http://globaleconomicanalysis.blogspot.com/2012/08/merkel-pushes-convention-to-draft-new.html

Monday, August 27, 2012 11:24 AM

Merkel Pushes Convention to Draft New EU Treaty; United States of Merkel?

Will Merkel get her wish for a Unites States of Europe led by nannycrats in Brussels? I suspect not because a vote would likely go up in flames. Nonetheless, Merkel Pushes for Convention to Draft New EU Treaty

Chancellor Angela Merkel's plans for a new treaty governing the European Union are becoming more concrete. SPIEGEL has learned that the German leader wants the EU to begin working on a draft this year, with the aim of providing Brussels with greater power to monitor budgets. But many countries are deeply opposed to the idea.

A date for the beginning of the convention is expected to be fixed at an EU summit in December. Merkel has been pushing for some time now to complement the recently approved fiscal pact, which harmonizes budget policies within 25 of the EU's 27 countries, with a political union. Germany would like to see, for example, a legal basis that would give the European Court of Justice the jurisdiction to monitor the budgets of member states and to punish deficit offenders.

So far, though, the German proposal has found few supporters in the other EU member states. During a meeting of the so-called Future Group, an informal gathering of 10 foreign ministers from EU countries, the majority opposed a call by German Foreign Minister Guido Westerwelle for a new treaty convention. Other countries, including Ireland, do not want to take the risk of a national referendum, which a new EU treaty would entail in some member states.

When Merkel previously brought up the subject during a December EU summit meeting, many people reacted with indignation. Initially, the other EU countries were unwilling to go along with the calls from Merkel and then-French President Nicolas Sarkozy for automatic sanctions for repeat offenders of budget rules. In the end, the Germans and French found a common position, saying they would push forward with a new EU treaty -- either with the entire bloc or with the 17 members of the euro zone if other countries were unwilling to go along with it.

United States of Merkel

Do the German people want a centralized authority over budgets led by bureaucrats in Brussels or is is it primarily Merkel?

I suggest the latter. Merkel wants as her legacy a United States of Merkel (which I define as a United States of Europe in which she gets primary credit for building). She does not care what it costs Germany as long as it gets her in the history books forever and a day.

Numerous Problems

The problems should be obvious. Many countries, especially the club-med states, do not want austerity or loss of sovereignty. They want printing.

Also note that Holllande wants to continue his tax the rich policies while lowering the retirement age and preventing businesses from firing workers.

Will Hollande's ideas work in a United States of Merkel?

Let's assume they will work. Indeed that should be Germany's big fear. Put a bunch of nannycrats together and they are likely to decide anything. And whatever rules they decide will apply to every country in the nannyzone that foolishly signs the treaty.

If the treaty is a simple majority rule treaty, Germany would be at risk of being overruled by the club-med states. If the treaty is by percentages, the club-med states would be at risk of being dominated by what is good for Germany and France (assuming of course Germany and France can agree).
No matter how a treaty is structured, some countries are guaranteed not to like it.

Mathematically Impossible

The Bundesbank said there should be no banking union until there is a fiscal union.
Angela Merkel said that there should be no fiscal union until there is political union.
François Hollande said that there should be no political union until there is a banking union.
The German supreme court will not allow a political union nor a fiscal union, nor a banking union without a German referendum.

Assume the Bundesbank will be ignored. Further assume Germany puts this to a vote and it passes. There still remains a big rift between the viewpoints of France and Germany as well as a big rift between Northern and Southern Europe.

In Italy sentiment to leave the euro is very strong. So is the sentiment in Germany. Would Germans really vote for this boondoggle? Would the Netherlands? Austria?

The next election in Italy may very well seal the fate against a new treaty idea even if Merkel and Hollande can work out major differences.

Do-or-Die Political Expediency

Finally, politicians might want a nannyzone, but citizens of many countries would not, and I strongly suspect that includes Germany.

Recall that France and Germany pushed through a treaty in December (still not ratified). Also recall that Hollande ran on a platform of renegotiating the treaty.

Germany and France are still bickering. How's that supposed to work? Does Merkel think an agreement now is likely?

