Category Archives: Finance

ECB: Greek Government Debt Toxic for Greek Banks

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The European Central Bank (ECB) has asked Greek banks not to increase their holdings of Greek government debt, including Treasury bills, a banking source familiar with the matter told Reuters on Tuesday.

Greece’s international creditors, including the ECB, have set a 15 billion-euro cap on outstanding Greek T-bills which Athens has already hit.

“As supervisors, the ECB and the Bank of Greece are instructing the banks not to increase their exposure to Greek government debt for prudential reasons,” the source said.

Greece, which lives off aid from the European Union, the International Monetary Fund and the ECB, is running out of cash and has asked the ECB to raise the limit. The central bank has refused to do so.

“The ECB and the Bank of Greece have already made clear that further T-bills could not be accepted as collateral,” the source added.

Kiev and Moscow In Debt Dance

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Ukraine’s finance minister has insisted Russia will have to take part in a private sector debt write-off, putting the embattled country on a collision course with the Kremlin.

Natalie Jaresko said there was no alternative but for her government to proceed with a $15.3bn debt restructuring programme as a condition of the rescue plan by the International Monetary Fund.

“We don’t see another path right now,” said the American-born Ms Jaresko, who is visiting London in a bid to drum up western financial support for her war-ravaged country.

Russia has resisted taking any losses on a $3bn bond which is due mature in December. The debt was issued as part of a bail-out for the then pro-Moscow Yanukovych regime which was toppled last year.

But Moscow has so far maintained that it will be repaid in full, claiming it is not a private creditor and thus would not take part in any debt talks.

“It is our hope that all of our sovereign bond holders will come to the table and try and find a sustainable solution to Ukraine’s debt problem,” said Ms Jaresko.

Referring to any Russian objections to a haircut, Ms Jaresko said: “We have no intentions to discriminate on the basis of nationality or location.”

“We hope for creditor negotiations to be very transparent, we don’t see any other opportunity or path right now.”


Former fund manager and US state department staffer, Ms Jaresko joined Kiev’s new technocratic government last year

Kiev needs to agree on the terms of a bond restructuring, which may include the extension of maturities and reduced interest payments, with its creditors by the end of May in order to be eligible for $17.5bn in IMF cash.

The Ukrainian government has already begun initial talks with its country’s largest private creditors including in the UK and US, said Ms Jaresko.

Economic output contracted by 15pc in the last quarter of 2014, and is due to fall another 11pc in the first three months of the year. Inflation has reached 28pc.

Ms Jaresko insisted now was the right time for creditors to take the hit, warning that bondholders “do not want to be in a situation where there is an uncontrolled situation and we are forced to do a much worse deal for them.”

Creditors face a haircut as Ukraine’s perilous a debt mountain is projected to reach 98pc of its GDP at the end of this year, according to IMF forecasts.

Are the Biggest Cities Losing Their Lure?

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HSBC to Birmingham.  Are the biggest cities losing their lure?  The headquarters of the personal and business arm of HSBC will be moved from London to Birmingham.

HSBC said that Birmingham had the expertise and infrastructure to support the bank.  The bank is in “advanced negotiations” for a 250-year lease in the city centre enterprise zone.  Deutsche Bank has already said it was moving trading operations here.

Greek Drama Continues

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Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel sought to reboot an increasingly sour relationship,saying they are looking for ways to help Athens reach a deal with creditors that will keep it from falling out of the euro.

In his first visit to Germany since coming to power in January, Tsipras sounded a conciliatory note — though he stopped short of promising anything concrete on reforms that creditors like Germany want to see before they loan Greece more money.Greeurgently needs more funds as it faces a cash crunch within weeks.

Backtracking on some of his previous rhetoric blaming Greece’s problems on German insistence on budget austerity, Tsipras said he wanted to “break the stereotypes that have grown in the past five years: The Greeks are not lazy and the Germans are not to blame for everything.”

Tsipras said Merkel invited him to Berlin for talks as the tensions between the two countries increased, telling him “it is better to talk with one another than about one another.”

“I did not come here to ask for financial help,” Tsipras told reporters after meeting with Merkel behind closed doors for more than an hour. “I came for an exchange of our thoughts and opinions, to see where there is common ground and where there is disagreement.”

He characterized the talks as “positive,” saying he found Merkel “listens and wants to be constructive in the exchange of opinions.”

Merkel was careful to point out Germany was only one of the eurozone nations that would be responsible for deciding whether Greece’s reforms are sufficient for it receive more loans. She added that no decisions had been made in her talks with Tsipras.

