US banks bracing for Brexit

According to sources quoted by the Financial Times, three American banks — Bank of America, Citigroup and Morgan Stanley — are “drawing up plans to move some London-based activities to Ireland to address concerns” the UK would leave the European Union after a referendum on EU membership to be held possibly in 2017.

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France rebels against austerity as Europe’s recovery collapses

France’s finance minister sends tremors through European capitals with a defiant warning that his country would no longer try to meet deficit targets

Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.

Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession.

Yields on 10-year German Bunds fell below 1pc for the first time in history, beneath levels seen during the most extreme episodes of deflation in the 19th century. French yields also touch record lows. Much of the eurozone is replicating the pattern seen in Japan as it slid into a deflation trap in the late 1990s.

It is unclear whether tumbling yields are primarily a warning signal of stagnation ahead or a bet by investors that the European Central Bank will soon be forced to launch quantitative easing, buying government bonds across the board.

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Spanish public debt tops one trillion euros

Spain’s public debt has topped one trillion euros ($1.3 trillion) for the first time, the central bank announced Thursday, despite years of government-imposed austerity.

The nation’s accumulated public debt mushroomed to 1.007 trillion euros at the end of June from 996 billion euros a month earlier, the Bank of Spain said in a report. Continue reading

Crisis stalks Europe again as deflation deepens, Germany stalls

Data from Germany, Italy and Portugal put pressure on ECB to act

Portugal has crashed into deep deflation and Italy’s inflation rate has fallen to zero as the eurozone flirts with recession, automatically pushing these countries further towards a debt compound spiral.

The slide comes amid signs of a deepening slowdown in the eurozone core, with even Germany flirting with possible recession. Germany’s ZEW index of investor confidence plunged from 27.1 to 8.6 in July, the sharpest fall since June 2012, during the European sovereign debt crisis. “The European Central Bank has to act now,” said Andrew Roberts, credit chief at RBS. Continue reading

Radical action needed as euro zone remains on amber alert

To get economy moving again, policymakers should go ahead with quantitative easing to boost liquidity and allow the euro to weaken

The euro zone’s “softly, softly” approach to the financial crisis is not working. The economy is sinking into deflation, dragged down by a zombie banking system and spiralling government debt. It is slipping back towards recession. A future break-up of the euro zone remains a potent threat.

Policymakers can ill afford to keep kicking the can down the road. The bailout earlier this month of Portuguese lender Banco Espirito Santo was a sharp reminder to investors the euro zone was not out of the woods by a long stretch. Continue reading

Italy just fell back into recession for the third time since 2008

ROME — Italy slipped into recession for the third time since 2008 in the second quarter, underlining the chronic weakness of the eurozone’s third-largest economy and pressuring the government to complete promised reforms.

Figures on Wednesday from statistics agency ISTAT showed gross domestic product unexpectedly declined by 0.2% in April-June from the previous three months. A Reuters poll of economists had forecast growth of 0.2%.

The economy also shrank by 0.1% in January-March, meaning it has returned to recession, defined as two consecutive quarters of contraction.

Italian stocks fell after the data and the risk premium between Italy’s 10-year bonds and those of Germany widened. Continue reading

IMF warns ECB credibility at risk over deflation paralysis

The International Monetary Fund has issued a blistering attack on Europe’s authorities for allowing the eurozone to remain stuck in a low-growth trap, warning that they may have to print money with “full conviction” to head off deflation.

“Inflation has been too low for too long. A persistent failure to meet the inflation target could undermine central bank credibility,” said the IMF with remarkable bluntness in its annual health report on the currency bloc.

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Germany gives green light to European banking union

Germany’s cabinet has approved draft laws that effectively give the go-ahead to Europe’s plans for banking union – its main confidence-building response to the financial sector crisis.

With the laws, Germany is pressing ahead of EU requirements in protecting German taxpayers from having to foot the bill when a bank gets into trouble. Instead, in a process dubbed a “bail-in”, creditors and owners will have to take losses from 2015, a year before EU rules take effect. Continue reading

Recovery stalls in Europe as austerity grinds on

Growth wilted across large swathes of the eurozone in the first quarter, dashing hopes of durable recovery and prompting demands for shock and awe action from the European Central Bank.