I think not. Instead, her proposal is simply a matter of do-or-die political expediency and her one last chance to push for the United States of Merkel.

Mike "Mish" Shedlock

and....

http://www.zerohedge.com/news/europe-regurgitates-its-schrodinger-monetary-bazooka-policy

Europe Regurgitates Its Schrodinger Monetary Bazooka Policy

Submitted by Tyler Durden on 08/27/2012 12:09 -0400

It seems the 'we -really-want-it-but please-don't-blame-us-when-it-all-goes-pear-shaped' meme continues in Europe as ECB's Asmussen adds his own peculiar mix of talking out of both sides of his mouth, (via Bloomberg):

*ASMUSSEN SAYS DOUBTS ABOUT EURO'S SURVIVAL UNACCEPTABLE FOR ECB
*ASMUSSEN SAYS ECB STAFF STILL WORKING ON DETAILS OF BOND PLAN, WILL ADDRESS SENIORITY CONCERNS
*ASMUSSEN: ECB WILL STRICTLY SEPARATE MON. POL., SUPERVISION ROLES
*ASMUSSEN SAYS GREECE NEEDS TO MAKE FURTHER REFORM EFFORTS
but
- *ASMUSSEN SAYS ECB CAN'T PAY FOR FISCAL POLICY MISTAKES
- *ASMUSSEN: WE WON'T TAKE SUPERVISOR RESPONSIBILITY WITHOUT TOOLS
- *ASMUSSEN SAYS HE PREFERS BAILOUT FUND TO BUY BONDS BEFORE ECB
Clearly there is still ongoing uncertainty and confrontation within the governing council - and it is obviously not just Weidmann.

Market response - not a blip in ES or EURUSD!

and....

http://www.zerohedge.com/news/tempest-has-left-teapot

The Tempest Has Left The Teapot

Submitted by Tyler Durden on 08/27/2012 09:39 -0400

Via Mark J. Grant, author of Out of the Box,

The Greasy PIIG

No, not some new Barbecue restaurant in Kansas City or Memphis but our old favorite haunt including and surrounding Athens. In the last few days they have trooped around Europe, Aegean Fiddler’s hat in hand, asking for more time to implement their agreed upon austerity programs. That is what they claimed of course as it was one more fabricated tact to get more money. It is nothing other than that.

The strategy was to ask for an extension of time in sentence one and then follow up in sentence two with the argument that since they needed more time that they would need more money until the various programs were implemented. Implementation, however, is obviously not a word to be found in the Greek language or if it is then it is to be found under the heading of “old Greek legend” or “tales of brave Ulysses” or “myths of the Greek gods.”

Merkel and Hollande both had the same retort to all of this pretense which was that they wanted Greece to remain in the Eurozone but that there would be no extensions and that Greece had to stick to the bailout agreement. Consequently no second sentence was spoken which was the purpose of the European walk about and so the mission was a failure. There will never come a time when Berlin or Paris will say anything else other than they want Greece to remain in the Eurozone; so never expect it. The showdown will come over money and whether it will be given or not which will then either be one more bundle of Euros down the rabbit hole where its value will decrease like a shrinking Alice or the end to the handout which would force the return of Greece to the Drachma. All of this will ostensibly be decided sometime in October after the Troika report except they already have the report in all but its formal version and they are agonizing between tossing good money after bad or turning over one more losing hand in resignation. This card game cannot continue ad infinitum and it is now really a question of the politics in Germany and what that will force Ms. Merkel to do. There is increasing displeasure in Germany with this little party and the political pressures may well force an end to this game of charades where the debt to GDP ratio of Greece is thought of as anything other than an unmitigated disaster and where bills cannot be paid along with the promises. Over the weekend the Netherlands Prime Minister said he was done and the German Finance Minister has said he was done so we shall all watch how long the Faustian deal with the Devil remains in force.

