Category Archives: Euro

(Economist) Mario Draghi and the ECB confront a slowing euro zone

(Economist) As the risk of recession in Europe rises, the ECB must act

If mario draghi had been hoping for a quiet few months before he retires from the European Central Bank (ecb) at the end of October, he has been disappointed. He has been in charge for eight high-wire years. In 2012 he quelled panic about the break-up of the euro zone by pledging to do “whatever it takes” to save the single currency. In 2015 he introduced quantitative easing (qe, creating money to buy bonds) in the face of fierce opposition from northern member states. Now the euro zone is flirting with recession and governments are not helping by being slow to loosen fiscal policy. At the central bank’s meeting on September 12th, Mr Draghi must dust himself down one last time.

Investors’ jitters about a recession and the impact of the trade war have sent bond yields tumbling. The ecb’s hawks—such as Jens Weidmann, the head of the Bundesbank, and Klaas Knot, of the Dutch central bank—caution against overreacting with a large stimulus. But the economic data are dreadful. Output in Germany shrank in the second quarter, and some economists are pencilling in another contraction in the third. Italy is stagnating. According to a survey of purchasing managers released on September 2nd, Europe’s manufacturing decline shows no sign of abating. The deeper it is and the longer it lasts, the more likely that trouble brims over into the rest of the economy. In Germany retail sales are already slipping and firms are planning to hire fewer workers.PUBLICIDADE

Inflation is dangerously low. Both the headline figure and the “core” measure—which strips away volatile food and energy prices—are stuck at around 1%, below the ecb’s target of inflation below, but close to, 2%. Investors’ medium-term expectations, as measured by swap rates, have drifted down to 1.2%, well below levels in 2014-15, when the bank prepared to launch qe. The views of professional forecasters surveyed by the ecb have fallen to their bleakest since polling began in 1999. In an attempt to bolster its credibility, the bank has tweaked its language to emphasise that it does not want to undershoot the target of 2% consistently. But without action, those words count for little.

Some economists, among them Larry Summers of Harvard University, argue that, with little ammunition left, central banks should refrain from action so as to force governments to step into the breach with fiscal policy. They are right that the root cause of the economic woe is a shortfall of demand. Sovereign borrowing costs in much of the euro area are near zero or below it. In an ideal world governments would leap at the chance to borrow so cheaply in order to invest. And it is also true that monetary policy is likely to be less effective because rates are so low. The ecb’s deposit rate is already -0.4%. At some point the benefits of further cuts will be offset by their costs, for example if customers begin to withdraw funds from banks and thus destabilise them. With financial conditions already much looser, qe will not be as effective as it was in 2015.

But for the ecb to stand back and do nothing would be irresponsible. It is legally obliged to achieve price stability. Germany’s government shows little appetite to borrow to spend, even if its entire bond yield-curve is submerged below zero. There is even less sign of co-ordinated regional fiscal stimulus in the offing. Until governments loosen the purse-strings, the ecb has no choice but to act. It is the only game in town.

Mr Draghi must therefore be bold on September 12th. Although the scope for interest-rate cuts is limited, it still exists. The important thing is to mitigate the impact on financial stability by, say, “tiering” deposit rates—giving banks a rebate on some of the interest they would otherwise have to pay to park spare cash with the central bank. This would signal that the ecb can cut rates further without blowing up the banking system.

He should also restart qe and commit the bank to buying bonds until underlying inflation shows a meaningful recovery. Mr Draghi has said before that he views asset purchases as particularly helpful in reviving inflation expectations. One constraint is the ecb’s self-imposed limit on the share of a country’s government bonds that the bank can buy. This should be lifted from a third to a half, sending a powerful signal that the ecb means business. The legality of qe is still being questioned in Germany’s constitutional court, but a ruling by the European Court of Justice last year appears to give the ecb room to raise those limits in its quest for price stability. The promise of lower borrowing costs for longer might even prompt national treasuries into issuing more debt.

Last, Mr Draghi must use the bully pulpit to urge governments to exercise their fiscal powers to fend off a recession. You might think that he should avoid taking action at the end of his tenure, so as not to bind the hands of his successor, Christine Lagarde. Not so. A determined response now will save her much work later. Mr Draghi is in a unique position. His stature with investors and governments gives him real clout. And since he departs in a few weeks he can be blunter than he has been in putting across the message that governments, not just the ecb, must act. That would cement his legacy as the man who saved the euro.

(ZH) Since 2014, European Banks Have Paid €23 Billion To The ECB… And Now Face Disaster

(ZH) Earlier this morning, there was an added wobble in European bond prices after an unconfirmed MNI report said the ECB could delay the launch of QE on Thursday and make it data dependent. While skeptics quickly slammed the story, saying it was just a clickbait by MarketNews…

About this MNI story on a possible delay in ECB QE announcement:
1) No substance, including from the ECB “sources”
2) Let’s hope the story is as accurate as the previous ones163:51 PM – Sep 10, 2019Twitter Ads info and privacySee Frederik Ducrozet’s other Tweets

… it does highlight just how sensitive the bond market is to an announcement of aggressive easing by the ECB when it meets on Thursday, Sept 12, where consensus generally expects a significant easing package, including a -20bp rate cut (followed by -10bp cut later on), coupled with roughly €30 billion in sovereign debt QE for 9-12 months, coupled with enhanced forward guidance.

The three package expectations (small, medium, large) by Goldman analysts are laid out below:

There is just one problem: while it is unclear if any further easing by the ECB will do anything to stimulate the Eurozone economy, one thing is certain – further easing will only cripple Europe’s banks. In fact, as Goldman writes in its ECB preview, “further rate cuts are a very uncomfortable prospect for the [banking] sector” and estimates that a -20bp cut could lead to an aggregate €5.6bn (-6%) profit cut for 32 €-banks under the bank’s coverage; worse, a further -10bp cut, as per GS macro forecasts, increases the hit to -10% (-€8.3 bn). Overall, 19 banks in Goldman’s coverage face a >10% EPS cut, and 8 banks face as much as a 20% EPS hit.

Then there is Europe’s head on collision with a recession: the weakening rate outlook has been accompanied by >20% fall in €-bank shares (SX7E) since 2H18 and -4% cuts to their consensus Net Interest Incomes (for 2020E). According to Goldman, so far ~40% of the share price decline could be explained by NII cuts; the rest falls into the ‘other’ domain, “where political risk features notably.”

