 Eurozone unemployment reaches new record
The news flow is already starting to ebb with the start of the Easter holiday in Europe. The main story yesterday was the rise of eurozone unemployment to a eurozone-era record of 10.8% in February, with more than 17 million people now out of work, according to the latest figures fromEurostat. The total unemployment of 10.8% was 0.1 points worse than in January, mainly driven by a rise in unemployment rate in Spain (23.6% up from 23.3%) and Italy (9.3% up from 9.1%). El Paisreports that Spain contributed half of 10 new unemployed in February, and that youth unemployment exceeds 50% in Spain for the first time since 1998. High unemployment is also registered in Greece (21%) and Portugal (15%), while on the other end is Germany (5.7%), the Netherlands (4.9%) and Austria (4.2%).
Belgium will have to save another €24bn to reach balanced budget in 2015
Belgium will have to save €24bn to achieve a balanced budget by 2015 according to a report to be published today by the council of finance, Le Soir reports. The new government under Elio Di Rupo has already saved €13bn in 2012. According to the report, the government will have to find 1.2% of GDP or €5bn more next year. In 2014, the efforts will amount to 2.1% of GDP, or about €8bn in current GDP terms. And in 2015, savings should amount to 2.9% of GDP or €11bn in current GDP.
Papademos stops last minute amendments
Alarmed by the number of last-minute amendments political parties are trying to squeeze through Parliament ahead of the elections, Prime Minister Lucas Papademos on Monday forced a minister to withdraw one such change to legislation and has asked all members of the Cabinet to clear any alterations to bills with his office, Kathimerini reports. This task has been assigned to State Minister Giorgos Stavropoulos. As of yesterday, Stavropoulos had 86 amendments to examine.
New austerity measures might be required after election
A slowdown in reform efforts ahead of the election will require new austerity measures from the new government for this year’s budget, a high-ranking official at the Finance Ministry warned on Monday, adding that the new government would be expected to carry out any new measures in June. With revenues lagging €1bn in the first two months and another poor performance in March, extra measures in June appear more likely, the official is cited by Kathimerini. The date for the election will be announced next week. The Greek press has speculated that it will be May 6.
Greek economy to shrink by 5%
Reuters has the story about a forecast by the Greek think-tank IOBE according to which the Greek economy will contract 5% this year – which is marginally more pessimistic than the forecasts of the European Commission and the IMF. Under this forecast, the recession will continue in 2013, with a recovery in 2014. The peak rate of unemployment is forecast to reach 20%, up from a current 17%.
Moody’s calls for a joint debt agency for Spain
We picked this up from an El Pais story on Spanish debt. Moody’s proposed so-called hispabonos, joint issuance of national and regional debt to improve market access of the autonomous regions and lower interest rates. But for this work Moody’s said Spain would need to introduce an effective central control system, with credible sanctions.
Italian fiscal situation improves
Corriere della Sera has the story that the cash position of the Italian government has improved during March. The popular measure used in Italy is the so-called fabbisogno – a cash flow measure expressed as gap between state revenues and expenditures net of interest. In March, the fabbisogno went down to €17.5bn from €20.6bn in March 2011.
ESRB picks a fight with the Commission
The European Systemic Risk Board (ESRB) is challenging the Commission over how the Basel III capital requirements are implemented, Financial Times Deutschland reports. In his capacity as ESRB chairman, Mario Draghi yesterday published a letter in which he asked that individual countries have a sufficient degree of flexibility in implementing the common Basel rules, for example to account for a diverging economic situation of member states – when some are subject to bubbles, while others are in a recession. In this case the common monetary policy is not effective. The ESRB wants national governments, supervisors and central banks to be able to apply macro-prudential tools swiftly. The Commission is opposed and argues that it should have the last word on whether or not EU and euro members apply those tools.
High gas price adds to inflation fears in Germany
Rising gas prices are beginning to stir a political debate and add to fears of rising inflation, Handelsblatt reports. Experts quoted by the paper warn that the increases will quickly generate additional costs for businesses in the magnitude of a double digit billion figure. The experts fear that the price developments will further depress the euro economy, and might lead to stagflation. The average gas price per litre was at around €1.70. The DIHK industry lobby says the real danger zone starts at €2. Angela Merkel so far refuses to contemplate lower gas taxes, Süddeutsche Zeitung reports.
Das and Roubini on how a euro breakup might happen
Nouriel Roubini and Arnab Das argue in a special FT comment series on a potential eurozone breakup on how this could be managed. They say that the process needs to be as carefully managed as the adoption of the euro itself. It require what they describe as a consistent legal framework, a kind of reverse EMS, and a high degree of cooperation between the ECB and national central banks to avoid disaster.
Martin Sandbu says a break-up is harmful
Martin Sandbu of the FT holds out against this, and argues that a eurozone breakup would be very harmful. He said there was no evidence that external devaluation is to be preferred over internal devaluation, and that the latter would keep up reform pressure. He said the future of the euro will not depend on politics, not economics. The best proposal so far, to turn the EFSF/ESM into a bank, has been frustrated by political opposition. He compares this to a hypothetical US government ban on quantitative easing.
(We disagree with both authors. We think that Roubini/Das are right on the economics, but they omit to say that a amicable breakup would require a full-blown treaty revision, which would require unanimity, and would take time to implement. We believe that the two most likely options are either a messy breakup, or a depressed marriage. We also disagree with Sandbu’s argument about the benefits of internal devaluations. We think that structural reforms may be desirable for other reasons, but they unrelated to the current crisis.)
Mohamed El Erian warns that the US and the eurozone are about to make a dirty deal
Writing in Project Syndicate (Please note this is not the original www.project-syndicate.org post because the link was broken this morning), Mohemad El Erian says the eurozone was once again in the mode of shifting responsibilities onto others through an attempt to increase IMF funding. He says the rest of the world should counter the risk of European complacency, and that the US should take the lead. But they seem to be heading for a dirty deal, whereby the US supports an increase in the IMF’s eurozone lending operations, in exchange for eurozone support of Jim Yong Kim, the American candidate for the World Bank.
10-Y Spreads, Forex, ZC Swaps and Euribor-Ois
Sideways, mostly.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||