Showing posts with label France. Show all posts
Showing posts with label France. Show all posts
December 27, 2020
August 11, 2020
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September 20, 2016
August 7, 2012
The Great European Divide
If the recent quarrel between Italy and Germany is a clear signal that political divisions are growing in the dysfunctional Euro family, the graphs below from Goldman Sachs clearly illustrate how the economic divide is already there and widening by the day.
I have highlighted some parts of the report which sound an alarm bell for the month to come.
Goldman Sachs: Focus: Europe’s ‘red line’: Segmentation of the Euro interbank market is significant
Bottom line: A ‘red line’ has descended across Europe, running along the Pyrenees and the Alps. Banks south of this line have difficulty accessing Euro interbank markets, whereas banks north of that line remain better integrated and retain market access. As Mr. Draghi emphasised at last week’s ECB press conference, this segmentation is interfering with monetary policy transmission and thus affecting macroeconomic outcomes. Monitoring the intensity and geographical location of the ‘red line’ will remain crucial going forward, not least to assess the effectiveness of the policy measures announced by the ECB last week.
The charts are presented in the form of heat maps: ‘hot’ colours (red) reflect a high degree of financial interaction, whereas ‘cold’ colours (blue) point to financial isolation.
In 2008 Q1 before the failure of Lehman, integration of Euro interbank markets was high: i.e. Chart 1 is predominantly red. With the notable exception of Greece, banks in all Euro area countries have significant claims on all other Euro area countries. Ireland, Spain and Italy are all well-embedded into the Euro interbank markets.
In 2012 Q1 as the European sovereign crisis has intensified, integration has broken down: i.e. Chart 2 is predominantly blue. In particular, the three programme countries (Greece, Portugal and Ireland) have become isolated. Spain (and to a lesser extent Italy) are also drifting towards greater isolation, whereas among Germany, France and the Netherlands integration remains significant, albeit still diminishing.
A ‘red line’ has emerged in Euro interbank markets – and is shifting northwards. To draw on the credit rationing literature in economics, banks in the periphery have been “red-lined”, i.e. simply on account of their residency, they are being excluded from the Euro interbank markets.
This red line has long isolated the program countries. And it is now moving northwards: Italy and (especially) Spain are vulnerable. A ‘red line’ running along the Pyrenees and Alps cleaves the big-4 countries at the heart of the Euro area in two. Given the deep recessions being suffered in Spain and Italy, the implications for borrowers and the real economy – as well as for the ability of monetary policy to ease tight financing conditions – are self-evident.
Source: Goldman Sachs
I have highlighted some parts of the report which sound an alarm bell for the month to come.
Goldman Sachs: Focus: Europe’s ‘red line’: Segmentation of the Euro interbank market is significant
Bottom line: A ‘red line’ has descended across Europe, running along the Pyrenees and the Alps. Banks south of this line have difficulty accessing Euro interbank markets, whereas banks north of that line remain better integrated and retain market access. As Mr. Draghi emphasised at last week’s ECB press conference, this segmentation is interfering with monetary policy transmission and thus affecting macroeconomic outcomes. Monitoring the intensity and geographical location of the ‘red line’ will remain crucial going forward, not least to assess the effectiveness of the policy measures announced by the ECB last week.
From hot to cold: The periphery is being frozen out. Charts 1 and 2 show the row country’s bank claims on the column country’s banks, in 2008 Q1 and 2012 Q1 respectively. The numbers capture these claims expressed as a percentage of the column country’s (quarterly) GDP in 2008 Q1. Of course, representing the data in this form is not a neutral choice. But the basic insights revealed are not sensitive to our choice of scaling variable.“… financial fragmentation hinders the effective working of monetary policy”. Mr. Draghi’s comments at last week’s ECB press conference have placed the segmentation of Euro financial markets at centre stage. In this daily, we explore the nature of that fragmentation, focusing on the Euro interbank markets.
The charts are presented in the form of heat maps: ‘hot’ colours (red) reflect a high degree of financial interaction, whereas ‘cold’ colours (blue) point to financial isolation.
In 2008 Q1 before the failure of Lehman, integration of Euro interbank markets was high: i.e. Chart 1 is predominantly red. With the notable exception of Greece, banks in all Euro area countries have significant claims on all other Euro area countries. Ireland, Spain and Italy are all well-embedded into the Euro interbank markets.
In 2012 Q1 as the European sovereign crisis has intensified, integration has broken down: i.e. Chart 2 is predominantly blue. In particular, the three programme countries (Greece, Portugal and Ireland) have become isolated. Spain (and to a lesser extent Italy) are also drifting towards greater isolation, whereas among Germany, France and the Netherlands integration remains significant, albeit still diminishing.
A ‘red line’ has emerged in Euro interbank markets – and is shifting northwards. To draw on the credit rationing literature in economics, banks in the periphery have been “red-lined”, i.e. simply on account of their residency, they are being excluded from the Euro interbank markets.
This red line has long isolated the program countries. And it is now moving northwards: Italy and (especially) Spain are vulnerable. A ‘red line’ running along the Pyrenees and Alps cleaves the big-4 countries at the heart of the Euro area in two. Given the deep recessions being suffered in Spain and Italy, the implications for borrowers and the real economy – as well as for the ability of monetary policy to ease tight financing conditions – are self-evident.
Source: Goldman Sachs
June 14, 2012
Redemption or Damnation for the Eurozone
News have emerged yesterday of a possible change of mind of Angela Merkel on the famous Euro Redemption Fund which could amount to 2.3 trillion euro.
For those unaware of what is this, let us point out it is not a bailout mechanism like the EFSF which has failed miserably so far to avert contagion.
