Posts tagged 'Eurozone'

How to spend it: ECB bond-buying edition

Securitisation has gotten a bad rap thanks to its association with dodgy underwriting during the bubble. Yet bundling loans originated by banks and selling them to investors in the capital markets could be just what is needed to boost the flagging euro area economy.

This helps explains the European Central Bank’s recent announcement that it will be shopping for asset-backed securities (including mortgage bonds) and covered bonds starting in October. Read more

The negative zone

Cross-posted from Lex Live — which is Lex’s new, free (you don’t even have to register) blog giving an insight on what Lex writers are reading and thinking…

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Not that negative zone – Europe: Read more

Putting Draghi in his box, and getting him back out again

A week ago, Mario Draghi set euro policy-watchers all a-flutter, departing from his prepared remarks at Jackson Hole to issue a kind of blunt confession that he and his colleagues had run out of excuses for the ongoing depressed level of inflation across the eurozone, and that maybe some sort of reaction was required. Cue a quall of ECB QE speculation.

Then, on Wednesday this week, a story appeared on Reuters stating that, according to “ECB sources,” there was unlikely to be any new policy action from the ECB at its September meeting next week unless August inflation figures (published on Friday) showed the eurozone sinking significantly towards deflation.

The story remained exclusive to Reuters. But the message was clear: ECB officials are worried that market participants were reading too-much-too-soon into Draghi ad-libbing. Read more

Germany vs France on the euro, part deux

A brief follow-up to this morning’s post in response to a question we received on Twitter…

Below is a chart showing the full history of French household indebtedness data. It only goes back to 1996 but provides some additional context about the changes that occurred after the introduction of the euro: Read more

Deutsch-Rückhalte and le malaise français

With a hat-tip to our friends at CreditSights, check out the starkly different paths of household indebtedness in France and Germany since the introduction of the euro:

(Sources: Bundesbank 1 and 2, Banque de FranceRead more

We know you’re waiting…

From JP Morgan Asset Management. Tantalisation comes from the end of the black line, which you will note has perked.

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Again, on Japanification

Following Izzy’s charts from Credit Suisse, here’s an update of my favourite measure of how Europe’s turning Japanese.

This chart shows eurozone inflation since the region’s crisis against Japanese inflation from the bursting of its bubble. The offset puts the peak of 1990 where the eurozone was in 2011, when the US near-default started a panic which threatened the survival of the euroRead more

ECB credibility

Ebbing, one month at a time. (Via Eurostat’s March flash estimate)

Pavlov’s eurozone

From the pixels of Christian Dargnat, chief exec of BNP Paribas Asset Management and president of EFAMA:

The European Reward System (ERS) is a process of annual certifications by the European Commission for sovereign bond issuances by Eurozone member states that adhere to a set of definitive budget criteria defined in advance. These Certifications allow a state to benefit from a budgetary transfer from other member states when higher interest rates are paid compared to the average European system of 100 basis points more or less.

The crisis of individual state debts in the Eurozone has lead to lower interest rates from debts issued by Germany and France, and elevate rates from Italy and Spain. Since 2010, Germany and France have benefitted from savings of approximately €30 billion and €10 respectively during their issuances. Inversely, one can observe an additional cost of around €53 billion for Italy and €30 billion additional for Spain.

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The OMT — um, what does this thing do again? A Bundesverfassungsgericht guide

Arguably, none of the below matters now.

That’s the prime effect of the German constitutional court turning to the European Court of Justice for a ruling on whether the ECB’s sovereign bond-buying programme is a “structurally significant transgression of powers” under European treaty law.

Big words. But the backing of the Bundesverfassungsgericht judges (pictured right) for that view gets rendered into just another opinion, pending the ECJ’s decision. And the arc of the ECJ’s justice is long, turgidly written, but ultimately quite friendly to pieces of bailout architecture that have an odd relationship to the treaties — as in past musings on the ESM.

But the really interesting thing is that regardless, the OMT’s purpose apparently remains almost completely lost on the court. Read more

Why the Eurozone output gap could be a chasm

A few years ago Capital Economics made a strong case that the UK output gap — or how much slack there is in the economy — was being grossly under estimated by one and all. Their note prompted a spirited debate about the importance of output gaps in ascertaining correct monetary and fiscal policy.

Well, a similar case is now being made for the Eurozone by David Mackie and team at JP Morgan.

It’s an absolutely fascinating note, which argues above all that the ECB and the European Commission are wrong to think that the Euro area output gap is modest or that the growing unemployment rate is structural, given there is so little wage pressure in the region. Read more

How to translate “QE” into German

First, rewrite history (as Aufhebung). Read more

Eurozone sovereign convergence redux?

Just to put an already-huge year-end move in Portuguese bond yields into some wider context…

Here’s a chart (via Reuters) of the five-year yield since August 2010 — to which levels it’s now, roughly, returned. Click to enlarge.

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Eurozone liquidity is getting tight

Icap’s Chris Clark alerts us on Friday to the fact that European liquidity markets are already preparing themselves for a potential liquidity squeeze come the end of the year.

