The European debt crisis continues to drive down risk appetite in the financial markets as uncertainty over area countries ability to fund themselves remains high. This is reflected in the poor 10 year Spanish auction yesterday and the 10yr yields on Italian and Spanish debt near 7%. The European Central Bank is currently the main Euro government agency that has the structure to address the crisis. However, there are strict limits on the ECB finance Euro zone governments by directly buying debt from the sovereigns. They get around this by purchasing debt in the secondary markets under the auspice that … …READ MORE
Tag Archives: IMF
Greek default date
Late Friday, the markets pursued Risk-Off trading strategies as equities dropped, bonds rallied and the US dollar rallied. To me, I expect this type of activity to occur every Friday until we get some type of certainty/resolution to Greece. Why? On the last day of the week, we should get fears over a Greek default announcement taking place over the weekend. While this didn’t occur this past weekend, we did get a negative Greek development/announcement.
The Greek government announced that they will miss the Troika budget targets for 2011 and 2012. The IMF/ECB/EU had set a budget deficit target of … …READ MORE
Euro turmoil to get white-hot
Today, the markets are selling risk as we enter into the NYC trading day. This started on Friday with the lack of action from the European EcoFin meetings that US Treasury Secretary Geithner attended, speechified and was summarily criticized for both. The ministerial meetings failed to generate positive newsflow for quick action to resolve the critical issues before Europe: Greece default, EFSF expansion and fiscal integration.
Clearly, European (Troika as well) strategy for Greece is to apply as much pressure on the country to enact the strongest possible austerity measures and public/private restructuring as possible before they receive the E8 … …READ MORE
Why the ECB is crushing Europe
In an excellent new paper for the IMF, Laurence Ball, Daniel Leigh and Prakash Loungani researched 173 episodes of fiscal austerity over the past 30 years that included the average deficit cut amounting to 1 percent of GDP. While their conclusions that growth suffered won’t be shocking, the specific numbers are telling.
“… the evidence from the past is clear: fiscal consolidations typically have the short-run effect of reducing incomes and raising unemployment. A fiscal consolidation of 1 percent of GDP reduces inflation-adjusted incomes by about 0.6 percent and raises the unemployment rate by almost 0.5 percentage point within two … …READ MORE
Why Greece will restructure and what form it will take
The European debt crisis continues to remain headline material and continues to negatively impact the financial markets. This is happening despite the efforts of the ECB, the IMF and the European Union to reform the periphery and to provide liquidity to those sovereign nations. Greece is the linchpin for a solution and resolution of the crisis. The essential element missing is this: how to do a Greek debt restructuring. Let’s review what’s happened and what could happen given the rich history of global debt restructuring.
There are two paths that Europe can go down to deal with Greece, Ireland and … …READ MORE
Posted in Front Page Also tagged debt, ECB, European Commission, European Uninon, Greece, restructure Leave a comment
3 Debt Musketeers
3 Debt Musketeers
Today, European finance ministers are meeting with a heavy and difficult schedule on periphery debt. While the Dominique Strauss-Kahn imbroglio/sex case makes it way through the US judicial system, the European debt situation should not be materially changed in a negative way by the development. I would argue that the IMF will actually push harder for a deal to regain credibility and reduce the negative media spotlight. But it won’t be a simple task.
For the EcoFin gathering, the easy part will be to approve the Portuguese bailout plan. The hard part will be coming to any … …READ MORE
Obama’s Plan and the Economy
Ahead of the World Bank/IMF meetings in DC this weekend, the IMF warned the United States on their fiscal deficit and requested an austerity plan to deal with the red ink. Carlo Cottarelli, head of the IMF’s fiscal affairs department, urged the U.S. to move soon in agreeing to a plan to contain the country’s public debt, which in 2010 rose to more than 90% of gross domestic product, or the economy’s total output according to Dow Jones. Adding insult to injury, he said “If I look at fiscal fundamentals, I see the situation in Europe improving faster than in … …READ MORE
Good Stress Results, IMF says Yuan Undervalued, the CAT Eff
IMF Says Yuan Undervalued: In a less than helpful statement, the IMF emphatically declared that the Chinese currency was “substantially undervalued.” However, the IMF did not say by how much and their full report may never be released to the public. Unless China allows, the IMF will not be able to publish their findings. The announcement of the undervaluation will likely bring heavy pressure from Europe and the US on the Chinese to allow the yuan to appreciate faster.
The CAT Effect in Shipping: Following up on my point from yesterday, both FedEx Corp and UPS raised profit forecasts in … …READ MORE
Posted in Front Page Also tagged Catepillar, Chinese yuan, Deutsche Bank, stress tests Leave a comment
Bad Things Happening: Europe, China, IMF, SF Fed and European Unions
Stocks are dropping over concerns over Spanish bank funding, lower China growth, IMF warning on Austria, SF Fed warning on US states, and strikes in Europe.
ECB 1 year lending facility of 442 billion euros comes off on Thursday and Spanish banks are seen to be the heaviest borrowers from it.
The Conference Board significantly revises lower its estimate of Chinese leading economic indicators from +1.7% to +0.3%.
The IMF warns about Austrian supervision of foreign currency loans.
The SF Fed says state fiscal crises will get worse before they get better.
Greek and Spanish unions are either striking or … …READ MORE
Finally: the European Bazooka!
27 European nations and the IMF agreed to a mammoth E750 billion plan to stabilize the financial markets. 16 Euro area governments were joined by 11 European Union governments in meetings over the weekend to create the plan and commit to E440 billion. The European Union budget is going to contribute E60 billion. The IMF is going to contribute E250 billion. The UK abstained from contributing to the plan.
The European Central Bank is participating by agreeing to provide Euro liquidity and US dollar liquidity. Here are the four measures they’ve agreed to do to address the tensions in the … …READ MORE
Posted in Front Page Also tagged bailout, ECB, European Union, Greece, Portugal, US Taxpayer Leave a comment