The Redemption Pact covers all public debts of EMU states above the Maastricht limit of 60pc of GDP, roughly €2.3 trillion.
The idea is to put all the excess debt above 60% GDP in a bad bank and allow each country to pay it down over twenty years.
Each state would be responsible for its own debt and would be forced to pay it back by its own means in specific Italy would have to repay €960bn, Germany €580bn, France €500bn and so forth -- but they would issue bonds jointly in order to obtain the most favourable rating and interest rate.
The debt would be covered by joint bonds, paid for from a designated tax.
Officials at Germany's top court say it appears compatible with the country's constitution -- unlike eurobonds. There would be a fixed limit to costs and the fund would not endanger the tax and spending sovereignty of Germany.
Italy and other states would have to pledge gold and other forms of collateral equal to 20pc of their debt in the fund.
"The assets could be taken from the country's currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations," said the proposal.
Germany would have veto power therefore would be able to ensure discipline in a way that it cannot do with the European Central Bank where it has just two votes.
The fund would entail sacrifices for Germany since it would no longer enjoy safe-haven borrowing costs and it would probably costs Berlin 0.6pc of GDP each year.
It seems a nice and fair plan in principle although I feel that some considerations are due.
It will certainly placate the markets for some time letting many States breath some fresh air for a while, but it will not address what is the core issue of the Eurozone a currency union without a fiscal and political union able to enforce common rules and it will exacerbate rather than mitigate the painful issue of austerity without growth. Countries will enslave themselves to a brutal plan of 20 years of debt repayment with no possible negotiation that will have to be enforced regardless of any consideration on the state of their economies. It will be for debtors the same of swapping the debt repayment from a bank to a shylock.
Austerity will become even more brutal on heavily indebted countries this will be only marginally relieved from the lower interest rates brought from the joint bonds.
It will be an insidious institutionalized indenture service for Club-Med and a de-facto seize of power of Germany who will keep on the hook the entire continent for 30 years.
Local politicians in Italy, Greece and Spain will become useless caretakers with no real budget power since a big chunk of it will go either as collateral or as repayment to the Redemption Fund.
The Redemption Fund in those terms will become the biggest CDS ever conceived where trash bonds such as the Italian, Greek and Spanish will be bundled together with German and given a triple A.
It will be interesting to see who will purchase those bonds at least until this fund will be attacked by speculation after some time.
Maybe it is a less painful measure in the short time for Europe than pursuing either an exit of indebted countries from the Eurozone or a closer and more disciplined union but it is again a less insufficient response to the core issues of the Eurozone. Can is being kicked down the road again.
For those unaware of what is this, let us point out it is not a bailout mechanism like the EFSF which has failed miserably so far to avert contagion.
The Redemption Pact covers all public debts of EMU states above the Maastricht limit of 60pc of GDP, roughly €2.3 trillion.
The idea is to put all the excess debt above 60% GDP in a bad bank and allow each country to pay it down over twenty years.
Each state would be responsible for its own debt and would be forced to pay it back by its own means in specific Italy would have to repay €960bn, Germany €580bn, France €500bn and so forth -- but they would issue bonds jointly in order to obtain the most favourable rating and interest rate.
The debt would be covered by joint bonds, paid for from a designated tax.
Officials at Germany's top court say it appears compatible with the country's constitution -- unlike eurobonds. There would be a fixed limit to costs and the fund would not endanger the tax and spending sovereignty of Germany.
Italy and other states would have to pledge gold and other forms of collateral equal to 20pc of their debt in the fund.
"The assets could be taken from the country's currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations," said the proposal.
Germany would have veto power therefore would be able to ensure discipline in a way that it cannot do with the European Central Bank where it has just two votes.
The fund would entail sacrifices for Germany since it would no longer enjoy safe-haven borrowing costs and it would probably costs Berlin 0.6pc of GDP each year.
It seems a nice and fair plan in principle although I feel that some considerations are due.
It will certainly placate the markets for some time letting many States breath some fresh air for a while, but it will not address what is the core issue of the Eurozone a currency union without a fiscal and political union able to enforce common rules and it will exacerbate rather than mitigate the painful issue of austerity without growth. Countries will enslave themselves to a brutal plan of 20 years of debt repayment with no possible negotiation that will have to be enforced regardless of any consideration on the state of their economies. It will be for debtors the same of swapping the debt repayment from a bank to a shylock.
Austerity will become even more brutal on heavily indebted countries this will be only marginally relieved from the lower interest rates brought from the joint bonds.
It will be an insidious institutionalized indenture service for Club-Med and a de-facto seize of power of Germany who will keep on the hook the entire continent for 30 years.
Local politicians in Italy, Greece and Spain will become useless caretakers with no real budget power since a big chunk of it will go either as collateral or as repayment to the Redemption Fund.
The Redemption Fund in those terms will become the biggest CDS ever conceived where trash bonds such as the Italian, Greek and Spanish will be bundled together with German and given a triple A.
It will be interesting to see who will purchase those bonds at least until this fund will be attacked by speculation after some time.
Maybe it is a less painful measure in the short time for Europe than pursuing either an exit of indebted countries from the Eurozone or a closer and more disciplined union but it is again a less insufficient response to the core issues of the Eurozone. Can is being kicked down the road again.
May 8, 2012
May 2, 2012
April 15, 2012
April 10, 2012
April 7, 2012
March 29, 2012
March 28, 2012
March 25, 2012
March 23, 2012
March 17, 2012
March 16, 2012
March 15, 2012
March 14, 2012
March 11, 2012
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