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.

Continue reading

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.

Continue reading

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.

Continue reading

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.

Continue reading

Top German body calls for QE blitz to avert deflation trap in Europe

Head of German Institute for Economic Research demands €60bn of bond purchases each month to halt contraction of credit and avert Japanese-style trap

A leading German institute has called for full-blown quantitative easing by the European Central Bank (ECB) to head off a deflation spiral, marking a radical shift in thinking among the German policy elites.

Marcel Fratzscher, head of the German Institute for Economic Research (DIW) in Berlin, demanded €60bn (£50bn) of bond purchases each month to halt the contraction of credit and avert a Japanese-style trap. Continue reading

ECB paralysed by German court decision as deflation threatens

Last week’s ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis and may ultimately force Germany to withdraw from the euro, the country’s most influential magazine has warned.

A sweeping report by Der Spiegel said the court ruling amounts to a full-blown showdown between Germany and the European Central Bank over the methods to shore up southern Europe’s debt markets.

“It is nothing less than a final reckoning with the crisis-management strategy pursued by the ECB. The German justices insist that the German constitution sets limits on the ECB’s crisis strategy. In a worst-case scenario, the Court could forbid Berlin from contributing to efforts to save the euro or even force Germany to leave the currency zone entirely,” it said. Continue reading

Germany preparing third financial rescue for Greece

Germany has signalled it is preparing a third rescue package for Greece – provided the debt-stricken country implements “rigorous”austerity measures blamed for record levels of unemployment and a dramatic drop in GDP.

The new loan, outlined in a five-page position paper by Berlin’s finance ministry, would be worth between €10bn to €20bn (£8bn-16bn), according to the German weekly Der Spiegel, which was leaked the document. Continue reading

Study says ‘true’ eurozone stress test could show over US$1 trillion shortfall in banks

An objective stress test of the eurozone’s biggest banks could reveal a capital shortfall of more than 770 billion euros (US$1 trillion) and trigger further public bailouts, a study by an adviser to the European Union’s financial risk watchdog and a Berlin academic has found.

The study and others published ahead of the EU stress tests, whose results are due in November, are important because they set the expectations against which markets will judge the credibility of the European Central Bank’s attempt to prove its banks can withstand another crisis without taxpayer help. Continue reading

Euro plummets after ECB warns currency zone may need more support

European Central Bank head Mario Draghi says Japanese-style stagnation possible amid high unemployment and falling inflation

The European Central Bank sent the euro tumbling on world markets after it warned that the 18-member currency zone may need further support to prevent a Japanese-style period of stagnation.

The ECB president, Mario Draghi, said persistently high unemployment, falling inflation and difficult lending conditions were harming the recovery, and the ECB stood ready to use all the tools available to maintain confidence and growth. Continue reading

Spain’s Youth Unemployment Rate Hits 57.7% as Europe Faces a ‘Lost Generation’

Spain saw its youth unemployment rate rise to a staggering 57.7% in November as the country registered the worse youth jobless rate in the eurozone area.

Eurostat, the statistical information arm of the European Union, also revealed the youth unemployment rate across the eurozone remained steady at 24.2% for the second consecutive month – meaning there were 3.5 million unemployed under-25s across the region.

“There is a real danger that these young people will get trapped in the ranks of the long-term unemployed,” James Howat, a European economist at Capital Economics, told IBTimes UK. Continue reading