Here is the problem in one sentence, and chart: since negative rates were intorduced in 2014, European Banks have paid €23BN to the ECB!

So to avoid a further banking sector, deterioration Goldman warns that “it’s critical that tiering accompanies further rate cuts if a large profit hit for the sector is to be avoided. A -20bp cut could lower €-banks EPS by ~6%. A tiering with efficiency on par with SNB scheme could offset ~30% of the hit.”

So the big question for Thursday is whether the ECB will also introduce rate tiering at the same time as it eases more.

On this topic, Goldman economists note that the implementation of the ECB’s new scheme is likely to be structured based on a multiple of minimum reserves held by individual banks (SNB model) or on a fraction of their actual excess reserve holdings (BOJ). Their baseline assumption is a two-tiered system, with one tier remunerated at the MRO (currently 0%), similar to minimum reserves, and a second tier charged at the prevailing DFR. They expect c. 50% of excess reserves to be priced at the DFR level.

In Goldman’s view, tiering is a critical part of any incremental easing package. As we have argued before, without it, an extremely challenging operating environment becomes worse, and may push an increased number of banks towards breakeven, or even loss-making territory. However, not all tiering is the same, and the schemes currently in use vary greatly in the extent of the offset/relief they provide to banks.

Key questions for bank investors ahead of the ECB meeting revolve around these following issues:

1. Could ECB’s tiering efficiency be on par with the Swiss or Japanese approach? The Swiss-like approach to tiering is Goldman’s baseline scenario (where c. 60% of deposit balances are exempt from negative rate), but it offers less relief for banks compared to the Japanese approach (>90%).

2. Would tiering be applied to the incremental cut (-20bp) only, or the full -60bp? In other words, would the tiered rate be set at the level of the MRO (0%) or lower. In our view, an offset for the entire -60bp is key. Goldman estimates that a scheme with efficiency on par with a ‘Swiss model’ with a relief applied retrospectively to a full negative rate (-60bps) has scope to shield ~⅓ of a fully-loaded impact of a 20bp rate cut for the Euro area banks under our coverage.

If rates on aggregate fall by -30bp, we calculate that the ‘tiering shield’ would be closer to 25-30% of the aggregate hit. It’s also important to note that even with tiering a 20-30bp rate cut is ultimately profit negative – when fully loaded. The  relief it brings, however, is front-loaded leading to a near-term neutral impact for the aggregate.

In short: with the sellside analysts more focused on what the ECB will do to offset the adverse impact of its additional easing – as Europe inevitably careens to the reversal rate of roughly -1%, beyond which it’s game over for central banks – one wonders: just why is the ECB doing anything at all, if the biggest consideration is what it will do to offset the damage it creates by “fixing” things?

(Reuters) Weak euro zone data backs Draghi’s case for more easing

(Reuters) PARIS/BERLIN (Reuters) – A series of weak economic data from France, Germany and the euro zone as a whole on Tuesday painted a meagre growth outlook for the single currency bloc, lending support to doves among ECB policymakers who favour more rate cuts and bond buys.

French growth slowed unexpectedly in the second quarter on weaker household spending and German consumer morale worsened for the third month in a row heading into August, adding to signs that the euro zone economy as a whole is cooling.

The lacklustre read-out of data from the currency bloc’s two biggest economies backs European Central Bank President Mario Draghi’s assessment that the growth outlook is deteriorating and the bank should inject more monetary stimulus.

In a further sign of economic weakness, German consumer price inflation, harmonized to make it comparable with other euro zone figures, eased to 1.1% in July from 1.5% in the previous month, preliminary data showed.

This undershot a Reuters forecast of 1.3% and was the lowest since November 2016. It also marked the third month in a row that German inflation remained well below the ECB’s target level of close to but below 2% for the euro zone as a whole.

“Consumers cheer, savers cry. Mario Draghi will definitely not raise interest rates during his term of office,” KfW economist Sebastian Wanke said.

Draghi’s term as ECB president is due to end on Oct. 31 and IMF chief Christine Lagarde has been nominated to succeed him.


Adding to the clouded outlook, euro zone economic sentiment deteriorated to hit its lowest level in more than three years in July, European Commission data showed on Tuesday.

“This adds to evidence … that the euro zone economy will expand by a meagre 1% or so this year, strengthening the case for ECB action sooner rather than later,” said Melanie Debono from Capital Economics.

The French economy grew 0.2% in the April-June period, down from 0.3% in the previous three months, according to preliminary data from the INSEE statistics agency.

That was just below a Reuters poll of 28 economists, which had an average estimate of 0.3%.

Until now the French economy has proven more resilient than some neighbours such as Germany because it is less dependent on exports and thus less exposed to global swings.

But household spending, the traditional motor of French growth, grew only 0.2%, the slowest rate in a year despite a more than 10 billion euro (9.2 billion pounds) package of measures launched by President Emmanuel Macron to boost purchasing power.


In Germany, the economy is widely expected to have contracted in the second quarter and sentiment surveys suggest the third quarter might not bring any improvement, raising the spectre of a technical recession in Europe’s largest economy.

The GfK consumer sentiment indicator, based on a survey of about 2,000 Germans, edged down to 9.7 from 9.8 a month earlier. It was the lowest reading since April 2017.

As German exporters are hit by trade disputes and Brexit uncertainty, household spending and construction have become important drivers of growth. Domestic demand is boosted by record-high employment, above-inflation pay increases and low borrowing costs.

But the continued drop in consumer confidence signals that a slump in Germany’s export-dependent manufacturing is now creeping into other sectors of the economy as employees are becoming afraid that they could soon lose their jobs.FILE PHOTO: General view of the skyline of La Defense business district with its Arche behind Paris’ landmark, the Arc de Triomphe and the Champs Elysees Avenue in Paris, France, January 13, 2016. REUTERS/Charles Platiau/File Photo

“The trade war with the United States, ongoing Brexit discussions and the global economic slowdown continue to drive fears of a recession,” GfK researcher Rolf Buerkl said.

Consumers with jobs in export-driven sectors in particular, such as the car industry and their suppliers, are affected the most, he said. The propensity to buy as measured by the GfK also deteriorated to reach its lowest in nearly four years.

