If Misery Really Loves Company, It Should Take A Little European Vacation

Hey look, Europe is doing terribly.
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How can we make things worse? By English: Foreign and Commonwealth Office (Flickr) [OGL], via Wikimedia Commons

How can we make things worse? By English: Foreign and Commonwealth Office (Flickr) [OGL], via Wikimedia Commons

With all of the terrible, incomprehensible things unfolding in Donald Trump’s America—the apparent failure of our #DraftDimon movement and the likelihood that the role will be filled by Gary Cohn or an animatronic Ayn Rand talking to PhilDonahue being the least of the worries—it is easy to forget that there are terrible, incomprehensible things going on elsewhere. Most notably, on the other side of the Atlantic. Let us travel there before President Trump builds a 45,000-foot-tall wall down the middle of it.

We begin in the U.K., our forebears in so many ways, including the recent trend towards electoral incomprehensibility. The economic catastrophe predicted by just about everyone in the aftermath of the Brexit vote has thus far failed to materialize, as the government pursues twopolicies that do not appear to be in the president-elect’s plans, such as they are.

The BoE responded to the Brexit vote by cutting interest rates to record low of 0.25 percent in August and restarted its massive bond-buying programme for the first time since 2012.

"The Bank of England's monetary actions have undoubtedly had a positive effect in stimulating the economy and actually the performance of consumer demand I think over the last few weeks has demonstrated that very clearly," Hammond told parliament.

And not just that...

Business minister Greg Clark said on Tuesday the British government was "unashamedly pro-business", but that he wanted to strengthen existing corporate governance structures to avoid damaging public trust in the private sector.

Britain hopes to encourage better corporate behaviour, part of Prime Minister Theresa May's drive to support the millions of people she says voted for Brexit in protest of 'out of touch' elites.

Speaking of people voting spitefully, next up on the schedule are the Italians, who on Sunday will decide whether to make their notoriously ungovernable country slightly more governable. Un-inspiringly but unsurprisingly, they are likely to vote "No": The polls look an awful lot like those Brexit, as “Si” started out with a commanding lead only to watch it slowly frittered away. There is one important difference: Unlike final polls showing a small but clear lead for “Remain,” the Italian polls show a small but growing lead for “No.” In the past month, exactly one poll has shown “Si” in the lead; twenty-nine have favored “no.”

That of course makes the Italian referendum look like chapter three of the Brexit-Trump epic of despair. On the other hand, given the way polls have been performing, maybe it’s a good sign for “Si.” Still, let’s stay pessimistic and assume the “No”s have it. What do Italian banks—like, say, Monte dei Paschi di Sienahave to look forward to, other than their 65th government in 71 years?

Prolonged market uncertainty, a change of government in Italy and possible new elections next year could slow the continuing cleanup of Italian banks, which are struggling to shed €200 billion in bad loans and find ways to raise profitability. Concerns over Italian banks run deep. This year their shares collectively lost half their market value, even as other European banks are down just 14%....

Analysts fear a contagion effect, with a possible drain on deposits at smaller and weaker banks in Italy. Lenders elsewhere in Europe, such as Spain’s Banco Popular, Portugal’s Caixa Geral de Depósitos and even Deutsche Bank may see their shares battered. Moreover, a loss of confidence in the banks could depress the economy, hurting lending and investments.

Well that all sounds buonissimo, and Italy’s UniCredit is hoping to get ahead of it.

Italian lender UniCredit has sent invitation letters to 10 banks to form the consortium for its planned multi-billion euro capital increase that should be launched in February, two sources closed to the matter said on Tuesday….

Sources have previously said that Italy's biggest bank by assets is looking to raise between 10 and 13 billion euros through the share issue.

With populism and Euroskepticism on the rise all across the continent, one might expect the EU to throw the unwashed masses a bone, perhaps in the form of allowing a little stimulus to break through the crushing burden of austerity. Even if they don’t really believe in it, as a matter of survival? No: The European Union would rather die than compromise Germany’s principles.

The European Commission should focus on enforcing European Union budget rules rather than proposing fiscal stimulus, the chair of the Eurogroup of euro zone finance ministers said on Tuesday, in remarks that echo Germany's position on tight spending….

"Between the recommendation on fiscal expansion and upholding the rules on the fiscal trajectory that come from the pact, there is some tension," Dijsselbloem said. "They can't both be true. The first responsibility of the Commission is to uphold the pact."

This all seems rather self-defeating to at least one German.

"One should sometimes ask the question: 'is the political damage that we are inflicting worth what is being pursued in terms of austerity politics," Gabriel said at an event in Berlin.

And we haven’t even talked about Greeceyet!

Greece can meet its fiscal targets next year, the head of the country's central bank said on Tuesday as he warned that the biggest risk the economy faced would be a failure to conclude the latest bailout review….

"Despite the positive projections ... serious risks remain," Yannis Stournaras told a conference in Athens. "The main risk would be the eventuality of failing to reach agreement on the second bailout review and any delays in implementing the programme or backtracking."

That’s great, because positive projections have really had a habit of coming true in Greece.

Britain is pro-business, but firms need better governance – minister [Reuters]
Bank of England’s monetary actions have helped stimulate economy – Hammond [Reuters]
What Does Italy’s Constitutional Referendum Mean for Its Banks? [WSJ]
UniCredit invites 10 banks for cash call consortium: sources [Reuters]
European Commission should focus on budgets, not stimulus, Dijsselbloem says [Reuters]
Germany’s Gabriel warns of costs of rigid EU budget rules [Reuters]
Failure to conclude bailout review main risk for Greek economy – central bank head [Reuters]

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