“Today we can only talk about things,” she said, characterizing the meetings as being held in “a spirit of trust.”

The two continued their discussions over dinner following the press briefing.

Tsipras brought up reparations as he spoke alongside Merkel, but he said “there is no linkage at all with the financial crisis and the eurozone crisis — it is clearly a bilateral issue.”

He condemned as an “unjust provocation” a German magazine cover depicting Merkel amid Nazi officers by the Acropolis in Athens. And in a rebuke to his own justice minister, he said no one in Greece was considering seizing or auctioning off German property for war reparations.

“Please, let’s leave these shadows of the past behind us,” Tsipras said, stressing that the European Union (EU) was a force for stability in a troubled region.”

Merkel stuck to her government’s contention that “the question of reparations has been politically and legally settled” with a 1960 accord with Greece and the payment made at that time. But she noted Germany has earmarked $1.1 million annually for a “German-Greek future foundation” meant to fund remembrance and historical research projects, and “in this spirit we will talk with the Greek government further.”

Many Greeks blame the deeply unpopular bailout program administered by the European Commission, International Monetary Fund and European Central Bank for exacerbating Greek economic misfortune. The country’s unemployment rate is currently the highest in Europe, while Germany’s is the lowest — almost 26 percent compared to almost 5 percent.

Tsipras’s government agreed a month ago to push through reforms in exchange for keeping EU aid flowing, but has delayed submitting the measures for approval.

German officials have complained about their Greek counterparts making commitments and then publicly casting doubt on them, but also insist the debt spat isn’t a bilateral matter.

Warren and Paulson: Twin Pillars of the US Financial System?

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Albert Hunt writes: On the surface, Henry Paulson, the former CEO of Goldman Sachs and Secretary of the Treasury under President George W. Bush, and Senator Elizabeth Warren, the populist Democrat from Massachusetts, seem an unlikely team. But former Representative Barney Frank, co-author of the Dodd-Frank financial reform legislation enacted in 2010, said he views Paulson and Warren as twin pillars protecting the financial system.

In an interview this week on the Charlie Rose television program, Frank, who was chairman of the House Financial Services Committee during the 2008-2009 financial crisis, recalled former Federal Reserve Chairman Ben Bernanke and Paulson telling Congressional Democratic leaders, “The economy is about to fall apart and we have got to do something the public isn’t going to like.”

Frank worked with Bernanke and Paulson to push through the unpopular but ultimately sucessful financial bailout known as the Troubled Asset Relief Program. Paulson, Frank said, remained helpful even after leaving government, assisting in the drafting and passing of Dodd-Frank.

While Paulson helped establish Dodd-Frank, Frank said, “Elizabeth Warren is helping safeguard it” from Republicans eager to scuttle the law.  He acknowledged that Dodd-Frank is complex. But Frank insisted it was neither politically nor substantively possible to make the legislation, which overhauls some regulations dating to the 1930s, less complicated. “In the thirties, there was no such thing as credit default swaps and collateralized loan obligations and collateralized debt obligations,” he said.

Paulson, Savior?

Signs of Life in the European Economy?

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Mark GIlbert writes”  Wherever you look in financial markets, there’s evidence that the euro zone economy is pitiable, while the U.S. is on a smooth trajectory to recovery. Dig into some of the recent European economic data, though, and there are surprising signs of life.

First, the pessimism. In currencies, the euro has lost 20 percent of its value against the dollar in the past year. In stocks, the U.S. S&P 500 index has outperformed the STOXX Europe 600 index by more than 15 percent when both are measured in dollars; the one-year gap is closer to 20 percent in euros. And in bonds, deflation worries mean investors are willing to pay 0.07 percent for the privilege of lending to the German government for five years, while they charge Uncle Sam 1.4 percent.

And now for the good news. Although the textbooks suggest deflation — defined as a sustained period of falling prices — makes consumers unwilling to spend because they expect to get better bargains in the future, that doesn’t seem to be happening in the euro region. In January, shoppers propelled retail sales up by 1.1 percent in the month, beating the 0.2 percent increase forecast by economists. The annual figure of 3.7 percent was the fastest growth in almost a decade, and outstripped economists’ expectations for a 2.3 percent gain:

Retail Sales

In parallel with the surge in retail sales, consumer confidence is also improving at a rapid clip. The dearth of inflation seems to be making people more trusting about their economic futures, rather than keeping them out of the shops, which bodes well for the outlook for gross domestic product growth:

Consumer confidence

Then there’s the confidence survey that the European Commission conducts each month among 23,000 households. Although the negative balance of the poll shows pessimistis still outnumber optimists, March’s -3.7 reading handily beat the -5.9 figure predicted by economists. That reflects a persistent trend in euro region data in recent months: Economists have erred continuously on the side of pessimism, and the figures have surprised on the upside. By contrast, the soothsayers have been tenaciously over-optimistic about the U.S. economy, as Citigroup’s indexes of outcomes versus expectations for the two economies shows:

Surprises

In the broader economy, some of the data on money supply suggests credit is about to start flowing again. Almost a decade ago, when Juergen Stark was the German Bundesbank’s chief representative at the ECB, he told me his favorite chart to get a snapshot of the health of the euro region’s economy was this one:

Money Supply

The index measures the change in credit flowing in the region, and suggests it hasn’t expanded since March 2012; but as the most recent figures on the chart show, it was a whisker away from finally turning positive in January. That suggests the prospect of the ECB’s quantitative easing program, flagged well in advance and finally launched at the start of this month, was already having the desired effect.

That bond-buying program also seems to be influencing price expectations. European Central Bank chief Mario Draghi’s favored measure of the outlook for inflation uses the five-year inflation swap rate, measured five years forward, which measures how fast or slow traders and investors expect consumer prices to change. That measure has bounced off its lows even as government bond yields have headed deeper into negative territory; the most recent reading of 1.7 percent is up from a low of 1.48 reached in the middle of January, and is at least approaching the ECB’s 2 percent target:

Inflation Swaps

“Growth is gaining momentum,” Draghi  the European Parliament on Monday. He’s right. The question is why — much like the region’s economists — markets in stocks, bonds and currencies have failed to take note.

The End of the EU?

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Dirk Schumer writes:   Greece vs. Germany: What a drama! Any Hollywood screenwriter would delight at the brutality of this particular marriage. One launching accusations of fraud and theft, the other responding with calls for World War II debt repayment and reparations. Flags and depictions of the German chancellor have been burned. Cruel jokes circulating about the indebted south, with visiting politicians from the north requiring added police security.

Unfortunately, this is not fodder for a fictional screenplay but a political reality in Europe since 2008. It seems that while this aggressive marital drama plays out, its protagonists are unaware of just how much damage has been done to the foundation of the European Union. Is all that’s left of Europe the rubble of the past?

When the European idea took its beautiful and potentially healing shape after 1945, it was indeed built on rubble. Nowhere else in the world was there more to be found. Nowhere else was there more European common ground than at Auschwitz, where people of all European nationalities were murdered.

Among the ruins of Caen to Nuremberg, from Rotterdam to Milan, the national fight of everyone against everyone else, which had raged in Europe since the downfall of the Roman Empire, was to be discarded onto the dung heap of history. This was to be a bulwark against the anti-democratic Soviet Union, and economic pragmatism was to be the cure-all.

Instead of Napoleon, Bismarck or Hitler, there were mild, wise and mostly Catholic political veterans such as Konrad Adenauer, Charles de Gaulle and Alcide de Gasperi, who managed to disperse international problems by forming new commissions.

Slowly but surely even the worst wounds of the most recent past closed and became scars whose pain was bearable without national sovereignty ever having to be discussed. Europe was not decided upon openly but was bargained in secret with debates about fundamental principles.

But somehow something went wrong in the factory of compromises formed in Brussels, Luxembourg and Strasbourg. Later, historians may identify the tipping point as being somewhere between the introduction of the euro (1998-2001) and the failed 2005 attempt at a European constitution.

If the EU is seen as a common market, bringing together what can’t actually be united, the euro contributed to this disaster in creating a social centrifuge.

But it gets even worse: The democratic deficiencies that had been tolerated due to the advantages of a common market and porous borders have become unbearable to EU citizens. The black hole that once was European responsibility has obediently swallowed binding legal contracts on national debt arrangements, and freedom of travel and refugee treatment, these now being worth less than nothing from the UK to Greece.

That which we once called the European spirit has been annihilated in the process.

The dismantling of Ukraine and the destroyed landscapes of the former Yugoslavia have demonstrated what smoldering hate in a weak confederation of states can do. Is it too late? Or are reports of the EU’s death premature?

End of the EU

Is Nuclear Power the Answer?

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Keith Johnson writes:  Four years after the meltdown at Japan’s Fukushima nuclear power station paralyzed the sector, nuclear energy is again gearing up globally for what appears to be a long-awaited renaissance.