“The primary threat to consumer confidence is the persistently increasing fear of job losses,” Buerkl said. He warned that household spending could weaken in coming months if the trend continues.

(JN) Juros da dívida grega a 10 anos abaixo dos 2% pela primeira vez

(JN) Os juros da dívida grega a 10 anos negociada em mercado secundário estão abaixo dos 2%, um mínimo histórico que reflete a política monetária do BCE.

A dívida pública da Grécia corresponde a quase ao dobro do PIB do país (181% em 2018), mas isso não impede que o custo do Estado grego com as obrigações soberanas continue a baixar.

Segundo os dados da Bloomberg, os juros da dívida grega a 10 anos – o prazo de referência – baixaram 5,7 pontos base para os 1,981%, um novo mínimo histórico. No mesmo prazo, a dívida grega “custa” (juro) menos do que a dívida dos Estados Unidos cujo peso do endividamento público no PIB ronda os 100%.

Este é o reflexo da política monetária do Banco Central Europeu (BCE) em que os juros diretores ficam em níveis historicamente baixos até ao fim do primeiro semestre de 2019, existindo a possibilidade real de haver um novo corte nos juros. 

Essa hipótese ganhou hoje mais força após a divulgação de uma quebra do PMI para a indústria alemã, que já estava em contração. O maior risco de recessão na maior economia da Zona Euro poderá levar o BCE a aplicar o que tem sugerido nos últimos discursos de Mario Draghi: novos estímulos através dos instrumentos disponíveis estão na calha se for necessário para reanimar a economia e a inflação.

Esta quinta-feira, 24 de julho, o conselho de governadores do BCE vai reunir-se em Frankfurt para decidir o rumo da política monetária numa das últimas reuniões com Draghi como presidente. Contudo, não é expectável que haja já uma decisão sobre mais estímulos. 

“Não esperamos nenhuma ação concreta até à reunião do BCE em setembro, que deve abrir uma sequência de taxas de depósitos mais baixas, seguida pelo lançamento de um programa de compra de ativos no final do ano”, referia Franck Dixmier, analista da Allianz Global Investors numa nota divulgada hoje. 

Além do efeito BCE, as obrigações soberanas da Grécia também poderão estar a beneficiar da recente eleição de Kyriakos Mitsotakis, da Nova Democracia, um partido conservador que foi bem acolhido pelos mercados financeiros do que o Syriza de Alexis Tsipras. 

Mas também é verdade que a trajetória de descida dos juros gregos já ocorre desde o verão de 2018, altura em que fez a “saída limpa” do programa de ajustamento. Os juros a dez anos começaram a negociar abaixo dos 4% em fevereiro e dos 3% em maio. Em julho, quebraram a barreira dos 2%.

(EUobserver) Lagarde set to lead ECB


  • France’s Christine Lagarde was nominated to lead the ECB (Photo: Council of the EU)

Christine Lagarde is set to lead the European Central Bank following a breakthrough deal on top EU jobs at a summit in Brussels on Tuesday (2 July).

The French former finance minister and current managing director of the International Monetary Fund (IMF) is now set to succeed Mario Draghi, whose terms comes to an end in October.

(ZH) Draghi ‘Out’ed By ECB Insiders As Liar And Schemer


Authored by Wolf Richter via,

Draghi’s shenanigans get hilarious, months before his term ends.

So here’s ECB President Mario Draghi, whose term ends in October, and he’s at the ECB Forum in Portugal, and in a speech on Tuesday titled innocuously, “Twenty Years of the ECB’s monetary policy” – so this wasn’t a press conference after an ECB policy meeting or anything, but a speech on history at an ECB Forum – he suddenly threw out a whole bunch of stuff…

How, “in the absence of improvement” of inflation, “additional stimulus will be required,” in form of “further cuts in policy interest rates” and additional bond purchases, and how “in the coming weeks, the Governing Council will deliberate how our instruments can be adapted commensurate to the severity of the risk to price stability,” and that “all these options were raised and discussed at our last meeting.”

Whoa! Wait a minute, said the good folks who were part of the ECB’s June meeting. These options were not discussed, they told Reuters on Tuesday.

Draghi had ventured out there on his own – apparently trying to push his colleagues into a corner single-handedly as his last hurrah.

His vision laid out on Tuesday was quite a change from the June 6 post-meeting announcement, which didn’t mention anything about even discussing rate cuts. It said that the ECB expects its policy rates to “remain at their present levels at least through the first half of 2020,” before the ECB would begin to raise them, with the bias still on raising rates, not cutting rates. That was less than two weeks ago, and there had not been another ECB policy meeting since then.

Interviewing six “sources” at the ECB with “direct knowledge of the situation,” Reuters found that these policy makers “had not expected such a strong message and that there was no consensus on the path ahead.”

At the June 6 policy meeting, any possibility of a rate cut or renewed asset purchases had been mentioned “only in passing” and without any substantive discussion. The discussion had instead focused on the new package of loans for the banks, the sources said.

The sources told Reuters that ECB policymakers were worried “Draghi was flagging his measures so strongly to markets as a ‘fait accompli’ that there would be no chance for them to disagree with them in at the next policy meeting on July 25,” Reuters reported.

“But they added that, with a global trade war escalating and financial worries around Italy already high, there was little appetite for a fight in July,” Reuters said.

Several sources told Reuters that, because very little new economic information on the Eurozone will come out before the July 25 meeting, “it would be difficult to justify coming to a different policy conclusion than in June.”

And at the June meeting, the conclusion was to delay rate hikes – and there was no mention of rate cuts.

The sources told Reuters that the debate about which policy measures to implement, when, and in what order was still wide open, with policy makers having very different opinions.

For some the first step should be a change in the ECB’s policy message. Others favor a reinforcement of the pledge not to raise rates for a longer time.

Others favor restarting the asset purchase program to bring borrowing costs down for governments so that they could spend more during a downturn, though that would be handicapped by the “issuer limit” that prevents the ECB from holding more than 30% of a country’s sovereign bonds. But the ECB could dispose or circumvent that limit, “some” sources said.

Some policymakers lean toward rate cuts, the sources said. And other policymakers think the ECB should not make any changes at all unless economic data deteriorated substantially and inflation expectations dropped further below the ECB’s target.

