The Cypriot deposit confiscation has come and gone (and in a parallel world in which the global Bernanke-put never existed and in which bank shareholders were not untouchable, this is precisely how real-time bank restructurings should have taken place), but fears remain that the country's "resolution" mechanism will be the template for future instances of "resolving" insolvent banks. That may or may not be the case: the only way to know for sure is during the next European bank bailout, but one thing is certain - Cyprus was certainly a templatewhen it comes to how a world full of insolvent sovereigns (all engaged in currency warfare), where easing, quantitative or otherwise no longer works to boost the economy, will approach what is the last chance for monetary replenishment - taxation of financial assets, just as we warned first back in 2011. Specifically, Cyprus showed the "template" for confiscating Russian oligarch billionaire "ill-gotten", untaxed cash, which many in Germany demanded should be the quid for ongoing German-funded quo. And here's the rub. There is more where said "ill-gotten" cash has come from. Much more... $32 trillion more.
The debate rages...Soros: "The euro crisis has already transformed the European Union from a voluntary association of equal states into a creditor-debtor relationship from which there is no easy escape. The creditors stand to lose large sums should a member state exit the monetary union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden, and perpetuate their subordinate position. As a result, the crisis is now threatening to destroy the EU itself. That would be a tragedy of historic proportions, which only German leadership can prevent." Sinn: "Soros is playing with fire...Many investors echo Soros. They want to cut and run – to unload their toxic paper onto intergovernmental rescuers, who should pay for it with the proceeds of Eurobond sales, and put their money in safer havens... Soros does not recognize the real nature of the eurozone’s problems. The ongoing financial crisis is merely a symptom of the monetary union’s underlying malady: its southern members’ loss of competitiveness... His accusation that Germany is imposing austerity is unfair.Austerity is imposed by the markets, not by those countries providing the funds to mitigate the crisis."
Via Project Syndicate:
"Germany's Choice" by George Soros
The euro crisis has already transformed the European Union from a voluntary association of equal states into a creditor-debtor relationship from which there is no easy escape. The creditors stand to lose large sums should a member state exit the monetary union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden, and perpetuate their subordinate position. As a result, the crisis is now threatening to destroy the EU itself. That would be a tragedy of historic proportions, which only German leadership can prevent.
...
Once this is understood, the solution practically suggests itself. It can be summed up in one word: Eurobonds.
...
Germany has the right to reject Eurobonds. But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing them. If Germany is opposed to Eurobonds, it should consider leaving the euro.
...
There is a strong case for Germany to decide whether to accept Eurobonds or leave the eurozone, but it is less obvious which of the two alternatives would be better for the country. Only the German electorate is qualified to decide.
If a referendum in Germany were held today, the supporters of a eurozone exit would win hands down.
...
Europe would be infinitely better off if Germany made a definitive choice between Eurobonds and a eurozone exit, regardless of the outcome; indeed, Germany would be better off as well. The situation is deteriorating, and, in the longer term, it is bound to become unsustainable. A disorderly disintegration resulting in mutual recriminations and unsettled claims would leave Europe worse off than it was when it embarked on the bold experiment of unification. Surely that is not in Germany’s interest.
"Should Germany Exit the Euro?" by Hans-Werner Sinn
Last summer, the financier George Soros urged Germany to agree to the establishment of the European Stability Mechanism, calling on the country to “lead or leave.” Now he says that Germany should exit the euro if it continues to block the introduction of Eurobonds.
Soros is playing with fire. Leaving the eurozone is precisely what the newly founded “Alternative for Germany” party, which draws support from a wide swath of society, is demanding.
...
Many investors echo Soros. They want to cut and run – to unload their toxic paper onto intergovernmental rescuers, who should pay for it with the proceeds of Eurobond sales, and put their money in safer havens.The public already is being misused in an effort to mop up junk securities and support feeble banks, with taxpayer-funded institutions such as the ECB and the bailout programs having by now provided €1.2 trillion ($1.6 trillion) in international credit.
If Soros were right, and Germany had to choose between Eurobonds and the euro, many Germans would surely prefer to leave the euro. The new German political party would attract much more support, and sentiment might shift. The euro itself would be finished; after all, its primary task was to break the Bundesbank’s dominance in monetary policy.
But Soros is wrong.
...
