‘Oh, help!’ said the ECB’s Maestro, Mario Draghi. ‘I’d better go
back.’ ‘Oh, bother!’ said Maestro Mario Draghi.
‘I shall have to go on.’ ‘I can’t do either!’ said Maestro Mario Draghi.
“Oh, help and bother!”
The ECB’s Maestro, Mario Draghi. With apologies to A.A. Milne,
and Winnie-the-Pooh
Will the EUSSR fall apart before John Bull gets his freedom from the EUSSR prison? Increasingly that answer is starting to look like a very big YES! “Economic sanity may not prevail,” says German central bank Executive Board member Andreas Dombret. President Trump’s incoming Border Access Tax, when it happens, makes that YES, sooner rather than later.
Just don’t tell anyone on the bridge of the increasingly dysfunctional EC and EUSSR. They prefer to think of the icebergs ahead, as fresh source of ice for their gin and tonics. Breakfast Glenlivets for the man at the top of the increasingly irrelevant EC. They are busy speeding up the EU ship to get to the icebergs sooner. Super fuelled by the Italian madman at the top of the European Central Bank.
“People say nothing is impossible, but I do nothing every day.”
J-C Juncker, with apologies to A.A. Milne, and Winnie-the-Pooh
Maastricht's Flaws Still Plague Europe, 25 Years Later
Feb 24, 2017 1:26 AM EST By
Mark
Gilbert
Twenty five years ago this month, the representatives of 12 countries
gathered in the Dutch city of Maastricht to sign the Treaty
on European Union. Its claim to mark "a new stage in the process of
creating an ever closer union among the peoples of Europe" looks grandiose
and overblown a quarter of a century later.More importantly, the economic convergence it promised looks further away than ever.
That's a problem in more ways than one. It presents the European Central Bank with the dilemma of how to set monetary policy for a multi-speed economy, with Germany in particular chafing at ultra-low interest rates. The lack of convergence also undermines support for the European project, with the economic benefits harder to argue for in, say, Italy, which is suffering an unemployment rate of 12 percent, twice Germany's 5.9 percent jobless level.
It's fair to say that there's little popular enthusiasm these days for the notion of ever-closer union. Turnout at European parliamentary elections has dropped at every vote, reaching a low of 42.6 percent at the most recent ballot in 2014. The European Commission's latest Eurobarometer survey of public opinion shows trust in the EU at 36 percent, down from between 44 percent and 57 percent between 2004 and 2009. One of the treaty's founding signatories, the U.K., is on the verge of leaving the bloc. And a second, France, has a presidential candidate in the form of Marine Le Pen who says she'll seek a similar exit from the euro if she wins.
The introduction of the common currency was simultaneously the most concrete achievement of the Maastricht treaty and its biggest fudge. By setting five so-called convergence criteria for countries wanting to adopt the euro, the treaty sought -- at Germany's insistence -- to ensure that only the economically fittest could qualify.
Three of the Maastricht targets -- on inflation, exchange rates and long-term borrowing costs -- proved almost trivial at the time, since impending membership of the common currency in effect produced convergence in a self-reinforcing fashion. Of the two remaining criteria, on budget deficits and debt ratios, Germany and France quickly broke the rules in 2003; France still does but has plenty of company. Once those two nations escaped the punishment laid down in the Stability and Growth Pact, other countries felt emboldened to ignore their own slippage. And, as the following chart shows, while the euro zone as a whole has recently achieved the deficit target shown by the red line, France and Spain are still falling short:
Even in the government bond market, convergence has disappeared. Two-year Italian yields, for example, are about 0.05 percent. Spanish yields are about -0.24 percent, which is about twice what French yields are at -0.46 percent, which in turn are about twice what Germany levels are at -0.9 percent. There's a similar dissonance in 10-year borrowing costs:
More
Citigroup Sees German Two-Year Yields Below -1% as Rally Extends
by Marton Eder 24 February 2017, 11:22 GMT
The
rally in German two-year notes gathered steam on Friday, with Citigroup Inc.
predicting yields could drop to minus 1 percent and beyond.