But there was no consensus, and there had been no substantive discussions of these topics at the last meeting that had focused on the modalities of the new bank loan package.

What is hilarious is how Draghi was outed as a fabricator and schemer on the very same day he made his additional-stimulus-will-be-required speech, by people who were surprised by his speech, some of whom felt “powerless,” as Reuters put it, and knew he was trying to box them into a corner with his devious move. This has the smell of a palace revolt at the ECB against the head honcho and his last hurrah.

(ECO) Juncker elogia Portugal e Espanha: “escolheram caminho credível”

(ECO) Em Sintra, para a conferência do BCE, o ainda presidente da Comissão Europeia defendeu a decisão de não aplicar sanções a Portugal e Espanha em 2016 e elogia caminho escolhido pelos dois governos.

O presidente da Comissão Europeia, Jean-Claude Juncker, defendeu esta quarta-feira a não aplicação de sanções europeias a Portugal e Espanha pela violação das metas do défice em 2016, dizendo que esta decisão permitiu aos dois países terem um crescimento económico mais robusto e tempo para corrigir as finanças públicas. Em Sintra, Jean-Claude Juncker elogiou ainda a estratégia dos dois governos.

Na abertura do último dia do Fórum do Banco Central Europeu (BCE) em Sintra, o presidente da Comissão Europeia — em fim de mandato — defendeu a abordagem adotada pela sua Comissão às regras orçamentais europeias, com maior flexibilidade e tendo em conta outros fatores além dos resultados quantitativos, uma abordagem que lhe valeu muitas críticas dos países mais conservadores.

Para defender esta abordagem, Jean-Claude Juncker usou como exemplo Espanha e Portugal, que em 2016 enfrentaram um processo de sanções pela violação das metas orçamentais, no caso de Portugal nos anos entre 2013 e 2015. Segundo Jean-Claude Juncker, a não aplicação de sanções foi a melhor decisão para ambos os países e os resultados demonstraram-no. Portugal saiu do Procedimento dos Défices Excessivos em 2017. Espanha saiu este ano.“Reduzir dívida é menos urgente. Défices são necessários” Ler Mais

“Pensem em Espanha e Portugal há três anos. Se tivéssemos tido uma abordagem rígida às regras orçamentais e aplicado sanções financeiras prematuramente, estes países não teriam um crescimento tão robusto e nem seriam capazes de corrigir as suas contas públicas“, disse o presidente do Executivo europeu, na véspera da reunião dos líderes europeus para decidir quem o irá suceder.

Jean-Claude Juncker elogiou ainda a estratégia escolhida por ambos os países para sair da situação financeira em que se encontravam: “também deve ser dado crédito aos governos destes países, que escolheram um caminho credível e colaborativo para benefício dos seus cidadãos”.

As crises de Espanha, Portugal, mas também da Grécia, marcaram a história do euro, como sublinhou Juncker. O presidente da Comissão Europeia elogiou também o papel do BCE, lembrando a frase do presidente da instituição, Mario Draghi, em 2012, prometendo fazer “tudo o que fosse preciso” para salvar o euro.

“A Zona Euro estava a cair na recessão. Portugal e Grécia estava em grande stress e a sobrevivência do euro estava em risco”, afirmou Juncker, acrescentando estar “contente por Draghi ter estado lá”.

Num momento de desaceleração da economia europeia e com os desafios associados ao Brexit, Juncker frisou ainda a necessidade de preparar terreno para a próxima crise: “Não devemos esperar pela próxima crise para fazermos o que sabemos que é necessário. É por isso que a comissão está a trabalhar em fortalecer o papel internacional do euro”, disse.

(NYT) Italy’s Toying With a ‘Mini-BOT’ Worries E.U. and Investors


Fnancial experts warn that Italy’s proposed mini bills of Treasury are designed specifically by the League party to create a parallel currency that will ease Italy out of the eurozone. Matteo Salvini is deputy prime minister of the party.CreditRemo Casilli/Reuters

Fnancial experts warn that Italy’s proposed mini bills of Treasury are designed specifically by the League party to create a parallel currency that will ease Italy out of the eurozone. Matteo Salvini is deputy prime minister of the party.CreditCreditRemo Casilli/Reuters

ROME — Even by the high standards of anxiety surrounding Italy’s troubled economy, the angst pervading the debate these days has taken on a markedly desperate air.

Italy’s nationalist government is again balking at the European Union’s demands to decrease its crippling debt. Its ministers are in open war over whether to cooperate. Almost daily, it seems, a new scheme is floated to scramble out of the deficit maze, as the country’s leaders try to keep their populist spending plans.

But one proposal has caused particular consternation and raised fresh concerns that Italy, the third largest economy in the eurozone, could explode the entire bloc. That land mine, critics say, is called the mini-BOT.

An acronym for Mini Bills of Treasury, the mini-BOT is an instrument similar to an IOU that its supporters believe will allow the cash-strapped Italian government to pay debts, stimulate the Italian economy and give Italians a way to pay their taxes.

But financial experts warn that the mini-BOT could create a parallel currency that will ease Italy out of the eurozone.

“It’s a first step to prepare EurExit, so I think it’s extremely dangerous,” said Riccardo Puglisi, associate professor of economics at the University of Pavia.

The mini-BOT has long been a glimmer in the eye of the euroskeptic League party of Italy’s de facto leader, Matteo Salvini. As often is the case, his coalition partner, the Five Star Movement, has followed his lead.

So far their government has only put the idea before the Italian Parliament in a nonbinding vote, which unanimously endorsed a proposal to study creation of “government bonds in small denominations” to speed up the paying of its debts.

But even that was enough to rattle investors and economists, as well as European Union officials, and to revive questions about the real intentions of the government, as well as its seriousness.

The introduction of a parallel currency is illegal under European Union law, and would threaten to bring the entire eurozone tumbling down because it would erode the very premise of the euro as a single monetary unit.

Supporters of the mini-BOT dispute that and say it is not legal tender, but only a way for the government to pay its debts — which would in any case, experts point out, increase Italy’s debt.

Many experts doubt the government truly intends to introduce the mini-BOT, which requires legislation by Parliament. Some said the proposal for study was introduced in such an underhanded way that they did not even know what they were voting on.

