Renminbi overtakes euro as 2nd currency in global trade finance;
Renminbi overtakes euro as 2nd currency in global trade finance
Bloomberg has the story from China that the renminbi has overtaken the euro as the second largest currency in global trade finance. The story is based on data from Swift, according to which the renminbi had a share of 8.66% of letters of credit and collections in October, compared with 6.64% for the euro. Please note, this is a very specific sub-category of the currencies’ overall use in international transactions. The renminbi’s rank in all transaction in the global payments system is number 12. Interestingly, Germany is quoted as among the five countries making most use of the renminbi in trade finance. In January 2012, the renminbi’s share was less than 2%, against almost 8% for the euro. The share of the US dollar remains dominant at 81%, according to Swift.
Poll shows that 61% of the French support closing down public services to reduce public spending;
61% of the French consider it necessary to close public services
61% of the French consider it necessary close down public services to reduce public spending, according to the latest IFOP poll cited by Les Échos. Six out of ten French consider that the state can function as well as it does now with fewer civil servants, while only 32% consider a reduction unrealistic. How to achieve this reduction seems more divisive. The 1:2 rule for replacing retiring staff was approved by 54% and opposed by 46%. With respect to taxes, 45% considered them excessive, 43% as high and only 12% as acceptable.
The EU ‘exported’ its crisis to the Western Balkans where countries experienced on outflow of funds and a slowdown of their economy due to collapsing exports to the EU;
Euro crisis effects on the Balkans
The euro-crisis is hard felt also in the Western Balkans, points out this Deutsche Welle article. Before the euro crisis, Greek banks were important financial players there with more than 1900 branches, some 23,000 employees and financial commitments of €70bn or a 15% share of the overall basic capital of all banks in the Balkans. Together with Austrian and Italian financial institutes, they provided loans to local businesses. Five years into the Greek crisis the tide has turned and Greek banks pulled the money out of neighbouring countries. As foreign funds and investment expatriated, its heavy dependence on the EU turned falling exports into a recession, while persistently high structural deficits exasperated the effects of the crisis. There is not much support from the EU, busy with its own crisis amid a limited capacity to improve the situation.
The Wall Street Journal writes about how the Italian credit crunch is affecting small businesses in the regions, where there is now clear evidence of a vicious circle between bankruptcies and loan retrenchment;
A look at how the Italian credit crunch affects business
The Wall Street Journal has descended deep into the Italian provinces to see how the credit crunch is affecting the economy, and found a marble company that has filed for bankruptcy despite good profitability and revenues. The reason is a cut in the credit line by its bank, Banca Marche, one of the country’s innumerable small and mid-tier banks, which account for about half of all lending in Italy. The article gives a good flair of the vicious circle of a credit crunch. Banca Marche was once one the region’s largest lenders, accounting for some 20% of all loans, but after the real-estate crunch, some property investors struggled to repay the loans, which in turn triggered a generalised loan retrenchment by the bank, and this in turn led to further bankruptcies. A similar effect, on a much bigger scale, has been observed with Banca Monte dei Paschi di Siena.
Bill Gates is so annoyed at being used politically as an example of « international investor confidence in Spain » that he wants nothing more to do with Spanish investments ;
How to lose friends and alienate people, Spanish government edition
In the middle of October, as the Spanish government and business leaders were on a media blitz to convince the world that the crisis in Spain was over, it became known that Bill Gates had invested a small fraction of his fortune into a 6% stake in Spanish infrastructure company FCC. Bill Gates’ investment was touted time and again, including by several ministers, as a sign of international investor confidence in Spain. El Confidencial now reports that Bill Gates is so annoyed about the political use of his name that he’s rejecting out of hand other offers to invest in Spanish assets.
Benoit Coeure says US-style QE is very unlikely, as is deflation;
- Jean Pisani-Ferry says the ECB should act more decisively to forestall a potential deflationary threat, as conventional policies are close to the point where they stop working;
Coeure and Pisani-Ferry on Deflation
Benoit Coeure and Jean Pisani-Ferry disagree, at least in public, on the deflation risk and the ECB’s appropriate policy reaction. Benoit Coeure told the Nikkei newspaper that first, the ECB did not see any concrete deflation risks, and second, that asset purchases of the kind undertaking by the Fed or the BoJ were not warranted, given the current outlook for inflation.
