The IMF supports a joint euro bond

 

Momentum for a common Euro bond gathers as IMF managing director Dominque Strauss Kahn lent his support to the idea at a meeting of the Aspen Institute in Rome. This is what Straus-Kahn said at a press conference “We have a big player which is the European Union and there is no reason why it shouldn’t have its own way of financing and to issue bonds is a good idea... I really support this initiative. It really depends on the European Commission and the EU authorities but I see no reason why the EU cannot do this.” See also Edward Hugh’s blog entry in A Fishful of Euros (and thanks for the compliments).

 

 

More bailout news

The German finance ministry is apparently actively considering rescue options for euro area countries according to Spiegel online. Member states facing default could be supported by bilateral bonds, whereas the credit-worthy country would borrow money and lend it to the country in difficulty; Another alternative is a common bond issue of solvent member countries. The German finance ministry denied any such considerations while ECB Chief economist Juergen Stark argued vehemently against state bailouts, according to the Financial Times. Meanwhile, former German finance minister Hans Eichel called for an economic government of the euro area.(We only wished he had done at the time when he still had some influence)

 

 

More regulation for the G20

The leaders of the G4 (France, Germany, Italy and the UK) agreed on stronger regulations for financial markets, a clamp down on tax heavens and a stronger IMF as they sought to reach a common position ahead of the G20 summit in London early April. The Financial Times writes that this consensus is a victory for France and Germany, which have championed the need for a seamless regulatory architecture in the face of resistance from the UK, where many hedge funds are based.

 

FT Deutschland summarises the main points: financial markets, hedge funds and rating agencies will be subject to  supervision and regulation; clampdown on tax havens with  increased capital requirements for off shore centers; obligation for banks to save more in good times and to limit to bonus payments; a sustainability charta; a mandate for  the IMF and the Financial Stability Forum to implement the financial action plan and a doubling of the financial resources for the IMF.

 

 

No more support for Eastern Europe

EU Commissioner Joaquin Almunia rejects calls from the World Bank, as well as the government of Austria and Hungary, to increase support for  Eastern Europe, which has become extremely vulnerable amid the global financial crisis. Almunia said that the EU already is doing a lot for those countries and that it is now up to private actors and multilateral organisations to increase cooperation. In particular he called on western banks to support their bank subsidiaries in those countries.

 

 

Munchau on Euroisation

In his FT column, Wolfgang Munchau argues that east Europe’s financial situation is precarious, and that further depreciation could seriously destabilise east Europeans economies and west European banks. Foreign currency borrowings has been a huge mistaken, a consequence of hubris and economic illiteracy. In view of this rapidly deteriorating situation, Munchau advocates full euroisation as a solution, which would obviously necessitate the official abolition of the already defunct entry criteria.

 

 

Irish protests

In Ireland there is growing public anger over the handling of the economic crisis. Up to 120,000 public and private workers took to the streets of Dublin on Saturday to voice their protest at the public sector pensions levy, soaring unemployment and the response to the banking scandals, reports the Irish Independent. Government, financial regulator and central bank stand accused of having failed to react in time prompting calls on bonus payments and dismissal of the board and senior management of the financial regulator.  Former Finance Minister Ruairi Quinn even called for the entire board of the Central Bank, which has largely escaped criticism, to be sacked.

 

 

Steinmeier advocates “more state”

In an interview with the Financial Times SPD chancellor candidate Frank-Walter Steinmeier advocates aggressive government intervention, rather than consumption-boosting handouts or tax cuts to restore people’s confidence in the capitalistic economic system. Facing Angela Merkle in September elections his new programme is to end “the focus on short term returns’ among business and investors. More concretely he proposed extending the minimum time span for investors to hold shares to avoid capital gains tax, debt limits for private equity firms and a common supervisory authority for banks and insurances.  Steinmeier also said the government should directly intervene to protect key German industries, with possible bail-outs in rare cases, rather than rely on fiscal stimuli to boost domestic demand for German products.

 

 

Walter after all

The SPD strategy to make its chancellor candidate more appealing by eliminating his old-fashioned middle-name Walter not only mobilised cartoonists but also the candidate himself, who now blames his clever consultants for this PR disaster.

 

 

Crisis intensifies regional tensions in Belgium

The Belgian institutional crisis intensified after the Flemish parliament effectively freezed employment measures agreed between the regions and the federal government in December last year. The Flemish want to direct the funds to favour employment of high-risk groups - workers over 50 for example - while the federal government advocates a more general cut in employer contributions. Effectively, the Flemish ask for a new power transfer towards the regions in employment policy. The existing conflicts between the two language communities are yet unresolved, a cooperation dialogue was canceled, and a call for new federal elections together with the regional elections in June is gathering momentum, writes Le Monde.

 

Simon Johnson suggests European Stability Fund

Simon Johnson calls for a “European Stability Fund with at least €2tn of credit lines guaranteed by all Eurozone member nations and potentially other European countries with large financial systems such as Switzerland, Sweden and the UK. This fund should provide alternative financing to member countries in case market rates on their government debt become too high. This will prevent a self-fulfilling cycle of rising interest rates. The fund should be large enough to have credibility; countries could access the fund automatically, but should then adopt a 5-year program for ensuring financial stability, subject to peer review within the Eurozone.” He also voices his concern about the moral hazard debate (see Charles Wzplosz on Vox) saying that while this debate would have been useful last fall, it is now awfully late and warns that eventually, we will go to help our neighbors and the longer we delay, the more it will cost, in both monetary and human terms.

 

 

 

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