The euro remains popular in Italy. So many finance experts suspect that the government intends to use the threat of the mini-BOT as leverage in negotiations with Brussels.

But even that, they warn, could be disastrous.

“It would be like pointing a gun to your head and expecting the others to do what you say just because otherwise you kill yourself,” said Lorenzo Codogno, founder and chief economist of the consulting firm, LC Macro Advisors and the former chief economist at the Italian Treasury Department.

Italy’s economy minister, Giuseppe Tria, is seeking to work with Brussels, which this week is threatening to begin a process that could impose billions of euros in fines on Italy for not reducing its debt, forecast to rise to 135 percent of gross domestic product this year.

“I want to underline that there is no study of any measures aimed at the issuing” of mini-Bots, he told Parliament on Wednesday, trying to reassure Brussels and investors.

In the past, Mr. Tria has specifically dismissed the mini-BOTs. Mario Draghi, the president of the European Central Bank, the only eurozone institution authorized to issue money, has also dismissed them.

“They are either money — and then they’re illegal — or they’re debt, and then that stock goes up,” he said. “I don’t think there is a third possibility.”

But reality is often a hurdle Italy’s populists are willing to overcome.

While Mr. Salvini and other leaders of Italy’s populist government say they have no interest in leaving the European Union or euro, for years they made it seem as if they did.

Mr. Salvini used to wear shirts that read “No More Euro” and said in 2016 that he would leave the euro “tomorrow morning” and that everyone understood a vote for his party was a vote to leave the euro and return to a national currency.

One of his top economic advisers, and a father of the mini-BOT, the League lawmaker Claudio Borghi, has been equally explicit.

In a brochure entitled “MINI BOT: Democracy and Sovereignty,” he offered possible designs for the bills, decorated with various cathedrals and Italian personalities, including Orianna Fallaci, the Italian journalist who developed an antagonism to Islam, on the 20 mini-BOT bill. (Mr. Borghi’s own Twitter avatar shows his face on a 10,000 lire note.)

In a book discussing the mini-BOT, Mr. Borghi wrote that once the mini-BOTs were widely distributed in Italy, they would become a “‘spare tire that will make the possible changeover to our currency much easier.”

If Italy ever decided to leave the euro, as he hoped, it wouldn’t have to wait to print bank notes “because everything has already been done: on the day of the changeover, it will be sufficient to declare the mini-Bots new currency,” he wrote.

Mr. Borghi and his supporters, most notably Mr. Salvini, who seems to think the mini-BOTS could facilitate his delivery of income tax cuts at the center of his agenda, remain interested in the idea.

This month, Mr. Salvini said in a statement that the economy ministry needed to understand that it was “urgent” that the government pay its debts to suppliers. “It is a question of justice,” he said.

Supporters of the mini-BOT believe it provides a quick way for the Italian government to pay its debts to commercial businesses with short term, no-interest bonds secured on future tax revenues.

But since Italians could also use the instrument to pay taxes, its worth would be on par with the euro, increasing the likelihood that Italians would trade them like money. That would mean more business for Italian shops and the Italian economy, while not technically putting more currency in the market.

Supporters believe the mini-BOTs would prevent a run on the Italian banks if the country ever left the euro, because it could automatically switch over to the new currency.

Economists say there is a lot wrong with that picture, but Mr. Puglisi said it also ignored that people are rational and would see the writing on the wall and move their money out of Italian banks the moment mini-BOTs hit the market and before they were stuck with a devalued currency.


That, and the assurances of Italy’s economy minister, has helped settle some anxieties about the imminence of the mini-BOT. For now.

“It’s quite possible that at some point Italy enters a crisis and has no choice but to restructure the debt,” Mr. Codogno said. “Then at that point, there might be a temptation by the government, “O.K. let’s forget about the euro.’ ”

(CNBC) EU says disciplinary action is warranted for Italy over its rising debt


  • The Commission said that in its latest assessment of member states’ compliance with deficit and debt rules, it had concluded that when it comes to Italy “a debt-based EDP is warranted.”
  • An EDP stands for an “Excessive Deficit Procedure” and is an action launched by the European Commission against any EU member state that exceeds the budgetary deficit ceiling or fails to reduce their debts.
Premium: Italy Daily Politics

(From L) Italy’s Deputy Prime Minister and Minister of Economic Development, Labour and Social Policies, Luigi Di Maio, Italy’s Prime Minister, Giuseppe Conte and Italy’s Deputy Prime Minister and Interior Minister, Matteo Salvini on October 15, 2018.NurPhoto | NurPhoto | Getty Images

The European Commission, the EU’s executive arm, announced Wednesday that disciplinary proceedings against Italy are warranted because it’s breaking fiscal rules over its rising public debt.

The Commission said that in its latest assessment of member states’ compliance with deficit and debt rules, it had concluded that when it comes to Italy “a debt-based EDP is warranted.”

An EDP stands for an “Excessive Deficit Procedure” and is an action launched by the European Commission against any EU member state that exceeds the budgetary deficit ceiling or fails to reduce their debts.If an EDP went ahead, Italy could face a fine of around 3 billion euros ($3.4 billion), according to some reports.

”(The report) concludes that the debt criterion is not complied with and thus a debt-based excessive deficit procedure is warranted,” Valdis Dombrovskis, the EU Commission vice-president for the euro and social dialogue, said at a press conference.

“To be clear, today we are not opening the EDP. First, EU member states have to give their views on … the report then the economic and financial committee has two weeks to form its opinion on our conclusions. But it’s much more than just about the procedure, when we look at the Italian economy we see the damage that recent policy choices are doing.”

Worryingly for the Commission, Italy (Europe’s third-largest economy) has the second-highest debt pile in the EU (expected to reach 133.7% this year) and was asked to explain why its debt had risen in 2018.

Dombrovskis said the Commission estimated that Italy’s spending to service its debts in 2018 turned out to be 2.2 billion euros higher than expected in its 2018 spring forecast. He added that the country pays as much toward its debt servicing as it does toward its entire education system.

“Growth has come to almost a halt … and we now expect the Italian debt (to GDP) ratio to rise in 2019 and 2020 to over 135%,” he said.

