So, the Greek government has left this latest, very long, round of eurozone marriage counselling to head into, well, predictable domestic acrimony with headlines like “Crucial Test for Greek Coalition” trailing in its wake. From the ekathimerini:
“We did everything we could. We achieved significant improvements,” noting that Greece would remain in the euro if the package was passed and otherwise risked “descending into chaos.” “It is now down to the sense of responsibility of all political parties and each individual MP,” Samaras said.
Democratic Left issued a rejection within minutes, saying it does not agree with the outcome of negotiations with troika and repeating its objection to labor reforms.
JP Morgan’s Alex White points out that the next few weeks are going to be critical and that this one is likely going to the wire… again. Read more
It’s been a really bad week for a pair of household names, and next week promises to be pretty awkward for a third. The eclipse of Nokia is set to become a classic business school study. From the world’s fifth most valuable brand in 2006, and a market value of E100 billion in 2007, no fashionable mobile-toter would be seen with one today, and the business is now valued at E12 billion. The fall of Sony has been no less dramatic. The producer of the best telly in nthe world, in the shape of the Trinitron, has reached the point where it is contemplating stopping production altogether. The shares have also lost nine-tenths of their value since 2007, and have fallen by two-fifths since the start of last year.
The two companies have little else in common, but in both cases the managements ignored the signals from the customers. In 2006, Nokia’s position seemed as unassailable as, say, Apple’s does today. It not only had a dominant share of a growing market, it had margins twice those of its nearest competitor (remember Motorola?). It could outspend and thus out-develop any company which threatend its hegemony. Read more
Danger, danger: Merkozy tape bombs exploding on Monday afternoon.
They have a deal! Read more
At first sight, this looks mad. Lending to the UK government, in charge of the clapped-out British economy, now returns less than lending to Europe’s most successful country. Worse still, the yields on gilts are measured in sterling, a chronically weak currency, so not only does your money earn less, you’ll be repaid in something which history says will have been devalued by the time you get it back. Oh, and by the way, inflation is 3 per cent above the yield, making the internal devaluation painful, too.
Something is seriously awry here, and two events this week offer clues to why German government 10-year paper yields more than the equivalent UK stock. On Wednesday the markets were spooked by the failure of an auction of 10-year German debt. Those in this arcane world struggled to understand what it meant, so there’s little hope for the rest of us. It’s either bad news, or very bad news, probably depending on whether you’re short of German bonds. Read more
California is preparing for a round of deep cuts in public spending as the state seeks to address a $9.6bn budget deficit with a new financial plan that does not contain any tax increases, reports the FT. The new budget, which includes $650m of cuts in support for the state’s universities, was agreed by Jerry Brown, California’s governor, and the Democrats who control the state legislature. It was struck just days from the start of the state’s new fiscal year. Bloomberg adds that California lawmakers will begin voting today on the budget, which relies on $4bn in newly projected revenue but needs only Democratic votes to pass. Read more
Budget talks between the White House and both parties in Congress enter an intense phase this week, with all sides expecting them to go beyond the initial early July deadline set for resolution, the FT reports. Global financial markets are nervously watching the talks, which are being chaired by Joe Biden, the vice-president, to lift the US borrowing limit of $14,300bn before the ceiling is reached on August 2. The Treasury department has warned that in the absence of a deal to lift the debt ceiling, the US could default on its debt, damaging irreparably the creditworthiness of the world’s reserve currency and potentially plunging a sputtering economic recovery into a new recession. The White House does not want the negotiations to continue until the last minute before the August deadline, because it fears such brinkmanship could have a similarly damaging impact on confidence even without a default. Read more
It starts at 1:35pm EST, and we’ve embedded the live video below so that you can watch it here.
Early reports from Reuters are that the president will propose cutting $4,000bn within 12 years and will aim to hit the following targets, as leaked by a congressional source: Read more
President Barack Obama said late on Wednesday that key outstanding issues in the US budget talks had been clarified though there was still no agreement with congressional leaders to avert a looming government shutdown, the FT reports. Mr Obama, making brief remarks following the second summit in as many days with top lawmakers, said negotiations would continue through the night, and there was no reason a deal could not be reached before Friday’s deadline. The White House meeting with John Boehner, Republican speaker of the House of Representatives, and Harry Reid, Senate majority leader, came at the end of a day which saw the US finalise preparations to stand down nearly 1m workers and suspend services ranging from processing tax returns to national parks. The brinkmanship over the budget is unnerving both parties, most of all the Republicans, who took the political blame last time the government shutdown, in the mid-1990s. Read more
There wasn’t a lot of sunshine to melt the avalanche of UK economic data released on Tuesday.
Revised UK Q4 GDP (-0.5 per cent rather than -0.6 per cent) and the UK Q4 current account deficit (-2.9 per cent compared to -2.4 per cent in Q3) came as little surprise. It’s too early to say what impact the poor growth figure will have into 2011 — and of course these so-called final GDP estimates will continue to be updated over the next few years. Read more
The post budget sell-off continues, leaving cable close to an important support level at $1.5980.
Next stop $1.5750, according to chart watchers. Read more
For all the talk of operation Odyssey Dawn, it was Wednesday’s Budget that tried to navigate between two monsters: rising inflation and slowing growth.
Guest editor Gavyn Davies made this point during FT Alphaville’s special Markets Live session this afternoon: Read more
Before we begin, Gavyn Davies’ post on the 2011 Budget is up here and offers a great take.