Worst of all, Soros does not recognize the real nature of the eurozone’s problems. The ongoing financial crisis is merely a symptom of the monetary union’s underlying malady: its southern members’ loss of competitiveness.
The euro gave these countries access to cheap credit, which was used to finance wage increases that were not underpinned by productivity gains. This led to a price explosion and massive external deficits.
Maintaining these countries’ excessive prices and nominal incomes with artificially cheap credit guaranteed by other countries would only make the loss of competitiveness permanent.
...
Thus, the only remaining option, as unpleasant as it may be for some countries, is to tighten budget constraints in the eurozone. After years of easy money, a way back to reality must be found. If a country is bankrupt, it must let its creditors know that it cannot repay its debts. And speculators must take responsibility for their decisions, and stop clamoring for taxpayer money whenever their investments turn bad.
George Soros responds:
...
Allowing the bulk of outstanding national debts to be converted into Eurobonds would work wonders. It would greatly facilitate the creation of an effective banking union, and it would allow member states to undertake their own structural reforms in a more benign environment.
...
If Germany and other creditor countries are unwilling to accept the contingent liabilities that Eurobonds entail, as they are today,they should step aside, leave the euro by amicable agreement, and allow the rest of the eurozone to issue Eurobonds.
...
Whether Germany agrees to Eurobonds or leaves the euro, either choice would be infinitely preferable to the current state of affairs. The current arrangements allow Germany to pursue its narrowly conceived national interests but are pushing the eurozone as a whole into a long-lasting depression that will affect Germany as well.
...
There is no escaping the conclusion that current policies are ill-conceived.
...
The heavily indebted countries must channel the rising their citizens’ discontent into a more constructive channel by coming together and calling on Germany to make the choice.
...
All of Europe would benefit if Germany assumed the role of a benevolent leader that takes into account not only its narrow self-interest, but also the interests of the rest of Europe – a role similar to that played by the US in the global financial system after World War II, and by Germany itself prior to its reunification.
Hans-Werner Sinn responds:
Germany will not accept Eurobonds. The exclusion of debt mutualisation schemes was its main condition for giving up the deutschmark and signing the Maastricht Treaty (article 125 TFEU). Moreover, the German Supreme Court has indicated that Germany will require a referendum before Eurobonds can be introduced.
...
His accusation that Germany is imposing austerity is unfair. Austerity is imposed by the markets, not by those countries providing the funds to mitigate the crisis.
...
Should the euro break up and the GIPSIC countries default, Germany alone would lose about €545 billion euros, nearly half of the aggregate sum mentioned, since the Bundesbank has carried out most of the net payments on behalf of the GIPSIC countries that are reflected in the Target balances.
...
George Soros underestimates the risks that debt mutualisation would pose for the future of the eurozone. When Alexander Hamilton, the first US finance minister, mutualised state debts in 1791, he thought this would cement the new American nation. But the mutualisation of debt gave rise to huge moral hazard effects, inducing the states to borrow excessively. A credit bubble emerged that burst in 1838 and drove most of the US states into bankruptcy. Nothing but animosity and strife resulted.
The euro crisis arose because investors have mispriced the risks of investing in southern Europe.
...
Soros says that Germany will suffer from exiting the eurozone, because of the revaluation of the deutschmark. This is not true.First, Germany is currently undervalued and would benefit from a limited appreciation via the terms-of-trade effect. Theadvantage of imports becoming cheaper more than outweighs the losses in export revenue.
George Soros responds:
Hans-Werner Sinn’s responseconfirms my fear that the euro will eventually destroy the European Union. The longer it takes, the greater the political damage and the human suffering– and it may take a long time.
...
I do not agree with all of Sinn’s arguments, but there is no point in getting bogged down in the details. The point is that the current state of affairs is intolerable. Sinn claims that the root cause of the euro crisis is that the Mediterranean countries are not competitive. If he represents German public opinion correctly, a mutually agreed breakup of the eurozone into two currency blocs would be preferable to preserving the status quo.
The division of the euro into two blocs would cause serious dislocations. Germany assuming the role of a benign hegemon would benefit everyone, but that seems to be unattainable.
Throughout history wars have been fought for a number of reasons, not the least of which is economic gain. The traditional means to that end has been physical combat, but we’re now in a new era – an era where wars are increasingly fought with technical and financial means. The US has already fallen victim to widespread cyber attacks originating in China and is suspected of conductingits own technological attacks on others.