The time has come to prove by deeds

that man will not quake before the pit where fantasy

condemns itself to tortures of its own creation

when he advances to the narrow passageway

about whose mouth infernal flames are blazing

Approach the brink serenely and accept the risk

-Goethe, Faust 57

Dexia

The carnage continues. I recall vividly when the Prime Minister of Belgium stated that Dexia would only affect the debt to GDP ratio for Belgium by one percent. He did not count the contingent liabilities in his calculation of course and I called him out on his projection at the time stating that it was some Belgian waffle type of fantasy. Now the fantasy is proving itself to be just that as the losses continue to mount and are $16 billion in the last eighteen months which will have to be borne by Belgium (60.5%) and France (36.5%) and Luxembourg (3.0%). The guarantees for Dexia, I predict, will continue to rise and will exceed more than $125 billion and perhaps much more than that. As contingent liabilities become real losses they will hit the balance sheets of these three countries and I think that both Belgium and France will be forced to take material hits to their ledgers which will cause both downgrades and increased costs of funding. I would be avoiding or selling the credits of these two countries now.

Portugal

I have been saying for about a year that Portugal will be forced back to the PIIGS’ trough and you may expect it now to come sooner rather than later. The projections for Portugal during the past year have been whims and fanciful merriment meant to lull the watchers into sleep and they have been fairly effective. Now, however, the real numbers begin to roll out and they are dismal. Portugal, the EU and the IMF had projected a revenue increase of 2.6%, which I have often disputed, and Portugal finally reported out actual receipts that were -3.5% as the economy continued to contract and as unemployment hit 15%. With a deficit target of 4.5% Portugal will now need to find another $3.5-4.0 billion to bridge the gap. Much of the projections for Portugal were based upon ending the 13^th and 14^th month salary bonuses but this was declared unconstitutional and was never corrected by the legislature. The Troika arrives today in Lisbon and we are already hearing the echoes of Greece calling for more time, extensions and diminished austerity measures. As is the case for Greece you may expect a second sentence which is the asking for additional funding. Expect Portugal to be back in the headlines soon.

China & the American Infection

Prepare yourself and not just for some news from a far off land but for data that will absolutely affect the United States and Europe. China is hitting the wall and whether it is caused by Europe or of their own making; the wall is no less real. Caterpillar, one of America’s bellwether companies, who relies upon China for 25% of their revenues is going to be one of the affected companies and in a major fashion. Their sales of mining equipment have plunged the most since January 2009 and this is the fifteenth month of decline. Sales of machinery for the building and construction industries are also in a serious slump. In the coal industry, now at a virtual standstill, machinery sales were off 53% in July and the total fixed income asset investments in this sector have plummeted from 19% to 3% giving you some idea of the severity of the situation.

If you are smart you will take a look at your holdings and note which companies receive a significant portion of their earnings from China. I make no specific recommendations but I point to any and every company where the Chinese revenues make up a meaningful part of their corporate revenues and earnings and factor in a meaningful decline because that is what I think will be occurring. I believe the decline will take place across all sectors and all industries as the growth engine that has driven so many of the markets grinds to much lower levels which I have projected to be around 4.0% and may be worse than that. We are facing a Europe in recession and China perhaps approaching one several quarters out and here is one more drag upon the United States that I think will drive the world into a global recession by the end of the first quarter of 2013.

Genug!

This is German for “Enough” and I think this will be the operative word for the rest of this year. The Prime Minister of the Netherlands over the weekend already used the Dutch word “Genoeg,” which is their equivalent word, in reference to Greece as he stated clearly and unequivocally that the Netherlands would not fund any proposed third Greek bailout. The entire concept of the protection of Firewalls has failed with the forthcoming capitulation of Spain proving that some sort of supposed protection against speculators does nothing to cure or help the nations that were meant to be protected. Spain will require around $350-400 billion in my view to right itself and the problem is actually squared as a country receiving money then can no longer contribute to the funding of other countries and so the burden then rests upon Germany, France and Italy with Italy like to be the next nation in line for assistance. Then Germany and France with a combined GDP of $6.2 trillion just do not have enough capacity to fund all of Europe without serious downgrades and vastly increased costs of funding. The first instance reaction to move capital out of the troubled nations and into the strongest of the core nations in Europe will be followed by a capital flight from even these countries as the storm clouds darken and as the financial tempest begins in Europe.

Aug. 26 (Bloomberg) -- Austrian Finance Minister Maria Fekter says donor states and Austrian taxpayers have reached the “uppermost limit” of their capacity to absorb bailouts for other nations.

