The document discusses the economic policies and challenges facing countries in the Eurozone. It outlines the divergence between the US approach of stimulus spending and Europe's emphasis on austerity packages to reduce budget deficits. Several Eurozone countries have announced austerity measures totaling €230 billion by 2013, but €70 billion more may be needed. Even with successful implementation of austerity, public debt for the Eurozone is projected to rise to 92% of GDP by 2013. Spain is identified as particularly vulnerable due to uncompetitive costs, large trade and budget deficits, high unemployment, and high levels of foreign debt holdings.
Ivo Pezzuto on the EU integration Process: "More Catalonias to Come. Spain a ...Dr. Ivo Pezzuto
It is a system that rewards the most competitive countries such The Eurozone is an economic area and its closer integration rewards the stronger and more competitive economies while it penalizes the weaker ones without mechanism of stronger integration, risk sharing, social cohesion, fiscal transfer, and the effective implementation of structural reforms to boost the weaker countries level of productivity and competitiveness.
The country’s imbalances are not primarily the result of demographics, lack of competitiveness and loss
of macroeconomic policy autonomy on joining the euro, or cheaper investment goods. Rather, they reflect political choices: the government’s drive to balance the budget; reforms that undermined labour’s bargaining power; a highly unequal distribution of wealth; and too much taxation of consumption and too little of corporate profits, wealth and property.
The recession that started in 2008 caused a sharp deterioration of the budget balance of Spain. This decline was not fully anticipated by the structural budget balance due to some methodology limitations.
In this article, we calculate an alternative structural balance for Spain in the years prior to the subprime crisis that includes residential investment as an explanatory variable. This estimate shows that by 2004 the Spanish fiscal situation was not as strong as presumed. This fragility was hidden by the extraordinary revenue from the real estate bubble and the construction boom.
Ivo Pezzuto on the EU integration Process: "More Catalonias to Come. Spain a ...Dr. Ivo Pezzuto
It is a system that rewards the most competitive countries such The Eurozone is an economic area and its closer integration rewards the stronger and more competitive economies while it penalizes the weaker ones without mechanism of stronger integration, risk sharing, social cohesion, fiscal transfer, and the effective implementation of structural reforms to boost the weaker countries level of productivity and competitiveness.
The country’s imbalances are not primarily the result of demographics, lack of competitiveness and loss
of macroeconomic policy autonomy on joining the euro, or cheaper investment goods. Rather, they reflect political choices: the government’s drive to balance the budget; reforms that undermined labour’s bargaining power; a highly unequal distribution of wealth; and too much taxation of consumption and too little of corporate profits, wealth and property.
The recession that started in 2008 caused a sharp deterioration of the budget balance of Spain. This decline was not fully anticipated by the structural budget balance due to some methodology limitations.
In this article, we calculate an alternative structural balance for Spain in the years prior to the subprime crisis that includes residential investment as an explanatory variable. This estimate shows that by 2004 the Spanish fiscal situation was not as strong as presumed. This fragility was hidden by the extraordinary revenue from the real estate bubble and the construction boom.
TREND OF GERMAN’S NATIONAL BUDGET IN EURO AND DOLLAR AND ITS EFFECT ON GERMANY POLITICAL WEIGHT
http://iilss.net/
http://maynter.com
GERMAN’S MUST WORKING ON MENTAL ELEMENT’S OF POWER (ANALYSIS OF GERMANY GOVERNMENTAL WEIGHT)
A GOOD MODEL FOR INSPIRATION (GERMANY POLITICAL WEIGHT INDEX TREND)
Greece's crisis deepens as fast as its debt. 2011 budget execution is terrible with tax receipts well below plans, and there is no way Greece will get out the crisis without defaulting on its debt obligations one way or an other (the latest idea is to call it "reprofiling"!) .
Eurozone, macro economic imbalances and the bailoutMarkets Beyond
European imbalances at a glance and a new measure of the fragility of countries according to their debt and budget deficits. Greece will need to restructure its debt
Since the publication in July of stress test for banks in Europe, everything went quiet on the PIGS debt crisis with no much news during the summer. Things however are boiling again and Greek will come back to the forefront of medias sooner rather than later.
