyn seemed surprised by this gracious gesture. Then Rockefeller delivered the punchline: “What I didn’t tell him is that Giscard d’Estaing will be there that weekend.” Laughter all around.

Drip, Drip, Drip

Sunday, February 9th, 2014

A genius speaks. Letters from a grammar school principal here and here, and an explanation. The end of snow. Blah blah and an interesting piece on the ACA; RIP has dual meanings. Jonah has too much time on his hands. Thoughts on the 1st amendment. A diner at Elaine’s and Primola makes his case. And a couple of additional examples of well-funded government antics. Drip, Drip, Drip.

This, that, and the other thing

Sunday, November 10th, 2013

In 1963 Sukiyaki was a big hit in the US. A couple of years later so was Hogan’s Heroes. These things happened only two decades after the end of WWII. Two bad ideologies had been defeated. Life moved on. We’re now a dozen years after 9-11 and the ideology that led to it is still mostly untouched. Not a good sign. It would be a very strange thing if the US’s fecklessness on Iran produced Sunni-Israeli cooperation that resulted in a change in a vile ideology. Probably impossible, but we’re looking for the pony in there somewhere.

In other news, Pigalle is apparently being ruined “by the banal globalization of hipster good taste, the same pleasant and invisible force that puts kale frittata, steel-cut oats and burrata salad on brunch tables from Stockholm to San Francisco.” Have a pleasant Sunday!

Bright lines, perilous times

Sunday, November 3rd, 2013

The NYT is still happy, though concerned that their man “misspoke” two dozen times or so. The AP is running news that was unthinkable five years ago, and ABC is mocking their erstwhile messiah. A line has been crossed, the line demarcating the limits of political BS.

So now we have a world where Saudi Arabia, Syria, Russia, Iran, Israel, Germany, England, and most of the rest of the world don’t believe a word the BS-er in chief says, along with at least the half of the USA that is paying attention — and that number seems likely to grow. Only the NYT and its followers, parts of the Washington press corps, and faculty lounges take the college professor seriously now. Everyone who wants to know now knows that a bright line has been crossed, and as a consequence we live in perilous times for the next three years or so.

Eh and Eh…….and Eh

Thursday, October 17th, 2013

Eh and Eh, foreign and domestic dysfunction. And finally, a case can be made either way for shutdown. We happen to think it was good theater, the evidence for which is that is the rhetoric of the other side. But reasonable people can differ. This is not reasonable, however. Anyway, none of this matters because the country can’t be saved until it stops its practice of 40-70% of children in its various communities being born to unwed mothers.

Rejoice and be deeply uneasy at the same time?

Wednesday, October 9th, 2013

Evans-Pritchard:

Rejoice: the Yellen Fed will print money…Janet Yellen is to take over the US Federal Reserve, the world’s monetary hegemon, the master of all our lives. The Fed will be looser for longer. The FOMC will continue to print money until the US economy creates enough jobs to reignite wage pressures and inflation, regardless of asset bubbles, or collateral damage along the way.

No Fed chief in history has been better qualified. She is a glaring contrast to Alan Greenspan, a political speech writer for Richard Nixon, who never earned a real PhD (it was honorary) or penned an economic paper of depth…

She was…quick to sense the danger of a chain reaction through the shadow banking system. Ben Bernanke and the FOMC majority scoffed at worries that the subprime debacle was the tip of an iceberg.

“I feel the presence of a 600-pound gorilla in the room, and that is the housing sector. The risk for further significant deterioration, with house prices falling and mortgage delinquencies rising, causes me appreciable angst,” she told Fed colleagues in June 2007, a 15 months before the storm hit…

she clashed with New York Fed chief William Dudley in December 2007 over the risks of subprime mortgage defaults, which is telling since Dudley (ex Goldman Sachs) was supposed to be the official with his finger on the market pulse. “The possibilities of a credit crunch developing and of the economy slipping into a recession seem all too real. At the time of our last meeting, I held out hope that the financial turmoil would gradually ebb and the economy might escape without serious damage. Subsequent developments have severely shaken that belief,” she said. She was absolutely right again…

The next chairman of the Fed is going to track the labour participation rate. Money will stay loose. Markets have been spared again. The Brics can breathe easier. This leaves me deeply uneasy. We are surely past the point where we can keep using QE to pump up asset prices.

So she’s the most qualified Fed chair in history and he’s deeply uneasy. Well, he’s been on both sides of issues before. Pethokoukis has a more balanced appraisal of the situation.

Bonus business link: Jim Chanos.

What’s the next mission for the LHC?

Sunday, September 22nd, 2013

Tech Week:

Fresh collisions will be launched in two years’ time as CERN looks into other phenomena, such as anti-matter. They will create a significant amount of additional data for the IT team to deal with. When they need to, each of the site’s four particle detector hubs – ATLAS, CMS, ALICE and LHCb – take what amounts to 40 million pictures a second, producing 40 petabytes of information. Whilst not all of that information is kept – much of it related to already understood physics rather than interesting new particles – there is still 25GB a second that has to be thrown on standard discs and tapes…

When the giant underground tube starts seeing particles smashing into one another again, the backend systems need to be ready for the extraordinary amount of data that will come through, whilst supporting the bespoke code that picks out the interesting collisions…it’s like helping to “find a needle in a haystack when you don’t know what a needle is”…the LHC does not have enough budget to build as many systems as CERN would like, partly thanks to the current European economic climate. Nor has it been able to bring in new workers, even where additional systems have been installed.

So it appears that the LHC schedule may not be met. Well at least the earth wasn’t destroyed by the darned thing. Perhaps the funding lag is related to the LHC already having discovered the Higgs Boson. As explained here in this video, that apparently was the main mission of the LHC, and it accomplished it promptly and left the Standard Model intact. Now what?

Astonishing? Or merely today’s news? And tomorrow….?

Monday, September 9th, 2013

The Secretary of State:

We will be able to hold Bashar al-Assad accountable without engaging in troops on the ground or any other prolonged kind of effort in a very limited, very targeted, short-term effort that degrades his capacity to deliver chemical weapons without assuming responsibility for Syria’s civil war. That is exactly what we are talking about doing – unbelievably small, limited kind of effort.

“Unbelievably small, limited kind of effort.” Amazing. Alienating both hawks and doves simultaneously, while managing to look completely incoherent. Quite the hat trick.

We’d guess that there’s going to be no attack, since all this dithering and incompetence have virtually guaranteed a disproportionate response from Syria’s sponsors. Having said that, it is unwise to underestimate the stupidity and utter absence of both strategic and tactical thinking among this crew.

Inside baseball

Saturday, August 17th, 2013

Conrad Black has an excellent piece at NRO regarding a recent book on FDR and Soviet spying. Ron Radosh has a similar piece. John Earl Haynes and Harvey Klehr have a very detailed review of the Agent 19 scholarship at FrontPage. The authors remind us of the kids who memorized the HR’s, RBI’s, batting averages and all the other statistics of their favorite players back in our youth. Makes our head spin. However, the extensive espionage of the thirties and forties raises the interesting question of who their contemporary counterparts are and whom they’re working for. (Normally you might ask the NSA the question, but they’re tied up at the moment.)