19th Jul - Weekender: Best of the Week

The best articles from the ending week. Last week’s ‘best’ here.

This was supposed to be a relatively interesting week, but not much happened after all. China reported relatively low GDP numbers, US macro releases were also relatively weak, Federal Reserve's Bernanke gave a testimony but provided no new clues. Europe released montly current account balances, and it looks like that for a long, long time, countries excluding Germany are also making positive balances. To what extent this is just a reflection of the weak import demand, remains to be seen.

 

EUROPE

The Eurozone is on the verge of repeating Japan's lost decade – Sober Look

Who pays the bills in a banking union? – euobserver

Lonely Struggle: Wolfgang Schäuble's Fight to Save Europe – Spiegel

Germany's Wolfgang Schäuble wants Europe to be his legacy. But his efforts to reform the EU and save the euro face many obstacles. One of them is his boss, Chancellor Angela Merkel.

The Eurozone’s Founding Mistake – mainly macro

It really was predictable. Take away the ability to control national interest rates, and you create a potential for patterns of demand to diverge, leading to movements in competitiveness that would have to be painfully unwound later on. The good news was that you could use countercyclical fiscal policy to moderate these movements - an entirely conventional macroeconomic idea. But it was not what the architects of the Euro wanted to hear.

Dutch disease with a new meaning – Nordea (pdf)

The Netherlands is going through a painful balance sheet recession and the outlook remains cloudy. Fiscal policy is tight up to now. While we consider a complete policy u-turn unlikely, we do expect the Dutch government to move towards somewhat less austerity after the summer break.

3 Numbers to Watch: German PPI, EU roundtable, Spanish housing – TradingFloor

As Germany's producer price index is today's only notable release, I'll take a deeper look at Spain's housing bust and the recent political manoeuvring towards a transfer union in Europe.

EU27 current account surplus 29.1 bn euro – Eurostat (pdf)

Euro area trade closes in on new milestone – TradingFloor

Mads Koefoed: The trade situation continues to improve in the euro area. In May, just the second trade surplus excluding Germany was posted this side of the global recession, and the trend points to a full-year trade surplus for the first time since 2004.

  IMF, TROIKA

Charlemagne: Lessons from Lagarde – The Economist

When the euro crisis began in 2010, Germany insisted that the IMF should be brought in as an enforcer: to be tough with the ill-disciplined Greeks and put steel into the soft-hearted European Commission. Three years later the fund is dispensing tough love not just to bailed-out countries but to the euro zone itself.

A Eurozone-wide IMF programme could save both – re-define

All of this may just be acceptable, if the EC and ECB led ‘Troika’ programs were actually working, but they are failing. Recent commentary that 'the Eurocrisis is back' is not accurate; the crisis had never gone away.

EU commissioner calls for troika to be abolished – Reuters

EU Justice Commissioner Viviane Reding called on Tuesday for the "troika" of the European Commission, the European Central Bank and the International Monetary Fund (IMF) to be dissolved.

  ECB

How to limit the ECB’s OMT? – voxeu.org

How well has OMT done? This column attempts to temper Mario Draghi’s recent plaudits that “it’s really very hard not to state that OMT has been probably the most successful monetary policy measure undertaken in recent times”. Yes, OMT should provide unlimited liquidity to troubled countries, but not at the expense of necessary structural reforms. The ECB should cover Eurozone countries’ current expenditures, but should not pay off all long-term debt holders. That way, capital markets will be disciplined and incentives for implementing economic reforms will be maintained.

Forward guidance, the ECB way – alphaville / FT

That’s comforting unless you consider Steen’s point “that the ECB council may know or fear something about the economy we do not, which is why it managed to convince the hawks to back forward guidance.”

ECB Will Ease Some Collateral Rules To Boost Credit For Small Businesses – WSJ

Annals of retention and the ECB – alphaville / FT

ECB now accepts ABS with a lower credit rating and at a lower haircut… It could mean another €20bn of collateral eligible to post at the ECB for funding,

  PIIGS

Portugal's socialists walking the nation toward debt restructuring – Sober Look

Portugal's socialist party is now leading in opinion polls, making this potential renegotiation of the bailout terms a reality. At some point however, Portugal's creditors will run out of patience and the political will to allow the nation to slip yet again.

The Painful Truth: Greece Needs a Debt Haircut Now – Spiegel

German Finance Minister Wolfgang Schäuble visited a ghost town in Athens on Thursday. The only thing left that can help Greece pull itself out of the crisis is a debt haircut by public creditors. Anything else is reckless.

UNITED STATES

  FED

The Fed's latest dilemma – Sober Look

We are likely to see the Fed even more divided going forward, adding to more uncertainty and frustration by investors (including those outside the US) as well as the public.

The Bernanke doctrine and the separation between forward guidance and tapering – Bruegel

In the US, a somewhat forgotten intellectual distinction between forward guidance and asset purchases has resurfaced following the June 19 FOMC talks of tapering. Until recently, the Fed had a precise state-dependent threshold for the future lift-off in short-term interest rates, but wasn’t specific about the timing for the tapering of its asset purchases. By providing specific forward guidance about asset purchases, the Fed has attempted to establish a distinction between these two tools. This has proven easier said than done.

