2012-03-30 13:06:23 | Telegraph (UK)
Germany launches strategy to counter ECB largesse
By Ambrose Evans-Pritchard, in Frankfurt
Telegraph: 9:00PM BST 29 Mar 2012
Germany is preparing a raft of measures to safeguard its financial system and prevent excess stimulus from the European Central Bank leaking into an inflationary credit boom.


The plans have major implications for monetary union, dashing hopes in Southern Europe that Germany might accept a few years of mini-boom at home to help lift the whole system off the reefs.


Andreas Dombret, a key board member of the Bundesbank, said the body would be given powers to check “excessive credit growth” and impose “maximum leverage ratios” to nip economic overheating in the bud.


The Bundesbank will be able to impose “counter-cyclical capital buffers” on lenders, and use “macro-prudential haircuts” in the securities markets. It is understood that the menu of new tools will include limits on the loan-to-value on mortgages along the lines of those used in Hong Kong and other Asian states.


The new framework - introduced by German government in a draft law this week - is partly inspired by the Bank of England’s new system but it also has a German twist.


The authorities in Berlin and Frankfurt are worried that the ECB’s 1pc interest rates are too low for conditions in Germany, where unemployment has fallen to its lowest in 20 years.


The ECB’s €1 trillion (£834bn) blitz of three-year loans to banks has started to reignite monetary growth in Germany, even though the key aggregates are still collapsing in southern Europe.


German house prices rose 5.6pc last year after a decade of stagnation. Officials in Frankfurt are watching the property data closely, fearing that Germany may succumb to the sort of housing bubble that engulfed the Club Med bloc in the early years of EMU.


“The Bundesbank does not want to be blamed for making the same mistakes as central banks in Ireland and Spain where they did not address asset bubbles early enough,” said Bernhard Speyer from Deutsche Bank.


The German authorities are in effect preparing a form of quasi-monetary tightening to offset ECB largesse.


The move could prove controversial. Nobel Paul Krugman and other Keynesians around the world argue that burst of high growth and inflation in Germany is exactly what is needed to help cushion the pain in the Latin bloc.


“If the eurozone is to adjust, southern countries must be able to run trade surpluses, and that means somebody else must run deficits,” said Dr Speyer.


“One way to do that is to allow higher inflation in Germany but I don’t see any willingness in the German goverment to tolerate that, or to accept a current account deficit.


“This is a fundamental gap in German economic strategy. They are hoping that the US or emerging markets will somehow pop up to do the job for them.


“However, fiscal policy is too loose at the moment given the boom, so you could say that this is Germany’s contribution to saving the peripheral eurozone."


Germans implemented deep reforms and endured years of pay restraint in the early years of the last decade. There is a widespread view from top to bottom in German society that Euroland’s struggling debtor states can claw their way back to viability by sticking to austerity.


This “Calvinist” approach overlooks the fact that Germany achieved its feat in the middle of a global capital goods boom, and always had lower borrowing costs than EMU peers. It also did so at a time when the Club Med bloc was allowing its domestic inflation to creep up.


It may be impossible for these countries to replicate this if Germany now takes pre-emptive steps to choke off its own expansion so soon.




2012-03-30 10:43:07 | Telegraph (UK)
Spain on strike: 104 injured as protesters clash with police
By Fiona Govan, in Madrid
Telegraph: 7:45PM BST 29 Mar 2012
Tear gas and rubber bulletts were fired and a Starbucks and rubbish bins set on fire as workers vented their fury in Barcelona, while an estimated 900,000 people took to the streets in Madrid.





2012-03-30 10:35:32 | Telegraph (UK)
UK's 'double-dip recession' should already be over
By Alistair Osborne
Telegraph: 7:11PM BST 29 Mar 2012




2012-03-29 20:28:32 | Telegraph (UK)
Spain to slash spending as economy slumps back into recession
By Ambrose Evans-Pritchard
9:31PM BST 27 Mar 2012
Spain’s fragile economy has fallen back into recession and the country faces a year of grinding economic decline as premier Mariano Rajoy slashes spending yet further to meet EU demands.


The Bank of Spain said the “contractionary dynamic” in the economy continued into early 2012 for the second quarter in a row, with an “intensifying” pace of job losses. It expects GDP to fall by 1.5pc this year.


Mr Rajoy said at a meeting in Seoul that he would press ahead later this week with a “very austere budget”, ordering 15pc cuts in spending across the ministries.


The conservative leader promised a “fair and just” distribution of pain. Public sector salaries will be frozen rather than cut and there will be no rise in VAT.


It is unclear how he can slash the budget deficit from 8.5pc of GDP last year to 5.3pc to meet the compromise target agreed with Brussels after a bruising confrontation.


“It is frankly impossible, given that it would aggravate the recession and this would crush state revenues,” said Jesús Fernández-Villaverde from the University of Pennsylvania.

「不況を悪化させる上に歳入まで激減させることを考えれば、率直に言って不可能だ」とペンシルバニア大学のJesús Fernández-Villaverde氏は言う。

Fresh data from Spain’s treasury showed the deficit for January and February was worse than for the same period last year, even stripping out “one-off” costs stemming from excesses by the regional juntas.


