Euroland Economic News

[specuvestor]

I feel very strongly that people who cannot see long term strategies & consequences should not be policy makers. An entire generation is affected by a few people's decision. Singapore is relatively much better even when we had lost a decade. With much power comes much responsibility.

If our forefathers did not have the foresight, we could be the one exporting labour today. That's why I totally disagree with arguments that we should reward individuals or businesses as if they did it all by themselves.

""Are there any jobs in Australia? Could we get work if we went to Australia?" They were in their mid-20s and unemployed. Like many other young Italians, they were beginning to see emigration as their only hope of ever working. The next day, we had a similar conversation with a university student who worked as a guide to a cluster of tunnels that honeycomb under the nearby town of Chiusi and were constructed by Etruscan slaves as far back as 700BC.

The guide said her casual job at the museum would cease when the tourist season ended and she saw little prospect of a job when she completes her studies in ancient history, philosophy and religion next year. She was depressed about the future of Italy. "We have many serious problems."

A young graduate, whose only job had been as a waiter in a family restaurant near the Swiss border in northern Italy, asked us what his chances might be of finding work in Australia as a barista.

He said he hoped to get a temporary job at next year's World Expo in Milan, but would try his luck in Australia after that. Several friends were already in Sydney and Melbourne. Others had headed for Germany and England, where they hoped to find better prospects.

In France, a young couple fretted about the future of their country and the prospects for their three children of finding careers. They despaired about the state of politics in France and said they were worried about the rise of the far-right political movement, the National Front."

[greengiraffe]

ECB chief Mario Draghi ramps up stimulus pledge as inflation outlook weakens
Date
November 22, 2014 - 6:32AM

Paul Gordon, Jeff Black and Stefan Riecher

"We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires.": ECB president Mario Draghi. Photo: AFP

Mario Draghi strengthened his stimulus pledge for the euro area by saying the European Central Bank can't hold back in its fight to revive the economy.

"We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires," the ECB president said at a conference in Frankfurt today. Some inflation expectations "have been declining to levels that I would deem excessively low," he said.

With the next policy meeting less than two weeks away and the region remaining close to economic stagnation, Draghi may need to step up efforts to convince investors he's serious about reigniting growth and inflation. The euro fell and bond yields dropped on speculation the central bank is closer to buying government debt in a full-scale quantitative-easing program.

"Draghi is sending a clear signal that more stimulus is coming," said Lena Komileva, chief economist at G Plus Economics Ltd. in London. "If the ECB's current measures prove underwhelming and inflation expectations fail to recover, the ECB will act to expand QE."

The euro was down 1 per cent at $US1.2413 at 2:58 p.m. Frankfurt time. The Stoxx Europe 600 Index climbed 1.9 per cent. The yield on Spanish 10-year government debt fell 7 basis points to 2.03 per cent, approaching the record low reached last month.

Balance-sheet goal

The ECB is trying to boost the size of its balance sheet to early-2012 levels, signaling an increase of as much as 1 trillion euros ($US1.24 trillion), to help revive the euro-area economy. Gross domestic product expanded just 0.2 per cent last quarter and inflation is running at 0.4 per cent, well below the ECB's goal of just under 2 per cent.

Any new action would follow a flurry of activity since June that has included interest-rate cuts, long-term bank loans, and covered-bond purchases. The central bank said that it started buying asset-backed securities today.

Draghi has declined to rule out large-scale government-bond buying and reiterated today that ECB staff are studying further measures to boost the economy if needed.

"There is a combination of policies that will work to bring growth and inflation back on a sound path," he said. "If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

Growth Potential

Expanded measures may not win unanimous approval in the ECB's Governing Council. Governing Council member Klaas Knot said this week that he's "skeptical" about QE. Bundesbank President Jens Weidmann has argued that large-scale sovereign- debt purchases muddy the line between fiscal and monetary policy.

While Weidmann didn't address the question of asset purchases when he spoke at the Frankfurt conference two hours after Draghi -- instead focusing on banking regulation -- he did point to the limits of monetary policy.

"More than just favorable refinancing conditions will be needed to stimulate credit growth," he said. The euro area needs "structural reforms which bolster competitiveness and boost economies' growth potential. A prosperous economy needs healthy banks, but the opposite is just as true: healthy banks need a prosperous economy."

Draghi has repeatedly expressed concern that insufficient structural adjustments by governments pose a downside risk for the euro-area economy. The ECB has signaled that it will reduce its macroeconomic forecasts for the region when it publishes a revised outlook after its Dec. 4 monetary-policy meeting.

"Draghi all but announced that the central bank will step up monetary easing soon," said Nick Kounis, head of macro and financial markets research at ABN Amro Bank NV in Amsterdam, who predicts the ECB will buy corporate and agency debt before sovereign bonds. "Mr. Maybe has become Mr. Definitely."

