Links: 2013-05-13
News links for 13 May 2013
How Austerity Kills – NYTimes.com
“EARLY last month, a triple suicide was reported in the seaside town of Civitanova Marche, Italy. A married couple, Anna Maria Sopranzi, 68, and Romeo Dionisi, 62, had been struggling to live on her monthly pension of around 500 euros (about $650), and had fallen behind on rent.
Because the Italian government’s austerity budget had raised the retirement age, Mr. Dionisi, a former construction worker, became one of Italy’s esodati (exiled ones) – older workers plunged into poverty without a safety net. On April 5, he and his wife left a note on a neighbor’s car asking for forgiveness, then hanged themselves in a storage closet at home. When Ms. Sopranzi’s brother, Giuseppe Sopranzi, 73, heard the news, he drowned himself in the Adriatic.”
Econbrowser: How Fannie Mae made its profit
“if you study Fannie Mae’s 10Q report, you’ll find that most of the 2013:Q1 reported profit came from Fannie’s decision to recredit itself with $50.6 B in deferred-tax assets. The company’s theory prior to 2008 was that, with all its previous losses, it wouldn’t have to pay much future taxes as a result of carrying those losses forward. Fannie had been counting the taxes it wouldn’t have to pay in the future as one of its main net assets in 2008. When Fannie was taken into conservatorship in 2008, there was a decision that maybe the enterprise would never go back to being a “private” company that owed any taxes, so those deferred-tax assets were written off as a big loss. Now the enterprise is putting them back on the books, as a result of which it claimed a huge after-tax profit for 2013:Q1. So Fannie plans to pay the U.S. Treasury (the GSE’s current owner) a big dividend.”
Top hedge funds bet on Greek banks – FT.com
Even the banks are getting investors. Sentiment has changed -Another reason to be bullish on Greece.
“Some of the world’s leading hedge funds are pouring money into the Greek banking sector in expectation of huge potential returns, even as the country struggles to right its economy in the face of deep government spending cuts.
Farallon Capital, York Capital Management, QVT Financial and Dromeus are among hedge funds that are set to participate in the recapitalisation of the country’s banks.”
Ségolène Royal : “Une restructuration est nécessaire à Bercy”
In this article with Le Monde, the former socialist candidate for President from 2007 attacks her ex-common law husband for moving too slowly to combat rising unemployment in France. Quite an interesting piece. Translate it if you don’t read French.
François Hollande ‘has moved too slowly’, says Ségolène Royal – Telegraph
“Ségolène Royal, François Hollande’s former partner and the mother of his children, has said the President has moved too slowly on reforms and there was a feeling of “lost time” with the government.”
China Industrial, Retail Gains Fail to Sway Recovery Worries – WSJ.com
“Slight improvements in China’s industrial output and retail sales in April are unlikely to ease concerns that weakened growth in the world’s No. 2 economy is persisting into the second quarter despite a surge in lending.
The relatively slow pace of economic output puts China’s leaders into a bind, analysts say. If Beijing turns up the dial on lending and spending, it could deepen the economy’s dependence on debt and increase the financial system’s fragility. But if the economy continues on the current path, growth could slow further, raising the prospect of higher unemployment or tepid wage increases.
Already in the first quarter, urban income growth dipped to 6.7% year on year, down from 9.6% in 2012.”
Hendry: Japan’s return is bad news for the global economy
“”Japan’s monetary pivot towards QE will not create economic growth out of nothing. Instead it seeks to redistribute global GDP in a manner that favours Japan versus the rest of the world. This is the last thing the global economy needs right now,” he said.
The manager pointed to PMIs that suggest business activity is again slowing, and said the combination of this trend and a resurgent Japanese export sector “does not bode well for economies in Europe and the rest of Asia”.”
Banking union must be built on firm foundations – FT.com
“Limited treaty changes would not just provide a safe legal base for a European resolution authority; they could create a better separation between supervision and monetary functions in the ECB, allowing non-eurozone EU members to join the supervisory regime on an equal footing; finally, they would underline the irreversibility of integration.