Italian banking stocks fell 1% on the announcement Wednesday and the country’s bond prices (the amount investors will pay to hold Italian debt) also declined, signaling a drop in risk appetite toward the country.WATCH NOWVIDEO01:54Euro zone is an unstable economic region, strategist says

The Commission presented what is known as its Semester 2019 Spring Package on Wednesday which amounts to 27 country-specific recommendations which set out the Commission’s economic and social policy guidance for member states for the next 12 to 18 months.

Italy’s coalition government — a fractious alliance between the euroskeptic Lega party and anti-establishment Five Star Movement — has been on a collision course with the European Commission since it announced its 2019 budget plans which foresaw the coalition increasing spending and breaking a budget deficit target previously agreed by the former government.

The coalition initially agreed to lower its deficit target, to 2.04%, but then revised this upwards again.

The friction has put Economy Minister Giovanni Tria in a tricky position trying to navigate between Lega and M5S leaders’ demands for more spending and the Commission’s demands for less. He promised the Commission that the 2020 budget would be compliant with the Commission’s rules.

It’s likely that the EU will want to avoid launching punitive measures against Italy given concerns over rising euroskepticism in the country. EU Commissioner Pierre Moscovici said Wednesday that the “door remains open to avoid a disciplinary procedure against Italy.”

Italy’s Prime Minister Giuseppe Conte (who does not belong to either the Lega party or M5S) said he would do his utmost to avoid any EU procedure, Reuters reported.

Earlier on Wednesday, however, the Lega party’s economic chief Claudio Borghi said the party would not accept any tightening measures this year and that Tria must take “a hard line on EU budget talks,” Reuters said. Whether that bullish stance will continue in the face of potential punishment from the EU remains to be seen.

O.P./P.O. Port/Engl (ZeroHedge) Is Turkey The Snowflake That Unleashes The European Banking System Avalance?


Não tenho dúvida que mais tarde ou mais cedo a Turquia precisará de ajuda internacional para poder honrar os seus compromissos com o exterior.
A situação da banca turca é particularmente dramática com empréstimos concedidos em liras turcas e recursos obtidos em Euros ou USD.

Esta situação é insustentável como bem sabemos.

É uma questão de tempo…

English version written by the Author


I have no doubt that sooner or later Turkey will need international help to be able to honor its international commitements.

The situation of the Turkish banks is particularly worrying with the funding obtained in Euros or USD and the loans granted in liras.

This situation is unsustainable as we all know.

It is only a question of time.

Francisco (Abouaf) de Curiel Marques Pereira


Turkey’s Inevitable Recession, Surging Gold Demand,
Record Gold Highs and EU Bank Contagion

Turkey’s debt problem, coupled with the plummeting lira, is arguably the most important risk factor for the nation’s economy.

To make matters worse, far from it posing a threat just to Turkey itself, it also has the potential to inflict significant damage elsewhere too, starting with key economies in the Eurozone.

At first glance, the situation in Turkey might resemble many past similar scenarios of a heavily indebted nation with a plummeting currency that descends into a severe recession and eventually gets bailed out, like Greece.

However, there is one key difference that makes Turkey’s debt problem much more complicated and potentially dangerous. Unlike Greece, Italy or other seriously debt-laden economies, it’s not just government borrowing that’s the main risk here.

Instead, it’s the unsustainable and increasingly unfinanceable corporate debt that makes Turkey a ticking time bomb and renders an IMF-rescue option problematic.

Private debt to GDP stands at a staggering 170%, while, overall, over half of the borrowing is denominated in foreign currencies. Thus, the collapse of the lira has made it extremely challenging for businesses to pay off or even service their debt, while the default risk has surged. Around $179 billion in external debt is due to mature until July 2019, which amounts to almost a quarter of the country’s annual economic output, according to JPMorgan estimates. Most of that, $146 billion, is owed by the private sector and banks in particular.

However dire the current debt predicament might seem for Turkey’s businesses and economic outlook, it is important to also consider the implications for its debtholders, especially since European banks feature prominently among them. In fact, the level of exposure in some cases is so worrying that it justifiably raises concerns that what happens in Turkey won’t just stay in Turkey.

Spain’s banking sector is one of very few in the European bloc that was so far considered not to be problematic; especially in comparison to Italian or Greek banks.

However, the exposure of Spanish banks to Turkish debt means that the currency and debt woes of Europe’s neighbor have decisively challenged these assumptions. Spain’s second-biggest bank, BBVA, controls 49.9% of Turkish bank Garanti, which has already reported a rise in non-performing loans. Spanish banks also led the lending spree to Turkish businesses over the past years, rendering them vulnerable to the spiking default risk.

Although Spanish banks were by far the greatest lenders for Turkey, French, Italian and German banks also have significant exposure to Turkish debt. This already became problematic from the onset of the Turkish woes this past summer, when investors dumped Eurozone bank shares and prices suffered significant blows. Among the worst hit were BBVA, Unicredit, and PNB Paribas. Yet still, a blow to the stock price is nothing compared to the damage that a sustained currency crisis and rising default risk can inflict to the already vulnerable European banking sector.

Key lessons

Overall, Turkey’s woes are yet another important and timely reminder of the frailty of the current monetary system and of the banking sector, as well as of the systemic weaknesses and inevitable unsustainability of a centrally planned economy and of fiat money.

After all, the lira’s value, as that of any other fiat currency, depends on the trust the people place in its issuer. Once that is lost or even shaken, no measures and no force applied by the central planners can stabilize it. We saw that play out over the last months in Turkey, with the government trying a wide variety of approaches to control the currency’s fall, to no avail. That clearly demonstrated the flimsy and fickle nature of the entire system.

As the Turkish currency collapsed, demand for gold more than doubled in the country, while gold priced in lira reached all-time highs, as is to be expected in times of crisis.

Erdogan’s public calls for citizens to sell the “gold under their pillows” and buy lira to help defend the country against the “economic attacks” from the outside were clearly ignored. Consumers flocked to the precious metal in response to the deteriorating fiat currency and gold imports to Turkey increased eightfold last December, while the Turkish central bank itself also dramatically increased its official reserves over the last two years.

As the country now joins the long list of nations that came to regret reckless interventionism and aggressive monetary manipulation, it also sends a strong message to those investors who are wise enough to heed it. In order to effectively prepare for the upcoming economic slowdown and all that it will bring, one needs to hedge against these inherent risks that are deeply embedded in our current system.

