Yields on Spanish 10-year bonds over the past month – Bloomberg
The market reaction to the Spanish bailout continues to validate the infallible eurocrisis trading rule of “buy on the summit, sell on the communiqué”. Why so negative, especially for Spanish sovereign debt?
As has been extensively pointed out, the Spanish rescue is a roundabout way to do a bank recapitalisation. Instead of taking direct equity stakes in the banks, the EFSF/ESM has had to lend via FROB, Spain’s bank rescue fund, thus increasing Spain’s sovereign debt load and raising all sorts of tortuously tricky questions about seniority.
So why do it this way? It’s the old story of policy architecture not reflecting the realities of the world economy. Read more
One of the very few bright spots in governments’ generally grim recent performance of managing the world economy has been that trade protectionism, rampant during the Great Depression, has been relatively absent.
That may no longer be the case. The WTO, fairly sanguine about the use of trade barriers over the past few years, warns today that things are getting worrying. The EU made a similar point yesterday. And this monitoring service has been pointing out for a long time that a lot of the new forms of protectionism aren’t counted under the traditional categories, thanks to gaping holes in international trade law. Read more
Could the IMF help bail out Spain? Tricky one. As goes the EU, so goes the IMF, only more so. Read more
A new lease of life in an old idea? The EU and the US are talking about some kind of bilateral trade agreement – as, to be fair, they have been for about the past 20 years. This time, so the optimistic argument goes, it is helped along by the fact that almost no-one can be bothered to pretend that the Doha round is alive any more, thus neutralising the criticism that the two biggest trading powers are stitching up deals between themselves and undermining the multilateral system.
The problem with the deal, though, as USTR Ron Kirk recently hinted, is that the Europeans want to go for a comprehensive deal covering as many sectors as possible. US business groups privately have similar worries about the overoptimistic views of their European counterparts. Read more
It’s EUROPE’S SCARIEST CHART (against some pretty stiff competition): Spanish youth unemployment above 50 per cent! One in two young Spaniards on the scrapheap! Packs of ravening wolves roaming the streets of Madrid!
Prepare to be terrified:
Some renewed interest in this perennial surprise fact, which apparently busts national stereotyping WIDE OPEN – the diligent Greeks work more (average 2109 hours/year) than the OECD average (1749 hours/year), second only to the South Koreans. And the idle Germans are among the lowest (1419 hours a year).
Amazing? Not really. These numbers clump together part-time and full-time workers, and Greece has proportionately more full-timers than part-timers (89.8%) compared with the OECD average (84.4%), which bumps up the number. Read more
Surprise choice for US nominee – and thus, let’s face it, immediate frontrunner - to be president of the World Bank. Jim Kim is a technocrat rather than a politico, so the White House has refreshingly eschewed partisan patronage if not nationality, and has deep (if somewhat narrow, being restricted to public health) development experience. Together with the traditional US lock on the position, those are very likely enough to carry him over the finishing line to the presidency. Read more
So says, well, the IMF in the staff report produced as fodder for the executive board to OK a €28bn loan to Athens on Thursday.
Not only is the Greek programme itself on a knife-edge – super-sensitive to yet more growth shortfalls, doubts over political commitment to implementation, the usual – but the Fund is close to the limits of its own flexibility on how much it can lend to a single country, under its snappily-named “exceptional access” criteria. Read more
Exaggeration and contradiction, fairly obviously, but hear me out. As various people have pointed out, the rare earths case threatened at the WTO comes at an odd time given what is happening in the real world. Rare earth mineral prices have plummeted (h/t FT colleague Ed Crooks) and supply is coming on stream from elsewhere – indeed, Molycorp, the big US producer, is gearing up to export to China.
The timing has more to do with domestic politics in the US and the fact that the US and EU just won a similar case to establish precedent. (Precedent isn’t legally binding in the WTO dispute settlement process, as it isn’t a common law-type system, but it is certainly helpful.) Read more
Bye bye Robert Zoellick! Photo: JOHANNES EISELE/AFP/Getty Images
Robert Zoellick goes from the World Bank, no doubt biding his time and eyeing up the possibility of a job as secretary of state or Treasury secretary in a future Republican administration (most likely Romney – he’s not really a Santorumite), and for the second summer in a row, the starting flag drops on the race to run one of the world’s top financial institutions.
Given that the quid of the Euro-American stitch-up worked to install Christine Lagarde at the IMF last summer, the pro, as it were, will most likely drop into place with an American appointment this year. To John Cassidy’s list of possibles I’d add John Kerry – international name recognition, interest in development, administrative experience – though that could depend on whether he has something else in mind. Read more
Lest it be thought that I regard all global economic governance as a crock and don’t give credit where it’s due, congratulations to the US for accepting that “zeroing” – a way of blocking imports by disregarding evidence you don’t like – is dead. In theory Washington will try to negotiate its reacceptance in multilateral talks at the World Trade Organisation, but everyone knows those are going nowhere.
