Oh, there’s a hole in my bucket, dear Liza, a hole……

Wenn der Beltz em Loch hat -
stop es zu meine liebe Liese
Womit soll ich es zustopfen -
mit Stroh, meine liebe Liese

According to Angela Merkel, speaking in the German city of Mainz in mid February,  European countries struggling with the fallout of the euro-area debt crisis have much to learn from East Germany’s experience with economic overhaul following the fall of the Berlin Wall. In the main she was speaking about the need for reform, something on which we can all agree. “At the beginning of the 21st century”, she said, “Germany was the sick man of Europe and that we are where we are today also has to do with reforms we carried out in the past. That’s why we can say in Europe that change can lead to good.”

But there was one tiny little detail she forgot to mention. During the post unification period East Germany’s population went into melt-down mode. Continue reading →

Spain’s political leaders are in cheerful, almost jubilant, mood at the moment. Economy minister Luis de Guindos, speaking in Davos, declared the tide had turned, and forecast that the Spanish economy would return to growth in the second half of 2013.

“The perception of the Spanish economy has improved and will continue to do so over the coming weeks and months,” he told his audience at the World Economic Forum. In similar vein, he told Spanish journalists in Moscow last weekend that Spain’s economy no longer being a key theme at G20 meetings was another welcoming sign of the times.

As ever, Spain’s economy sage is hedging his bets – earth shattering the growth will not be, but grow the economy will, this is his mantra. Put another way, the bottom in Spain’s economic collapse has now been passed. From here on in the road may be winding, but it will be up. Perhaps, he suggested, the economy will be stationary in the third quarter, and then we will see growth, albeit ever so slight, in the fourth one. And quite possibly he is right. The core of the issue is not whether the country could see one, or even two, quarters of positive performance, but whether any faltering recovery will be sustained out into the future, through 2014 and beyond. It is here that all the old doubts really emerge. Continue reading →

It’s amazing what you can achieve these days just by promising to do something. It’s also fascinating to watch just what a storm you can stir up.

Last July Mario Draghi surprised markets when he  vowed to do anything – whatever it would take – to save the Euro. He didn’t go into details, he didn’t really need to. He simply informed his audience that whatever he did it would be enough. What I suppose no one – not even Mr Draghi himself -  imagined at the time was that doing precisely nothing would turn out to be sufficient. Yet since that time that is just what has happened, he has done nothing, nothing whatsoever – no bonds have been purchased and no country has even asked for aid. So to date this verbal style intervention has been exactly what he said it would be, enough. Continue reading →

by Claus Vistesen and Edward Hugh

According to Wikipedia, in complex analysis an essential singularity of a function is a “severe” singularity near which the function exhibits extreme behavior. The category essential singularity is a “left-over” or default group of singularities that are especially unmanageable: by definition they fit into neither of the other two categories of singularity that may be dealt with in some manner – removable singularities and poles.

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No need to panic, a lot of analysts tell us, since far from being on the verge of some earth shattering event Japan  has invented the economic equivalent of a mechanical perpetual motion machine. Or as Nobel economist Paul Krugman put it recently, “while there is much shaking of heads about Japanese debt, the ill-effects if any of that debt are by no means obvious”. Maybe there is just one word missing here – yet. Continue reading →

The exact origins of the expression are unknown. They are lost back then, somewhere in the mists of time. But the meaning of the phrase is perfectly intelligible. In Spanish “to end up like the Rosario De L’Aurora” (acabar como el rosario de la aurora), means to end up badly. Very badly. The Rosario in question is a procession (of the kind to be seen in this YouTube video) and aurora here is not a woman’s name, but the Spanish word for dawn. According to legend, the procession which gave birth to the phrase was characterised by a dispute which developed into an outright brawl during which all those precious sacred artifacts being carried by the devout got unceremoniously destroyed. Continue reading →

Market nervousness about Italy has been growing in recent weeks, with the Moody’s credit downgrade of the country being only  one of the reasons. A bailout is clearly in the offing, with the only real questions being how and when. While the situation inside his country appears to be deteriorating, Mario Monti has been doing the rounds of European capitals in an attempt to drum up support. While in Helsinki he raised an eyebrow or two when he warned that without a serious plan to bring down interest rates disaffection with the euro in his country could easily grow to dangerous proportions. Crying wolf, or a piece of insider information? Probably a bit of both. Continue reading →

The recent decision by the Portuguese constitutional court to unwind public sector salary cuts included by the government in its austerity measures has once more given rise to speculation the country may not meet it’s 4.5% deficit target for 2012. The court – which ruled the non-payment of the two traditional Christmas and Summer salary payments for the years through 2014 was unconstitutional took the view that since the measure did not also apply to the private sector, it was discriminatory. Whatever view we may take on how the Portuguese Constitution defines “discrimination” the important detail to note is that the decision will not apply to 2012, and will hence only have the impact of forcing the government to find additional adjustments for 2013 and 2014, or at least a new formulation which allows them to constitutionally cut public sector pay.

Nonetheless, despite the fact it will not affect this years fiscal effort the coincidence of the timing of the court decision with the appearance of a report from the parliamentary commission responsible for monitoring the execution of this years budget only served to heighten nervousness about the possibility that, with unemployment rising more sharply than anticipated and the economic recession still accelerating, this year’s deficit numbers may not add up as planned. Continue reading →

The Times They Are A Changin, as the old song goes. Neither in jest nor in total earnest was a truer word ever said in terms of the 2 year old Euro Debt Crisis. The to-ing and frow-ing we have seen over the last few days as commitment to decisions taken at the recent summit started to wobble only serve to underline how hard it is at times to change. These days I have no central “Euro” scenario. Only tail scenarios exist, under which the debt crisis veers in either one direction or the other according to the decisions taken or the absence of them. Naturally this makes the eventual outcome very hard to foresee, which is why the financial markets are having such a hard time of it, and why we see so much volatility.

In the case of the full banking, political and fiscal union scenario the efficient causes which could make it happen are obvious: just keep the various participants looking down into the abyss often enough and long enough. In the case of complete breakup things are rather different, since it is hard to concretise what would actually bring it about, although the risk is evident, and indeed in many ways it seem a more probable end point than the other one.

After thinking about this for some time, the conclusion I have reached is that it is towards political risk, and the progressive destabilizing of Europe’s democratic systems, that we need to look, which is what makes recent events in Romania look like something rather more than a mere historical footnote. Continue reading →

The ECB’s Financial Stability Review for June 2012 is an interesting read. There’s a wealth of data and risk analyses. And one strange blind spot. Chapter III has a discussion of the market conditions for the issuance of senior unsecured bank debt. This market is at a trickle, which shows that whatever the reason the ECB has for insisting Ireland service legacy debt of this type in insolvent banks, it’s not to keep the current market open. Anyway, the chapter contains an extended box on the problem — as the review sees it — of rising asset encumbrance.

Continue reading →

A piece about the French expat community in London, titled “London, France’s sixth biggest city”, is the most shared article on the BBC News website as I begin to write this post.

That such an article would be popular among BBC News readers is not surprising: the idea of French people crossing the Channel en masse to find a more vibrant, fluid and color-blind society, and staying there despite the mediocre weather and exorbitant rents, is appealing to both London fans and French bashers alike. (The view that French people move to London because it’s the closest large English-speaking city is not mentioned)

What’s more baffling is why the BBC News Magazine editors, who had recently shown a laudable willingness to take oft-repeated but bogus factoids to task, would decide to publish a piece based on such a worthless piece of statistics.

For the idea that “between 300,000 and 400,000 French citizens live in the British capital” is just plain laughable.
Continue reading →