Sarkozy calls on ECB to publish minutes
The FT leads with the story that Nicholas Sarkozy has produced a three point plan to “improve” economic governance in the eurozone. The first is an obligation to be placed on the ECB to publish its minutes. The second is the construction of a permanent secretariat for the euro group. And the third is a formal dialogue between eurogroup and central banks. The ECB will almost certainly reject the first proposal (and quite possibly the third as well) on the grounds that publication of minutes would put national central bank governors under greater pressure to vote in the interest of their country, rather than in the interest of the euro area as such. Sarkozy, however, is not going to force this issue. The FT says he has already given up on plans for gouvernement economique.
(Here is a short comment from us. This, plus last week’s news that the economic and monetary committee of the European Parliament want to the ECB to be forced to accept an external inflation target, suggests that the critics are seeing a unique political opportunity to raise this issue. So rather than dealing with the potentially huge economic consequences of the global financial crisis, we Europeans are back discussing some technical institutional issues that have no relevance to our economies.)
Munchau on eurozone economic governance
Writing in his FT column, Wolfgang Munchau argues that the eurozone, looked at from great hights, is doing just fine. But intra-regional difference are a growing problem. The eurozone has not strategy to deal with the kind of shocks hitting Spain and Ireland, and this is the kind of event that could trigger some necessary changes of the eurozone’s see-no-evil-hear-no-evil system of governance.
European House Prices
The Financial Times has produced a European house price guide, with some documentation, data, comments to accompany its launch today. If you look at the interactive map, the countries/regions with the strongest housing bubble during 2000-2007 are Iceland, Northern Ireland, Denmark, Estonia, and Poland, but not Spain, Ireland and the UK.
EU Commission cracks down on credit markets
FT Deutschlands leads today with a cracking news story according to which the European Commission is planning to put severe restriction on the ability by banks to participate in the global credit market. The most important of these restrictions concerns a rule that it will only be legal to sell securitised debt instruments, such as asset backed paper or the more compilcated collateralized debt obligations if the issuer retains a stake of at least 10 per cent. (We find this is a very sensible attempt of a regulation, and perfectly compatible with the original intention of the securitisation business. The fact the banks were able to see credit products without retaining a stake was clearly one of the factors that help create the credit bubble.)
The European Commission also wants banks to restrict the amount they lend to other banks to no more than a quarter of their tier one capital.
It is no surprise that the European banking lobby is howling with protest, saying that more transparency will do the job.
In an editorial FT Deutschland makes the point that the proposals have a lot of charm in that the EU can indirectly influences the global regulation of credit markets by placing the buyers under restrictions, not the sellers. So European banks would not be allowed to buy toxic credit products, and this is a much more effective way to influence the global market.
Cowen will warn Sarkozy to back off on vote
Today Brian Cowen will tell Nicolas Sarkozy to stop interfering with Irish politics by pressing the government to hold a second referendum on the Lisbon Treaty. Cowen will warn the French president he is "swelling the ranks" of the 'No' campaign every time he intervenes. The message will be delivered at a key meeting this afternoon, quotes the Irish Independent an insider. The Government's tough stance follows a week of disarray ahead of Sarkozy’s visit to Ireland today, which led to the threat of Fine Gael leader Enda Kenny and Labour leader Eamon Gilmore snubbing the talks.
European credit risk is rising
The FT has an interesting article on the rise of market prices for credit risk. Credit default swaps rates have risen for Greece, Italy, Spain, Portugal and Ireland while German and French CDS prices have been more stable, as they are thought to hold up better in a tougher climate. Since June, CDS on German government debt went up from 1bp to 6bp, while Greek CDS went up from 16bp to 51bp.
A Spanish meltdown
Edward Hugh has a long and detailed analysis about the Spanish economy, and he asks the question whether we might get the much hoped for soft landing but a serious recessum/depression. He provides plenty of data, and some horrid anecodal evidence from Spanish housing market, and advocates a series of policies to the get the Spanish economy back on track, including large scale help to property companies, changes to the variable-rate mortgage system, and more.
Wyplosz on Summers versus Buiter
Should taxpayers bail out the banking system? Writing in Vox, Charles Wyplosz contrasts the Larry Summers “don’t-scare-off-the-investors” pro-bailout view with the Willem Buiter “they-ran-into-a wall-with-eyes-wide-open” anti-bailout view. He concludes that either way, taxpayers are always the losers. The best policy makers can do is to be merciless with shareholders and gentle with bank customers.
You can also readers Willem Buiter’s latest articles on this debate, There is never a right time to tackle moral hazard, in his blog.
No minimum wages please
In an editorial Frankfurter Allgemeine Zeitung calls on the German government not to extend last week’s final decision on minimum wages to more sectors, as this would have negative effects on the labour market. The paper has undertaken a study which shows that German companies will reduce net employment as the economy heads into a downturn (though our reading of these numbers is somewhat more position. These numbers look relatively stable to us.)
Privatise Money
Thorten Polleit, writing in Frankfurter Allgemeine, makes a case against fiat money, which he says is a system that is not sustainable in the long run, as its value will be eroded by crises such as our currnet ones, which end up with high inflation. He advocates a two-stage process: First, reintroduce some gold or silver standard, and second privatise the money, allowing banks to issue their own currency. In such a system Gresham’s Law is inverted. Good money will drive out bad money.
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