TREND OF GERMAN’S NATIONAL BUDGET IN EURO AND DOLLAR AND ITS EFFECT ON GERMANY POLITICAL WEIGHT
http://iilss.net/
http://maynter.com
GERMAN’S MUST WORKING ON MENTAL ELEMENT’S OF POWER (ANALYSIS OF GERMANY GOVERNMENTAL WEIGHT)
A GOOD MODEL FOR INSPIRATION (GERMANY POLITICAL WEIGHT INDEX TREND)
Greece's crisis deepens as fast as its debt. 2011 budget execution is terrible with tax receipts well below plans, and there is no way Greece will get out the crisis without defaulting on its debt obligations one way or an other (the latest idea is to call it "reprofiling"!) .
Eurozone, macro economic imbalances and the bailoutMarkets Beyond
European imbalances at a glance and a new measure of the fragility of countries according to their debt and budget deficits. Greece will need to restructure its debt
Since the publication in July of stress test for banks in Europe, everything went quiet on the PIGS debt crisis with no much news during the summer. Things however are boiling again and Greek will come back to the forefront of medias sooner rather than later.
The Greek 2011 budget failed miserably despite austerity measure; the eurozone continues stubbornly to plug an unpluggable hole since the roots of the problem are not adressed. The worst is to come...
The European Council summit brought a "surprisng" conclusion with the agreement on mutualizing EZ banks' rescue; however the roots of the EZ problems are not addressed: economic and competitiveness imbalances.
The EUR 110 billion IMF and eurozone rescue package this weekend will not save Greece from a debt rescheduling. As for Portugal and Spain; but watch France and Italy...
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
The EUR 100 billion banks will need to write down on their Greek sovereign debt can be matched via profits, dividends and bonus cuts for many banks in order to abide by Basle III capital ratio rules. A handful of banks will need to go to governments for capital.
This does not however look at the quality of private asset or any default from another peripheral European country.
Greek officials together with IMF and EU ones are touring Europe investors to convince them to buy Greek long dated bonds: I remain unconvinced about the chance of success due to a continued depressed economic environment and the time frame required to modernize the Greek economy that goes well beyond the 3 years rescue plan.
Eurozone falling chickens choice internal or external devaluationMarkets Beyond
The political and economic backround in Europe is awful and no good choice is left to solve the huge imbalances between countries: external or internal devalutation.
Whatever the route followed it will translate into a fall in standard of living of Europeans. The path followed by European politicians for the past 4 years has led to a dead end and they will soon have to decide which of two tough routes to follow..
Portugal, greece and the euro crisis what the news areMarkets Beyond
Portugal is under increasing stress after the rejection of a third austerity plan by its Parliament.
Greece's budget deficit reduction is not starting well in 2011, and the latest figures smell manipulation (with the EU blessing)
Similar to Western economies: the long squeeze (20)
Cyprus bail in revisited - consequences for small economiesMarkets Beyond
Cyprus bail-in is spilling over and the 100% of added burden is falling on the country, with 70% of its gold reserves at risk and EUR 5.8 billion withheld from banks depositis.
Small economies with a large financial sector are increasingly bullied by larger countries which are quick to find scapegoats
The bundesbank repatriates its gold reservesMarkets Beyond
Is the Bundesbank feeling unease with 2/3 of its gold reserves held abroad? This repratriation is a telling story about Germany's confidence in France and the FED.
Current account surplus is a key determinant to bonds market turnaround ita...Markets Beyond
Current accounts are key in determining when an over-indebted country will see it financial situation turning around allowing it to go back to the bond markets under "normal conditions". On this criteria, the discrepancy between Italy and France is startling and not justified by fundamentals: France will be punished by bonds market if nos dramatic action is impletmented by the French Government.
French presidential elections showed a strong following for anti-eurozone candidates, and even stronger for anti-austerity only EU/ECB policy.
This will have consequences for th futre of the euro in a context where the Europe is heading back in recession and Spain is in deep trouble. France is also facing very strong social and economic challenges ahead.
The economic situation in Europe worsens: France's performance is catastrophic and Greece's whist improvin,g remains in negative territory. Europe has not addressed the roots of its failure and will continue to be under market's pressure.
The magnificent 7 and equity markets review 11Markets Beyond
2011 was a bumby year for financial markets and 2012 will be no less hectic. However the US economic picture is improving and as written in early 2011 no double dip to be expected but for FED policy folly.
Global imbalances remain, but the eurozone is where lies the deepest problems which have not been properly addressed.
