Exporters face credit crunch

 

The FT reports that Germany’s BGA exporters’ association have forecast a “dramatic deterioration” in credit conditions in coming months, which would result in “massive financing squeeze”. It quotes the president of the association as saying that there are already difficulties for middle- and long-term credit. And the banks are now beginning to squeeze out short-term credit. The FT said the reality down on the ground is very different from politicians say who have argued that the export-dependent country is not facing problems in the supply of credit to business or households.

 

French car industry in trouble

Wreckage premium and moral-boosting words from the president were of little help: the French car industry is going down with 20000-30000 job losses  expected this year in France, more than 10% of the workforce in the car industry, reports Les Echos. The insurer Euler Hermes estimates that more than 400 suppliers could go out of business. At Renault, the production is running at 50% of capacity. Hermes recommends more presence in emerging markets and new alliances to cut costs, nothing of which is about to happen.

 

Defining the future

The French government started its search  for what could be priority investment projects worth to be debt financed. Les Echos reports that it already looks like the ideas are all over the place. Francois Fillon named biotechnology , energy, and electric cars while Sarkozy’s entourage listed ecology, research, education, training, industrial policy (!) and SMEs. Eric Woerth meanwhile starts by defining the projects as those that bring a return to future generations. Statistics tell us that France spends 6% of its budget on investment, against 34.5% on civil servants’ pay and 53.9% for consumption. But the statistical definition of investment is narrow, as it measures only infrastructure. Most of the priority ideas would never be counted statically as investment but as consumption.

 

 

Short term money market rates fall

European short-term money market rates have fallen massively after the ECB’s €442bn 12-month repo which had the effect to oversupply the banking sector with new liquidity. The FT Deutschland reports that one-day money market rates fell to 0.25 to 0.5%, from previously prevailing levels of between 1 and 1.25%.

 

A stimulus for a bureaucracy

FT Deutschland leads with the story that Germany’s stimulus money is stuck in the local and land administration, and does not get through to industry. Of the €13bn earmarked for infrastructure and schools, only €11bn have been spent, as applications are getting stuck in local administrations, and this despite the fact that they have agreed to breach EU public procurement rules, so that for order up to €1m, the local administration is free to channel the money to local companies, without having to subject to EU-wide tenders. (This shows that infrastructure investments, necessary as they may be, are not well suited to stimulus programmes, given the long time it takes for such programmes to be shovel-ready).

 

Von Hagen on taxes and debt rules

In an interview with FT Deutschland, Jurgen von Hagen said Germany’s fiscal policy has been totally misguided, as it persistently ignored the inter-relationship between deficits and growth. He explicitly rejected calls for tax increases for the same reason, as they would reduce Germany’s potential growth rate. He said debt ceilings, such as the recently agreed constitutional change, do not work as they are too mechanistic, and lead to policy mistakes.  He opposes the de-politicisation of fiscal policy, as fiscal policy is in its nature political.

 

Spain Interrupted

League tables are big in southern Europe. When Spain overtook Italy in terms of GDP-per-capita in 2006, it was headline news, and subject to mutual discriminations. The latest data, as reported by El Pais, are showing that Spain is falling back relative to the eurozone, a gap which it has been steadily close for 13 years until in 2008 the trend was reversed. In 2007, Spanish per capita GDP was 94.3% of the eurozone average. In 2008 it fell to 93.6% (and we would guess that 2009 and 2010 are going to be pretty years as well).

 

Draghi warns of premature exit

Il sole 24 ore quotes Bank of Italy governor Mario Draghi as saying that to overcome the global economic crisis two fundamental conditions have to be met, maintenance of consumer spending and continued strength of the labour market. He said it was far too early to put in place exit strategies at a time when the banking system is not yet repaired, and when the credit flows have not been restored.

 

Well-being through balanced budget

The Belgian Prime minister Herman Van Rompuy calls on regions and communities to work towards a balanced budget,” not as a federal dictate but because there is a  general interest  to preserve our well being”, quotes Le Soir.

 

No more foreign currency credits in Austria

Foreign currency credits should come to an end in Austria, reports Der Standard. The National Supervisor FMA said that foreign currency credits should no longer be a standardised product; exceptions are subject to restrictive rules, i.e.  for those, whose income or wealth is also in the same foreign currency. FMA leaves the detailed regulation to the banks, but announced tight controls in the next year.

 

Greenspan on balance sheets

This is an interesting comment from Alan Greenspan in the FT about the interrelationship between equity prices and the economy. He starts of saying that March-to mid-June rise in equity prices was the main reason for the green shoots, as the $12 trillion of new corporate equity value added to the capital buffer that supports the issue of debt. He says he accords a much larger economic role to equity prices than is the conventional wisdom. He says they are not merely an important leading indicator of global business activity, but a major contributor to that activity, operating primarily through balance sheets.

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