The recent economic crisis showed the world how susceptible even powerful nations are to financial tumult. Displacing the USD as the global reserve currency would put China closer to their explicitly stated aspirations without ever having to engage the world’s strongest military.
At the end of last week China Central Television, a state-run broadcaster, aired a documentary offering an overview of bitcoin and its potential benefits. Given the tight controls the Chinese government has over mainland media, this was not just tacit approval from the world’s second largest and centrally-run economy. It was a continuation of an ongoing series of rhetoric and actions to undermine the US Dollar, as well as destabilize the beneficiary of global reserve currency status: the United States.
China Wants to Remove the US Dollar’s Reserve Currency Status
Distribution of global reserve currencies (courtesy of wikipedia)
Since the end of World War II, the US Dollar has enjoyed the benefits of being the world’s reserve currency. The dollar has remained strong as a result of being the denominating currency of roughly 60% of global bank and sovereign foreign currency reserves, as well as the de facto medium of exchange for major commodity transactions. The reserve currency’s issuing nation receives a number of unique benefits, not the least of which is the ability to borrow money at significantly lower rates, as has been heavily taken advantage of by the US.
China has been outspoken for years about their desire to find a replacement for the USD as the world’s reserve currency, citing the dollar’s susceptibility to volatility and inflation. That concern is not new to the global stage and was famously addressed in 1971 when US Secretary of the US Treasury John Connally told a group of European finance ministers that the dollar was “our currency, and your problem.”
Since the global financial crisis began China has been on an unabated campaign to displace the dollar’s coveted position – bitcoin provides a potentially game-changing tool in that arsenal. Below is a brief timeline of the escalating currency war China has openly waged:
March 2009 – China central bank governor zhou xiaochuan appeals to the g20 to create a new currency standard to replace the dollar as global reserve. Keep in mind that bitcoin was in its infancy when this recommendation was made – this appeal likely would have referred to a basket of many currencies or notes issued by the International Monetary Fund.
September 2012 – China announces it will begin selling oil in currencies other than the dollar. Since the 1970’s, global oil sales have been conducted in dollars as a result of longstanding diplomatic agreements the US made with major oil producing nations.
September 2012 – A member of china’s commerce ministry publicly recommends using their position as Tokyo’s largest foreign creditor to launch a bond attack on Japan. The comments were made amid escalating territorial disputes and suggested China “impose sanctions on Japan in the most effective manner” by selling large quantities of Japanese bonds to drive up the neighboring country’s borrowing costs. Worth noting: China is also the US’ top foreign creditor, holding more than 7% of outstanding US debt.
March 2013 – Chinese central bank Deputy Governor Yi Gang declares china is “fully prepared” for a currency war, specifically noting “China will take into full account the quantitative easing policies implemented by central banks of foreign countries.”
March / April 2013 – China bypasses the USD as an intermediary of exchange by opening direct swap lines with australia and brazil to build trade with the two nations without requiring a facilitating swap to USD.
China Brings Bitcoin to Its Populace
Last week CCTV, the predominant state television broadcaster in China, aired an overview of bitcoinexplaining both how some folks have made money from the new currency and how many see it as a speculative bubble. The Chinese government, which has more than a dozen agencies regulating mediaand information flow, clearly wants its population to know about bitcoin despite the successful global use of the currency to circumvent capital controls and undermine central authority – governmental aspects China takes quite seriously.
If China successfully aids the proliferation of bitcoin, the implications on the global currency system could be monumental. Rather than having to use USD as an intermediary currency or establish swap lines to support international trade, a world conducting trade with bitcoin would mean the USD currently used for this purpose would be leaked as additional supply in the Forex markets, driving down the value of USD and driving up borrowing rates for the US. This change, on a large scale, would drastically accelerate the effects of the inflationary policies already taken up by the Federal Reserve. A significant inflationary trend in USD could potentially create a devastating cycle as global banks looking to preserve their wealth seek alternative reserve currencies, even further reducing the dollar’s value.
The effect in China and on the bitcoin market is already being realized. Bitcoin wallet software has been downloaded nearly 40,000 times since the program aired three days ago – that’s almost 7 times the number downloaded in the US over the same period and 13 times the rate of downloads in China leading up to the report.
If this trend continues, we may have just witnessed the single most significant event in bitcoin history since the currency’s inception.