Remain invested in high yielding equities / net cash companies with a strong franchise and look at strong brands in fast growing economies; stay clear from the bond market and financials.
Numbers announced by European leaders concerning the private sector participation to the rescue do not add up: the total losses would amount to EUR55 bn, far from the EUR100 bn trumpeted.
Who should be single A rated france or italyMarkets Beyond
Italy have been for months under pressure from markets and France relatively unscattered even if froa few weeks its spreads have increased; according to numerous economic indicators France should hardly be better rated than Italy and does not deserve a AAA rating.
After being saved in October 2008, Dexia is finally doomed and will end-up split: it is the French part which is the dead body with it huge exposure to local authorities.
Its demise will not however induce a spillover on other bnaks: their own exposure to toxic asset will do the job for the one which cannot recapitalize.
This week EU and IMF are discussing with Greece to assess whether budget deficit reduction and structural reforms to be implemented are sufficient to release EUR 8 billion of aid in October in order to avoid a default.
This article reviews numerous dysfunctions in Greece.
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Latino Buying Power - May 2024 Presentation for Latino CaucusDanay Escanaverino
Unlock the potential of Latino Buying Power with this in-depth SlideShare presentation. Explore how the Latino consumer market is transforming the American economy, driven by their significant buying power, entrepreneurial contributions, and growing influence across various sectors.
**Key Sections Covered:**
1. **Economic Impact:** Understand the profound economic impact of Latino consumers on the U.S. economy. Discover how their increasing purchasing power is fueling growth in key industries and contributing to national economic prosperity.
2. **Buying Power:** Dive into detailed analyses of Latino buying power, including its growth trends, key drivers, and projections for the future. Learn how this influential group’s spending habits are shaping market dynamics and creating opportunities for businesses.
3. **Entrepreneurial Contributions:** Explore the entrepreneurial spirit within the Latino community. Examine how Latino-owned businesses are thriving and contributing to job creation, innovation, and economic diversification.
4. **Workforce Statistics:** Gain insights into the role of Latino workers in the American labor market. Review statistics on employment rates, occupational distribution, and the economic contributions of Latino professionals across various industries.
5. **Media Consumption:** Understand the media consumption habits of Latino audiences. Discover their preferences for digital platforms, television, radio, and social media. Learn how these consumption patterns are influencing advertising strategies and media content.
6. **Education:** Examine the educational achievements and challenges within the Latino community. Review statistics on enrollment, graduation rates, and fields of study. Understand the implications of education on economic mobility and workforce readiness.
7. **Home Ownership:** Explore trends in Latino home ownership. Understand the factors driving home buying decisions, the challenges faced by Latino homeowners, and the impact of home ownership on community stability and economic growth.
This SlideShare provides valuable insights for marketers, business owners, policymakers, and anyone interested in the economic influence of the Latino community. By understanding the various facets of Latino buying power, you can effectively engage with this dynamic and growing market segment.
Equip yourself with the knowledge to leverage Latino buying power, tap into their entrepreneurial spirit, and connect with their unique cultural and consumer preferences. Drive your business success by embracing the economic potential of Latino consumers.
**Keywords:** Latino buying power, economic impact, entrepreneurial contributions, workforce statistics, media consumption, education, home ownership, Latino market, Hispanic buying power, Latino purchasing power.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdf
Western economies: the long squeeze
1. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
17th June 2010
Eurozone economy: the long and painful squeeze
1. Austerity measures across Europe
The Seoul G20 agreement on nothing exemplified the rift between the Keynesian
economic policies followed by the Obama administration since early 2009 and the post-
keneysian policies i.e. austerity packages followed in Europe for the past few weeks. As
reporter by Bloomberg:
Policy makers are diverging on prescriptions for sustaining the global recovery, with U.S.
Treasury Secretary Timothy F. Geithner calling on Japan and European countries with
trade surpluses to boost domestic demand, while Europe’s representatives have said
reining in budget deficits was the top priority.
The US is still running a large trade deficit and Europe is enjoying a trade surplus, mainly
thanks to Germany. Interesting enough, some European leaders (French ones in
particular) were, until recently, calling on Germany to stimulate domestic demand: on
June 7th, Angela Merkel, the German chancellor, responded by a definitive nein! with the
EUR 86 billion austerity package to be spread until 2014. To avoid to be too harshly
punished by markets France followed suit today with a EUR 100 billion (50/50 spending
cut and additional tax collection).