Amending the treaties takes time. Luckily, the alternative is not between a legally shaky resolution authority now and the postponement of repair work on the banks.
A two-step approach could start with a resolution mechanism based on a network of national authorities as soon as the new supervisor is operational, the resolution directive has been adopted and the Basel III capital requirements are in place.
Instead of a single European resolution fund – which the industry would take many years to fill – such a model would lean on national funds, which already exist in several member states.”
Lord Lawson is right – Britain does not need Europe – FT.com
“I do agree with most of his analysis, especially his point that, for the UK, the single market carries higher costs than benefits. For the EU as a whole, the single market has been a macroeconomic non-event. Its impact on aggregate gross domestic product is statistically imperceptible. If you really wanted to defend it on macroeconomic grounds, you would need to argue that trend growth would otherwise have declined – and would have done so at exactly the time when the single market was introduced. Good luck with that.”
Borrowers shrug off rising mortgage debts – Telegraph
“while borrowing costs fell, consumers were squeezed by high inflation at a time when average wage growth failed to keep pace. But the fall in borrowing costs was seemingly enough to outweigh this.”
EZB: Asmussen lehnt Schäuble-Vorschlag zu Bankenunion ab | STERN.DE
Joerg Asmussen on the ECB said that the overriding goal of any banking union in the EU is to make the sector more able to withstand crisis. He rejects German finance minister Schaeuble’s banking union proposal to get there setp-wise on that basis alone. What Asmussen wants is a European-wide regulatory structure.
CESifo Group Munich – Ifo Viewpoint No. 145: New Migration
Hans-Werner Sinn is a nationalist. Or at least he seems like one to me. I think his political views are very relevant to his economic views. This piece by him shows that a major concern for him is keeping German state coffers from being excessively burdened,
“A 60 year-old Rumanian who migrates to Germany, for example, is no longer deemed fit for work at the age of 65 and is entitled to benefits that ensure a subsistence minimum if s/he retains a residence in Germany. On average, such individuals receive 382 euros of welfare benefit per month, 360 euros of accommodation and heating allowances, as well as free health insurance worth around 300 euros; or a total of 1,050 euros per month. This amount does not include benefits in kind for a refrigerator and a washing machine. An individual’s average income as a semi-pensioner in Germany is almost two to three times as high as the average wage in Rumania or Bulgaria – regardless of whether s/he has previously paid any contributions or taxes in Germany.
This type of migration will inevitably erode the German welfare state, because the latter does the have money to support it on the one hand, and because the Länder will try to make themselves less attractive to poverty-stricken migrants on the other. The EU idea of inclusion of the needy according to the country of residence principle is not compatible with the continued existence of the old-style welfare state.
Only the home country principle can work.”
NPLs and lights in dark places | FT Alphaville
“It is not surprising that the periphery is exhibiting a rising pattern in terms of NPL ratios. What is worrying is the speed of increase, at 2.5% per year. Within the periphery, Greece is the outlier with a NPL ratio of 25%, and no signs of that abating yet. Ireland follows with a NPL ratio of 19%. Italy (at 13.4%) is above Spain and Portugal (at close to 10%) but this reflects the reporting biases mentioned above. But even if we could accurately adjust for the upward bias in the NPL ratio for Italian banks and the downward bias for Portuguese and Spanish banks, it is unlikely the overall trajectory or even level of the NPL ratio for periphery would be different from that shown in Figure 1. This is because an upward bias for Italian banks offsets to some extent a downward bias for Portuguese and Spanish banks.