I advise you to take note of the political opposition that is coalescing in Europe. The cry across the Continent, in various languages, is “Enough.” All of the grand designs speculated about for the ECB rest upon the use of the EFSF and/or the ESM as stated specifically by Mr. Draghi. Over the weekend the Bundesbank was absolutely critical of any such plans and they were supported by several statements made by Ms. Merkel. It is now dubious, in my view, whether Austria, the Netherlands, Finland and perhaps Germany would support not pledges but more actual money to be used for Greece, Portugal and Spain. The rub is on and the size of these potential programs will, without doubt, affect the funding nations in Europe along with the nations that need the capital. Muddling is no longer possible, delay has run out of road, postponement is no longer an option as recession grips the Continent and as each solvent nation seeks to defend itself.

“Our revels now are ended. These our actors,

As I foretold you, were all spirits and

Are melted into air, into thin air:

And, like the baseless fabric of this vision,

The cloud-capp'd towers, the gorgeous palaces,

The solemn temples, the great globe itself,

Yea, all which it inherit, shall dissolve

And, like this insubstantial pageant faded,

Leave not a rack behind. We are such stuff

As dreams are made on

-William Shakespeare, The Tempest

and just how long will the Troika stall on Greece anyway - how long can Greece pretend it still has money ? ?

PM faces tough talks with coalition partners

Prime Minister Antonis Samaras on Monday evening attended the unveiling of the silver cup awarded to Spyros Louis, winner of the marathon race at the 1896 first modern Olympic Games, on show at the Acropolis Museum.

As Prime Minister Antonis Samaras prepares for difficult talks this week with his coalition partners on efforts to identify billions of euros in austerity measures for 2013 and 2014, Finance Minister Yannis Stournaras met with other ministers on Monday in a bid to thrash out some of the cuts but apparently failed to make any headway.
On Tuesday Samaras is to brief President Karolos Papoulias on his talks last week with German Chancellor Angela Merkel and French President Francois Hollande ahead of a scheduled meeting on Wednesday with socialist PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis where the focus will be on some 11.5 billion euros in austerity measures being demanded by Greece’s creditors -- the European Commission, European Central Bank and the International Monetary Fund, known as the troika.
A European spokesman indicated that a much-awaited report on Greece’s economic reform progress would probably be ready in early October.
“The troika will return to Athens in early September to begin the concluding phase of the first review of the second program for Greece,” Simon O’Connor, spokesman for European Monetary and Economic Affairs Commissioner Olli Rehn, told reporters, adding that the envoys’ mission was expected to “take several weeks.” According to a report in Germany’s Rheinische Post, the report will be out in “early October” due to delays in moving forward with privatizations.
Although Samaras said his talks with European leaders went well, the envoys, who are due in Athens on September 5, will expect evidence of the government’s determination to impose austerity. In this vein, Samaras’s office said on Monday that one government jet would be sold and the other two given to the national air force.
But talks on some 11.5 billion euros in cuts for 2013 and 2014 -- plus an extra 2 billion euros in cuts to cover an expected shortfall from reduced tax revenues and social security contributions -- reportedly stalled. Stournaras’s talks with Defense Minister Panos Panayiotopoulos and Public Order Minister Nikos Dendias reportedly focused on plans for further cuts to the “special salaries” of certain categories of civil servants. The proposals are said to foresee reductions of 6 percent for armed forces employees and of 20 percent for judicial employees.

The package of measures -- which also includes cuts to state spending, pensions and benefits -- is to be finalized by mid-September.

ekathimerini.com , Monday August 27, 2012 (22:48)

Troika report not due 'until October'

