Welcome to the next bubble

 

They are doing it again. Despite evidence that the financial crisis is already producing bubbles, the Fed has reconfirmed its stance that stable inflation expectations “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” This means that short-term interest rates will stay near zero for a long time, a situation that favours the carry trade, and other speculative gambits through which banks can recovery their profitability. The Fed also formally reconfirmed its asset purchasing purchasing programme, announcing the $1.25 trillion purchase of agency mortgage-backed securities and $175 billion of agency debt.The Fed has also added three criteria, by which market participants can judge the future price developments: low rates of resource utilization, subdued inflation trends, and stable inflation expectations.

 

 

Fillon does not expect interest rate rise

Francois Fillon no longer expects a rise in interest rates, he told in an interview to appear today in Le Monde  (hat tip Les Echos).  There are no inflationary pressures, he concluded after a meeting with the Banque de France governor Christian Noyer.  Le Monde also reports that he refers to €20bn-€30bn to borrow for the new investment projects, saying that credibility of France should not diverge from Germany.

 

 

Furious about Opel

This is the morning of angry reactions after the surprise decision by the GM administrative baord to cancel the Magna buyout of Opel. The FT reports that German Opel workers are ready to strike in protest at the decision, and there were also plenty of complaints from the German government. FT Deutschland’s headline is that GM blackmails the German government to help finance its own rescue plan, boosted by the European Commission’s recent statement that government rescue package must not discriminate between buyers. Der Spiegel has a good summery of the options now availalbe. It does not look good for Opel.

 

 

Verheugen warns of a repeat of GM desaster

Germany’s EU commissioner Gunter Verheugen has warned member states not to repeat the mistake by trying to seek sweetheart deals for their national plants, and to start negotiating with GM jointly, rather than separately. Verheugen acknowledged that the concerns raised by Brussels had contributed to the collapse of the Magna deal, as Der Spiegel reports.

 

 

Fitch downgrades Irish debt

Ed Harrison, writing in Europe Economonitor, has the news that Fitch has downgraded Irish sovereign debt by two notches from AA+ to AA- over concern about the country’s public finances. He quotes some gloomy Irish press reports about next month’s budget, and the recent European Commission report in respect of Ireland, which forecasts a 1.4% decline in GDP next year. The Irish Independent says this forecast does not take into account the contractionary impact of the budget, which is likely to result in lower consumer demand. Also the OECD has just released its report on Ireland, calling for drastic spending cuts.

 

FT on Cameron’s plans for Europe

In an editorial the Financial Times says David Cameron’s plans for a compulsory referendum on European Treaties may backfire badly, and may be against British interests. It points out that this may apply to accession treaty, especially those that include non-accession related issues. It would greatly reduce the UK government’s room for manoeuvre in negotiations, and will end up increasing Britain’s isolation in Europe.

 

Thomas Klau on Lisbon

In his column in FT Deutschland, Thomas Klau writes that Lisbon is far from an ideal treaty, but it is the best treaty we could have achieved at this point. He says the treaty will help turn the European Parliament into a genuine parliament, and will make the European Council work more effectively. The big remaining problem is the national veto. As long as this persists, there can be no meaningful progress towards a more democratic Europe.

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