We have more signs of disagreement between the German chancellor and the French president over that proposed scheme to take bank regulatory authority from nation states to the eurobank, and reports of panic in the bank itself.
From Spain, we have warnings that the bank bailout may be twice that of recent estimates and the latest bad unemployment numbers. The Portuguese government has backed down on a proposed social security tax hike [and for good reasons], the French Greens are caklling for a no vote on More Europe while the president’s popularity is plunging, the Bank of England sees light at the end of the tunnel, and then the light grows dimmer.
More signs of Merkel/Hollande tension
While they both profess allegiance to the More Europe mandate the Iron Chancellor’s pushing so vigorously, there’s clearly tension over the banking regulatory scheme that would transfer oversight form nations to the European Central Bank.
Merkel’s under considerable pressure from her own central bank and her own Christian Democrats, both less than eager to relinquish any sovereignty over their money.
Hollande, however, wants the regulations in place now, and in full.
From Agence France-Presse:
French President Francois Hollande insisted Saturday that speed was key in setting up a system of European banking surveillance, despite objections from Germany.
“I support a banking union, it is an important measure and we must proceed step-by-step,” Hollande said after talks with German Chancellor Angela Merkel, stressing such a framework should be in place “the earlier the better”.
Merkel, for her part, said Berlin also backed European oversight of lenders but urged a cautious approach.
“For me it is important that quality is ensured. It is pointless to do something very quickly that in the end doesn’t work,” she said.
“It must be thorough, it must be of good quality and then we’ll see how long it takes. We will get our finance ministers to work with each other on it as quickly as possible.”
One reason for the German reluctance is Spain, where it looks like banks are going to need a lot more cash, and soon.
From Angelo Young of International Business Times:
The cycle of dependence on a central bank that oversees 17 independent banking systems all sharing the same currency has become one of the biggest issues in resolving the euro zone’s banking crisis. Key to stabilizing the euro and holding the monetary union together is getting banks to to sell risky assets at depressed prices or even at losses and to lend more money; basically to go back to their roots as smaller and leaner institutions to reduce threats to the global financial system from the too-big-to-fail syndrome of euro zone banks.
But according to analysts, with the ECB there to offer a cushion, some of the biggest banks in Spain, Italy and France — Banco Santander, S.A. (NYSE:SAN), UniCredit SpA (BIT:UCG) and BNP Paribas SA (EPA:BNP) — have grown rather than shrunk after the ECB decided in December to offer €489 billion. In February it loaned another €530 billion.
But instead of deleveraging, the banks are leveraging.
“The fact that we haven’t got on with (deleveraging), or very slowly, suggests that when the time comes we’ll need another ECB injection to roll over the first one, just to keep the balance sheets of Italian banks in business,” Simon Maughan, bank analyst for Olivetree Securities Ltd. in London told Bloomberg News.
Is the eurobank consumed by panic?
So says the bank’s former chief economist, who also claims the bank boss Mario Draghi is violating the bank’s own rules in funding in its massive bailout program.
Juergen Stark’s a German and a former vice president of the Bundesbank, and he announced his resignation from the European Central Bank earlier this month after months of opposition to Draghi’s agenda.
From Agence France-Presse:
The European Central Bank is in “panic” over the eurozone crisis and acting outside its mandate with its new bond-buying plans, the bank’s former chief economist said in comments published Saturday.
“The break came in 2010. Until then everything went well,” Juergen Stark, the German who resigned from the ECB in late 2011 after criticising its earlier round of buying up of sovereign debt, told Austrian daily Die Presse in an interview.
“Then the ECB began to take on a new role, to fall into panic. It gave in to outside pressure … pressure from outside Europe.”
Stark said the ECB’s new plan to buy up unlimited amounts of eurozone states’ bonds, announced on September 6, on the secondary market to bring down their borrowing rates was misguided.
“Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally,” Stark said.
“It can’t be solved by pressing a button. If the global economy stabilises, the potential for inflation has grown enormously.”
And on to Spain. . .
Spanish bank bailout bigger?
While just last week, folks in Brussels were saying Spanish banks wouldn’t need more than €50 billion to refuel its ailing banks, the latest number appearing in print is twice as much.
The bank bailout isn’t the Spailout, which involved the national government’s debts. Before the smoke settles, a lot of cash is oging to headed to Madrid.