Germany's Rheinische Post quotes EU diplomats as citing privatization delays

A report on Greece's progress in implementing economic reforms by the country's international creditors -- the European Commission, European Central Bank and International Monetary Fund, or the troika -- will not be ready until early October, according to a report in Germany's Rheinische Post.
The German daily quotes an unidentified EC official as saying that the troika's report will not be out until «early October at the earliest,» citing delays by the Greek government in moving forward with an ambitious privatization program. The source quoted by Rheinische Post does not determine whether the troika's report would be issued ahead of a eurozone finance ministers' summit scheduled for October 8 ahead. The Greek problem was to be discussed by ministers there ahead of an EU leaders' summit planned for October 18.
"The plans for privatization will be implementable at the earliest within the month of September,» the German daily quoted the official as saying.
Costas Mitropoulos, who resigned last month from the Hellenic Republic Asset Development Fund, has repeatedly said that a lack of political will has hampered the progress of privatizations.
Prime Minister Antonis Samaras, for his part, has insisted that privatizations are a key to boosting growth in Greece. The premier, who is back in Athens following visits to Berlin and Paris, claimed on Sunday that his meetings with German Chancellor Angela Merkel and French President Francois Hollande will «help reverse the negative image of Greece abroad.» Samaras is to brief his coalition partners -- socialist PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis -- on his meetings with Merkel, Hollande and Eurogroup Chairman Jean-Claude Juncker before talks turn to efforts to come up with some 11.5 billion euros in measures for 2013 and 2014 demanded by creditros, plus an addditional 2 billion euros in measures to cover a shortfall expected to result from reduced tax revenues and social security contributions.

ekathimerini.com , Monday August 27, 2012 (12:27)

http://globaleconomicanalysis.blogspot.com/2012/08/merkel-teflon-chancellor-ecb-slated-to.html

Sunday, August 26, 2012 10:24 PM

ECB Slated to Become "Currency Forger of Europe"; Merkel, the "Teflon Chancellor"

As time passes, the rifts between the Bundesbank and the ECB grow wider. So do the rifts between what German citizens want and what German chancellor Angela Merkel is willing to do to "save the euro".

Merkel increasingly (and as expected) does what she need to do to preserve he legacy, consequences (and Germany) be damned.

Please consider Merkel tries to calm storms over Greece, ECB policy

Angela Merkel tried to calm a growing storm over euro zone crisis strategy on Sunday after the Bundesbank likened ECB bond-buying plans to a dangerous drug and a conservative ally of the German leader said Greece should leave the currency bloc by next year.

The comments, from central bank chief Jens Weidmann and a senior figure in the Bavarian Christian Social Union (CSU), Alexander Dobrindt, point to mounting unease in Germany with the policies being used to combat the three-year old debt crisis.

"We are in a very decisive phase in combating the euro debt crisis," Merkel told public broadcaster ARD in an interview. "My plea is that everyone weigh their words very carefully."

Dobrindt, whose party is preparing for a regional election in Bavaria and the federal vote next autumn, told top-selling German daily Bild he expected Greece to leave the euro zone in 2013. His comments drew a swift rebuke from Foreign Minister Guido Westerwelle who said "bullying" of euro members must stop.

But Weidmann, a former economic adviser to Merkel, said in a front-page interview in influential German magazine Der Spiegel that the bond buys could violate rules against the ECB providing outright financing to governments.

"Such a policy is for me close to state financing via the printing press," Weidmann told Spiegel. "In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks. We should not underestimate the risk that central bank financing can become addictive like a drug," Weidmann said.

Dobrindt was more direct, saying Draghi risked passing into the history books as the "currency forger of Europe".

Merkel's Disingenuous Pledge of "Help"

I really do not know why Merkel is so revered, although feared I can certainly understand. She is a skilled politician, very adept at saying one thing and doing another, yet not getting challenged on it.

For example, Merkel Vows to Help Greeks Stay in Euro Zone

Read that article (or any other recent article on the subject) and tell me exactly what she is willing to do other than offer moral support. You will not find anything concrete because she is willing to do precisely nothing, right now.

She cannot give Greece more time or money because her coalition is likely to splinter if she does. However, her pledge of "help" will absolve her of blame when Greece does leave.

More importantly, she is willing to let Draghi do most anything because she recognizes that she must, to have a chance at keeping Spain and Italy in the fold.

Decisive Phase

When Merkel says "We are in a very decisive phase in combating the euro debt crisis" she is speaking as much about her own precarious position as the precarious position of the euro.