In a Project Syndicate column, Jean Pisani-Ferry writes that the threat of outright deflation in the eurozone is not remote. The first problem with deflation is that it raises the real interest rates above its equilibrium level – while the nominal rate is constrained by the ZLB. The recent rate cuts by the ECB were too little too late to move the real rate down sufficiently. The second problem is that it makes economic rebalancing more painful. And it increases the burden of the stock of debt, putting upward pressure on debt/GDP. He said one cannot accuse the ECB of completely neglecting deflation, it is risky to keep inflation at 1%, hoping for a gradual ascent through a recovery. Pisani-Ferry says the ECB must be ready to adopt unconventional policies soon. One of the lesson of this crisis in the US has been that conventional policies stop working sooner rather than later.
Two polls out over the weekend show that over 70% of SPD voters support the Grand Coalition, raising expectation for a Yes vote among SPD members in a referendum that starts this week;
Poll shows SPD voters overwhelmingly in favour of Grand Coalition
The political gamble of the SPD’s leadership to enter into Grand Coalition talks with the CDU/CSU seems to be paying off – at least according to a poll in Bild am Sonntag/Emnid, according to which 70% of SPD voters would be in favour of a Grand Coalition. A Forsa poll even puts that number at 78%. Please note that this is not the same population as those who are asked to vote in the party’s referendum Dec 6-12, which is restricted to SPD members only. As Spiegel Online reports, the SPD’s leadership is raising the stakes in the debate, now openly threatening a mass resignation of the entire leadership, unless they are supported by the party.
Latvia’s prime minister Valdis Dombrovskis resigns to shoulder 'political responsibility' for supermarket collapse;
- Oversight authority had been phased out and left to municipalities as part of the austerity drive;
Latvia's Prime Minister Resigns
Latvian PM Valdis Dombrovskis resigned in a surprise move intended to shoulder some responsibility for the collapse of a supermarket last week that killed 54 people, the worst national tragedy in decades. The government came under pressure over its oversight responsibility, which it had passed on to municipalities as part of the austerity measures back in 2009. The supermarket was built in 2011.
At a news conference Wednesday, Dombrovskis said he had been thinking about "the moral and political responsibility" for the supermarket collapse for nearly a week. He hadn't decided to actually resign until a 90-minute meeting with the president on Wednesday morning, shortly after a memorial service in Riga honouring three firefighters killed in the collapse. "Right now, Latvia needs a new government," Dombrovskis said, noting his preference for a "broad center-right coalition" that has support of parliament. Discussions about a new coalition will commence next week.
Latvia's economics minister Daniels Pavluts said earlier that ineffective government oversight of construction projects was partially to blame for the collapse of a supermarket roof. Back in 2009, the nation's Building Inspectorate was phased out amid widespread austerity measures. As prime minister, Dombrovskis voted in favour of this move, which placed oversight authority with municipalities. Riga's mayor Nils Ušakovs now accuses the prime minister of trying to gain political points by resigning, and is attempting to avoid problems that Latvia faces.
Dombrovskis has led Latvia since 2009, making him the longest-serving prime minister in the more than two decades. He won re-election twice, and emerged as a lead figure in efforts to stabilize small Baltic economies, largely through austerity.
former Spanish PM Zapatero releases his memoir, the most controversial element of which appears to be the inclusion as an annex of a confidential letter from the ECB and Bank of Spain in 2011, demanding a detailed program of economic reforms which were only enacted by Mariano Rajoy’s government;
Spain is shocked, shocked at Zapatero publishing secret ECB letter from 2011 demanding reforms
after much foreshadowing, former Spanish Prime Minister José Luis Rodríguez Zapatero finally released his memoir entitled “the Dilemma” and centered around his last “600 days” in government in the throes of the sovereign debt crisis. El País highlights his claim that he rejected two separate offers to take a sovereign rescue, one by Merkel at the end of his tenure which we reported earlier this week, an earlier one by IMF director Dominique Strauss-Kahn, and also that he resisted pressure from the ECB in the summer of 2011 to enact a harsh package of economic reforms. Zapatero argues that Spain would have had an even harder time getting out of the economic crisis had it been subject to a “rescue”.
One of the most controversial elements of this is the inclusion as an annex in the book of a confidential letter (downloadable as a PDF from El País, in Spanish) from then ECB president Jean-Claude Trichet and Bank of Spain Governor Miguel Ángel Fernández Ordóñez. The existence of the letter (and its Italian counterpart) was leaked by Italian sources almost immediately in August 2011, as reported by Bloomberg at the time, but it had always been denied by Zapatero. There has been a substantial amount of outrage among commentators at the fact that Zapatero is “selling books” by using a letter which he refused to disclose to the Spanish Parliament at the time despite repeated demands.
