Blue sky thinking reaches Frankfurt (Getty)
Mario Draghi, European Central Bank president, has revived the idea of “reform contracts” — a policy that emerged in Brussels wonk circles last year and entails the EU contractually binding eurozone countries to economic reforms.
Speaking in Berlin on Monday, Mr Draghi told an audience of businesspeople that the eurozone needed two things to achieve sustainable growth: stabilisation and greater competitiveness.
To achieve the latter, he mentioned the need for “better ways of measuring economic performance – for example, more structural indicators of competitiveness.” And went on:
European Central Bank data, out Thursday, showed that the amount of cash that businesses and households are parking in Spanish banks rose in September for the first time since the spring.
Deposits held by Greek and Italian banks also rose last month, while those parked in German banks dipped slightly.
One swallow does not make a summer. But residents of the Eurotower will be cautiously optimistic that the fact that banks in Greece and Spain are no longer haemorrhaging deposits shows that one of the aims of the ECB’s Outright Monetary Transactions programme is being fulfilled with the central bank yet to buy a single bond.
The eurozone debt crisis will overshadow the European Central Bank’s monetary policy decision making on Thursday. It is fighting on several fronts. I posted earlier on the wording on inflation risks and interest rates. Here is what Jean-Claude Trichet, president, might say on other topics. As ever, there is always room for surprises…
Italy’s economic recovery will remain weak and below the eurozone average over the next two years, the Bank of Italy forecasts in a report that diverges from more upbeat government predictions while underlining the need for structural reforms.
Noting a slowdown in gross domestic product growth in the last quarter of 2010, the central bank predicted on Tuesday that Italian GDP would grow at a similar pace of 0.9 per cent in 2011 and 1.1 per cent in 2012, boosted by rising exports but held back by weak consumer spending and the government’s austerity programme. Modest growth would not be enough to produce a robust recovery in employment, the bank said.
… or coins from a truck. Two million euro coins have spilled on to a motorway in Southern Italy, thanks to an overturned lorry. Accident? Possibly. Or could it be the ECB reintroducing quantitative easing on the sly…?
The Bank of Italy said yesterday its debt interest payments were subject to great uncertainty, but be reassured: on the same day UniCredit published a report entitled “Why Italy is different”.
UniCredit’s reasoning, in a nutshell, was this:
- Italy’s growth in Q1 outperformed that of its peers, though is likely to slow;
- External imbalances affect Italy less than its peers, though dismal exports mean structural reform is required to address issues of competitiveness;
- Public finances and pensions appear in relatively good health;
- Relatively low private sector leverage;
- and national debt with longer maturities and high domestic consumption.
Italy’s economic health matters: the eurozone depends upon it, argues the report:
Italy is probably the “swing factor” in the current European crisis: as the largest of the vulnerable countries, and the most vulnerable of the large, its ability to withstand current market tensions will likely determine whether and how the eurozone can weather the storm.
Italy accounts for nearly one fifth of
Conspiracy theorists must be having a field day. German regulators have banned naked short selling on eurozone sovereign debt, sovereign CDS and shares in a handful of private companies. Germany has wanted action on naked short selling for months, and now they have acted unilaterally. But as the Economist points out: “It has made the markets think that the Germans know something bad that isn’t public.”
So let’s run with that theory. Perhaps Italians know something bad too. They have just released banks from the obligation to mark-to-market their losses on eurozone government bonds held in available-for-sale portfolios. The move is apparently designed to “safeguard capital ratios“. Isn’t that responsibility meant to lie with the banks, not the central bank? And can sovereign bonds credibly be excluded? They cost real money, and make or lose real money, just like other bonds.
You can always hope.
As more details unfold about European austerity programmes, reports asked Charles Evans, Chicago Fed president, what the potential effects would be on the United States. According to Reuters, Mr Evans responded:
I’m hopeful that our exposure will be minimal to modest.
Being hopeful is one thing, expecting something to happen is another.
Of course, there are those that are far less hopeful (or is it expectant?)
One way to assess if housing prices are rising for real reasons (ie, the property is becoming more valuable) or if they’re part of a bubble (ie, it’s a speculative boom, bound to crash) is to compare housing prices in a given area with rental prices. If housing prices are rising much faster over a prolonged period of time than rents, you’ve probably got a bubble on your hands.
Which begs the question: how do you measure rents?