Is the EU run by a madman?

 

Speaking in the European Parliament, a mentally unbalanced Topalanek accuses Obama of going down the road to hell. The Czech EU presidency is now turning into the disaster we have always expected. A day after losing a vote of no confidence in his national parliament, the Czech premier took the stage at the European Parliament in Strasbourg to launch a diplomatically disastrous attack on US president Barrack Obama over his stimulus programme. He said the attempt to borrow trillions would pave the road to hell. (While conservative economists inside and outside the US may agree with that view, it is nevertheless a different matter for the acting president of the EU to make such a statement, as one would expect it to reflect official EU position, which it is not.) FT Deutschland said in its news story that the comments underline doubt the Czech EU presidency, which runs until June, could be successfully completed.

 

Wolfgang Proissl of FT Deutschland also produced a nice anecdote in a separate article. When Topolanek said the US had to finance its stimulus through the issue of bonds, a translation error produce the news headline that the US would finance its stimulus through the export of bombs. Flabberghasted Czech officials told everybody that he said “bonds, not bombs”.

 

 

Global trade shrinks 20% since October – Speed of decline greater than during Great Depression

The best authority on real time global trade data is the Netherlands CPB Institute, which yesterday published its January trade data. Global trade are now down 20% since October. This is not annualised but actual. In other words, global trade volumes are down by a fifth compared to pre-crisis levels. FT Deutschland quotes a CPB staffer as saying this is faster than during the Great Depression (the estimates there range from 25-35% during 1929 and 1932).

 

 

 

This is only the beginning

Says a warning from a group named “bank bosses are criminals” issued after
claiming responsibility for vandalising the home of former RBS chief Fred
Goodwin. Goodwin was publicly criticised for receiving £700000 annual pension
after his bank had to be bailed out by the government with a £20bn capital
injection. FT Deutschland also reports about other incidents, such as the
French 3M chief Luc Rousselet, who is taken hostage by his own staff over
dismissals. In France, uprising social frustration is used by trade unions
to mobilise for protest actions and led some commentators to compare the
situation with the French revolution. But a contagion throughout the
Western World seems still considered as unlikely since welfare systems are
capable of buffering intense social tensions.




German tax presents


German finance minister Peer Steinbrueck wants a temporary tax break for
companies to support them through the crisis reports the FT Deutschland.
Parts of the tax reform last year could be reversed as the finance ministry
now works on provisions that allows a loosening the limits for tax
deductibility of interest payments (which is currently limited to 1m and
could be extended to 3m). Also strict rules for firms that acquire other
companies to offset their losses against own tax liabilities could be
relaxed. Industrial confederations and Christian Democrats called for
relaxation of both rules for weeks but met resistance from Steinbrueck, who
now explains his U-turn by saying that he does not want to appear
bull-headed.




EU should help CEE

A Le Monde editorial argues that the EU has no option to be indifferent to
what happens in Central and Eastern Europe. They are emerging countries
that our economies were happy to invest and outsource our production to in
the past. Today, as the crisis proceeds, money and production are
repatriated from the CEEs, causing their currencies to depreciate and
provoking a political crisis in some countries. The other EU states are
economically so interlinked with the CEE that a crisis there has serious
repercussions for the centre. Also politically, it is impossible to simply
leave those countries to their own destiny in a crisis that was not of
their own making. In the coming years the CEE will need money but also
political consideration.



DSK: Question about new reserve currency legitimate

In a hearing of the parliamentary finance committee in Paris, IMF president
Dominique Strauss Kahn said that it is absolutely legitimate to discuss the
possibility of a new international currency (Le Monde). This is not a new
question but the current crisis renews the interest in this question. He
also said that he does not consider that the dollar ceases to be an
international reserve currency. Even the Chinese don’t think that.

A new chief of the Economic and Financial Committee

Thomas Wieser, state secretary in the Austrian finance minister is to be become the next head of the Economic and Financial Committee, the influential committee that prepares the eurogroup and Ecofin meetings of finance ministers. FT Deutschland has this story, and points out that it is unusually for a non-G7 representation to fulfil this role, but Germany’s Jorg Assmussen was considered as too inexperience to be entrusted with this role. Wieser replaces Xavier Muscat, who will return to Paris as Sarkozy’s economic adviser.

 

 

US New Home Sales

Bankers are now talking about the green shoots of recovery because a few indicators have turned. When it comes to the US housing market, a critical element in the crisis, our favourite source Calculated Risk tells us that the February upturn in new home sales should not be exaggerated, nor confused with an upturn in prices. Also the upturn is so small that it is hardly visible on the chart – an eyetest as Calculated Risks puts it. Still the blogger expects new homes sales to bottom out this year, which suggest that prices could bottom out next year.

 

Here is the eyetest chart.

 

 

 

In defence of the Geithner plan

Yesterday, we summerised four highly negative comments about the Geithner plan. For balance, we thought it appropriate to highlight a few of the positive comments.

 

Brad DeLong

The most comprehensive defence of the plan comes from Brad DeLong. He makes the point companies cannot currently finance expansion because asset prices are excessively low due to higher risk and information discounts. The idea is to boost asset prices to the companies can expand once again. If the government buys up $1 trillion of financial assets, the private sector has to hold $1 trillion less of risky and information-impacted assets. He estimates that one would have to take $4 trillion out of the market to move asset prices to unfreeze credit markets. So the plan is not sufficient. “But the Fed is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.”

 

Nouriel Roubini

Nouriel Roubini says he sees light at the end of the tunnel, except that he does not know whether it’s daylight, or the light of an oncoming train. But he was positive on the Geithner plan: He told the New York Times he liked that the government was finally stepping up to clear the toxic assets off the bank’s balance sheet and that private capital would come in to make a market for it. “Having five people bid on a toxic asset, rather than a clueless government, will ensure that the government doesn’t overpay… People say, ‘the government is putting in 95 cents on the dollar, so why not put 100,’ to do it all by itself. It’s because private-sector participants have the incentive to get the best price.”

 

Jeff Frankel, too, believes that the Geithner plan should be given a chance for similar reasons, as those of Roubini and DeLong. In the end, the argument boils down to the question how to judge the importance of the private sector component. Without it, the plan is similar to the TARP programmes, which most of these commentators have condemned as being ineffective.

 

 

 

 

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