David Cameron hasn’t been able to figure out how to fix his own country’s economy, or whether he wants that country to remain in the EU. But he’s certain of one thing: The way to fix the global economy is a free-trade pact between the U.S. and the EU.
“When times are tough, some want to put the barriers up, to look inwards, and to protect themselves from the world,” Cameron writes in the Journal, possibly describing several prominent, senior members of his own party. Read more »
The British government doesn’t understand what the IMF is saying, and doesn’t care about what the EU is saying. Read more »
The “culture of excessive bonuses” is dead, according to European Commission President José Manuel Barroso. Long live the culture of unreasonably high base salaries! Read more »
Here’s the latest impressively awful bit of data to emerge from the economic wasteland at the heart of the world’s economic slag-heap, Europe: Employment in the eurozone has dropped to a seven-year low.
Eurostat, the EU’s official statistics agency, said on Thursday that employment in the 17 countries that use the euro fell 0.3% in the fourth quarter from the third, to 145.7 million in seasonally adjusted terms.
That is the lowest number since the first quarter of 2006. In the previous quarter, employment fell 0.1%.
Europe’s leaders, who are beginning to bear a startling resemblance to U.S. leaders in terms of indecision and—when that subsides—bad decision-making, are meeting now to fight over whether austerity’s failure simply requires more austerity, or whether something should be done about all of those people out of work before they take up arms. All of which is making the Swiss very nervous, indeed.
The Swiss central bank pledged to keep up its defense of the franc cap after almost doubling its currency holdings to shield the country from the fallout caused by the euro zone’s crisis….
Jordan said in a newspaper interview on Feb. 27 that an exit from the cap was still far off given that the euro-zone crisis could flare up again. He today confirmed that assessment.
“Downside risks to the Swiss economy remain considerable,” Jordan said in Aarau. “There is a risk that tensions in the euro area will increase again.”
All of which has the dollar feeling positive frothy, rising to better than two-year high this week as our anemic recovery compares rather favorably to no recovery at all. This, of course, carries risks. Read more »
The surprise camaraderie enjoyed by the U.K. in European circles, vis-à-vis the European Community’s campaign to destroy London’s status as a global financial center, has evaporated as quickly as it appeared. As if to fortify the opinion of Euroskeptics across Great Britain that the U.K.’s European partners are fey, duplicitous and centralizing all at the same time, Germany et. al. have said, “We’re happy to sign an impotent letter complaining about something we can no longer do anything about, but you can’t expect us to stand in the way of impotent populist measures directed at people who don’t live in our countries.” Read more »
OH GOSH LET’S GET REAL ANGRY ABOUT THE EU BONUS CAP, which is moving forward and would limit bankers’ bonuses to 1x base salary, or 2x with shareholder approval. It is super dumb.1 England hates it, what with having a functioning banking industry and all. Bankers hate it, being bankers.2 This guy thinks it makes total sense, being a Belgian lawmaker for the Green Party:
“If I have to judge from the reaction of the [banking] industry, this will impact them. And this will also impact the overall amount of remuneration,” said Philippe Lamberts, a Belgian lawmaker for the Green Party who was one of the leading negotiators for Parliament. “I think it will really hit them.”
Feel free to vent in the comments, you’ve earned it. But this Lex column strikes me as the only worthwhile thing to say about it: Read more »
I appear to be in the minority here, and it may have to do with my not really having any money in the market (or elsewhere!), but for a long time I’ve found the news out of Europe very soothing. In part this is because I am a congenital optimist and so a sucker for can-kicking, but it is also in part because I realized that I didn’t need to pay any attention to it. There’s an evergreen quality to the euronews where you can ignore it for two months and come back and pick up right where you left off:
Euro finance chiefs left unanswered how they’ll fill a fresh hole in Greece’s balance sheet without tapping their own bailout-weary taxpayers for money after giving the country two extra years to trim its budget deficit. …
Prospects of a funding deal at a hastily scheduled Nov. 20 meeting were clouded by objections from the International Monetary Fund, which took issue with the ministers’ decision to postpone the goal of getting Greece’s debt down to a “sustainable” level of 120 percent of gross domestic product by two years to 2022.