Altogether, austerity packages announced in the euro zone since early May
represent approximately EUR 230 billion by 2013, quite a number but is it really
enough to at least stabilize the situation? From my calculation, the PIGS + main euro
zone countries have to save in the region of EUR 300 billion between now
and 2013 to reach the 3% deficit/GDP threshold if one believes the EU GDP growth
forecasts over the period. We are getting nearer, but still EUR 70 billion are missing,
and this assumes that the implementation will be perfect...
Let's assume that all goes well and all euro-zone countries are back to 3% (which I do not
believe one minute and not only for PIGS countries- for example how Ireland could divide
its deficit by 4 in 3 years or Spain by 3) and therefore find EUR 100 billion a year during
the 3 years to 2013, it means that the euro-zone still would have added nearly EUR
1 trillion debt, an increase in the debt/GDP ratio from 80% in 2009 to 92% in 2013, not
a decrease.
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In addition, nothing will have been done to reduce the competitivity gap
between Northern Europe and Southern Europe. All the measure adopted are
aiming at avoiding the straight default of several countries and an immediate
collapse of the banking sector across the euro-zone.
But this is not tackling the fundamental issues and merely gaining some (and not a lot)
time.
The solvency issue is not dealt with, but it is clear that Germany calls the
shots (for the time being), and all countries will have to follow its path or markets will be
shut down for funding their financial requirements.
2. Debt
As discussed in the previous point, deficits are being addressed to go back to the
Maastricht criteria of 3% debt/GDP. I note that nothing is said about the second criteria: a
maximum of 60% debt/GDP. Indeed, 3% deficit/GDP is a deficit and therefore increases
the amount of debt that countries have to take on.
According to Markets & Beyond calculations, fiscal deficits post austerity packages will
amount to a cumulative EUR 955 billion for the 3 years ending in 2013, i.e. EUR 955
billion additional debt to reach EUR 8.5 trillion or 91% of GDP. Within this stock of public
euro-zone debt, we could see some countries negatively impacted (Italy and France in
particular) if PIGS countries need to tap the EUR 860 billion rescue packages (Greece +
euro-zone).
The question is therefore how countries can reduce their debt. Let's review first
a very simple equation (Borrowed from John Mauldin's letter):
Domestic Private Sector Financial Balance + Governmental Fiscal Balance – the Current
Account Balance (or Trade Deficit/Surplus) = 0
By Domestic Private Sector Financial Balance we mean the net balance of business and
consumers. Are they borrowing money or paying down debt? Government Fiscal Balance
is the same: is the government borrowing or paying down debt? And the Current Account
Balance is the trade deficit or surplus.
The implications are simple. The three items have to add up to zero. That means you
cannot have both surpluses in the private and government sectors and run a trade deficit.
You have to have a trade surplus.
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Let's make this simple. Let's say that the private sector runs a $100 surplus (they pay
down debt) as does the government. Now, we subtract the trade balance. To make the
equation come to zero it means that there must be a $200 trade surplus.
$100 (private debt reduction) + $100 (government debt reduction) - $200 (trade surplus)
= 0.
But what if the country wanted to run a $100 trade deficit? Then that means that either
private or public debt would have to increase by $100. The numbers have to add up to
zero. One way for that to happen would be:
$50 (private debt reduction) + (-$150) (government deficit) - (-$100) (trade deficit) = 0.
Remember that we are adding a negative number and subtracting a negative number.
Bottom line. You can run a trade deficit, reduce government debt and reduce private debt
but not all three at the same time.
Another equation has to be looked at due to its implications (also borrowed from John
Mauldin):
∆ GDP = ∆ Population + ∆ Productivity (∆= change in)
It means that in face of a declining population (the case for a number of European
countries) you have to increase your productivity even more to keep your GDP growing.
I wrote several time that the current crisis is a brutal adjustment to over-
indebtedness (public and private): As a family's or country's debts grow, the carrying
cost or interest expenses rise. At some point, the interest expense consumes an ever larger
portion of the budget. Increasing the debt increases the interest expense eventually to the
breaking point. There are limits and we have reached these limits in several countries.
3. Reduce deficits
European countries have realized that there is no way out of the mess politicians
created over the past 20 years but reducing fiscal deficits. It is worth mentioning that
in today's austerity package, France will cut EUR 15 billion in planned keynesian inspired
economic growth measures: Keynes is definitely dead on this side of the Atlantic under the
pressure of bond vigilantes and Germany.