Bloomberg

[greengiraffe]

Falling prices likely to fuel ECB push for aggressive stimulus
THE AUSTRALIAN NOVEMBER 29, 2014 12:00AM

ECB prices fuel stimulus speculation
Mario Draghi, president of the European Central Bank. Source: AFP

GERMAN consumer prices rose at the slowest annual pace in almost five years this month, while prices fell in Spain and Belgium, fuelling expectations that the European Central Bank will soon conclude that more aggressive stimulus measures are needed.

In another setback for policymakers, figures also released on Thursday showed bank lending to businesses continued to decline last month, despite a series of measures launched since June designed to increase the flow of credit.

However, there are signs the eurozone economy will continue to grow in the final quarter of a disappointing year, albeit at a very weak pace, with German unemployment falling, and eurozone business confidence on the rise.

Recent comments by senior officials have heightened investor expectations that the central bank will start to buy government bonds early next year, embarking on a policy known as quantitative easing that has been used extensively by central banks in the US, Britain and Japan.

The ECB has largely resisted, focusing its unconventional stimulus efforts instead on loans to banks and purchases of private debt securities. ECB president Mario Draghi put financial markets on alert on November 21 that the bank was losing patience with ultra-low levels of inflation and was ready to do more.

On Wednesday, his deputy, Vitor Constancio, sent the strongest signal to date that the ECB is prepared to buy government bonds early next year if it decides more aggressive stimulus measures are needed

Germany’s statistics agency on Thursday said consumer prices rose 0.5 per cent in the 12 months to November, the smallest increase since February 2010. In Spain, prices fell 0.5 per cent this month from the same month a year ago, after a 0.2 per cent annual drop in October, while Belgian prices also declined, although only slightly.

A measure for the eurozone as a whole was due for release overnight. The consensus forecast of 22 economists surveyed by The Wall Street Journal last week was for a decline in the currency area’s inflation rate to 0.3 per cent, from 0.4 per cent last month.

“Inflation may head for a new cyclical low close to zero in December,” said Marco Wagner, an economist at Commerzbank.

Paul Hannon, Todd Buell

[greengiraffe]

Eurozone may gain most from oil slide
THE AUSTRALIAN DECEMBER 01, 2014 12:00AM

OIL prices have fallen a long way this year, and might fall much further still.

Crude prices have fallen 36 per cent since their northern summer peak, and were sent into a tailspin by the failure of OPEC, the cartel of oil producing countries accounting for 40 per cent of global supply, to trim its output quotas. And history suggests prices can fall substantially further.

It’s worth bearing in mind that for nearly two decades to 2005, crude oil prices largely ranged between $US20 and $US40 a barrel in today’s money. The average inflation-adjusted price of West Texas Intermediate crude since 1970 is a little under $US55 a barrel compared with about $US70 now.

That’s not to say that’s how far they’ll drop.

A rapid technical snapback is always a possibility. But the fundamentals seem stacked towards lower rather than higher prices, which will make for some interesting economic dynamics.

Lower petrol prices relative to the average of the past three years will in effect put an extra $US108 billion into US consumers’ pockets, according to estimates by James Hamilton at the University of California. That’s an 0.8 per cent bump in disposable personal ­income.

Of course, what consumers gain from, producers lose out on. And with energy imports making up just 15 per cent or so of US consumption, according to the World Bank data, the net effect on the economy would be slightly more modest.

But consider the impact of falling oil on that other major bear story, the eurozone, which imports about 50 per cent of its energy use.

The drop in oil prices raises another dynamic there. Eurozone consumer price inflation has been running at 0.3 per cent a year, so close to outright deflation that it’s panicking the European Central Bank. The drop in energy prices will put even more downward pressure on inflation.

ECB president Mario Draghi could well then use the falling inflation rate to call for even more aggressive monetary measures, not least outright purchases of eurozone sovereign debt. At the same time, he’d know falling energy prices would produce a fillip to the underlying economy. In other words, the slump in oil prices potentially represents a political as well as an economic windfall for the ECB.

The flip side of the eurozone’s gains from falling oil prices is, once again, the losses to oil producers.

The Wall Street Journal

[greengiraffe]

Italy slides back into recession
DOW JONES NEWSWIRES DECEMBER 02, 2014 12:00AM

Lower fixed investment pulled Italy's economy lower in the third quarter, the national statistics institute Istat said on Monday, as it confirmed the country slipped back into recession for the third time since 2008.

Italian gross domestic product slipped 0.1 per cent in the third quarter of 2014 from the previous three months, Istat said, confirming an earlier estimate released in November.