The highlights here – can-kicking, important questions left unanswered, disagreements between people at the same press conference1 – are perennials, and you’ll miss them if anything ever actually changes. I know I will.
This is my favorite though: Read more »
In the war against bankers’ pay the EU has a secret weapon:
Banks should pay bonuses in debt, which would be wiped out if a bank failed, an EU banking report will suggest as Europe attempts to step up the fight against bankers’ pay.
I’ve been sort of fond of this for a while. It’s a way for bankers to eat their own cooking: if you’re a banker, what you produce, more or less, is debt, so you might as well stand behind the basic soundness of that debt by owning lots of it. You can fine-tune this theory – for instance, Credit Suisse circa 2008 produced asset-backed securities, and Credit Suisse circa 2011 produced derivatives-counterparty credit risk, so that’s what its bankers got – but the basics are sound. In particular, if you are a banker, one thing that you don’t produce – that is sort of an unwanted byproduct of your operations, imposed by regulators but not particularly liked by you – is equity, so getting paid in equity is a little perverse.1
There’s a little theoretical tension here, though, which is that there’s also good reason to think that bankers should be the lowest on the totem pole in terms of getting their money back if they blow up their banks. You could just about imagine a bank capitalized with 10% equity, 10% banker-pay junior debt, and 80% senior debt, say, failing and recovering 85 cents on the dollar. So the real debt gets paid off 100%, but where does the 5 cents go? Classically the “debt” that the bankers get is senior to the “equity” that public shareholders get, but it seems a bit rough to pay the nasty bankers before you pay the widow-and-orphan shareholders. Read more »
Today the EU issued a discussion paper about how it plans to forcibly write down the debts of shaky banks if it ever comes to that, which for some reason is called a “bail-in,” I guess in the sense that the bailing is coming from creditors who are already in the bank’s credit rather than from taxpayers who aren’t. It’s pretty interesting, go read it, or read Bloomberg’s piece about various bits of squabbling over it and also somewhat counterintuitively a statement from EU guy Michel Barnier (left!) that “There’s a big international consensus on the principle.”
Actually there probably is; the principle is pretty sensible, which is that there comes a time in many companies’ lives where the best way to preserve value not only for the enterprise but also for the creditors is to write down some of the debt to allow the company to continue as a going concern that can pay off the rest of the debt. This is why we have bankruptcy, but bankruptcy seems to be too slow and scary for banks. The worry is, you have a bank and it’s got like $15 of equity and $100 of debt and its assets go from $115 to $90 and all of the debt holders start looking at their watches and being all “hey this has been fun but I’m actually late for this thing so would it be too much trouble for you to give me my money back?” and the bank has to sell a bunch of stuff to meet those demands then that looks like a fire sale and people figure it out and all of a sudden that $90 becomes, like, $60, and the debtholders get back 60 cents on the dollar instead of the 90 cents, and they’re like “crap, if I’d just said ‘I’ll take $90, and also whenever you have it is fine, no rush,’ I’d have much more money.”
Of course that’s all sort of obvious so one thing that the creditors could do is just not do that, and voluntarily and quickly write down their debt so that the bank wouldn’t have to have a fire sale to meet their claims, but, knowing creditors, that’s not what would happen, so you need some sort of resolution mechanism to protect them from themselves. Read more »
The following post is by our anonymous hedge fund manager friend, who shall remain nameless. He runs the Emerging Markets desk at his firm.
Greece CDS has traded wider this morning on comments from the Prime Minister that his government might seek aid from the IMF. This has been taken to suggest that the rest of the EU has still not yet come to internal agreement about how to handle Greece’s debt woes. That several EU countries view an IMF-led package for an EMU member as, if not a mortal embarrassment, then at least something resolutely not to be wished has raised fears that these countries, via their influence at the IMF board level, might close off even this avenue of assistance to the Greeks. Iceland might be able to tell Greece a thing or two about trying to keep an IMF program on track while suffering the wrath of several EU members. Read more »