While inflation, currency depreciations, volatile stock markets or a rise in toxic debt might be all we’ll see during the next downturn, nobody can be sure what the extent of the damage will be and whether it would be contained before threatening the banking system at large. Especially in Europe, the outlook is rather grim and the odds of a timely rescue are not favorable. As the central bank is already overstretched, after so many years of QE and negative interest rates, it is likely to lack the tools to fight the next recession and to limit its impact.

Turkey’s story can arguably be seen as a warning and as a cautionary tale. While governments and central banks will dismiss it, individual investors should not. Separating the signal from the noise has always been crucial in forming solid strategies and in planning for the future.

At this stage, when the signs of a widespread economic slowdown can already be seen on the horizon, the necessity of a physical precious metals position is imperative for any responsible investor who wishes to preserve their wealth.

(ECO) BCE dá dinheiro. Porque é que a banca portuguesa não o quer?

(ECO) Com a fraca procura de crédito pelas empresas, a banca em Portugal deverá passar ao lado do TLTRO III. A CGD, o maior banco nacional, diz que “não tem intenção, à partida, de participar”.

O Banco Central Europeu (BCE) está a preparar o caminho para novos estímulos à economia da Zona Euro através da banca. A terceira ronda de financiamento de longo prazo a baixos custos — Targeted Longer-Term Refinancing Operations (TLTRO III) — vai começar em setembro, com Mario Draghi a dar incentivos para que os bancos concedam crédito às empresas. Para a banca portuguesa, a “borla” não terá grande interesse. Têm liquidez, não têm é a quem a emprestar, tornando mais complicado para o setor gerar rentabilidade num contexto de juros abaixo de zero.

Na última reunião de política monetária, a instituição liderada por Mario Draghi lançou o TLTRO III. Os pormenores ainda serão conhecidos, mas a maturidade de apenas dois anos (face aos três anos das anteriores rondas) e a novidade do juro variável desanimaram os bancos. Desde então, já foram dados alguns sinais mais animadores, nomeadamente que as taxas poderão ser mais favoráveis se a economia desacelerar, mas o mercado ainda espera detalhes que podem ser conhecidos na reunião desta quarta-feira.Após oito anos, Draghi pode sair do BCE sem ter subido juros Ler Mais

“Ainda não são conhecidas as condições na totalidade. De qualquer forma, as sete operações trimestrais que irão decorrer entre setembro de 2019 e março de 2021 (tendo cada uma dois anos de maturidade) podem ser interpretadas como sugerindo que o setor bancário europeu terá acesso a condições favoráveis de liquidez na sua atividade de concessão de crédito até março de 2023, ou seja, ao longo dos próximos quatro anos”, afirma a Patris Corretora. “Apenas após serem conhecidas todas as condições é que poderemos avaliar até que ponto poderá revelar-se significativo o interesse do setor bancário”.

A Caixa Geral de Depósitos afirmou ao ECO que as condições técnicas e financeiras poderão ser “determinantes para avaliar” o interesse, mas por agora afasta a possibilidade de recorrer a estes empréstimos. “A CGD não tem intenção, à partida, de participar nestas novas operações, atendendo à sua sólida e muito confortável posição de liquidez”.

Fonte oficial recordou ainda que o banco público, o maior no país e responsável por um quarto do mercado em termos de clientes, reembolsou antecipada e integralmente o financiamento junto do BCE em junho do ano passado. Contactados pelo ECO sobre se têm interesse neste novo programa de financiamento de baixo custo, Novo Banco, BPI, BCP e Santander Totta não quiseram comentar.

Fraca procura por crédito das empresas portuguesas limita estímulos

Os analistas concordam que os bancos portugueses não deverão mostrar grande interesse por esta nova ronda de financiamento de baixo custo, apesar de fazerem um balanço positivo da medida. Por um lado, estimulam a banca a desempenhar o seu papel de fornecer de crédito à economia e, por outro, equilibram o impacto negativo das taxas de juro em mínimos históricos para a rentabilidade dos bancos.

Filipe Garcia, economista da IMF – Informação de Mercados Financeiros considera que o programa até poderia ser “virtuoso” para a economia portuguesa, no curto prazo, se resultasse num crescimento do crédito. “Porém, o que se tem observado é que, no caso das empresas, não tem sido nem a disponibilidade do crédito nem as taxas de juro a provocar a queda nos empréstimos. Tem sucedido devido a uma fraca procura de crédito por parte das empresas“, diz.

A concessão de novo crédito às empresas atingiu os 2.259 milhões de euros em fevereiro, de acordo com os últimos dados disponíveis do Banco de Portugal. O valor representa uma quebra de 225 milhões face ao primeiro mês do ano e mantém-se ainda longe dos níveis pré-crise. O stock situou-se em 68.878 milhões de euros, em fevereiro. “Se destes TLTRO resultar uma alteração nos critérios de concessão de crédito, então poderemos observar uma aceleração nas operações de financiamento”, acrescentou o economista da IMF.

A expectativa dos bancos sondados pelo BdP aponta para que não ocorram “alterações de relevo” na procura de crédito tanto por parte das empresas como de famílias no segundo trimestre deste ano. Sobre os critérios de disponibilização, também “não antecipam alterações de relevo” depois de no primeiro trimestre de 2019, critérios e termos terem permanecido, “praticamente inalterados” e de, em julho, terem entrado em vigor recomendações do Banco de Portugal para que os bancos tenham em conta três tipos de limites nos critérios para a concessão de crédito à habitação e consumo.

Stock de empréstimos das empresas em queda

Fonte: Banco de Portugal

Bancos mais fracos são os que mais pedem

A nova ronda financiamento pretende exatamente que os bancos mantenham linhas de crédito abertas aos consumidores, mas especialmente às empresas. “É natural que quem peça os empréstimos seja quem mais precisa de liquidez. É uma tendência que deverá continuar e espera-se que o crédito concedido nesses países possa acelerar, mas também que a dívida pública desses países possa beneficiar”, afirmou Garcia, da IMF.

