At length. Because haven’t you heard?
Germany is a hypocritical creditor.
It won’t give Greece the debt relief which it received itself in the 1950s.
All hail the Euroglut, that oh so corpulent result of Europe’s (read: Germany’s) huge excess savings — which hit a record €234bn at the end of last year as oil prices collapsed and are projected to hit €300bn over the course of 2015 if oil prices stay that way.
You can, in part, blame said Euroglut (along with ECB QE and negative rates) for this type of thing…
As to the eventual size of these outflows? Read more
Speaking at Davos this morning, Angela Merkel and Alexander Stubb argued that European creditors should not be held responsible for their poor lending decisions.
Well, that’s not exactly how they phrased it: Read more
If you don’t you might miss all the capital outflow which, according to Deutsche’s George Saravelos, “not only has depreciatory implications for the euro, but also suggests that the consequences of Euroglut – low global bond yields and a stronger dollar – are here to stay.”
Oh, and blame Germany. Read more
Handy chart from CreditSights illustrating the changing fortunes of euro area households over the past couple of years:
Peering into the near future, Europe’s largest economy remains central to the direction for Europe as a whole. And, judged by the recent long profile of chancellor Angela Merkel in the New Yorker, there is self-confidence in the Bundestag.
Here she is dismissing the Russian president, after a macho incident with a labrador:
I understand why he has to do this—to prove he’s a man,” she told a group of reporters. “He’s afraid of his own weakness. Russia has nothing, no successful politics or economy. All they have is this.
Political economy is the point, however. Read more
Two sets of charts from BCA Research with unclear implications:
Study this chart carefully. It’s the first day of dealings in Zalander, the Frankfurt-listed online frock shop that claims to be Europe’s biggest.
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
Germany shrank, and France stagnated in the second quarter. Italy we’ve all agreed not to talk about until Matteo Renzi waves his magic liberalisation wand, right? Here’s the FT:
The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.
Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures. The French economy recorded zero growth during the period.
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
Courtesy of the Bundesbank (h/t Dario Perkins):
In a nutshell, the paper concludes that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to the lower level of exchange rate flexibility. Furthermore, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy.
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
We thought the following from TD Securities’ Richard Gilhooly on Tuesday was a rather insightful way of looking at the whole BoJ effect (our emphasis):
While it remains a contentious point and as yet unproven, Japan’s devaluation and soaring Nikkei vs slumping DAX or Bovespa has all the hallmarks of a competitive devaluation. While competing factions debate the Monetary expansion/QQE, versus beggar-thy-neighbour interpretation, one positive aspect of the Japanese Yen collapse and fear of exported deflation has been collapsing commodity prices with weak growth in export countries (China, Germany, S Korea) and a stronger USD helping a supply story (crude inventories at 22yr highs) and weak demand send commodities into a bear market.
Depressing eurozone and German prints below. The eurozone composite was bleakly steady at 46.5 while the German comp hit 48.8 from 50.6 in March — its worst level in six months. The only real good news is that this might increase the chances of an ECB refi cut in the near future.
But since France came out first…. Read more
William Porter at Credit Suisse has been mulling the market’s muted reaction to the Italian elections. Increased stress is no longer finding its way into widening spreads, thanks to the Draghi “put”.
This credit strategist is concerned. A dampened signaling mechanism increases the risk of something going badly wrong — a market crash, even. Read more
Cyprus is almost over the first hurdle — the pro-bailout Nicos Anastasiades handily won the first round of the island’s presidential elections last week. As the FT notes, he will face Stavros Malas, the Akel (Cyprus communist) party candidate, who won 27 per cent, in the run-off on February 24 and it’s pretty likely Anastasiades will come out on top.
What is less likely, is that there will be a sudden move towards that €17bn-ish international bailout Cyprus has hankering for. It’s not as if there has been unseemly speed so far: Read more
The eurozone’s largest economy has defied the crisis better than most expected, yet it couldn’t maintain growth in the final quarter of last year, shrinking by an estimated 0.6 per cent. That compares to France’s 0.3 per cent and Spain’s 0.7 per cent respective falls. But given that usually Germany is the region’s engine of growth, the key question is how long this weakness might last.
Fortunately it seems that the recovery might be brisk. Read more
You know what doesn’t often conjure images of economic happiness? The 1970s, that’s what. And the argument coming from some quarters right now is that Europe, or at least its periphery, is heading back into such a period of stagnation and chronic inflation with unemployment leading the way. Read more
From a report by Germany’s spy agency in early November arguing that the main beneficiaries of aid to Cypriot banks would be rich Russians who have invested illegal money there, through to a very public bailout veto threat. All in just two months! Speedy work indeed by Germany’s opposition.
From Eurointelligence on Wednesday:
Suddeutsche Zeitung is reporting this morning that the SPD [Social Democratic Party] is considering blocking a Cyprus deal on the grounds that it won’t support tax dumping and money laundering.
As expected, the eurozone economy shrunk in the third quarter. But, fortunately, not by quite as much as expected.
Thursday’s data did, however, confirm that the debt crisis in southern Europe is hitting the ‘core’ economies in northern Europe, and analysts seem in agreement that it’s going to get significantly worse. Read more
Another day, and another confirmation that the eurozone economy is struggling to gain traction. And it’s not just the small peripheral economies that are seeing factory activity slowing.
Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) fell to 45.4 in October from September’s 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.
It’s Eurozone flash PMI time again. It’s a sad time. From Markit:
The Eurozone sank further into decline at the start of the fourth quarter, with the combined output of the manufacturing and service sectors dropping at the fastest rate since June 2009.
Germany’s IFO survey didn’t help much either.
Or peripheral pain in terms of growth/shrinkage in compensation per employee. It offers a striking illustration of why both Greeks and Germans have reason to feel peeved… Read more
Germany has the second largest gold reserves in the world, nearly 3400 tons. Supposedly, anyway. Because stocks have never been checked for authenticity and weight. Now, the Federal Court has asked the Bundesbank to examine the gold reserves abroad regularly.
“Immobilie porn”, suggests Google Translate but we’re open to correction.
Either way, this piece from the FT on Tuesday makes for good reading. It suggests there may be a bubble building in the German property market with Berlin in particular looking peaky, although that must be caveated with the relatively sedate nature of the market previously. Read more
Non-german speakers should be able to guess the meaning, especially if we add the words ‘Greece’ and ‘Wolfgang Schaeuble’ by way of context.
Yes, Staatsbankrott = ‘state bankruptcy.’
Not that it’s going to happen in the case of Greece, of course — at least not according to the German finance minister. Read more