A detailed analysis of the ECB’s letter by Belén Carreño in El Diario argues that, though it was not acted upon by Zapatero, it did serve as a blueprint for the reforms carried out by Mariano Rajoy’s cabinet.
Forza Italia officially pulls out of the Italian Grand Coalition, leaving the Letta coalition with a majority of 169 votes in the Senate, against 146 Senators aligned to the opposition;
- the decision was triggered by the vote on the Italian budget, which the Senate approved with 171-135 – with Forza Italia opposed, but parts of Beppe Grillo’s Five Star Movement in favour;
- today, the Senate is scheduled to vote on a six-year political ban for Silvio Berlusconi;
Italian Grand Coalition is now a small coalition
Italy’s newspapers were this morning marking the moment of the formal end of the Grand Coalition, as Forza Italia pulled out of the government, after having rejected the budget, which passed in the Senate with 171 votes in favour and 135 against. The real majority of the new government is smaller, but probably big enough for the government to last another year. But with only 30 senators (out of a previous centre-right alliance total of 117) aligned with Angelino Alfano’s New Centre Right, Italy’s government is now a very ordinary coalition between the PD, the centrist party Scelta Civilta, and the New Centre Right, and a few independents. The current formal majority in the Senate is 169, made up of eight groups aligned with the government, and 146 aligned with the opposition. Forza Italia is the biggest opposition party, followed by Grillo’s Five Star Movement.
The Senate’s budget committee held a long session the previous night which it approved only four out dozen amendments, La Repubblica writes in this morning’s edition. It became clear that Forza Italia was already behaving like an opposition party, in pursuit of the tactical goal to delay today’s scheduled vote on Silvio Berlusconi’s ban from holding political office for the next six years.
Once this ban is effective, Berlusconi will also lose his protective immunity. In addition to the criminal conviction he received, he is also awaiting two further criminal trials, one relating to charges of under-age prostitution, another to bribery.
Pierre Alan Furbury warns that Ayrault’s promise of a tax overhaul might end up being nothing but a short term political manoeuvre;
Ayrault’s tax overhaul endangers his political survival
Jean Marc Ayrault’s promise an overhaul the tax system risks in resulting in nothing much but a short term boost for a prime minister, who is currently fighting for his survival, suggests Pierre Alan Furbury in Les Echos. The coup was prepared neither with the cabinet nor with the finance ministry. Although Francois Hollande gave the green light for the interview with Les Echos, he keeps himself now at a distance, to watch the story unfolding, it seems. Some MPs are sceptical over the benefits of such a long and complicated reform project where losers are quasi guaranteed. The outcome is thus uncertain. The longer the process, the more everybody will retreat into his reasoning for doing nothing, leaving Ayrault exposed politically. Ayrault promised the overhaul to be ready by mid-2014, but the enthusiasm already starts to abate one week after the announcement.
Jornal de Negocios find that Portugal’s constitutional court is not so much of a blocking force at all, as it approved 82% and only blocked 18% of the fiscal efforts since 2011;
Portugal’s constitutional court not much of a blocking force after all
Jornal de Negocios dug out all austerity measures that were submitted to Portugal’s constitutional court over the last three years to find out whether there is any truth in the government’s claim that the constitutional court is the blocking force to government action. The journal found that in total, the judges validated government initiatives worth €7.7bn, or 82% of the proposals that were submitted to the court. Over those three years, the government had to give up or reshape only 18% of its plans, or €1.7bn. Two of the four blocked measures - transfer cuts to pensioners and civil servants with more than €600 per month - forced the government to find alternative revenue sources. The other two - the so-called "rehabilitation" and the extraordinary tax on sickness and unemployment – had been reformulated.
a preview of former Spanish PM Zapatero’s memoir claims that Merkel offered a joint €50bn and €85bn rescue of Spain and Italy at the end of 2011;
- in an interview with El País, Zapatero also claims that Spain’s balanced-budget constitutional amendment avoided a “technical government” but that the amendment was not adopted under pressure;
- Zapatero’s finance minister until 2009, Pedro Solbes, also on a book tour, starkly criticises Zapatero’s handling of the economic crisis and cites the PM’s rejection of necessary reforms as reason for his own resignation;
Merkel’s indecent offer to Zapatero
Former Spanish Prime Minister José Luis Rodríguez Zapatero claims that Angela Merkel offered him a €50bn bailout in November 2011, the same month that Spain held the general election which Mariano Rajoy’s PP would win in a landslide. In a preview of Zapatero’s soon-to-be-released memoir, Reuters writes that Zapatero categorically rejected the awkwardly-timed offer. According to the former Prime Minister, Merkel’s plan included a parallel €85bn rescue of Italy.