One of France’s most outspoken politicians delivered François Hollande a pair of spectacles on Monday “in order for him to see the suffering of the French people,” as the beleaguered presidentcelebrated his first anniversary in power.
Not long after, the website of conservative daily Le Figaro revealed that Dupont-Aignan planned to present to Mr Hollande with a pair of spectacles, “in order for him to see the suffering of the French people”.
“Taking into account the terrible trouble François Hollande has in understanding the problems of the French people, and moreover his inability to resolve them, this simple and inexpensive gift will be as useful to him as to France on the whole,” he is quoted as saying by AFP.
Dupont-Aignan’s former colleagues at the UMP have also reveled in Hollande’s dire ratings on his one-year anniversary with a highly-questionable “we told you so” campaign. Posters showing a soaked-through Hollande, a banner reading “failure” and the caption “Join the UMP”, have been pasted up across the country.
French industrial production came in considerably lower than expected overnight. France's output fell 2.5% YoY against an expectation of a mere 1.4% drop andmanufacturing production dropped 4.9% YoY - almost its worst since the crisis. This data confirms what we have discussed in detail (hereand here) that France is heading for a depression. After the briefest of renaissances in Q3 2012, the Gallic nation now looks set for a triple-dip recession, further stretching the core of an already tense European Union. The last few days have seen 10Y French debt yields increase a little (+17bps off the lows) but they remain (much as the rest of Europe) near record lows.
The euro continues to not get the memo. After days and days of attempted jawboning by Draghi and his marry FX trading men, doing all they can to push the euro down, cutting interest rates and even threatening to use the nuclear option and push the deposit rate into the red, someone continues to buy EURs (coughjapancough) or, worse, generate major short squeezes such as during today's event deficient trading session, when after France reported a miss in both its manufacturing and industrial production numbers (-1.0% and -0.9%, on expectations of -0.5% and -0.3%, from priors of 0.8% and 0.7%) did absolutely nothing for the EUR pairs, it was up to Germany to put an end to the party, and announce March factory orders which beat expectations of a -0.5% solidly, and remained unchanged at 2.2%, the same as in February. And since the current regime is one in which Germany is happy and beggaring its neighbors's exports (France) with a stronger EUR, Merkel will be delighted with the outcome while all other European exporters will once again come back to Draghi and demand more jawboning, which they will certainly get. Expect more headlines out of the ECB cautioning that the EUR is still too high.
In other news, courtesy of the cash debt bubble which has now surpassed 2007 levels (if not so much in synthetic and securitized products yet, but their time will come), Portugal had no problem selling €3 billion in 10 Year Benchmark February 2024 notes for which it had about €4 billion in orders, which priced at midswaps +400, yielding around 5.66%. All of this, of course, on the back of the global carry trade where the short end originates in various "stable" credit bubble nations such as Japan (which has to buy the EUR to get involved, thus offsetting Draghi's plans).
All of this followed yet another easing move by a major bank, this time the RBA, which in an unsurprising move cut the Australian benchmark rate to a new record low of 2.75% to "counter slowing down in the country's mining sector." from BBC:
Australia's central bank cut interest rates to a record low on Tuesday and signalled there was room to ease yet further, highlighting the relentless pressure a stubbornly high currency is putting on the resource-dependent economy.
Indeed, the local dollar gave ground only grudgingly after the Reserve Bank of Australia (RBA) surprised some by easing a quarter point to 2.75 percent, taking rates even below the nadir touched in the global financial crisis.
With the currency still not far from 28-year peaks when measured against a basket of its counterparts, analysts suspected the new normal might be lower rates for longer.
"The RBA appears to have simply grown weary of a high Aussie, while becoming more comfortable about the high pace of domestic inflation," said Scott Haslem, chief economist at UBS.
"This suggests even with our outlook for better growth, the cash rate in Australia is likely to remain low for longer than has been normally the case."
Even after Tuesday's easing, Australian rates remain among the highest in the developed world. The European Central Bank cut its main rate to 0.5 percent last week, while the Federal Reserve and Bank of Japan are effectively at zero.
As those major central banks pursue ever more radical easing policies, it puts downward pressure on their currencies while helping keep the Australian dollar painfully high.
That could be one reason RBA Governor Glenn Stevens implicitly left the door open to further easing when announcing the policy decision on Tuesday.
"The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand," " RBA Governor Glenn Stevens said. "At today's meeting the Board decided to use some of that scope."