The
securities headed for the best weekly gain since the euro area’s debt crisis,
buoyed by demand for safer assets amid rising French political risks and the
European Central Bank’s stepped-up purchases below its old deposit-rate floor.
Citigroup estimates the ECB will buy about 80 billion euros ($85 billion) of
one- to six-year German bonds this year even as it trims its overall monthly
purchases from April, analysts led by Harvinder Sian wrote in a client note.
More
Le Spread, Meet Die Bundesbank
By Marcus
Ashworth Feb 24, 2017 6:39 AM EST
For a
brief halcyon moment on Thursday the confluence of a political bromance at the
center ground of French presidential candidates and charges that a top
aide to Marine Le Pen misused public funds produced a sharp contraction to the
ever-widening spread between French and German government bonds. Frankfurt's
putting the pressure back on, and it's probably going to stay there.
With
about two months to go before the French presidential election, a pronounced
narrowing isn't in store
To compound the trouble, deep in the plumbing of the financial system, the German central bank seems set on making a bad situation worse. The collateral shortage in the repo market, which Gadfly has already warned about, is getting more acute. The ECB tried to address this, but turns out that it didn't buy itself much time with its Dec. 15 decision to allow national central banks to buy their own government debt as low as minus 70 basis points -- German debt under four years already yields less than that new floor. It looks like German buying at the front end of the yield curve is to blame for pushing 2 year yields towards minus 1 percent, akin to Swiss levels.
Compounding the felony is that in the collateral borrowing markets, the Bundesbank only lent out a tiny amount of its bund holdings over year-end in the repo market, yet both it and the ECB hold over a quarter of outstanding German debt. This parsimony does not suggest a central bank that prizes efficiency in transactions.
It's within the German debt office's gift to ease tight conditions by altering or increasing the supply schedule. A spokeswoman made clear on Thursday that, if there ever were to be a problem with a squeeze in the cheapest-to-deliver security into the 10-year bund futures contract, it would act by issuing more bonds, Reuters reported. She made equally clear that issuance won't increase at the short end to tackle market strains.
So there is no relief in sight for ever-more-negative yields, not even the attraction of being paid to raise money. Citibank analysts say further new lows in Schatz yields are inevitable as the ECB needs to buy around 80 billion euros of bunds due in one to six years by year-end, so below minus 1 percent is in sight. If this feeds into difficulties in extending QE beyond December, the ECB's backstop for the periphery is going to be tested.
More
In Brexit news, to the ecstatic delight of
Amsterdam, Dublin and Paris, Frankfurt just fired a shotgun into both feet. Boeing opts for Brexit GB.
Bankers Told No Fly-In, Fly-Out Hub in Frankfurt After Brexit
By Gavin Finch, Nicholas Comfort, and John Glover
24 February 2017, 10:00 GMT 24 February 2017, 12:23 GMT
Banks choosing Frankfurt for their licensed European Union hub after Brexit
will have to set up full-scale operations in the country, not brass-plate
offices with bankers commuting from London, according to German central
bank Executive Board member Andreas Dombret.“We will not accept any empty shells or ‘letterbox companies,’ where the business effectively continues to be done out of London,” Dombret said in a speech in the U.K. capital on Friday. This includes “fly-and-drive banking, where bankers fly in daily from London, or ‘dual-hatting,’ where transactions are booked on the EU subsidiary but in fact executed in London.”
Frankfurt
is emerging as the favored destination for global banks such as Goldman Sachs
Group Inc. and Citigroup Inc. that need to set up new or expanded bases within
the EU to maintain their access to the single market after Britain withdraws
from the bloc. Germany’s financial capital already hosts Deutsche Bank AG,
the European Central Bank and part of BaFin, one of the few EU regulators with
experience overseeing complicated derivatives trading.