This comes on the heels of El País leading Sunday’s edition with Zapatero’s claim that his urgent reform of the Spanish Constitution at the end of the Summer of 2011 was the only way to avoid “a technical government”. In a long-winded interview on the issue of Spain’s possible constitutional reforms (on succession in the Monarchy, the Catalan question, etc), the issue of the 2011 reform of Article 135 is briefly touched upon. That reform was part of the push by Merkel and Sarkozy (recall their letter to van Rompuy of August 2011) to enact Eurozone-wide balanced-budget legislation, preferably in the Constitutions. Nevertheless, Zapatero insists in the weekend’s El País interview that the idea of a balanced budget constitutional amendment as a way to fend off a “technical government” occurred to him “autonomously” without external pressures. We also recall that, that same Summer, Jean Claude Trichet and Mario Draghi wrote a letter (later leaked to the Financial Times) to Silvio Berlusconi demanding economic reforms.
At about the same time that Zapatero’s book is being released, former finance minister and EU commissioner Pedro Solbes is also releasing a book about his time in government. Solbes resigned from government in 2009 in disagreement with Zapatero’s and handling of the economic crisis (see interview in El País, English edition, also this weekend), citing Zapatero’s rejection of an internal government memo by Solbes in 2009 in the mold of what was later done under EU pressure, such as pension reform. The two men, who appear to have had a tense relation, have been caught in a newspaper-mediated debate over Zapatero rejecting of the “necessary” reform package proposed by Solbes.
one possibly overlooked aspect of the Ukraine’s suspension of the EU’s Association Agreement has been the role by German demands for Ukraine to adopt austerity;
Merkel wanted to export austerity to the Ukraine
The Eastern Partnership is definitely off our reservation, but nevertheless we feel there is an overlooked aspect in Ukraine’s suspension of the talks with a more direct relevance to our debate. We would like to draw attention to a little-reported speech delivered on last Monday the 18th by Angela Merkel to the Bundestag (video) in which she demanded that Ukraine engage in fiscal consolidation as part of the agreement. We have found this speech reported in English only in the Russian site Vestnik Kavkaza.
“… An additional serious problem for Ukraine is fiscal consolidation. Without serious finances, there will be no agreement on economic support from the IMF. We believe that such an agreement with Ukraine is necessary. Bilateral credits of the EU for macrofinancal support of Ukraine depend on this.
We constantly recommend Ukraine to conduct reforms. We cannot do this for the Ukrainian government. The reforms should be provided, notwithstanding, the association agreement will be signed or not. We understand that they cannot be provided in a single day.
We also would like to support Ukraine in its reforms by our cooperation and financial aid for the European neighboring policy, but Ukraine has to provide necessary conditions for this. And it has to do it right now.”
Matteo Renzi says he will present demands for reform to the government the day after the primary, and threatens to the pull the plug on the coalition unless these demands are met in full;
- the Senate is due to tomorrow that cast a vote that will likely ban Silvio Berlusconi from holding political office;
Renzi’s challenge to Letta
Italy’s newspapers are full of the latest twists in the Berlusconi saga, which will reach a new climax tomorrow with the Senate due to vote to expel him from political office. What we found more interesting were reports in Corriere and La Repubblica, both quoting an extraordinarily worded challenge by Matteo Renzi, the mayor of Florence, who is currently campaigning in his party’s leadership primary. The newspaper quoted him as saying that on the day after the primary, which he expects to win, he would present the government with a list of reforms, starting with electoral reforms. “If you do not do what I say, it’s over,” Italian papers quote him as saying. Silvio Berlusconi called Renzi a mine about to explode in the face of the government.
Separately, the government is preparing for the 2014 budget vote with negotiations still ongoing. To speed things up Enrico Letta has resorted to the time-tested procedure of a confidence vote, as Reuters reports, which he is likely to win, given the majority of his coalition.