From Louise Armitstead of the London Telegraph:
Spanish banks may need a cash injection of more than €100bn (£80bn), the results of an official stress test are expected to show this week, placing more financial pressure on to an already explosive political crisis in Madrid.
A bank-by-bank test of financial stability due on Friday is expected to conclude that Spain’s lenders are dangerously over-burdened with toxic debts and need to be recapitalised, restructured or shut down.
The stress test is expected to show a dramatic deterioration since the previous tests were carried out at the beginning of the summer which suggested a €60bn cash injection would be the worst-case scenario.
Nomura Global Economics said in a note: “Our initial reaction to the publication of those estimates has been negative. The announced figures are well below the market expectations, which start at around €100bn, and, in our view, not only fall short of bolstering market confidence but may actually increase the risk of Spain losing market access.”
Spain’s long-term jobless quadrupled since the crash
Whenever we encounter such numbers our eyebrows raise. Not because the numbers are so high, but because we suspect they’re actually significantly higher.
Here in the U.S., folks who are out of work so long they give up on finding new work vanish from the statistics, but we don’t know how the Spanish numbers are toted up. Given that politicians are involved, we suspect some tweaking’s inevitable.
From El País:
The ranks of the long-term unemployed have quadrupled since the economic crisis broke in Spain some five years ago, according to a study by the association of temporary employment agencies AGETT, released Thursday.
The report, which takes information from the National Statistics Institute’s Active Population Survey for the second quarter, states that the number of people who have been looking for a job for over a year or more totaled 2.974 million in the period April-June, more than half the total number of unemployed.
The AGETT also noted a big jump in the number of jobless who are over 55 years old. The unemployment of this sector of the labor market climbed from 5.5 percent in the third quarter of 2007 to 16.8 percent in the second quarter of this year. In absolute terms there were 495,700 unemployed in this category, up from 131,700 in the third quarter of 2007.
Spain’s jobless rate at the end of June stood at 24.6 percent, the highest in the European Union and more than double the average in the EU. The rate for workers under 25 years old was over 50 percent. The number of people out of work stood at 5.693 million.
More from Hürriyet Daily News:
The 2012 budget earmarks a 1 percent inflation review – or about 1 billion euros – but inflation is running close to 3 percent, meaning an extra 4 billion euros that would be paid to pensioners in January but booked to the 2012 budget.
The number of impoverished people seeking aid from charity Caritas in Spain tripled between 2007 and 2011 and has topped a million, it said on Sept. 20, reflecting the impact of the financial crisis.
The number of people who asked for aid from Caritas, which organizes food handouts to the poor, rose from 370,000 in 2007, before the worst of the crisis erupted, to 1.01 million last year, Caritas said in a report.
Portugal backs down on social security tax hike
After massive protests and that threat of a military revolt, we suspect discretion was the better part of valor.
From France 24:
In an about-face, Portugal’s government has agreed to negotiate alternative solutions to a social security tax hike that sparked the worst backlash to austerity since last year’s EU/IMF bailout, an official statement said on Saturday.
After an eight-hour meeting of the presidential state council that was besieged by protesters and ended long after midnight on Saturday, the council said the negotiations would now proceed between the government, unions and employers.
On Friday, Prime Minister Pedro Passos Coelho promised to “listen to the country” after huge street protests last weekend and criticism of the plan by unions and business leaders alike. He had previously only agreed to “calibrate” the measure.
The plan to raise the contributions in 2013 to 18 percent from 11 percent has undermined a reluctant acceptance of austerity in Portugal, increasing pressure on the government as it strives to meet the strict conditions of the bailout.
And on to France. . .
French Greens call for no on More Europe vote
While Hollande’s cabinet has given the go-ahead on that European Stabilization Mechanism and the accompanying fund, the final decision’s up to the legislature.
Now the Greens, a party that holds two posts in Hollande’s cabinet, is calling on its legislators to cast no votes on the first step towards More Europe.
From Radio France Internationale:
France’s Green Party (EELV) has called on its MPs to vote against the European fiscal treaty when the Socialist-led government asks parliament to ratify it, even though two of its members are ministers. President François Hollande’s government will probably have to rely on the right-wing opposition’s votes for the pact to be accepted.
The Greens’ national committee on Saturday passed a motion “recommending” that the movement’s 17 National Assembly members and 12 Senators vote against ratification of the treaty.
The resolution declared that the strict application of the treaty would “not provide a lasting solution to the crises currently facing the European Union and constitutes an obstacle to ecological transition”.
