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Michael Parmar  

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  • Ambrose Evans-Pritchard sums up the EU impasse with one word: Merkel. For now, while insisting on increased power to police the budgets of sinner states, she offers precious little in return. In the end, he writes, "we may just have to hunker down yet again and wait for Germany to blink at last, or detonate the fuse."  [View news story]
    While this is not what the market wants to hear, Merkel IMHO is trying to steer Germany and the EU along the more sustainable long run path of having a "proper" fiscal union in place to underpin the currency union and any measures for common debt financing and transfer payments amongst the states.

    The nature of EU politics means she must first put out the simple message of "Nein!!" to quick fixes, but she has not ruled out eurobonds in the long term nor transfer payments.

    She is well aware the Germany did VERY well out of the EU of the 2000s and they, like the PIIGS have to pay just as much.
    Dec 4, 2011. 04:41 PM | 7 Likes Like |Link to Comment
  • The 'Fix' Is In [View article]
    Keynes called it the liquidity trap.

    Even when interest rates are very low - if investing prospects are poor and deteriorating, people will hold onto cash. With people holding cash and not investing, the economy is likely to continue to face poor prospects.

    Keynes' answer was more government spending. Part of the high government debt levels in 2008-9 were built up on the notion of Keynesian stimulus.

    Keynes never advocated "spend, spend, spend" - if governments cant get their spending back through higher taxes following the stimulus, the amount of proposed spending is inefficient.
    Nov 21, 2011. 07:45 AM | Likes Like |Link to Comment
  • The Party Line Crumbles in the Eurozone [View article]
    In a nutshell: Eu measures are months away, and seen as inadequate for long term (real economy) solutions: debt levels are unsustainable at present.

    The front line is the ECB and they don't have the firepower to intervene, short of printing Euro. They are neither mandated to do so, nor see it as a long term solution, which is mainly structural reform and closer fiscal harmonization, or dissolution of the Euro.

    Trichet today gave carte blanche to the bond vigilantes by saying " sometimes short term pain is necessary in the drive to acheive longer term goals"

    EU's major trade partner, the US, is now on an "austerity trajectory". With falling US PCE, stagnant employment and falling future govt spending, there is nothing in the horizon to indicate growth anywhere above 1% - 2% p.a. which is the productivity gains only (assuming the same rates of capital and labour utilization as at present).

    Emergin market growth rates can add about 0-1% growth p.a. to EU/US export growth if they continue growing bu they cant unless the US and EU grow their domestic/consumer sectors.

    In short, the market is now "correcting" for the end of the cheap money/monetary stimulus and pricing in the "real world" growth and risk rates.

    The ECB has taken stimulus off the table for now, so we shall see if the Fed resumes it. The conditions almost match those that prompted QE2.
    Aug 4, 2011. 06:12 PM | 1 Like Like |Link to Comment
  • China: No Hard Landing, But No Solution [View article]
    Michael, you say "Second it would put unbearable pressure on household income and consumption, and so ensure that the one thing China needs above all – a rapid rise in household consumption – is all but impossible."

    My understanding is that raising tax thresholds, plus controlling inflation would create higher disposable incomes for the rural masses. They seem to be an important and growing engine of growth for China. I read somewhere there has been 200%+ growth household appliance sales over the last year?

    Ok starting from a very low base and level of income, such growth will take a long time to filter through, but its in the right direction, isn't it?
    Aug 1, 2011. 05:20 PM | 1 Like Like |Link to Comment
  • Sovereign Debt: Has Europe Finally Discovered Alchemy? [View article]
    "EFSF .. appears to be viewed as a piggy bank.."

    Italy pulled a bond auction today, I read that as factoring in the outside option of having the EFSF lend funds if rates are too expensive. Im sure others read the same thing into the move.

    Perhaps other reasons existed
    Jul 25, 2011. 04:14 PM | Likes Like |Link to Comment
  • Reflecting on Europe's New Initiative [View article]
    Perihperal spreads are up today.

    Spreads on Belgian debt are also up.

    Perhaps the most alarming: Italy declined to rollover debt today, perhaps in the anticipation that if spreads ride further it can appeal to the EFSF for funding. That is not a good sign.

    The run on ITalian banks is back on as well, as well as withdrawal of deposits from Greek banks.
    Jul 25, 2011. 03:15 PM | Likes Like |Link to Comment
  • The plan for private-sector participation in the Greek rescue would constitute a "restricted default," says Fitch, noting the proposed debt exchange implies a 20% net present value loss for banks and other holders of Greek government debt. Once new bonds are issued, Fitch will issue new ratings which will likely be below speculative grade.  [View news story]
    That is somewhat unexpected since no one is not paying bonds.

    Greece is in a position to meet its debt repayments for the next few years thanks to the first bailout.

    Talk about jumping the gun.
    Jul 22, 2011. 11:42 AM | Likes Like |Link to Comment
  • Sovereign Debt: Has Europe Finally Discovered Alchemy? [View article]
    I think the biggest concern is the AAA rating.
    Jul 21, 2011. 11:00 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    I agree with you that lots of loose ends are there and I'm as skeptical about them - its far from a done deal.