Meanwhile, the main budget doc can be read here (pdf) and the supplemental documents here. Read more
Join us at 1530 UK time for a special edition of Markets Live to discuss the market impact of Britain’s 2011 Budget, just unveiled by Chancellor George Osborne on Wednesday.
Once again taking the controls will be today’s FT Alphaville guest editor, Gavyn Davies — former Goldman Sachs economist, adviser to No 10 and chairman of Fulcrum Asset Management. Read more
So what did the Chancellor actually do today to change macro-economic strategy in the UK Budget?
In one important sense, he seems to have done little or nothing. The path for the structural budget deficit has been left almost exactly the same as it was after the 2010 Budget. Therefore, the big strategic decision taken last year, which was to tighten fiscal policy by about 6 per cent of GDP over the current Parliament, has remained intact. This was the key element of Plan A, and it does not seem to have been changed. Read more
This is a very big day for the UK economy, with the MPC minutes at 10.30am [GMT] and the Budget at 12.30pm, so I am going to kick off with that.
I wrote a commentary on UK macro economic strategy for the FT on Wednesday, which can be found here. In brief, I argued that the UK has embarked on a radical plan which involves a major shift in the balance between fiscal and monetary policy. This is much more dramatic than anything we have seen in the recent past. Read more
The “wrong kind of inflation” will force the UK government to borrow significantly more over the medium term than planned, the chancellor George Osborne will have to admit in the Budget, reports the FT. The chancellor is planning a “Robin Hood” budget that closes tax loopholes used by the rich and introduces a “Learjet levy” on people using private jets. The £1bn in extra taxes will fund small sweeteners to motorists, low earners and holidaymakers. But the deterioration in the medium-term government borrowing numbers – in spite of a lower deficit than forecast in November – will cast a shadow over Osborne’s deficit reduction programme. Read more
Republicans and Democrats in the US Congress sought to avert a public financing shutdown, with a short-term deal to keep the government funded until March 18, the FT reports. The deal, under which Democrats agreed to cut $4bn from the US budget over two weeks, gives the new Republican majority in the House of Representatives the upper hand in longer term budget negotiations. Analysts said on Monday it would make it more difficult for Democratic lawmakers to resist big spending cuts as they sought to finalise the rest of the budget. The temporary agreement buys both parties more time and averts a Friday deadline that, if missed, would shut down the government. The NYT’s Caucus blog says the deal eases the “air of crisis”, for now – but it must pass a Tuesday vote. Read more
UBS senior economic adviser George Magnus addresses the issue of Washington’s budgetary crisis on Monday.
As he points out, to some there is a major fiscal imbalance that has to be addressed, but no crisis — while to others the US is bust and nothing short of an immediate downsizing will neutralise a looming austerity crisis. Read more
Congress continues to argue over a continuing resolution to fund non-essential parts of the US federal government past March 4.
As silly season drags on we’re still unsure whether a deal will be struck. Senate Democrats are said to be releasing details of some spending cuts Friday afternoon, which suggests movement — but it’s hard to untangle genuine compromise efforts from political posturing. Read more
Japan’s preparations for the 2011 budget are turning into a Y92,412bn ($1,117bn) game of chicken, with little more than a month before the end of this financial year, reports the FT. Opposition parties are threatening to block essential budget-related legislation unless the ruling Democratic party abandons benchmark policies, such as its generous child allowances, or calls an election. But Naoto Kan, the beleagured prime minister, hopes that voter disapproval of his opponents’ brinkmanship will force them to give way. He has warned that failure to pass the fiscal year’s initial budget, which runs to a record Y92,412bn including debt-servicing costs, could slow Japan’s recovery and prolong deflation. Read more
To tell the story of China’s biggest bank account it helps, perhaps, to start with a story about certain, smaller, Chinese bank deposits. So. Meet Zhang Meifang.
Ms Zhang is, or rather was, an official at the Jiangsu Province Finance Bureau. Read more
Jerry Brown, the new governor of California, released his first state budget on Monday and immediately waded into controversy, according to the FT. He plans to cut $12bn from public spending, with higher education and welfare services among the areas in line to suffer. Reuters notes that if lawmakers approve Brown’s budget plan, the California State Treasury would hold back on general obligation (GO) sales — saving the state an estimated $248m — and prepare a $5.76bn GO sale for fall. If the pause on GO sales goes through, it would be the first time since at least 1988 that California, the biggest issuer of US municipal debt, has not sold GO bonds in the spring, Reuters said. Read more
Brian Lenihan, Ireland’s finance minister, on Tuesday unveiled a harsh budget, slashing public spending and increasing the tax burden on the middle classes to achieve €6bn of budget savings for 2011, the FT reports. Coming 10 days after the IMF and EU agreed a €85bn bail-out for the country, the budget is a precondition for release of the first tranche of the EU-IMF lifeline — Ireland’s last hope of avoiding debt default. It remained uncertain on Tuesday night whether the government had the parliamentary numbers to get the measures approved, although ministers expressed confidence it would pass. Read more
ATHENS (Dow Jones)–Greece’s 2010 budget gap is expected to reach 9.3 per cent of gross domestic product, well above the country’s target, forcing the government to implement further spending cuts to bring its fiscal reforms back on track, a senior government official said Thursday. Read more
This probably wasn’t what Ireland’s prime minister was going for when he took to the stage to defend the country’s deficit-decimating budget cuts on Wednesday:
There are some (relative) stock market winners from the UK government’s Spending Review 2010 — bus companies.
Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery, the FT says. Briefing papers for Wednesday’s cabinet meeting argue that by curbing spending – rather than increasing taxes – the €80bn savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”. Read more