Front Page: Euro zone facing make-up-or-break-up choice

1st December 2011

BRICS

 

China needs more fiscal tools: Expert

China should adopt more fiscal tools to compensate for the slowing money-supply growth. China Daily

 

Russia to attract more capital -experts

Capital inflows to Russia may account for 20-30 billion dollars a year in 2013-14. Voice of Russia

 

Black Friday has a higher volume of online sales

Black Friday in 2011 recorded the highest sales volume in e-commerce in Brazil in a day, according to consultancy e-bit. Jornal Do Brasil

 

GDP figures a wake-up call: Anand Mahindra

The manufacturing sector, which accounts for nearly 16% of the country's GDP, remained sluggish growing by 2.7% in September compared to 7.8% expansion in the same year-ago quarter. Times of India

 

Factory activity picks up despite economic concerns

South Africa's purchasing managers' index nudges up in October to reach its highest level since June. Business Day

 

Developed Markets

 

ECB joins central banks to bolster global finance

The European Central Bank joined monetary authorities around the world on Wednesday in a concerted effort to reduce strains on the financial markets and boost lending to businesses and consumers. The Local

 

Euro zone facing make-up-or-break-up choice

After two years of failed efforts that world markets have swept aside as inadequate, Europe's leaders face an increasingly sharp divide in combating their debt crisis. Washington Post

 

Suzuki chief promises 'truth' in Volkswagen dispute

Suzuki Motor's chairman said Wednesday he was willing to appear at the International Court of Arbitration to reveal the "truth" about the Japanese automaker's bitter row with Volkswagen. Japan Today

 

Frontier Markets

 

Euro area unemployment rate at 10.8%

The euro area (EA17) seasonally-adjusted unemployment rate was 10.3% in October 2011, compared with 10.2% in September. Malta Today

 

Qatar seen benefiting more from MSCI upgrade, say experts

Gulf investors are gearing up for a key decision in December by index compiler Morgan Stanley Capital International on whether it upgrades the United Arab Emirates and Qatar stock markets to emerging market status. Gulf Times

 

2012 budget draft law sent to House

The government on Wednesday referred to the Lower House the general budget draft law and the draft law covering the budgets of independent public agencies for the fiscal year 2012.. Jordan Business News

 

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16 thoughts on “Front Page: Euro zone facing make-up-or-break-up choice”

  1. JW says:

    Hi Shaun
    Excellent as usual. I don’t know how you keep up this standard every day, a remarkable body of work.
    I think the Spailout only accelerates the house price collapse because it encourages banks to hang out their dirty linen and sell the assets at any price.
    I think Uganda’s rating is now higher than that of Spain, a particularly stupid and arrogant statement by Rajoy, but then Spain has a certain ‘monkey gesture’ reputation doesn’t it?
    Spain yields about 7%, Italy today with 8yr yields above 6%. Its getting to crunch time for Germany. Cost of putting this right 2m€ plus. Will she walk?
    Perhaps it will be Germany 2-0 Spain in the UEFA final, just about the same time as the ‘summit to end all summits’. Or maybe the Latin trickery of ‘passing the parcel’ will overcome the Teutonic machine. And then there’s the football! 

    1. Anonymous says:

      Hi JW

      Well at least the football has gone well for Spain tonight with there team winning 4-0 although there is perhaps an irony in it being against fellow sufferer Ireland!

      Lots of rumours tonight about G-20 etc which may be just that. However Mervyn King has announced a couple of things tonight from the Bank of England. If you look at the pattern of short sterling ( for those who do not follow it this is the UK interest rate future) today then I was in discussions this afternoon that it looked like something had leaked.

      And tonight we see that someone had the “early wire” and accordingly it looks as though todays trading was corrupt. What a way to run things!

  2. Robert S says:

    I was wondering if anyone could help me understand the problems that the EZ is currently faced with:
    Spanish banks borrowed 319.9bn Euro in April & a record 324.6bn Euro in May.  Where the hell has that money gone in two months?  I’ve read time & again that the banks bought Spanish government bonds.  If this is true, why, when less than one month later, they put out a begging bowl for 100bn Euro, which know-one is sure if that’s the correct value?  Am I missing something?

    I then read this morning’s Telegraph (http://tinyurl.com/bvtx73t), where the article describes Angela Merkel’s slowing acceptance that a Redemption Pact may be appropriate.  Can someone explain in laymans terms how this helps, and the pros and cons of it (I’m not of an economics background)?  Sorry Shaun, but that could be an article in itself!  The article explains that about 2 trillion Euro is required to cover the EZ debts and that they would be paid off over twenty years.  Gee, that’s some repayment.  Isn’t that a repayment of ABOUT 100bn Euro per year (sorry, not sure how many zeroes a trillion is.  And to be honest, why should the politicians care as they won’t be around then either, so they won’t mind if it’s a zillion)?  Either way, how on Earth do they think they’re going to pay for this, when they can’t raise money for their own rescue funds.  The article explains that joint bonds would have to be issued and payed for with a tax.  Is that a tax on it’s citizens or banks?  If the citizens, then yet again, the public have to foot the bill.

    Thank you in advance for any light that can be shed on what are possibly trivial questions to others.

    Robert

    1. Anonymous says:

      Hi Robert

      I will help with the Spanish banks bit. The May borrowing figure is not in addition to the April one so it represents an extra 5 billion Euros. However this is liquidity i.e the banks are stuggling to get cash for their normal day to day operations so they borrow it from the ECB which can give them as much cash as they want..