ASIA

China’s GDP and the investment factor – alphaville / FT

As Capital Economics observed on Monday, the bad news about the data really is that China’s economy shows no signs of weaning itself off its reliance on investment.

China GDP: where’s the demand? – beyondbrics / FT

So is there anything positive to take from the GDP numbers? On the face of it, not much. As Simon Rabinovitch wrote in the FT, China’s economy is “weighed down by faltering exports, sluggish retail sales and softer investment.”

Monitor: Chinese credit crunch – Danske Bank (pdf)

Chinese money market rates have continued to decline and shorter maturities have now closed to normalised levels.

China Engineers a Credit Crisis to Deleverage Shadow Banking – EconoMonitor

No doubt there is real and financial pain in China right now, but perhaps some moral credit is owed to the Chinese leadership for deflating asset bubbles before they burst. Recent experience tells us that a sudden leverage deflation after a very long expansion would be far more painful and prolonged.

IMF Article IV Consultation: People’s Republic of China – IMF

China defies IMF on mounting credit risk and need for urgent reform – The Telegraph

Japan and the liquidity trap – Noahpinion

Before the liquidity trap paradigm takes its place as the dominant paradigm of mainstream macro, it needs to be fleshed out and explored in many ways. And we do not yet know enough about liquidity-trap macro to be confident that it explains Japan.

OTHER

How do you restructure a contingent liability? – Felix Salmon / Reuters

European countries especially have turned to sovereign guarantees as a way of masking the true size of their national debt. Many of these guarantees, once upon a time, would have simply been sovereign loans: the nation would have borrowed the money, and then lent it on, at a modest profit, to the borrower. But European countries want to do everything in their power not to borrow money right now.

History repeats itself, financial-regulation edition – Felix Salmon / Reuters

The long-term outlook remains exactly the same as it did in 1998: at the margin, the administration — no matter whether it’s Republican or Democrat — is going to help the financial industry be “internationally competitive”. Which is another way of saying domestically dangerous.

FINNISH

Eurokriisin vastuuta ei saa siirtää – Sampo Terho

Kuinka paljon maksaa yksi EU-komissaarinvirka suomalaisille veronmaksajille? – tyhmyri

Ykkösaamu: Suomen talous vaappuu – YLE Areena

Pasi Holm: Talouden pudotusvauhti yllättänyt, hallitukselta sopeutuksia heti – Verkkouutiset

Taloustutkija Pasi Holmin mukaan hallituksen on tehtävä päätöksiä julkisen sektorin sopeuttamistoimenpiteistä nopeasti vielä kesän tai syksyn aikana.

"Pohjois-Euroopan maiden kasvatettava yksikkötyökustannuksiaan" – Verkkouutiset

SAK:n pääekonomistin Olli Kosken mukaan Pohjois-Euroopan maiden pitäisi kasvattaa yksikkötyökustannuksiaan, jotta Euroopan sisäiset kilpailukykyerot tasoittuisivat.

SK: Jyrki Katainen lähdössä EU-komissaariksi – Uusi Suomi

Vallanvaihto – SK

Pääministeripuolueenvetovoima hiipuu. Kokoomuksessa mietitään jo, kuka korvaa Jyrki Kataisen.

IL-kysely: Suomalaiset uskovat euroalueen hajoavan – Iltalehti

Suurin osa suomalaisista uskoo nykyisen euroalueen hajoavan viidessä vuodessa, selviää Iltalehden teettämästä kyselystä.

Mitä asuntokuplaan vaaditaan? – Henri Myllyniemi / US Puheenvuoro

EU kiertää sääntöjään – Risto Pennanen / TalSa

Pk-yritysten luottojen yhteistakaus ja arvopaperistaminen vesittäisivät tavoitteen parantaa luottoriskien hinnoittelua.

Kauppalehti: Asuntokaupat lähes puoleen Helsingin, Espoon ja Vantaan alueella – Verkkouutiset

Danske Bankin Uotila: Talous nousuun jo syksyllä – MTV3

Danske: Asuntokupla ei näytä uhkaavan Suomea – TalSa

Danske Bank arvioi, että Suomessa ei ole kovin suurta asuntokuplan riskiä. Pankin tutkimusosasto perustelee markkinakatsauksessaan näkemystään sillä, että asuntojen hinnat ovat pääsääntöisesti nousseet samaa tahtia kuin ansiot.

Ekspansiivisen rahapolitiikan pääefekti on sisämarkkinoilla – Japani ja mutinoita euron pelastamisesta – tyhmyri

Liittovaltiota tulonsiirtoineen pukkaa – Li Andersson ja vaihtotaseylijäämien verotus – tyhmyri

Bryssel: IMF:n rahat kelpasivat, neuvot eivät. – Juhani Huopainen / US Puheenvuoro