Italy's GDP was down 0.5 per cent from the July-September period of 2013, Istat added. This is revised from an earlier estimate of a 0.4 per cent drop released on November 14.

"Higher imports more than offset exports, although the latter contributed to limit the decline," an Istat official said. "The gross fixed investments decrease pulled it lower too."

Fixed investments slipped at a 1.0 per cent quarterly pace, Istat said, indicating that Italian companies are still holding back from spending. The biggest decline was in vehicles, down 4.9 per cent on the quarter.

Domestic consumption was unchanged, in a sign that household spending is still aneamic, while the public sector continued its downward trend.

Italy's agricultural sector fell 0.1 per cent from the third quarter, while the manufacturing sector slipped 0.7 per cent and the services sector was flat, and the construction sector contracted by 1.1 per cent, Istat said.

Italy's GDP hasn't risen since the second quarter of 2011.

[greengiraffe]

Britain misses deficit target but raises growth outlook
Business | Updated today at 02:14 AM

LONDON (AFP) - Britain unveiled its last major budget update before next year's general election, admitting a key deficit-cutting target had been missed but revising up economic growth forecasts.

Finance minister George Osborne promised an overhaul of property taxes and spending increases on health care and infrastructure, toning down the austerity cuts that dominated previous budgets.

Osborne also promised more help for British exporters in emerging markets and a new 25 per cent levy aimed at multinational tech companies that have avoided paying taxes on profits in Britain.

He said the economy was now forecast to grow by 3 per cent this year compared with a previous prediction of 2.7 per cent, and also revised up the estimate for 2015 to 2.4 per cent from 2.3 per cent.

But he admitted that the deficit "remains too high" at a forecast 91.3 billion (S$187 billion) in the year to March 2015, higher than a previous estimate of 86.4 billion.

That represents 5 per cent of gross domestic product, compared with 10.2 per cent when the coalition government came to power in 2010.

British Prime Minister David Cameron's Conservative Party had promised to wipe out the deficit altogether by the end of its five-year mandate.

Osborne said the deficit was forecast to fall further to 4 per cent next year, before moving into a surplus of 0.2 per cent in 2018/19.

"Today, against a difficult global backdrop I can report higher growth, falling unemployment, falling inflation and a deficit which is half what we inherited," Osborne said.

With employment rising but many new jobs lower paid, the government has seen tax receipts shrink, hindering its bid to reduce the country's budget deficit further.

But Osborne hailed his achievements, saying they were particularly significant since "the warning lights are flashing over the global economy".

'COST OF LIVING CRISIS'

With Britons headed for the polls in May, Osborne was under pressure to deliver a crowd-pleasing budget that analysts said will only stave off more painful budget cuts until after the election.

While warning of "very substantial savings" needed in public spending, he promised 2 billion in extra money for the National Health Service - a key battleground in the 2015 polls.

He also said the government would legislate to allow Northern Ireland to set its own corporation tax, a key demand in the province which said it has been penalised because of the far lower rate of 12.5 per cent in the neighbouring Republic of Ireland.

Charles Davis, director of the Centre for Economics and Business Research, said the budget update was "always going to be more political than anything else - and so it proved".

"The uncertainty over the outcome of the next election and how exactly the government will reduce its still huge borrowing requirement while funding major investment programmes are still the elephants in the room," he added.

The government has come under pressure from the opposition Labour party and trade unions, which have warned that growth has not translated into higher living standards for many people.

"For working people, there is a cost-of-living crisis," Ed Balls, the shadow finance minister from the opposition Labour party, told lawmakers.

Also on Wednesday, Osborne said the government would repay the 1.9 billion of debt still outstanding from Britain's role in World War I.

War Loan bonds are among the most widely held in Britain, with an estimated 120,000 holders.

"It is a sign of our fiscal credibility and it's a good deal for this generation of taxpayers," he said.

[greengiraffe]

ECB to reassess stimulus in 2015
DOW JONES NEWSWIRES DECEMBER 05, 2014 2:30AM

European Central Bank President Mario Draghi has said the governing council will decide early next year whether to launch new measures to ensure inflation picks up, and noted the decline in oil prices may make that objective more difficult to attain.

Outlining new, lower forecasts for economic growth and inflation over the coming two years, Mr Draghi said that -- should the council conclude its policies aren't sufficient to end a period of very low inflation -- that would "imply altering the size, pace and composition of our measures."

His reference to the "composition" of the central bank's programs suggests policymakers may consider launching a program of sovereign bond purchases.

Mr Draghi said the governing council had discussed "various options of QE."

"Early next year the governing council will reassess the monetary stimulus achieved and the outlook for price developments," he told reporters in a news conference. "We will also evaluate oil price developments."