Stevens noted inflation had been lower than expected recently and well in line with the RBA's long term target of 2 to 3 percent. The latest reading of underlying inflation put it at 2.4 percent in the year to March.
Finally, in order to "explain" the most recent overnight weakness in gold, the China gold association says China Q1 gold consumption 320.54 tons, which was up 25.6% from the same period last year. So why does gold continue to sell, and why are GLD holdings down to multi year lows? Bloomberg has the answer: Paulson gold fund lost 27% last month after the precious metal and related securities plummeted, according to two people familiar with the matter. Can anyone spell ongoing forced liquidations?
The Bloomberg bulletin blast has all the pithy event soundbites:
Treasuries lower, tracking bunds; 10Y yield above 200-DMA; Treasury sells $32b in 3yr notes today in first of 3 refunding auctions; WI yield at 0.345%
The Reserve Bank of Australia cut its benchmark interest rate by 25bps to 2.75%, a record low, driving down a currency that has damaged manufacturing and boosted unemployment; says AUD record strength “is unusual given the decline in export prices and interest rates”
German March manufacturing orders +2.2% from Feb., prior +2.2%; est. -0.5%
HSBC Holdings Plc, Europe’s largest bank, said 1Q profit almost doubled, beating analyst estimates, as bad debts declined and it cut costs; French banks Societe Generale SA and Credit Agricole SA reported 1Q results that beat estimates
E.U. Commissioner Rehn says it’s too early to say whether Slovenia requires a bailout, E.U. may consider extending target deadline; Slovenian Prime Minister Bratusek says his government is considering tax increases as part of fiscal consolidation plan
Greek yields below 10% signal increasing confidence that the country is stemming the financial turmoil that triggered the euro area’s debt crisis
Goldman Sachs Group Inc., Citigroup Inc. and 10 other banks have restrained market competition for credit default swaps in violation of U.S. antitrust law, a union pension plan claimed in a federal court complaint
U.S. regulators face renewed pressure from congressional lawmakers to ease Dodd-Frank Act derivatives requirements amid mounting criticism from Wall Street and overseas officials that the rules overreach
China is tightening approvals of bond sales by local government finance vehicles with higher levels of debt, three people with knowledge of the matter said
Paulson gold fund lost 27% last month after the precious metal and related securities plummeted, according to two people familiar with the matter
BofAML Corporate Master Index OAS narrows to 144bps from 147bps, tying YTD tights last seen March 14; $2.575b priced Monday. Markit IG is unchanged at 71bps YTD low. High Yield Master II OAS widens to 430bps from 433bps as $1.45b priced
Monday. CDX High Yield closed at 107.27, +0.04.
Sovereign yields higher, led by the U.K. and Australia.
Asian stocks rise, European shares advanced to highest level in almost five years as earnings beat estimates. U.S. stock-index futures gain; WTI crude falls for first time in four days; gold declines, copper gains
* * *
For more key macro events and outlook we go to SocGen
Financial markets are likely to come back to life today, with the return of UK investors after the bank holiday weekend.
Economic news flow is unlikely to be inspiring, however: weak numbers have already been reported for French industrial production, with manufacturing output sliding 1.0% mom (-4.9% yoy ). New orders data from German industrials are also due and a soft set of numbers would keep downside pressure on the EUR and raise question of the scale of the recent move in 10y swaps. Bleak industry data would of course reinforce the pessimistic view of the economy set out by Mario Draghi last week and repeated in Rome yesterday where he stated that the ECB stands ready to act if needed.
As illustrated by a steepening of the euro yield last week, any gyration on the swap curve leads to curve steepening: yields in the long end can back up in the event of an improvement in risk sentiment, whereas short and medium-term maturities remain weighted down by economic prospects that are still showing no signs of improvement. The reversal lower in BTP and Bono yields brings some respite after the corrective push higher but Spanish 2016, 208 and 2026 supply on Thursday will be a consideration for investors and could keep 10y spreads over bunds struggling to tighten below 285bp.
Regarding EUR/USD, its resistance to selling never ceases to impress considering the negative news flow on the euro which the parity is shaking off with remarkable ease. Overnight follow through on Draghi's comments did not quite materialize and it is the decline in AUD/JPY on the RBA rate cut decision that is leading EUR/JPY lower. Yet, it is true that the dollar's effective exchange rate recovered somewhat since the release of the US employment report last Friday, even though EUR short positions have been trimmed back over the last week. We continue to believe that downward pressure on the euro will eventually gain the upper hand especially if incoming US data confirm the more positive message from the labour market for April and indicate the Q2 slowdown is temporary. US supply is also a factor this week and a solid 3y note sale today could support USD sentiment.