The lack of progress is grist to the mill of critics who argue that drastic “pro-cyclical” cuts can prove self-defeating, as Greece has discovered.


Spain’s unemployment rate is already 22.8pc, rising to more than 51pc for youths, the highest since records began.


While the Spanish have so far accepted austerity with stoicism, serious protest is emerging and the main trade unions have called a general strike for Thursday.


“The strike takes us closer to Greece and farther from Germany,” said Miguel Martin, head of the Spanish banking federation (AEB), calling the move “absolutely pointless”. He added that Spain’s banks had lost a record €2bn (£1.67bn) in the final quarter of last year as the property bust deepened. “The banks are taking the full brunt of the crisis, and are not yet saved,” he said.


El Pais reported that the European Commission is prodding Spain to tap the EU’s bail-out fund to help restructure the banking system and head off a serious credit crunch.


EU officials said the Spanish government’s plan for €52bn in extra provisions from the banks will not be enough if the crisis continues. Madrid denied that there had been no “formal request” from Brussels.


Spanish lenders have increased their dependence on loans from the European Central Bank to a record €152bn, using the money to roll over debts or buy Spanish government bonds – concentrating risk further.


The Madrid bourse fell 1pc on Tuesday, the sixth day of declines, dropping to its lowest level this year.


Yields on 10-year Spanish bonds have crept back into the danger zone – decoupling from Italian yields – on fears that Spain’s crisis will prove intractable despite ECB largesse. They settled back slightly to 5.36pc on Tuesday.


Officials in Germany said Spain is reaping the bitter fruit of its own actions in unilaterally tearing up its original budget targets and picking a fight with the EU.


“The yields are the proof. They are paying the price,” said a top member of the Bundestag’s finance committee.


Fitch Ratings said the upward revision in last year’s deficit from 6pc to 8.5pc of GDP had damaged Spain’s “fiscal credibility” but the agency did not blame the new government of Mr Rajoy for the failings.


Fitch said the 3pc deficit target for 2013 imposed by Brussels was “unrealistic”.







2012-03-23 15:21:13 | Telegraph (UK)

Dutch Freedom Party pushes euro exit as €2.4 trillion rescue bill looms
By Ambrose Evans-Pritchard
Telegraph: 9:50PM GMT 05 Mar 2012
The Dutch Freedom Party has called for a return to the Guilder, becoming the first political movement in the eurozone with a large popular base to opt for withdrawal from the single currency.


"The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."


Mr Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership, and that it could cost EMU’s creditor core more than €2.4 trillion to hold monetary union together over the next four years. "If the politicians in The Hague disagree with our report, let them show the guts to hold a referendum. Let the Dutch people decide," he said.


Mr Wilders is not part of the coalition. However, the minority government of Mark Rutte relies on the Freedom Party to pass legislation. The two men were in talks on Monday on €16bn of fresh austerity cuts needed stop the budget deficit jumping to 4.5pc of GDP.


The study said the eurozone cannot survive in its current form. The longer Europe’s politicians dither, the more costly it will become. "The euro can only survive if it becomes a fiscal transfer union with national sovereign debt subsumed in eurozone bonds," said co-author Charles Dumas.


Greece will opt for a "negotiated exit" later this year, once the pain becomes excruciating. This will be after the French elections in May, but before the German electoral season begins in 2013.


Portugal will follow in "short order" as markets focus on its struggling banks and nasty logic of recession for debt dynamics. "At that point, if not before, attention will turn to Spain and Italy, both likely by then to be much weakened by savage austerity programmes now being implemented," said Mr Dumas.


That is the moment when the creditor core will face the decision they have "ducked" for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.


Under an "optimistic scenario" it would cost €1.3 trillion to shore up Med-Europe, rising to more than €2.4 trillion if Italy and Spain need some form of bond relief. "The staggering trillion bill to preserve the euro only takes us to 2015. In reality, most of the debts will never be repaid and subsidies will need to continue, year in and year out," said Mr Dumas.


The report said exit by Italy would be relatively easy. The country would recover once it regained currency freedom, though foreign bondholders would take an exchange rate hit. Spain’s exit would be harder to manage since it has a primary budget deficit of 7pc of GDP, and its companies have large euro debts abroad.


Exits costs will rise relentlessly for both countries over time. Prolonged economic depression within EMU would render their debt mostly worthless in the end. So if there is to be break-up, "the sooner the better".


Italy and Spain are more likely to hang on as long as they can, until Northern patience snaps. Germany and Holland would then leave, causing a general return to the "sanity" of floating currencies.


The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.


The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. "They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame."


Holland had enjoyed a "one-off" gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.


The pan-EMU convergence in borrowing costs cited for many years as the great success of EMU proved to be a curse. It let the South borrow too cheaply and too much, lulling creditors into a false sense of security, and ultimately led to the debt crisis.


The report conclude that EMU membership "locks the Netherlands into a system in which cost competitiveness is matched by massive structural over-valuation of costs in Med-Europe, resulting in deficits that will suck cash out of the core Eurozone".


Mr Wilders said the study "goes against everything we are told in the media and by the left-wing elite on a daily basis".


The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.


The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.


Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.