Merkel Achieves the Impossible Dream (For Now)

Merkel got away with promising Greece citizens help while doing nothing
Merkel got away with promising German citizens there will be no fiscal union until there is a political one, while simultaneity offering explicit support for the "Currency Forger of Europe"

Merkel is very adept at talking out of both sides of her mouth simultaneously, each saying a different thing, and getting away with it.

Reagan may have been the Teflon president, but Merkel is the Teflon chancellor.

Mike "Mish" Shedlock

and as Germany takes on more risk from the PIIGS , no wonder business confidences has fallen.......

http://www.zerohedge.com/news/germany-loses-confidence-fourth-month-row

Germany Loses Confidence For The Fourth Month In A Row

Submitted by Tyler Durden on 08/27/2012 06:57 -0400

Germany

Gross Domestic Product

SocGen

As the European double, and in some cases triple, dip, continues to take its toll on the periphery (in some cases retroactively, with Spain realizing that 2010 and 2011 GDPs were mysteriously lower than expected, previously printing at -0.1% and 0.7%, revised to -0.3% and 0.4%), the core continues to be dragged ever more into the quicksand of insolvency. The latest confirmation came from Germany, where for the fourth month in a row the IFO survey showed that firms have grown more pessimistic for the 4th month in a row in August, declining from 103.3 to 102.3, on expectations of a 102.7 print, with the Current Assessment dropping from 111.6 to 111.2, while Expectations declining from 95.6 to 94.2. What is disturbing is that this is happening even as the EURUSD continues to be at multi-year lows, which is certainly beneficial to German exporters. The obvious implication is that the higher the EUR rises, the less confident German businesses will be, which also explains why to Germany the best Nash (dis)equilibrium in Europe is to keep the periphery on the edge as long as possible, and the EURUSD as low as possible.

A summary assessment of the IFO print via SocGen:

The IFO survey confirmed that the euro debt crisis is gradually taking its toll on German firms' expectations. Although the present remains good and points to continuing growth, German firms are clearly growing more pessimistic about the outlook. This is a gentle reminder that the German economy is not immune to a major downturn in its partners' economic background

Overall, the business climate fell to 102.3 from 103.2. At this level, the business climate remains above its long-run average (by 0.2 standard deviations). More worryingly, expectations deteriorated markedly to 94.2 after 95.5 - the worst figure since June 2009- and stand now 1.0 standard deviation below average.

However, the IFO survey should go some way towards tempering expectations of a sharp economic downturn in Germany. Current conditions decreased slightly in August (111.2 after 111.5) and remain 0.9 standard deviation above historical average. Once again, the IFO business climate index tells a totally different message from the PMIs, which were respectively 1.2 and 1.1 standard deviations below its long-run average in August for the manufacturing and the services sectors. This is an exceptional divergence between the two surveys. In our views, the IFO current conditions component still points to upside risks to our Q2 GDP forecast (0.1% qoq, after 0.3% in Q1).

Across sectors, changes in the business climate were quite diverse: echoing the PMI surveys last week, manufacturing sentiment improved somewhat (by 0.8 pt). Other sectors carried on falling. Interestingly, business confidence now stands close to its long-run average in all sectors. In a nutshell, the more domestically-oriented sectors are losing steam which will raise concerns about the resiliency of the German economy.

And from Goldman:

Overall, German companies are worried about the medium-term outlook. These concerns are presumably related to the Euro crisis and the possibility of a deterioration in the tensions in financial markets and the periphery. The actions of policy makers in the coming weeks will determine whether or not these concerns increase further - with an increasing risk that these negative expectations become self-fulfilling.

and.......

http://www.zerohedge.com/news/china-stocks-drop-fresh-post-2009-lows-following-plunge-industrial-company-profits

China Stocks Drop To Fresh Post-2009 Lows Following Plunge In Industrial Company Profits