* * *
The full overnight recap from DB's Jim Reid
News that Bank of America had reached a $1.7bn agreement to settle a longstanding MBS dispute with MBIA gave the US Financial sector a boost. Share prices of BofA and MBIA rose +5.2% and +45.4%, respectively. The market also saw this as a big credit positive for the bond insurer which saw MBIA Insurance Corp’s 5-year CDS rally 30 upfront points tighter on the day. BofA’s 5-year CDS finished the day 7bp tighter.
It was a softer but quiet session in Europe. The Stoxx600 (-0.48%) closed modestly lower, not supported by declines in Italian (-0.35%) and Spanish (-0.48%) bourses. The final Eurozone PMI services data for April was revised up marginally (47.0 from 46.6) but still firmly below 50. The main headline yesterday came from ECB’s Draghi as he said “We will be looking at all data that arrives from the euroarea economy in the coming weeks and if necessary, we are ready to act again.” This is perhaps not a major surprise but clearly upcoming data performance still holds the key.
Moving on to the Asia, we have a mixed session overnight but Chinese (+0.1%) and Hong Kong (+0.1%) equities are turning positive after a weaker start to the day.
The Nikkei (+2.8%) continues to march higher despite a stronger JPY overnight. Malaysia’s main equity index is up half a percent overnight after a strong +3.4% gain yesterday. The weekend election outcome in Malaysia, which saw the ruling Barisan Nasional coalition retain power, was seen as a positive catalyst for markets. Likewise, Malaysia’s 5-year CDS is about 14bp off its recent highs after having outperformed regional peers yesterday. Focus in Asian credit remains firmly on new issues although technicals still remain supportive.
Elsewhere the latest Fed Loan Officer Survey was another notable release yesterday. The report noted that domestic banks, on balance, have eased their lending standards and having experienced stronger demand in several loan categories over the past three months.
In terms of today the RBA’s rate decision can be expected shortly. Whilst the market is generally expecting the central bank to keep its key rate unchanged at 3.0%, DB’s Adam Boyton is expecting a 25bps cut. Elsewhere today also sees the release of French IP and trade balance as well as factory orders from Germany. In the US, the IBD/TIPP Economic Optimism, JOLTS Jobs Opening and Consumer Credit are the main releases today. We also have a $32bn 3-year UST auction today. Data aside, President Obama will host South Korea’s President Park in the White House today. It would be Park’s inaugural visit to the White House and North Korea’s nuclear security issue will likely be high on the agenda.
Looking at the rest of the week, we can expect the usual post payrolls data lull in the US. The focus will be on a series of Fed speaks which begins tomorrow and ends with Bernanke’s keynote address on Friday. Initial jobless claims will also be a key data point this week given the current focus on labour market conditions. Today’s 3-year UST auction will be followed by a $24bn 10-year auction tomorrow and a $16bn 30-year sale on Thursday. In Europe, various industrial production releases will be the main focus this week. German, Spanish and Italian IPs are due on Wednesday, Thursday and Friday, respectively. We also have trade data from Germany on Friday. In the UK, the Bank of England’s rate decision will be a highlight and the central bank is expected to keep its interest rate and QE program unchanged. We also have UK IP data on Thursday and trade data on Friday.
The Netherlands is looking enviously at France's two-year extension to its deficit targets.
Finance minister Jeroen Dijsselbloem told reporters this morning that he'd like a one-year extension (reports Matina Stevis of the Wall Street Journal):
Last week the EC predicted that the Netherlands deficit would breach the 3% target, at 3.6% of GDP both this year and in 2014.
That suggests that the Netherlands must either make further cutbacks, or be allowed to miss the target (or simply breach it without 'permission').
A one-year extension would give the Netherlands until 2014 to trim its annual government borrowing below 3% of GDP.
Dijsselbloem: We must protect small savers (!)
Back in Brussels, eurogroup president Jeroen Dijsselbloem has been speaking at the Blueprint for a deep and genuine EMU conference(see also 9.38am)
On banking union, Dijsselbloem told the conference that European Central Bank should immediately scrutinise the eurozone's banks when it takes responsibility for the sector this summer.