This will cut growth (you cannot withdraw hundreds of billions from the economy and
hike taxes with no consequence on GDP and employment).
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From the first equation, it is however possible to offset the reduction in
governments' fiscal imbalances via exports and a deficit increase by the
private sector. The competitive devaluation of a currency (or monetizing a currency) is a
classical way to improve a trade balance (since the end of Bretton Wood, the US has
consistently manipulated the dollar to its advantage). This is not panacea, but probably the
least worst choice at this juncture.
Within Europe there is an additional problem: euro-zone uncompetitive
economies cannot devalue their currency. In addition, all PIGS's countries have
large trade deficits (from 9.4% for Portugal in 2009 to 14.3% for Ireland). And Spain has
an over-indebted private sector and huge unemployment: Spain is the next shoe to
drop.
True, the euro has declined vs all currencies from its November 2009 high (~ 20% drop)
and it is translating into a better extra euro-zone trade balance which has improved since
the beginning of 2010, mainly to the advantage of the traditional exporters, Germany
being at the forefront.
However, within the euro-zone, the competitive devaluation of the euro is
neutral. Looking at the trade balance structure of the PIGS, in 2009 between 41%
(Ireland) and 63% (Portugal) is intra- euro-zone trade; the scope for reducing deficits
via an improvement of the terms of trade is therefore limited, beyond the fact
that these countries do not have much to export outside agricultural goods, hence time
needed to allow them to climb the value chain.
4. Spain: the next stop on the crisis line
Whilst Spain had a deficit/GPD relatively benign at the start of the financial crisis, it is
spiraling following huge fiscal deficits.
Why Spain will be the next shoe to drop:
• Uncompetitive economy: the worst euro-zone track record for unit wage costs
(~+50% since 1998 vs ~8% for Germany); wage costs should fall by circa 30% to
reach the German level.
• Structural and large trade deficit: 11.2% in 2009. Spain's exports account for
merely 6% of GDP vs
• Large unemployment and increasing: 20.1% in Q1 2010 and 19.5% for the 20-
29 age group (I also read 40% for the 18-25 age group).
• Debt /tax receipts approaching a dangerous zone at 185% in 2010.
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• Large refinancing in July: EUR 31.5 billion. In addition 43% of the Spanish
debt is held by foreign investors (EUR 240 billion) Q4 2009.
• The total net international investment position is -93.5% of GDP at the
end of 2009 (-82.2% for Greece)meaning that Spain pays interest to foreign
investors and the proceeds is not reinvested in Spain to the same magnitude as it
would be with domestic investors (it is why the situation of Japan, despite it huge
debt/GDP, is less worrying short term with over 90% of its debt held by domestic
investors).
• Hang over in the housing market: 1.6 million unsold properties in Spain, six
times the level per capita of the United States whilst prices only dropped by
10%.
• Total public/private debt in Spain has reached 270 percent of GDP.
• Fragile banking sector (The central bank seized CajaSur - savings banks are full
of mortgage debt) with the interbank market shut to them. Last month, Spanish
banks had to fund themselves with the ECB at the turn of €85.6bn – double the
amount lent before the collapse of Lehman Brothers in September 2008
and 16.5% of net eurozone loans offered by the central bank. Today, Spain
announced that they want stress tests for Spanish banks to be disclosed, a step
towards transparency to alleviate market conjecture.
• Funding is frozen for most of the private sector.
• Spain's external debt has reached EUR 1.5 trillion (174% GDP), most of
it on short term maturities, with EUR 600 billion due this year.
All this is resulting into a sharp increase in the cost of funding of Spain as
evidenced by Tuesday's auction where yields on one-year debt reached 2.45% compared to
0.9% as recently as April and a surge in the cost of CDS (Credit Default Swaps) close to
250 basis points, not far from the high reach June 7th. The positive note is that Spain can
finance itself on markets as exemplified by today's successful bond sales (EUR 3.5 billion).
Officials across Europe are in denial, in a remake of what happened to Greece.
As noted by Fitch in their 32 pages report:
"To maintain debt solvency Spain must squeeze public spending: yet this policy
undermines the chances of recovery which itself causes further loss of confidence"
Since Spain cannot devalue the euro to immediately improve its competitivity, it has to
reduce wages, risking to trigger a slow death by debt deflation.