It also called for the postponement of the target of reducing France’s budget deficit to three per cent of GDP and called for support for planned Europe-wide trade union protests against the pact.
The party’s elected representatives are not obliged to accept the committee’s advice but Green MP Sergio Coronado has said that “only two or three” favour voting for the treaty.
Reaction was quick to follow in the form of the resignation of the party’s most famous member.
From Lionel Laurent of Reuters:
European lawmaker Daniel Cohn-Bendit revoked his membership of the French Greens on Sunday in protest at the party’s decision to oppose the ratification of the European Union’s budget discipline pact.
The move threatens to rob the Europe-Ecologie Party of one of its most recognizable deputies – known for his rabble-rousing during 1968 student riots in Paris – and may exacerbate tensions within the group, which supports France’s Socialist-led government and has two ministerial posts.
>snip<
“Yesterday’s federal council was dramatic. Dramatically pathetic,” Cohn-Bendit told French television station i-Tele.
“I’ve decided to suspend my participation in this movement. It’s clear to me that deep down, things are finished between me and Europe-Ecologie.”
Cohn-Bendit, nicknamed “Danny the Red” for his student activism, has served as deputy for French Green parties since 1999 and is co-president of the European Parliament’s Greens group.
Cohn-Bendit was a folk hero to student activists on both sides of the Atlantic back in 1968, that seminal last glory year of the left for students on campus in the U.S. and Europe.
Byut now he’s come down on the side of international banks and brokers. How sad.
Hollande’s popularity plunges
The “socialist” [sic] president elected with almost 52 percent of the vote in May is now scoring well below that number in the latest poll of French voters.
Given his embrace of Merkelism, it’s not surprising.
From Kim Willsher of The Guardian:
François Hollande’s popularity has plummeted just four months after he took office, according to the latest opinion poll.
The survey found only 43% of French voters were happy with the Socialist president. The drop of 11 percentage points is one of the worst for a leader in more than 50 years since the start of the fifth republic.
The poll by the Ifop organisation for the Journal du Dimanche found 56% of those asked said they were not happy with the president. The Ifop findings were backed up by two other opinion polls.
Asked about his disastrous ratings during a press conference with the German chancellor, Angela Merkel, on Saturday, Hollande replied: “I ask to be judged on results and these will take time.
“We find ourselves in a difficult situation in Europe. There’s a crisis, weak growth, unemployment … my duty is to ensure that by the end of my mandate France is in a better state than it was at the beginning.”
And, to close, Britain. . .
Bank of England sees light at the end of the tunnel
Will they never learn?
Every time a pol sees that glowing tunnel terminus, disaster follows.
The latest to bask in the glow of the illusive illumination hails from the Gray Lady of Threadneedle Street,
From Julian Knight of The Independent:
There is now “light at the end of the tunnel” for the UK economy, according to the Bank of England.
Spencer Dale, one of the Bank of England’s key rate-setters, made his prediction of a return to growth in the later part of the year, backing Governor Mervyn King’s comments in a rare TV interview that there were definitely “signs of a slow recovery”.
The Bank’s comments will give embattled Chancellor George Osborne – who yesterday faced a worse-than-expected public borrowing figure that set an August record of £14.4bn – a welcome boost, coming ahead of a week of what is predicted to be better news for the UK economy.
Mr Dale said on a visit to eastern England that there were encouraging signs that business is able to borrow again from the banks following the BoE’s £80bn Funding for Lending scheme launched in August.
And then the light grows dimmer
The cause is that flood of red ink emanating from the latest British budget numbers.
From Rachel Cooper of the London Telegraph:
Britain could be heading for a bigger budget deficit next year than crisis-hit Greece and Spain, according to research by Morgan Stanley.
Economists at the investment bank calculated that Britain’s budget deficit could total £126bn, or 7.8pc, of gross domestic product in 2013-14.
That would make Britain’s the highest projected European deficit, with Morgan Stanley predicting that Greece’s would stand at 6.3pc and Spain’s at just under 6pc. The Office for Budget Responsibility currently predicts that Britain’s budget deficit could be £98bn next year, or 5.9pc of GDP.
Morgan Stanley’s forecasts underline the pressure on Chancellor George Osborne efforts to cut the deficit, as official figures last week showed that government borrowing for the first five months of the financial year was running at more than 25pc over target.