Submitted by Tyler Durden on 08/27/2012 04:33 -0400

Today the Chinese stock market did something unthinkable: it plunged to fresh post 2009 lows on news so bad they would have been enough to send the stock markets of such "developed" bizarro economies as the US and Europe limit up. The catalyst, as Bloomberg reports, was that Chinese industrial companies’ profits fell in July by the most this year, a government report showed today, adding to evidence the nation’s economic slowdown is deepening. Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the fourth straight decline, National Bureau of Statistics data today showed. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May. What is disturbing is that the slide persisted even as revenue in the first seven months increased 10.6 percent to 50 trillion yuan, today’s report showed. Which means that cost and wage pressures are starting to truly bite Chinese corporations, that the US ability to export inflation to China is much more limited, and that one can forget the PBOC easing monetary conditions any time soon for many of the reasons discussed in the past week. It also means that China is now stuck hoping that Wen Jiabao will at least implement some fiscal stimulus. The reality however, judging by the SHCOMP's reaction, is that the benefit from fiscal programs in China, and everywhere else, is far more limited than monetary policy intervention. End result: SHCOMP down 1.74%,to 2,055, a three year low.

From Bloomberg:

Today’s data add pressure on the government to step up policy easing to reverse a slowdown that may extend into a seventh quarter. On an inspection of Guangdong province from Aug. 24 to 25, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the Xinhua News Agency reported.

“The economy is slowing faster than what had previously been expected,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. The profit outlook is for “further weakness throughout the year,” he said.

Industrial companies’ profits in the first seven months of the year declined 2.7 percent to 2.7 trillion yuan, according to today’s statement. That compares with a 2.2 percent drop in the first half and a 28.3 percent gain in the same period in 2011.

Bank of America and Deutsche Bank AG this month reduced their forecasts for full-year economic expansion to 7.7 percent, which would be the slowest pace since 1999. Wen in March set a target of 7.5 percent.

Company profits are declining amid falling prices, higher costs and slower demand.

Xinjiang Goldwind Science & Technology Co. (2208), China’s second- biggest maker of wind turbines, said last week that first-half profit slumped 83 percent as competition intensified and market growth slowed.

Deutsche Bank's Jim Reid had this to add:

Asian equities are weaker despite the positive US lead on Friday. The Hang Seng and the Shanghai Composite are down 0.15% and 1.32% as we type as China‘s latest industrial profits dropped 5.4%yoy in July (-2.4% year-to-date). Chinese Premier Wen was quoted by state media over the weekend as saying that “negative factors…will affect stable economic operations in the second half” and the difficulties of estabilising growth are “relatively large”. Adding to the negative sentiment, BHP Billiton CEO commented that he expects ''long-term'' price declines for the miner's commodities as slower economic expansion in China weighs on demand. Iron ore prices continue to fall with the spot benchmark down for its 8th consecutive day on Friday.

We showed the iron ore collapse previously here.

Finally, the Telegraph adds some more color on what is now China's last recourse, namely more fiscal stimulus, since courtesy of the risk of soaring Soybean prices first predicted here over a month ago, andsince confirmed, the PBOC's hands are tied:

The Telegraph has travelled to the south of China over recent days to witness a slowdown in the coastal economy and in the export sector, and also to areas which are flourishing with new investment, and where the local economy is booming. The picture appears mixed. China, geographically almost the same size as the Eurozone, appears to be struggling in some areas and flourishing in others. A new inland corridor, running from Liaoning in the north to Guizhou in the south, through cities such as Wuhan and Changsha, is booming.

In response, Guangdong has unveiled 177 "core projects" worth 1 trillion yuan, joining a long list of local governments to announce "stimulus" plans. The huge cities of Chongqing and Tianjin, meanwhile, both said they would spend 1.5 trillion yuan, while Guizhou, one of China's poorest provinces, has said it will spend 3 trillion yuan on eco-tourism and creating a series of national parks.

The central government, meanwhile, said it would spend to plough 2.4 trillion yuan into reducing carbon emissions and energy conservation programmes over the next three years, and has already set aside 26bn yuan in subsidies to encourage consumers to switch to low-energy appliances.

The roll call of announcements may be a signal that after half a year of fine-tuning monetary policy, the government is preparing to take more drastic measures.

While the Communist party had pencilled in slower growth of 7.5pc for this year, in order to restructure and rebalance the economy, there are indications that China may suffer, or may already have suffered, a "hard landing", where growth would fall to below 7pc.

"A hard landing in China would look like the fourth quarter of 2008 and the first quarter of 2009 when exports collapsed, factories had no orders and migrant workers were laid off by the tens of millions," says Wang Tao, an economist at UBS.

