Category Archives: A Few Euros More

All AFEM Blog Posts

Germany’s Structural Budget Problems

Posted on by

Bloomberg (didn’t I once promise not to have anything more to do with them, oh well, needs must) have obtained a copy of German Finance Minister Hans Eichel’s budget plans for 2006. The problem is a serious one since the big problems are structural not cyclical:

“Given the availability of financial resources, an adequate public infrastructure and a sound education system with everything that accounts for Germany’s future viability can no longer be guaranteed”

The room for manouevre – whoever is elected in the autumn – is extremely limited since “nearly two thirds of next year’s 256 billion-euro budget are slated for debt-servicing, state pensions and unemployment benefits as well as jobless-placement costs”…(while)..”Germany’s three-year economic slump and near-record joblessness have eroded tax revenue”.

The ECB And Rate Reductions

Posted on by

Bloombergs Mathew Lynn on why we need a rate cut regardless of fluctuations in the value of the euro. (Also see the Liquidity Trap post on Afoe yesterday, I, like Lynn, don’t agree we have reached the point where monetary policy is useless, at least not yet we haven’t).

“The ECB appears to have little comprehension of the task it faces right now. With the rejection of the European Union constitution by the French and Dutch electorates, and with Italian politicians openly calling for the return of the lira, the future of the single currency is no longer assured.”

“This isn’t the moment for small-minded technical arguments about how far exchange-rate changes boost or depress an economy. It is the moment for bold action. At some point, people will tire of permanently low growth. If the euro area can’t perform better in the next five years, there may not be a euro for the ECB to defend”.

Settling Accounts?

Posted on by

I don’t know how many of you have seen the film The Insider, but Caesar Alierta, boss of Spain’s telecommunications near-monopoly Telefonica, has always seemed to me to fit the bill perfectly. Now the Financial Times announce that he is finally to be charged with an old insider-trading scandal:

“C?sar Alierta, executive chairman of Telef?nica, the Spanish telecommunications group, has been charged with insider trading in connection with alleged improper share trades when he was chairman of a tobacco company. The public prosecutor’s office is seeking a four-and-a-half-year jail sentence for Mr Alierta, the most senior executive ever charged with insider trading in Spain. The prosecutor’s office is also requesting the seizure of ?1.86m ($2.27m) of profits Mr Alierta is alleged to have made from trading in Tabacalera shares when he was chairman of the Spanish tobacco group in 1997.”

As the FT notes, the case also has a political dimension, since it forms part of the ongoing ‘feud’ between PSOE and PP. The reality is that ‘justice’ is still a very political issue in Spain. Still, you have no idea how happy it would make me to see Alierta finally convicted of something. Adding-on a few racketeering charges might not go badly amiss either.

Eurozone Growth Forecasts Down

Posted on by

There is a curious combination of expectations right now. The euro is rising, principally because of preoccupations about the US trade deficit and the associated sustainability issues, but also because there seem to be signs of a slightly better collective performance later in the year. This assessment may well be accurate. So what this means is that growth may still be slowing, but it may be about to pick up. Hence downward revisions for this year are quite compatible with mild optimism in the near term. Of course this situation will not be the same everywhere, and there are still no encouraging signs from Italy.

Economic growth in the euro region will fall short of official forecasts in 2005 as oil hovers near a record, consumer confidence stagnates and Italy struggles with recession, European finance ministers said.

Finance ministers are counting on growth in the 12-nation economy of only 1.3 percent, less than the 1.6 percent predicted by the European Commission in April, Luxembourg Prime and Finance Minister Jean-Claude Juncker said.

The Euro Also Rises

Posted on by

The euro is trading this morning at around $1.2150. The big issue seems to be the US trade deficit, which is currently outweighing all other considerations. Still what goes down can come up, and what goes up……

The dollar fell to the lowest in two weeks against the euro, the biggest move of any currency, on expectations a government report tomorrow will show the U.S. trade deficit was near a record.

The U.S. currency has retreated 2.3 percent against its European counterpart since reaching a 14-month high on July 5. A rising deficit means more dollars are leaving the country to pay for imports. The dollar also weakened against the yen after Japan’s Nikkei 225 Stock Average rose to a three-month high.

“The dollar all of a sudden looks shaky; the deficit will be significant,” said Callum Henderson, head of global currency strategy in Singapore at Standard Chartered Plc. At the same time, “stock inflows are undoubtedly helping the yen. It makes sense for the dollar to weaken.”

BoE and ECB: No Change

Posted on by

It may seem relatively trivial to be reporting on this after what has happened today in London, but, as they say, life goes on.

First the Bank of England.

The Bank of England left its benchmark interest rate unchanged after a series of explosions hit London buses and underground stations. The central bank’s Monetary Policy Committee kept the repurchase rate at 4.75 percent.

And now the ECB:

The European Central Bank kept its key interest rate unchanged at 2 percent Thursday despite worries about growth and the unsettling news of apparent terrorist attacks in London.

Bank President Jean-Claude Trichet said he did not believe the attacks “will have any serious impact” on markets. London’s benchmark stock market index was down 2.3 percent by early afternoon after sinking as much as 4 percent earlier in the day.

More Evidence Of UK Slowdown

Posted on by

The UK National Institute of Economic and Social Research suggest in a report published today that the U.K. economy may have grown at the slowest pace in almost four years in the second quarter.

Growth was probably 0.3 percent in three months through June, compared with 0.4 percent in the first quarter, the London-based institute, whose clients include the U.K. Treasury and the Bank of England, said in an e-mailed statement. That’s the slowest pace since the third quarter of 2001, according to government figures.

U.K. economic growth in the first quarter lagged expansion in the euro area for the first time in more than four years as manufacturing production shrank and consumer spending stalled, the government said on June 30. NIESR said the Bank of England, which meets today, should lower its benchmark interest rate from 4.75 percent, the highest in the Group of Seven Industrialized Nations.

The BoE which meets today is not expected to lower rates – although this move is not entirely excluded. Most likely a reduction will be in the offing soon.

Eurozone Outlook

Posted on by

There is a pretty mixed bag of numbers coming in at the moment. The German economy shows some signs of a recovery of activity (here), as is the French one (here). It is important to understand however that trend growth in Germany is now extremely low, and the economy is very export dependent. The underlying performance of the Frech economy is essentially much better. However, the sick man of Europe continues (and will continue) to be Italy (here)

Levels of business activity in the Italian services economy continued to fall in June. However, rising from 47.3 in May to 48.9, the seasonally adjusted NTC Research/ADACI Business Activity Index indicated that the rate of contraction had eased and was only marginal.

A month-on-month decline in new business to Italian service providers was recorded for the third successive month. Furthermore, the rate of decline quickened again and was the sharpest in the survey history. Panel companies reported that demand for their services had continued to suffer as a depressed domestic economy led to subdued client spending.

Service providers reported that diminishing levels of new business had freed up capacity, leading to the sharpest reduction in backlogs of outstanding work in the seven-and-a-half years that data have been collected.

Employment levels in the Italian service sector fell for the fourth straight month in June. The rate of job shedding was again only marginal, although slightly sharper than in May.
Source NTCResearch