    The so called 3.5% interest rate is if you look at the text an example rate, they actually say that EFSF funds cost 3.48% to raise hence they intend to lend at a low rate close to but above their balance of payments rate and that means currently at 3.5%. So with the future lending, if it rises above 3.48%, they will naturally raise the rate they lend at.

    At the same time, many things were not specified on purpose - e.g. leaving open the question of the size of fund with the possibility of raising it, mentioing collateral as you say - politicians like to keep their options open. Which is damaging to their credibility sometimes.

    My lingering concerns are
    1. the criteria for EFSF pre-emptive intervention which is to happen under "strict conditionality" - does that mean that ECB/EFSF will be given parameters to intervene continually or will strict conditionality be so strict that it never acts?

    2. EFSF has so many different objectives (Ireland, Portugal Greece bailouts; backstopping/recapital... some Italian/Spanish/Greek/... banks that failed or "nearly" failed the stress tests; Greek bond buy backs, plus unspecified plunge protection), that 440bn will run out pretty soon......

    But the positive is a key threshhold was passed today: the states realised this wasn't a Greek or PIIGs problem, its about EU survival; one for all and all for one vs a slow unravelling of the union itself.

    And I guess the implication of that is it requires closer fiscal union and better and more coordinated fiscal discipline.
    Jul 21, 2011. 10:14 PM | Likes Like |Link to Comment
  • Is Europe One Step Closer to a Fiscal Union? [View article]
    Yes it most definitely is one step closer.

    But that was on the cards with the enhanced Stability and Growth Pact underpinning the Euro.

    The question is whether it is a sufficient step, and if not, whether Eurobonds are the answer.

    While the package looks good, the lingering doubt in my mind is whether the EFSF fund size is sufficient. EU stress will re-emerge when this funding begins to run out.
    Jul 21, 2011. 06:07 PM | 1 Like Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]

    I'm sure you have seen the text. As indicated here:

    It matches to a lot of what i have outlined above - the EFSF is to act as an EU style monetary fund, there is a commitment to disburse funds in a manner that ensures restructuring objectives plus intervention in secondary markets if necessary.

    Plus there is a commitment to further enhance convergence.

    Greece's initial funding gap as identified for 2nd stage bailout is to be covered by the EU/IMF and voluntary involvement in debt restructuring is entirely voluntary.

    Collateral mechanism to improve quality of Greek debt held with ECB probably in the form of new Greek bonds backed by EFSF guarantees, using a menu of options.

    In other words, the EU/IMF funding will be sufficient to retire Greece's debt and private sector is "invited" to write down some loans. Lots of negotiating ahead to determine the swap out price, etc I think.

    Whether the rating agencies consider it a default is their problem, not EU/ECB problem.

    What is most interesting on market dynamics is the "pre-emptive" ability of EFSF to intervene in markets, under "strict conditionality".

    Whether in practice that permission to act as "plunge protection" is never given, or given frequently, will be a whole new area to be tested by the markets.
    Jul 21, 2011. 05:14 PM | Likes Like |Link to Comment
  • Stocks mixed after biggest day in a year [View article]
    The Dow is pricing at the same level it was when the EU summit of 31 May was held.

    It crashed from there when they put the onus on Greek parliament to vote in austerity, and the sitting parliament had a 5 vote majority, was unpopular and so on.

    This time, the EU seem to have learned their lesson with a lot more common ground for a further, longer kick down the road.
    Jul 20, 2011. 01:47 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    Mike- thanks for your comment!

    You say so far its been like throwing money into a black hole. the plan on the table prior to tomorrow was a case of that.

    Having read the IMF/ECB/EU 120+ page report on the implementation status of Greece, and being familiar with the country, there are some good elements of real structural change there.
    Privatisation, liberalisation and deregulation of many markets and industries will help the country to grow with a real chance of transformaton, but not in the current economic climate and with the debt burdens it has.

    So the problem is not Greece's development path and prospects, but the proposed financing plan to date which doesnt help but hinder that.
    Jul 20, 2011. 01:34 PM | Likes Like |Link to Comment
  • Don't Underestimate EU Resolve [View article]
    Peter - thanks for your comment!

    Having read the 120+page troika report on the second bailout there is a lot in there that makes sense and a lot of hope for the Greek economy - structured around privatization. So that is a big poistive.

    Debt forgiveness = default, and that is not an option, plus it runs into the moral hazard problem.

    And yes Merkel has been the most concerned about moral hazard.
    Jul 20, 2011. 01:26 PM | Likes Like |Link to Comment
  • World's Biggest Engine of Growth Stalls [View article]
    Dave -Interesting comment! what did you expect?

    I take your "delusional" to mean the group i identified as not being the worlds engine of growth.

    As i see it, they determine PCE which accounts for about 65% + of US GDP. Investment (including private housebuilding and fixing) is about 15-20% of US GDP.
    Jul 13, 2011. 01:31 AM | Likes Like |Link to Comment