Bourses tumbled across Europe, with Milan’s MIB index down 3.6pc, led by a plunge in bank stocks. Madrid’s IBEX was off 2.35pc and France’s CAC fell 1.25pc.

Prof Charles Wyplosz, from Geneva University, said the relapse should not be a surprise. “Austerity has been reduced but it has not stopped. Countries are still being told to reduce their deficits and they should not be doing that right now,” he said. Continue reading

Greek records first surplus as EU moves closer to balanced budgets

BRUSSELS – Cash-strapped Greece recorded its first primary budget surplus in a generation last year, according to data released by Eurostat on Wednesday (23 April).

Excluding interest on its debt repayments and a number of one-off measures to prop up its banks, Athens recorded a surplus of €1.5 billion, worth the equivalent of 0.8% of its economic output in 2013. Despite this, Greece still recorded an overall deficit figure of 12.7 percent, up by 4 percent on the previous year as the crisis-hit country endured a sixth straight year of recession. Continue reading

Why Russia Needs Eastern Europe — And why Eastern Europe needs to be rid of Russia

(Click to enlarge) Russia’s border with Europe is the bloodiest place in the world.

 

Russia’s border with Europe is the bloodiest place in the world. Caught between the major powers of the West and the might of Russia, the region has seen some of the worst conflicts in history.

During World War II, roughly 17 million soldiers lost their lives in battles on the Eastern front. By way of comparison, in the West, fewer than four million soldiers died—including D-Day, the Battle of the Bulge and all the other battles we hear about more often. And these figures don’t include the huge number of civilians who lost their lives in the Battle of Stalingrad or the Siege of Leningrad, and other horrific clashes.

The numbers for World War i are also appalling; rough estimates indicate that 5 million soldiers lost their lives fighting on the Eastern front.

Conflicts between Europe and Russia are bloody and frequent. This history gives the context necessary to appreciate what is happening in Ukraine, and how Europe will react.

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Top economists warn Germany that EMU crisis as dangerous as ever

Council on Foreign Relations compares Germany’s hardline stance with US policy towards Britain at the end of the Second World War

The eurozone debt crisis is deepening and threatens to re-erupt on a larger scale when the liquidity cycle turns, a leading panel of economists warned in a clash of views with German officials in Berlin.

“Debts above 130pc of GDP for Italy and 170pc for Greece are a recipe for disaster once we go into the next downturn,” said Professor Charles Wyplosz, from Geneva University.

“Today’s politicians believe the crisis is over and don’t want to hear any more about it, but they have not tackled the core issues of fiscal union and public debt,” he said, speaking at Euromoney’s annual Germany conference.

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ECB considers printing more money

Berlin – The European Central Bank over the next months will consider various options of ‘quantitative easing’ – also known as money printing – to counter a very low inflation rate, ECB chief Mario Draghi said Thursday (3 April) in a press conference.

“The ECB Governing Council is unanimous in its commitment to using all unconventional instruments within its mandate, in order to cope effectively with risks of a too prolonged period of low inflation,” he said.

Draghi said quantitative easing was part of a “rich and ample discussion” on Thursday among the central bankers from all 18 eurozone countries on what to do to counter the lower-than-expected inflation. Continue reading

Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.” Continue reading

Germany’s Bundesbank opens up to Quantitative Easing

The European Central Bank could buy loans and other assets from banks to help support the eurozone economy, Germany’s Bundesbank said Tuesday, marking a radical softening of its stance on the contested policy.

The ECB has cut interest rates to a record low, and promised to keep them low for some time, having also flooded the banking system with cheap crisis loans. But the eurozone economy is still weak, and inflation remains stuck well below the central bank’s target.

With the debate over possible alternative measures picking up pace, Bundesbank President Jens Weidmann said the ECB could consider purchasing eurozone government bonds, or top-rated private sector assets.

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