It’s another illustration of two general principles: 1) WTO rules might be patchy, but where they exist, they have held up pretty well, certainly a lot better than protectionism doomsters have been warning; 2) say what you like about the Americans but when they sign up to a trade treaty, eventually, even after a lot of bitching and moaning, they generally stick to it.
“Outside” being the WTO, in this case.
Dave Camp and Max Baucus, Congress’s two top dogs on trade, want the administration to try to make currency misalignment a WTO matter (originally Brazil’s idea). Good luck with that one. Since the WTO works by consensus, China can block this issue on its own. Regarding the renminbi, the consultancy fees for working out just how undervalued is undervalued would put international economists’ kids through college for decades to come. Read more
A year ago, Barack Obama’s 2011 State of the Union address contained a laboured gag about salmon being regulated by a different US government agency when they were in the sea to when they swam into fresh water. This bureaucratic horror story was related to plug the idea of reorganising the agencies that regulate and promote trade. When that proposal finally saw the light of day this month, it managed a rare bipartisan achievement of uniting Republicans and Democrats on Capitol Hill in opposition. Read more
The euro has fallen to a 16-month low below $1.27 – run, run for your lives! Or recognise that it’s still around the trade-weighted average for the past decade and only slightly weaker in real terms than when it launched, that a weaker currency is just what a stricken economy needs and that there isn’t much sign that the fall is disorderly and hence generally hitting confidence in eurozone assets. (The eurozone authorities are doing that.) Read more
It is not for the first time that late-night eurozone summit announcements are looking ragged in the daylight.
The €200bn the EU was supposed to contribute to the IMF (€150bn eurozone, €50bn non-eurozone) turns out not to include certain contributors (for example the UK, until the initiative turns into a global funding round, and Estonia).
The global funding round won’t happen until the eurozone gets its act in gear, and the odd numbers that are dribbling out of capitals so far — maybe €10bn from Moscow, maybe €8bn-€10bn from Brasilia — are underwhelming. Read more
So the ECB and the Bundesbank don’t want to bail-out Italy via the IMF. But could national eurozone central banks do it? They already lend to their own commercial banks through the Emergency Liquidity Assistance programmes and there is nothing to stop the IMF accepting loans from any central bank. Could this be behind Jean-Claude Juncker and Olli Rehn’s cryptic comments on Tuesday night?
Obvious huge snag: such lending would have to be OK’d by the ECB, since it ultimately stands behind all the national central banks. But if the ECB (and the Bundesbank) want to give way on their “No pasaran!” on lending to the IMF, letting the eurozone national central banks do it might be a convenient way of retreating with a shred or two of dignity intact. Read more
One intriguing idea floating around Washington: if the ECB can’t bring itself to bail out Italy direct (sovereign credit risk, no expertise in setting lending conditions) it could in theory, according to Article 23 of its protocol, lend vast amounts to the IMF.
The Fund would then lend them on to Italy, taking on the credit risk and enforcing conditions – both of which are what it is there for. Read more
Ouch. The International Monetary Fund can’t be happy (and, rumours have it, are seriously unhappy) with the suggestion and then rapid retraction from the head of its Europe department that it could intervene to buy sovereign bonds – presumably Italian and Spanish – to help the eurozone debt crisis. It would have had to do this via eurozone governments in any case as the IMF can’t intervene directly in markets, which would have been an odd way of going about things.
But a couple of other things Mr Borges said, or were reported as saying, were more interesting: Read more
The answer is “not Tobin”, no matter what this might seem. The Tobin tax is specifically a tax on foreign exchange transactions, originally designed to damp down movements in a notoriously volatile market rather than to raise money. Campaigners for a Financial Transactions Tax(FTT) have sensibly switched attention from said currency tax – which, given the lack of regulation of FX trading, is susceptible to traders simply switching jurisdictions – to levies on bonds and equities sales. Bill Gates, who was asked to look into this issue for the G20, sounds like he will be in favour of something similar, together with eminently sensible ideas such as raising tobacco taxes in developing countries and levies on shipping and airline fuel.
That said, the EU FTT doesn’t look particularly workable – and I’ve even heard rumours it was made deliberately so by sceptical Commission officials trying to sabotage it from within. A tax on transactions in a particular exchange, if it can’t be bypassed, makes perfect sense at least as a money-raising device. The UK, despite its continual whingeing and mewling about an FTT, has taxed British stock transactions through Stamp Duty for a very long time – and added a new version to cope with sales of uncertificated stock. A levy based on the tax residency of the investor looks more difficult to implement, as it is subject to the usual shifting of registration offshore. Read more
The news that the “troika” – the EU, the ECB and the IMF – will be returning to Athens on Thursday is a pretty strong signal that the next tranche of the current rescue programme is going to be released – a small mercy for Greece, at least, even if the next version of the bail-out is mired in division and uncertainty.
Among the various other displays of poor coordination in the bail-out is the difference of style: the IMF tends to send its mission chief back to a borrower country only when the negotiations are pretty much done and the fund is ready to disburse the next tranche; the EU thinks substantive negotiations should be done in-country and generally wants to send its top officials in at an earlier stage. Read more