But while nuclear power’s rebirth from China to Argentina is driven by the imperative of finding clean and reliable power, it must still overcome a host of obstacles, including lingering concerns over safety, lousy economics, and growing worries about the risks of nuclear proliferation. And all of that could strangle the latest nuclear rebound before it really gets started.  “Right now, the nuclear renaissance is happening, and it’s happening in East Asia,” said Geoffrey Rothwell, principal economist at the OECD Nuclear Energy Agency in Paris. Asia alone could invest as much as three- quarters of a trillion dollars in new nuclear reactors in the next 15 years as the region seeks to meet growing energy demand while grappling with rising concerns about pollution.

Nuclear power’s development hit the pause button everywhere after the March 2011 accident at Fukushima, which led to the evacuation of hundreds of thousands of Japanese and the idling of Japan’s entire nuclear fleet. Indeed, some countries, such as Germany, swore off nuclear power altogether after the accident. Others, such as Belgium, Sweden, and Switzerland, plan to phase out nuclear energy when their current reactor fleets retire.
But Japan is moving closer to restarting its first reactor since the accident, with plans to fire up the Sendai plant in the country’s southwest this summer; another 15 reactors await approval to restart.  Nuclear Power

Is Nuclear Power the Answer?

Answer to Job Preservation in the US?

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When times are tough in Germany, Berlin staves off unemployment by paying for private jobs with government subsidies.

Should the US look to comparable foreign economies for examples of how to create and keep jobs. Berlin’s model for dealing with job retention during downturns is one the US might explore.

Instead of an unemployment system, they have a wage subsidy system so you don’t let people go in the first place. Germany’s “Kurzarbeit,” or short-work, policy, one that Germans are enthusiastically proud of. It allows companies to reduce workers’ hours with the government picking up the tab for the lost time.

U.S. officials have run into trouble in the past by suggesting European solutions to America’s problems.

Germany’s policies would be difficult to replicate in the United States, said American Enterprise Institute scholar Desmond Lachman. The German workforce is highly unionized, he said, making it easier for workers to get concessions from the central government when times are tough.

Lachman also said the German policy does little to create new jobs, and widens the gap between top earners and those at the bottom who don’t get salary increases when Berlin steps in with subsidies.  But this is not job creation.  It keeps unemployment down, perhaps increasing the number of people at the bottom.

During the Great Recession, the German labor market proved especially resilient. In 2010, when the United States and the rest of the world were losing jobs, Germany actually added them because companies there took advantage of the government program.

According to a survey for the Munich-based research group Ifo Institute, in the first quarter of 2010 — the depths of the European sovereign debt crisis — 39 percent of German manufacturers were using Kurzarbeit, allowing them to hold onto skilled labor at a time when many firms around the globe were shedding jobs.

Many on the right and left, including President Barack Obama and former President Bill Clinton, have mentioned the Kurzarbeit concept as something the United States should consider. And evidence from Germany, Europe’s strongest economy, shows that it stops companies from cutting jobs.

Work?

Metabook, the Future of Publishing?

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Ken Siman, who has a deep history as a publisher in the traditional houses has founded not only a new publishing company, but one with a totally new approach to books.  His partners Christianand Benjamin Alfonsi provide business and artistic guidance.

Pubication starts with an app which includes not only the book but art and music related to it.  What could be a better choice for launch than John Berendt’s classic “Midnight in the Garden of Good and Evil.”

The app includes dramatic readings featuring Jonathan Davis, Robin Miles and Laverne Cox.  Berendt himself is on camera for delicious new insights.  Albert Uhry who adapted the book for theatre talks about its essence.  An audio tape of the summary from the courtroom trial has been unearthed.  Original music has been created.

The next two books on Metabook’s list are a collection of stories by the devlish Kathleen L. Sanders and an as yet unrevealed New York Times-bestselledlist fiction writer.  Breaking the ranks with tratiional pubishers seems like the better part of wisdom today.  No one knows quite what they’re doing.  Floundering in a world that has run away from them, yet aware that books are still being read, most publishers don’t know what to do to reach their -mobile-device-devoted audience.

People read.  How do you reach them?  The Metabook concept is to provide not only the book to taste, but tantalizing appetizers and side dishes.  Hook the reader on her smart phone.  If all she does is delve into the app you have made some money.  If she downloads original music from itunes, you make a bit more.  If she orders a poster of one of the marvellous images you show, you make a bit more.

What if she is so pleased, she actaully buys a book.  Well, there you have it.  A book is sold.  The bonanca.  Yet the process is step by step satisfying to the modern reading audience.  An invitation to read.

Berendt