Mr Wen said many "negative factors" would continue "to affect stable economic operations in the second half" and that the difficulties of boosting growth are "still relatively large".

"Facing the current difficulties, we have to improve the operating environment for companies and enhance the corporate confidence," he said.

At this point all we can add is that we are jealous and envious of China, where men are men, women are women, bad news are no longer not good news, and things are finally starting to make sense. As reported earlier, expect US stocks to soar on the realization that for China a hard landing now looks inevitable.

and Unicredit caught up in Iran money laundering as well .....

http://www.bbc.co.uk/news/business-19384702

Unicredit has confirmed it is co-operating with a US investigation into a possible breach of sanctions.

The bank is thought to have broken sanctions against Iran, according to reports by the Financial Times and Reuters, although this has not been confirmed by Unicredit.

The probe centres on a German subsidiary, HypoVereinsbank, which the major Italian bank bought in 2005.

The news follows similar revelations about two UK banks.

Unicredit originally admitted in January as part of a regulatory filingthat it was working with US authorities over a sanctions breach, but without naming the country involved.

"A member of the Unicredit group is currently responding to a third party witness subpoena from the New York County District Attorney's Office in connection with an ongoing investigation regarding certain persons and/or entities believed to have engaged in sanctionable activities," the January filing said.

According to Unicredit's latest statement, which does not name Iran either, the investigation is also being conducted by the US Department of Justice.

Other banks
Last month the US Senate released a report detailing how HSBC helped launder money for Iran, as well as for other US-sanctioned governments of Burma and North Korea and for Mexican drugs cartels.

Then, earlier this month, Standard Chartered Bank - which is headquartered in London, but mainly active in the Middle East, Africa and Asia - agreed to pay New York regulators $340m (£217m) to settle claims that it had concealed $250bn in transactions with Iran.

Continue reading the main story

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Meanwhile, Royal Bank of Scotland is also understood to be facing investigations into whether it has broken sanctions against Iran.

The bank would not comment, but confirmed that it had voluntarily approached US and UK officials with information after an internal inquiry uncovered possible infringements.

Germany's Commerzbank also warned last week that it may have to make a hefty payment to settle a US investigation into its own violations of sanctions on Iran and other countries.

Press reports earlier this month suggested that another German bank, Deutsche Bank, is also being investigated by the US Treasury's Office of Foreign Assets Control, the Federal Reserve, the US Justice Department and Manhattan's district attorney's office for alleged infringements of US-Iran economic sanctions.

Deutsche Bank refused to comment on the reports.

Sanctions regime

Iran has been subject to US economic sanctions since 1979. The current system operates under the US Treasury Department's Office of Foreign Assets Control.

The sanctions were toughened in 1997 by then-President Bill Clinton, who signed an order for sanctions that prohibited "virtually all trade and investment activities with Iran by US persons, wherever located".

Under US criminal law, violations of the Iranian Transactions Regulations may result in a fine up to $1m and/or jail for up to 20 years.

As part of the sanctions regime, until 2008, banks in the US in some circumstances were allowed to undertake so-called U-turn transactions with Iranian financial institutions.

Those U-turn transactions move money for Iranian clients among non-Iranian foreign banks, such as those in the UK and the Middle East. They are cleared through the US, but neither start nor end in Iran.

To ascertain whether these transactions are permitted, US clearing banks use the wire-transfer messages they get from banks, using the SWIFT payments system.

If the banks do not have enough information to make the call, they are supposed to freeze the assets.

The allegations involving Standard Chartered and HSBC both centred on U-turn transactions.

Standard Chartered was accused of stripping the messages of data that showed the clients were Iranian, replacing it with false entries.

The UK-based bank said that not only did "99.9% of the transactions" relating to Iran comply with U-turn regulations, but that the total value of transactions that did not comply was under $14m - converse to the $250bn worth of Iran transactions US regulators said it had hidden.

In July, a US Senate Committee found that HSBC carried out 25,000 transactions totalling $19bn that were connected to Iran between 2001-07, which it suggested was evidence that the bank may have broken economic sanctions.

Catharsis Ours

Monday, August 27, 2012