Europeans want to tough it out

 

At the G7 meeting in Iqaluit, Canada, the Europeans made it clear that they will sort the Greek out by themselves. Bloomberg reports that European finance ministers said they would help ensure Greece tackles the deficit. US treasury secretary Tim Geithner is quoted as saying that European officials had committed to handle Greece “with great care.” Christine Lagarde is quoted as saying that the G7 Europeans would make sure that the situation in Greece is well managed.

 

Speculative attacks on Greece are a dress rehearsal for the US

The article also includes a reference to a note by Deutsche Bank, which said in a recent research note that the speculative attacks on Greece and others might simply be a dress rehearsal for the US and the UK.

 

Why the IMF must not bail out the eurozone

In his FT column, Wolfgang Munchau makes the case against the IMF as the lender of last resort for Greece. He acknowledges that the fund has the people, the expertise and the instruments, and that the EU is ill prepared, but allowing the IMF to bail out Greece would send a disastrous signal to the financial markets – the signal that the eurozone cannot take care of itself. This could well be the moment when financial markets decide that the eurozone is not a permanent monetary union, but a temporary fixed-currency regime.

 

G7 fails to agree on regulation

The G7 meeting failed to reach agreement on recent US proposals to harden financial regulation, as Europeans are getting more openly sceptical about some aspects of the regulatory package. The Wall Street Journal reports Christine Lagarde said leaders as saying that there was no collective decisions on US proposals to limit proprietary trading at commercial banks, partly because financial institutions in France, Germany and Japan aren't plagued by the same issues as US banks. She also said that it would be difficult to define what is proprietary trading is.

 

Euro continues its fall

Even after the G7 meeting the euro continued to weaken against the dollar, reaching $1.3638 in Tokyo today, and  a 11-month low against the yen Bloomberg reports.  The article also quotes last week’s data showing that future traders raised their bets to the highest level in more than a decade that the euro will weaken against the dollar.

 

 

Who is speculating against Greece

It is the time of conspiracy theories, and here is one. Jean Quatremer has obtain information that one large investment US investment bank, and two important hedge funds are behind the attacks against Greece, Portugal and Spain. Their plan is to create panic, and thus to make large amounts of money. He also mentioned that two hedge funds are furious not to have been allotted funds from the recent Greek refinancing.

 

 

A monetary union too far

Paul Krugman is getting increasing euro-hostile. This is what he has to say about Spain’s experiences in the euro area:

“If Spain were like Florida, its problems wouldn’t be as severe. The budget deficit wouldn’t be as large, because social insurance payments would be coming from Brussels, just as Social Security and Medicare come from Washington. And there would be a safety valve for unemployment, as many workers would migrate to regions with better prospects. (Wages wouldn’t have gone up as much in the first place, because of in-migration).

The point is that this has nothing to do with a spendthrift government; what’s happening to Spain reflects the inherent problems with the euro, which now more than ever looks like a monetary union too far.”

 

Zapatero losing public support

El Mundo reports that that Mariano Rajoy, the leader of the opposition Popular party has overtaken Jose Luis Zapatero, the prime minister, for the first time in the polls– on a score of 4.21 out of 10, compared to Zapatero’s 4.1. Rajoy’s party would win a general election with a lead of 5.8 points. The trigger for this wave of unease against the government was the announcement of a rise in the pension age to 67.

 

Germany’s manufacturing miracle over

The FT reports that Germany’s industry-led recovery stuttered at the end of last year, with industrial production tumbling by 2.6%. This fall reversed a 0.7% rise in November, and shows that Germany’s recovery slowed down markedly towards the end of last year. The news is consistent with a fall in industrial orders. The article also points to conflicting signals, as confidence indicators are still largely positive.

 

 

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