The choice is either reflation accepted by the ECB (which seems to be the case, at least for
the time being) or Spain will be forced out of euro-zone, setting off a catastrophic chain-
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reaction through north Europe's banking system. The third choice is a debt moratorium
for 10-15 years to give time to Spain (and other countries) to adjust their competitiveness.
Jacques Attali in a recent book "Tous ruinés dans dix ans", proposes to set-up a European
Agency that would issue debt in the name of Europe and guaranteed by all euro-zone
members. This would imply an automatic solidarity amongst countries avoiding the
unprepared cacophony we have heard for 6 months (the result of a flawed euro-zone
construction). However, this would add an other level of debt issuance where each tax
payer in each euro-zone country would eventually be responsible for. Refinancing all
existing debts at the country level via such an Agency would be a solution to avoid the
punishing financing costs of the PIGS countries; it would however mean that Northern
Europe would subsidize Southern Europe and therefore Southern Europe should give
away some sovereignty to ensure that appropriate reforms are conducted and budgets
respected. There is a long way to get there and time is running short.
Interestingly enough is the CDS spreads for France: it have gone up steadily to reach a
level more than double what it was late March. Even more striking, France is the only
country of the euro-zone where the spread vis-à-vis Germany is at historic high.
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7. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
For quite a while, I mentioned that France is in a worse shape than face value, and after
Spain, I believe that it is France that will be under pressure as much as Italy, if not more.
Conclusion
The second leg of the financial crisis is unraveling with the sovereign debt
crisis in Europe: we are at the beginning and not at the end.
The ECB will continue to monetize the PIGS sovereign debt which it will not sterilize
despite what has been announced, to shore up French and German banks which together
hold EUR 455 billion of Spanish, Portuguese and Greek debt according to RBS.
A combination of euro zone economy slow down during H2 2010 and in 2011 compared to
previous forecasts combined to substantially higher funding costs for PIGS countries, a
freeze of the interbank market for PIGS's banks make a sovereign debt rescheduling
inevitable. I do not understand how politicians believe that 20 years of lax monetary policy
and over-indebtedness that followed can be solved in 3-4 years in a weak economic
environment and structural reform to be implemented: time is needed and insolvency
must be faced instead of living in constant denial.
I re-iterate that Europeans will suffer a markedly decrease in their living
standards for probably at least 10 years. In any case, in an open world where goods,
people and money are free to move, how Europeans could believe that they could sustain
the competition from Asia and Latin America without adjustment? The West as a whole
has transferred a massive amount of wealth over the past 10 years to Asia and
the Middle East, representing trillions of dollars that were then lent to the West to
consume beyond their means: today, we have to pay the bill, and it is very expensive.
I continue to stay clear from the banking sector and I am considering re-entering euro
shorts (probably when we get closer to the Spanish refinancing) together with financial
shorts. I remain long gold, commodity and energy stocks. I am contemplating getting into
consumer stocks in Asia.
For the rest, the S & P 500 support level held well which is positive. However, any
meltdown (which is a real possibility until euro-zone politicians admit that the EUR 860
billion package did not solve the solvency problem of PIGS countries) within the euro-zone
would trigger shock waves to other markets, and among them commodity driven ones and
the US are the most fragile.
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8. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Source:
Bloomberg: IMF Says Risks to Economy Have Risen ‘Significantly’
http://www.bloomberg.com/apps/news?pid=20601010&sid=ajpcYIGbOenY
The New York Times: Merkel Introduces German Austerity Package
http://www.blogger.com/post-create.g?blogID=8004152282931109668
Deutsche Welle: German austerity plan faces widespread criticism
http://www.dw-world.de/dw/article/0,,5662951,00.html
Eusostat: http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes
http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes
VOX: The PIGS’ external debt problem
http://www.voxeu.org/index.php?q=node/5008
Royal Bank of Scotland (RBS): The €2 trillion debt exposure to Greece, Spain and Portugal - 24
May 2010
The Daily Telegraph: EU denies EUR 250 billion liquidity plan for Spain
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7832114/EU-denies-250bn-
liquidity-plan-for-Spain.html
Banco de España: Summary economic indicators
http://www.bde.es/webbde/es/estadis/infoest/si_1_1e.pdf
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