Periphery non-performing loans totaled €720bn across the whole of the Euro area in 2012, €500bn of which were with Peripheral banks, €150bn in Other Core banks excl Germany, and €60bn with German banks. This number likely understates NPLs for “Other Core” banks in particular, as with the exception of Italy and Spain for which we have year-end data, for all other countries the latest observation is for June 2012…
The German divergence is making the task of the ECB very difficult both in terms of setting monetary policy for the whole region, but also in terms of dealing with an impaired transmission outside Germany. Draghi clarified in its latest press conference that it is not the ECB’s role to clean up banks’ balance sheets, meaning that the ECB is unlikely to deal itself with the €500bn large non-performing loan problem in periphery.”
ekathimerini.com | Malta unlikely to be next member of euro periphery to need bailout
“”The business model of the financial sector in Malta is not as shady and controversial as it was in Cyprus,» said Carsten Brzeski, economist with ING bank in Brussels. «The picture is also different at the macro level … Malta should be off the screens for quite some time.”
The European Commission expects growth on the small island economy of just 450,000 people to pick up this year and next, driven by rising domestic demand and increased net exports.
The unemployment rate, at 6.4 percent, is around half that of the euro zone, debt as a proportion of GDP is 72 percent, below the euro zone average, and the deficit is in check. All of Cyprus’s pre-crisis numbers were far less rosy.
Nevertheless, Malta’s banking sector is eight times larger than its GDP, about the same as it was in Cyprus before the rescue. This leaves the economy exposed to financial shocks.
But in Cyprus the banking sector was dominated by two domestic banks, both of which relied heavily on foreign deposits, many from Russia, and invested those deposits in government bonds abroad, particularly in Greece.
In Malta, the bulk of banking-sector assets belong to subsidiaries of foreign banks which would be responsible for bailing them out in case of trouble.”
“Building activity in Greece suffered another sharp drop in February with the number of permits issued down 45.4 percent on a year earlier and the volume of construction in the private sector falling 44.8 percent.”
Eurogroup Chief: France Must Speed Up Reforms
If you think about this in terms of Abenomics, the key difference is fiscal, where Japan is using fiscal expansion instead of consolidation.
“”France has to push forward its program. They’ve now been given two more years to reach their deficit goals. Part of the deal should be they push forward their reforms, and I’m sure that the French government is committed to those reforms,” Dijsselbloem told CNBC on Saturday on the sidelines of a meeting of G7 finance ministers and central bankers in Aylesbury, England.
“Monetary policy can really not help us out of the crisis. It can take away the pressure, it can accommodate new growth,” Dijsselbloem said. “But what we really need in all countries is structural reforms in the first place.”
“I’d just like to stress the point that in the policy mix of fiscal policy, monetary policy and structural reforms — I’d like the order to be exactly the other way around. Structural reforms in the first place, fiscal policy and viable targets in the mid-term for all regions in second place — and monetary policy can only accommodate domestic economic problems in the short-term.””
Is the Canadian Housing Market Falling Apart?
“Home prices in the greater Vancouver area are down 3.9 percent from a year ago, according to the Real Estate Board of Greater Vancouver. In West Vancouver, which is sometimes said to be the wealthiest municipality in Canada, home prices have fallen 5.6 percent. Sales are down 20 percent from a year ago.
Vancouver is not alone. All over Canada there is fear that the country is in a housing bubble that is now in the process of popping. In March, Montreal saw sales decline 17 percent year over year, even while inventory continues to climb. In Ottawa, sales have fallen 16 percent.”
Rust-Belt Cities Reach Out for Immigrants – WSJ.com
“Worries over immigrants potentially taking jobs from native-born Americans run high in parts of the nation, but some U.S. cities are taking a different view: Wooing immigrants can reverse long-term declines in population.
Cities, mostly in the Midwest and mid-Atlantic states, are betting that attracting foreign-born residents can spur business creation and revive neighborhoods. Steps vary from proclamations welcoming immigrants, to adding staff focused on attracting newcomers and translating government websites, to efforts to connect international students with local companies.”
EU sees Greece hitting 2013-14 fiscal goals, but more pain ahead | Reuters
“Greece will hit its fiscal targets this year and next but needs additional savings to meet its bailout requirements in 2015 and 2016, the European Commission said.”
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