He warned that undeclared losses on bad debts meant there was still the risk of contamination between European banks
@j_dijsselbloem lays out bank union starting w/ resolution harmonisation & direct recap rules by June ending eventually w/ dep guarantees
Dijsselbloem also insisted that those with under €100,000 in the bank must be protected under Europe's rules for failed banks (ironic, given he took the blame for the original (swiftly reversed) decision to impose losses on all Cyprus savers in its bailout).
French industrial output slides
Gloomy economic news from France this morning - industrial output fell by a worse-than-expected 0.9% in March.
The fall was driven by lower production in France's farm and transport sectors, alongside a fall in oil refining, and won't ease fears that Europe's second largest economy is enduring a tough 2013.
Reuters has more details::
The monthly fall, in part an adjustment from a 0.8% rebound in February driven by the restarting of a refinery, was worse than the 0.3% dip predicted by economists in a Reuters poll.
Output over the first quarter in the moribund industrial sector -- which makes up about 12% of France's economy -- was down 0.4% compared with the previous quarter.
President Francois Hollande is struggling, a year into his term, to fulfil a campaign pledge to pull the industrial sector out of a long slump that is driving a steady stream of layoffs. His government said this week that measures taken so far to boost competitiveness would take time to bear fruit.
Manufacturing output, a measure that excludes water, energy and mining, was down 1.0% in March after a 0.8% rise the previous month, the data from the INSEE statistics office showed.
There was slightly better news for France in its monthly trade data - the deficit narrowed to €4.696bn in March, from €5.645bn in February.
Strong German factory data eases recession fears
German factory orders in March have smashed forecasts , jumping by 2.2% last month compared with February.
Economists had expected a 0.5% drop, as Germany felt the impact of the eurozone recession. But the sector actually saw a rise in exports (+2.7%), driven by demand from other euro countries (+4.2%). Domestic orders were up 1.8% during March.
Rainer Sartoris of HSBC Trinkaus told Reuters that the figures should calm fears that Germany's economy shrank in the last quarter:
The recovery is on its way. We have had two consecutive strong increases now.
The Cypriot deposit confiscation has come and gone (and in a parallel world in which the global Bernanke-put never existed and in which bank shareholders were not untouchable, this is precisely how real-time bank restructurings should have taken place), but fears remain that the country's "resolution" mechanism will be the template for future instances of "resolving" insolvent banks. That may or may not be the case: the only way to know for sure is during the next European bank bailout, but one thing is certain - Cyprus was certainly a templatewhen it comes to how a world full of insolvent sovereigns (all engaged in currency warfare), where easing, quantitative or otherwise no longer works to boost the economy, will approach what is the last chance for monetary replenishment - taxation of financial assets, just as we warned first back in 2011. Specifically, Cyprus showed the "template" for confiscating Russian oligarch billionaire "ill-gotten", untaxed cash, which many in Germany demanded should be the quid for ongoing German-funded quo. And here's the rub. There is more where said "ill-gotten" cash has come from. Much more... $32 trillion more.
Submitted by Tyler Durden on 05/07/2013 11:03 -0400
The Cypriot deposit confiscation has come and gone (and in a parallel world in which the global Bernanke-put never existed and in which bank shareholders were not untouchable, this is precisely how real-time bank restructurings should have taken place), but fears remain that the country's "resolution" mechanism will be the template for future instances of "resolving" insolvent banks. That may or may not be the case: the only way to know for sure is during the next European bank bailout, but one thing is certain - Cyprus was certainly a templatewhen it comes to how a world full of insolvent sovereigns (all engaged in currency warfare), where easing, quantitative or otherwise no longer works to boost the economy, will approach what is the last chance for monetary replenishment - taxation of financial assets, just as we warned first back in 2011. Specifically, Cyprus showed the "template" for confiscating Russian oligarch billionaire "ill-gotten", untaxed cash, which many in Germany demanded should be the quid for ongoing German-funded quo. And here's the rub. There is more where said "ill-gotten" cash has come from. Much more... $32 trillion more.
“Taking into account the terrible trouble François Hollande has in understanding the problems of the French people, and moreover his inability to resolve them, this simple and inexpensive gift will be as useful to him as to France on the whole,” he is quoted as saying by AFP.
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