As he notes:

Month-ends have become increasingly significant events for the Eurozone repo markets over the second half of this year as levels of excess liquidity have diminished and market rates have slowly edged higher. This Thanksgivings Day/November month-end liquidity hump has proved a tricky one for the market to manoeuvre, but already attention is focusing on the impending year-end as evidence stacks up to suggest funding might be problematic for some.

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Bruegel: ‘Stop trying to muddle through’

Here’s an essay published by the Bruegel think tank, penned by Ashoka Mody, currently a visiting professor at Princeton. He argues that if Europe wants to move forward in terms of integration, it first needs to stop. Click to read.

The ECB cuts…

Update – It’s not just the rate cut, as Mario Draghi opens the presser at pixel time:

Earlier – Bold move or way too late? You decide: Read more

The NPL standardisation factor

According to Morgan Stanley’s banking research team, one of the focus areas of the upcoming AQR and banking stress tests is likely to be the definition of a non-performing loan (NPL).

These, as FT Alphaville has noted in the past, vary somewhat radically across Europe.

What’s more, even with recent reclassifications, they’re are still rising: Read more

The ECB’s easing dilemma

Courtesy of Icap’s market analysis team, here’s the turnaround in the Eonia December 13-January 14 spread this month:

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SpooOOOooky European bank capital relief

That’s because it’s ghostly and hard to spot. (And it is All Hallows’ Eve.)

First it was the buried announcement that Irish banks with government share ownership are about to get Spanish-style flexibility on deferred tax assets… (though not nearly as far as the Spanish proposal for tax-credit conversion) H/T Lorcan

Next it was Bank of Ireland’s stock rising by more than 4 per cent in Dublin late on Thursday. Read more

A Finnish collateral coda

Months after the Finnish government was made to open up its Greek bailout ‘collateral’ deal to public scrutiny, one of the weirder episodes of official secrecy in the eurozone crisis …

Finland’s Chancellor of Justice, Jaakko Jonkka, has criticised the decision to keep the Greek transaction under wraps in the first place: Read more

The year of assessing comprehensively

Click for the ECB’s official introduction to its year-long “supervisory risk assessment… asset quality review and a stress test” for 124 European banks (who are all listed)…

The capital ratios to be used have already been leaked, but here it is in full from Wednesday’s note — it seems there’s a significant wriggle: Read more

Europe’s not so secret liquidity. Not any more.

FT Alphaville began writing in detail about emergency liquidity assistance in the eurozone — that is, national central banks lending to stricken, but supposedly solvent banks on highly secretive terms, against collateral not accepted at the ECB — some two and a half years ago.

Throughout that period, the ECB’s precise oversight of this liquidity assistance remained in the dark. Despite the risk being taken by taxpayers, and despite the fact ELA effectively stopped the Greek, Irish and Cypriot banking systems from going under at various points. And despite procedures having been in place since 1999 for the ECB to restrict ELA by a national central bank if it endangers the rules of the euro (as used in Cyprus). Read more

The intrinsic (intractable?) bank bid for sovereign debt

There are a few ways to greet the news that eurozone banks are more exposed to their sovereigns than ever. One’s to note that this just means more human shields to deal with (somehow) in a restructuring… Read more

A German election primer

Something funny happened to the eurozone over summer. Things… began to look better.

Of course, there are plenty of difficulties lying in wait. As the FT’s Peter Spiegel and Alex Barker write, once a new German government is in place after this weekend’s election, fraught negotiations about Greece, Portugal, Ireland and the banking union will quickly return to the fore. Read more

Peripherally, yours

An interesting pair of charts to juxtapose on a Monday morning, and a PMI day… courtesy of Societe Generale. They point out that the eurozone is straggling to recovery, though apparently in spite of the ECB failing to shore up money growth: Read more

The raw cost of can kicking

Ok, we’ve been slow to get this up. That’s because…

But here, belatedly, is a paper from Achim Dübel of Finpolconsult: Creditor Participation in Banking Crisis in the Eurozone – A Corner Turned? Read more

We go live to Fitch’s Paris office…

Here’s the full text of Fitch Ratings’ one-notch French downgrade, which makes it the last of the big three agencies to remove AAA ratings from France. A key bit of the rationale:

Fitch now forecasts general government gross debt (GGGD) to peak higher at 96% of GDP in 2014 and decline only gradually over the long term, remaining at 92% in 2017. This compares with Fitch’s previous projections in December 2012 of GGGD peaking at 94% (and 92% when it first revised the Outlook to Negative in December 2011), and declining more rapidly to below 90% by 2017… Read more

Caption this — lat there be euros edition

Olli Rehn (left) and Valdis Dombrovskis, the Latvian prime minster, (right) regrettably seem to have got lost in a Powerpoint presentation. Read more

A Cypriot bond glitch?

Yes, it’s time for a trip back into those Cypriot debt contracts.

Cyprus announced the results of its sovereign debt restructuring on some €1bn of domestic-law bonds earlier this week. The one the Troika wanted for — OH. Oopsy-daisy. Did FT Alphaville say sovereign restructuring. We meant “debt management operation”Read more

Finland has a collateral credibility issue

So, a plurality of the Finnish public may just agree with FT Alphaville.

Click to enlarge. That’s a Gallup poll by Helsingin Sanomat on the Finnish government’s Greek ‘collateral’. Read more