      The 100 billion will be used for extra capital so it is a replacement for losses that they have made (some of which they have yet to admit to….). Some of the money lost will have been on the Spanish government bonds which they have bought as the yield rises I describe mean that there have been heavy price falls and hence losses.

      I hope this helps!

    2. Anonymous says:

      Hi Robert,

      The redemption pact suggested by some German commentators is more politics than economics. The skint countries are being asked to mortgage their gold reserves in order to receive German help, if they cannot repay they loose the gold. This is much less attractive than eurobonds (essentially an unsecured loan) to the likes of Italy.

      And it may just be a political game to avoid throwing good money after bad on further bailouts. Eurobonds NEIN, but let’s waste time considering an alternative you will dislike.

  3. Eltaurus36 says:

    There is video on YouTube under ‘Soto del Hanares’ which is  a sizable ‘ghost town’ near Madrid of endless blocks of unfinished high rise apartments and other buildings. Huge cranes still overhang most of the buldings giving the scene a ‘War of the Worlds’ look. The video is accompanied by a harrowing musical score that adds to the feeling of despair and approaching Armageddon. Worth a viewing if not seen before.

    1. Patrick, London says:

      When you read a little further on about Soto del Hanares, it seems as though things have moved on somewhat from the days of this video. It’s hard to get a real sense of the level of occupation, but it doesn’t appear to be the ghost town that the video suggest. With further reductions in Spain’s housing market, I guess things could go either way depending on whether the powers that be are prepared to sell or rent at a loss in the hopes of a distant return on the original investment.

      Bizarrely, a more positive video released last year, I think created by the planners or government still chose to use Lux Aeterna as the backing track. Given the nature of the music, and it’s links to to nihilism and despair of Requiem for a Dream, it’s an odd choice for a video that was supposed to be positive.

  4. Alex Eames says:

    In terms of broadband speed, “up to” means “It was once achieved in ideal conditions in a lab – you’ll be lucky to get a third of this in reality”.

    In central banking circles it seems to mean something like a ~20% down-payment on the real amount. Or maybe it’s an abbreviation for…

    “You have no idea what we’re up to.”  But as it has become fashionable to omit apostrophes, what should be ‘up to has become up to. 😉

    1. Anonymous says:

      Hi Alex

      Ah yes I had forgotten the use of “up to” by broadband providers and the way it comes in very small print…So it seems that “up to” can mean no chance of it or vastly more!

  5. Patrick, London says:

    Thanks Shaun, the Geography lesson is hilarious… too long for the front page comment of the day sadly.
    Have you had a chance to look through GO’s recommendations? I plan to look for detail tonight, but I have this naive hope that he just lifted them from your article.

    I have this wonderful mental image of all the various international politicos scratching their heads while staring forlornly at the pile of cans confronting them at the end of the cul-de-sac that they thought was a road.

    1. Anonymous says:

      Hi Patrick

      Sometimes I think of a science fiction film where one of our space pilots crashes on an alien planet ( not so alien that it doesnt have a breathable atmosphere mind…) and wanders around. He has a look around and sees an empty tin can (Pepsi I think and no doubt an early product placement).

      I used to think of it as a satire on mankinds tendency to litter now I consider it to be a very prescient critique of future financial policy as this can was a long way into the future.Oh how today’s politician’s must be jealous of the ability to kick it that far!  Although as you point out one can seems very lonely and underpowered these days.

  6. Anonymous says:

    Hi Shaun,

    With reports of a million empty apartments in Spain, the laws of supply and demand suggest the price has a long way to fall.

    If the million apartments were all bank financed at 100% build costs and I assume an average apartment size of 70 sq m, I can estimate the loan amount. At 1400 euro per sq m (estimated developer cost) = 98 Billion.

    Spanish banks took nearly 700 billion in emergency liquidity from the ECB and want another 100 billion for up to now. The question is – where did all that money go ?
    Just what sort of crony loans and outright fraud might we find hidden in the banks bad debts ?

    1. Anonymous says:

      Hi Expat

      The 700 billion euros was for liquidity purposes ( would you want to lend to a Spanish bank? So sources of cash dried up and the ECB behaved like a central bank and replaced it.

      The 100 billion is for capital and represents losses but as your numbers indicate it looks well short of requirements.

      So one lot picked up their footbal and went home such as US money funds whilst that created a cash requirement it also contributed to losses by the Spanish banks.

      As to your last question I fear we may see substantial amounts.

      1. Anonymous says:

        Hi Shaun,

        I’d not keep much money in any bank account, interest is lower than inflation so you get losses in real terms. Right now I’m seeing some fairly cheap property that I think is undervalued – offering chances of profit. But I would say this as I sell property.

  7. Anonymous says:

    Hi Shaun Long time (notayesman) reader first time poster, I’ve always thought your analysis so honest and great, it even seems very logical in a financial/political world that seemed illogical but I really need some analysis on the mervin king (sorry to her magesty for dropping the Sir but he really should be stripped of that) and george osbourne speachs, they are looking to not only give out cash on demand to bank for something that the UK goverment should be doing themselves (supplying sterling to the economy) but also seem to be giving the banks 5billion a month cash to cover there cash flow problems where is this money coming from and why isn’t it being spent in better areas I have read blog posts that this amounts to 15k per individual (not even per household or per working age person). Surely this wouldn’t be to hard a job for the treasure (given a little help from the banks and other lenders) to use this money to pay down pivate debt or if your not in debt to credit your account with. I know the speechs will be part of your next post but I was wanting some analysis of the alternative use for this money.

    Regards

    CookieMonster

    1. Cookie Monster says:

      Greetings, from one cookie monster to another.

      Good work as usual Shaun, thanks.

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