Known as quantitative easing, or QE, it has been a key part of responses from the US Federal Reserve, Bank of England and Bank of Japan. But the ECB has largely refrained from going down this route amid worries, especially from Germany, that such a policy would stoke inflation and discourage countries from reforming their labour markets.

Mr Draghi said the central bank could launch QE without the unanimous support of its governing council, indicating the agreement of two German members wouldn't be necessary.

"We don't need unanimity," he said. "It can be designed to have a consensus."

Forecasts produced by the ECB's own economists suggest further measures will be needed. They cut their growth and inflation forecasts for next year and now expect the eurozone economy to grow by just 1 per cent, having previously forecast an expansion of 1.6 per cent, while their projection for inflation was lowered to 0.7 per cent from 1.1 per cent. For 2016, they expect growth of just 1.5 per cent and inflation of 1.3 per cent.

However, he said those forecasts didn't fully incorporate the recent fall in oil prices, which could push the inflation rate even lower in coming months. The annual rate of inflation fell to 0.3 per cent in November, far short of the ECB's target of just below 2 per cent.

Mr Draghi said that if the ECB allowed the inflation rate to stand well below its target for much longer, eurozone households and businesses could come to expect that shortfall to persist over the medium to long-term. If that occurred, he said, the ECB's current stance could amount to a tightening of monetary policy.

"We won't tolerate prolonged deviations from price stability," he said. "If these deviations...cause a drop in inflation expectations...this would be tantamount to an increase in the real interest rate. This would be tantamount to an unwanted tightening in monetary policy."

The ECB left its key interest rates unchanged at record lows earlier Thursday, reinforcing its position that borrowing costs cannot go any lower despite inflation weakening further below the bank's target.

With rates near zero, attention has turned to asset purchases as the primary means for the ECB to further stimulate the eurozone's struggling economy and raise ultralow inflation, which at 0.3 per cent on an annual basis last month was far below the ECB's target of just below 2 per cent.

The central bank is buying asset-backed securities and covered bonds under programs announced in September. Mr Draghi said those measures, along with cheap four-year loans to banks, were "intended" to raise the volume of its balance sheet by about €1 trillion ($1.47 trillion). That phrasing marked a strengthening in the ECB's commitment to increasing its balance sheet, which Mr Draghi last month characterised as an "expectation."

The size of a central bank's balance sheet is an indication of how accommodative its policies are to promoting investment and economic growth.

There are increasing doubts in financial markets as to whether these policies will do the trick, raising pressure on the ECB to do more. Some top members of the ECB's 24-member Governing Council have expressed openness to QE.

[Behappyalways]

Both Die Zeit and Die Welt report that three members of the ECB’s six-strong executive board refused to sign off on Mr Draghi’s latest statement, an unprecedented mutiny in the sanctum sanctorum of the ECB’s policy making machinery.

The reality is that a full six months after Mr Draghi first talked loosely of a €1 trillion blitz to head off deflation risks, almost nothing has actually happened. The ECB balance sheet has shrunk by over €100bn.

The latest dispute was over a change in the wording of the ECB statement on its balance sheet. While it appears semantic and trivial – whether the €1 trillion boost is “expected” or “intended” – the underlying clash is serious.

Draghi's authority drains away as half ECB board joins mutiny
http://www.telegraph.co.uk/finance/comme...utiny.html

Geithner: To be sympathetic to them, the Germans’ experience has been every time they buy a little bit of calm and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a 'f**k you' from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic

Finally, Mr Geither says flat out that Mario Draghi made up his “whatever it takes” line in July 2012 on the spur of the moment, without the backing of the European Central Bank’s executive council.

Geithner: Totally impromptu…. I went to see Draghi, and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.


Tim Geithner reveals in the raw how Europe's leaders tried to commit financial suicide
http://www.telegraph.co.uk/finance/econo...icide.html

[Behappyalways]

Greek candidate willing to call European leaders’ bluff
http://www.telegraph.co.uk/finance/comme...bluff.html

[specuvestor]

IMHO it is getting likely that Greece will be forced out of Eurozone. It was into Eurozone by Goldman deceit anyway.

I think it is an important event to monitor with increased uncertainty and volatility, but actually hardly important to the Eurozone. It is the precedent and domino effect that people worry about.

As posted before, IMF is a one trick pony. In the great depression, US GDP collapsed by almost 1/2 by similar type of free-market self-adjustment ideology. I think after seven years, IMF should be fired. Whole generation of Greeks are lost because of some duds in IMF. I wonder if they understood that they are destroying LIFES.

"pushed Greece into seven years of depression, with a 25.9pc fall in GDP, longer and deeper than Europe’s worst episodes in the 1930s"