For
critical functions such as senior management and compliance, qualified staff
will need to be present at the new EU subsidiary full-time, Dombret said.
Dombret also said a “race to the bottom” on financial regulation should be avoided as the U.K. prepares to secede from the EU. His comments at a presentation organized by the consultancy zeb echoed a warning last month from German Finance Minister Wolfgang Schaeuble.
“Given how the Brexit debate developed early this year, this warning is not at all an empty one,” Dombret said. “A financial-center strategy comprised, among other ingredients, of very low corporate taxes and lax regulation has already been mentioned in the U.K. as a fall-back option for London.”
Considering the potential for political acrimony on both sides, he said people should not count on “economic sanity” being the guiding principle in the divorce negotiations between the U.K. and EU.
More
Boeing to Open Its First European Plant in Post-Brexit U.K.
by Christopher JasperThe 20 million-pound ($25 million) facility will supply parts for Boeing’s 737 short-haul workhorse and the 777 wide-body, specializing in actuation systems that extend and retract an aircraft’s wing flaps in different phases of flight.
The move advances Boeing’s plans to increase in-house
manufacturing of actuator components in order to boost production efficiency,
enhance quality control and reduce supply-chain costs, the U.S. company said in
a statement Friday. The 25,000 square-foot plant will initially employ 30
people, with recruitment starting next year.
“Our decision to start manufacturing high-value
components in the U.K. is a step-change in our engagement and a further example
of Boeing’s commitment to grow here,” Boeing Europe President Michael Arthur
said in the release.
More
EC President J-C Juncker: He has no EU enemies, but is intensely
disliked by his friends.
With apologies to Oscar Wilde.
N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada. His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe. In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.
As
usual most weekends, we leave the last word on America and unorthodox President
Trump, to Jason in California.
Tension Between Trump Administration,
Media Reaches Fever Pitch & Marks Critical Moment for American Democracy
N. Jason Jencka February 25th,
2017 3:15 am ET
The Trump
administration's rhetorical war against what it deems to be “fake news” reached new heights this week with the
barring of mainstream media titans CNN & the New York Times from a
Friday closed-door briefing with press secretary Sean Spicer. Both outlets have
been critical of president Trump at various points throughout his campaign and
the first month of his presidency. As such, their ban from an administration
briefing is viewed by those with an anti-Trump disposition to be evidence of a
general clampdown on dissent and an affront to the role of a free press as a
guardian of democracy. Conversely, Trump loyalists view the decision as an
example of an administration refusing to acquiesce to a hostile, ideologically
opposed and obstructionist media. As concrete evidence of the monumentally
contentious environment surrounding the aforementioned briefing, Time and
the Associated Press chose to boycott the briefing to maintain
solidarity those at the NYT and CNN. While it may be that one weekly
press briefing would typically be viewed as an inconsequential footnote of a 4
year presidential term, what is certain is that for better or for worse nothing
in Mr. Trump's administration is remotely “typical”. In the words of New
York Times editor Dean Baquet “Nothing like this has ever happened in our
long history of covering multiple administrations of different parties.”
Indeed.
Sources:
Michael Calderone, The Huffington
Post February 25th 2017:http://www.huffingtonpost.com/entry/white-house-bars-news-organizations_us_58b08a76e4b0a8a9b78213ae
Ayesha Rascoe Reuters: http://www.reuters.com/article/us-usa-trump-media-idUSKBN1632JG
N. Jason Jencka is presently studying Finance and Economics at Sierra Nevada College, located near the shores of Lake Tahoe on the border of California and Nevada. His interests include the interplay between world markets and the global political sphere, with a focus on developments of both sides of the Atlantic in North America and Europe. In his leisure time he enjoys connecting with those people that have an interesting story to tell and a genuine desire to make an impact in the world.
“For every fatal
shooting, there are about 3 non-fatal shootings. Folks, this is unacceptable in
America.”
George W. Bush
No comments:
Post a Comment