Ao contrário da estratégia expectável de retirada dos estímulos, a desaceleração da economia global obrigou o BCE a reforçá-los e retomar o financiamento de baixo custo à banca. “As economias periféricas da Zona Euro estão ainda muito fracas e sem força para se protegerem de uma recessão global“, alertou Mário Martins, analista da ActivTrades.

“É possível, mas não previsível, que os bancos portugueses procurem aumentar a exposição nesta nova ronda. No panorama económico atual português, não acredito que o setor bancário português tenha possibilidade de competir por estes fundos”, concordou Martins.

Espanha e Itália foram os países que mais recorreram ao TLTRO II, com 250 mil milhões e 200 mil milhões de euros, respetivamente. O montante compara com menos de 25 mil milhões de euros em Portugal. Atualmente, o único banco fora de Itália com mais de 10% de fundos TLTRO II face aos ativos é o Novo Banco e nenhum outro banco português tem uma exposição significativa a este programa.

A forte procura por esta ronda deveu-se às condições mais favoráveis que a primeira, que levou os bancos a substituírem os fundos que tinham ao abrigo do primeiro TLTRO, para alargarem o prazo de pagamento e usufruírem das condições preferenciais. Isto num cenário em que os bancos têm de pagar para ter dinheiro guardado no BCE.

TLTRO não é boia de salvação, mas dá oxigénio em tempos de juros negativos

“Enquanto a nova ronda de empréstimos baratos irá ajudar os bancos mais fracos, o atraso na subida dos juros de referência penaliza a rentabilidade do setor bancário enquanto um todo”, defende Azad Zangana, economista sénior e estrategista da Schroders. A gestora de ativos projeta, desde a última reunião do BCE, que as taxas de juro subam pela primeira vez apenas em março de 2020 e, pela segunda vez, em dezembro desse ano.

Juros negativos têm sido desastrosos para muitos bancos, especialmente em Itália, Espanha e Portugal”, diz sobre a taxa de depósitos em -0,40%, enquanto a aplicável às operações principais de refinanciamento está em 0% e a aplicável à facilidade permanente de cedência de liquidez em 0,25%. “O BCE reconhece que há bancos que estão a ser negativamente influenciados e que, em consequência, os empréstimos poderão ser mais baixos. Ainda assim, continua a manter os juros negativos, apesar de ser um claro erro”, critica ainda Zangana.

Mário Martins alerta, no entanto, que é “redutor” considerar este tipo de opção como uma “boia de salvação” para bancos problemáticos, já que a eficácia da última ronda foi menor em países mais vulneráveis. “O que se pode constatar é que os empréstimos concedidos nos países vulneráveis caíram, tanto nos bancos que acederam ao TLTRO II, como nos que não acederam“, sublinhou o analista da ActivTrades.

Dados do último relatório económico do BCE indicam que, nos países vulneráveis (grupo em que Portugal se inclui), o TLTRO II foi utilizado para fortalecer o balanço dos bancos em dificuldades ou como financiamento de baixo custo. Em sentido contrário, nos países menos vulneráveis, os empréstimos concedidos por bancos que acederam ao TLTRO II subiram consideravelmente, ou seja, teve o efeito desejado pelo BCE de fomentar o investimento na economia.

Objetivo do BCE não foi conseguido em países vulneráveis

Fonte: Banco Central Europeu

(ECO) Portugal paga taxa mais baixa de sempre por dívida a 10 anos. Juro caiu para 1,143%

(ECO) Portugal continua a tirar partido da descida dos juros nos mercados. Num duplo leilão, com títulos a 10 e 18 anos, viu as taxas caírem, conseguindo mesmo o custo mais baixo de sempre a 10 anos.

Portugal conseguiu mil milhões de euros num duplo leilão de dívida. Colocou a maior “fatia” dos títulos no prazo mais curto, a dez anos, prazo no qual registou a taxa mais baixa de sempre. Os investidores aceitaram financiar o país com um juro de apenas 1,143%abaixo dos 1,298% registados na operação realizada em março.IGCP quer emitir até 4.000 milhões em dívida de curto prazo Ler Mais

Com as taxas de juro da dívida a renovarem mínimos nos mercados de dívida internacionais, à boleia do Banco Central Europeu mas também da melhoria da perspetiva do rating de Portugal por parte da DBRS, o IGCP aproveitou para emitir 600 milhões de euros no prazo a dez anos. A procura elevada registada (2,28 vezes a oferta) ajudou a taxa a descer para novo recorde.

Ao mesmo tempo que colocou dívida a dez anos, a agência liderada por Cristina Casalinho avançou com um leilão com um prazo mais longo, a 18 anos, linha na qual acabou por colocar os restantes 400 milhões de euros. Nesta maturidade, o IGCP conseguiu uma taxa de juro de 1,896%.

“A título comparativo em novembro de 2018 Portugal fez emissão a dez anos a pagar 1,9%, hoje consegue emitir para 18 anos com uma taxa mais baixa 1,896%”, diz Filipe Silva, do Banco Carregosa. “Face ao último leilão comparativo de 10 anos, que se realizou em março, a taxa baixou dos 1,298% para os 1,143%”, acrescenta, salientando que o país continua “a tirar partido da política que tem vindo a ser levada pelo BCE”.

Este duplo leilão, que tinha sido anunciado ao mercado no final da semana passada, marcou a primeira emissão de dívida de longo prazo deste segundo trimestre do ano. Não existe uma meta em termos de obrigações do Tesouro, mas com bilhetes do Tesouro o IGCP pretende obter até 4.000 milhões de euros, num contexto de queda das taxas.

“Estes leilões são bastante importantes para conseguirmos ir reduzindo o custo médio da nossa dívida”, nota Filipe Silva. A descida dos juros da dívida permitiu ao Estado poupar 1.270 milhões de euros com as emissões de dívida desde setembro de 2017, altura em que Portugal voltou a ter uma notação de investimento, notou recentemente Mário Centeno, ministro das Finanças. Os analistas consideram a margem para a redução nos juros está a ficar limitada, mas ainda veem espaço para melhorias no prémio de risco.

A redução das taxas está a levar o prémio de risco da dívida nacional para mínimos. Portugal conta já há algum tempo com taxas inferiores às de Itália nos mercados, apresentando um prémio de apenas 9,5 pontos percentuais face à dívida espanhola.No caso da dívida alemã, o spread é de 116 pontos.

(CNBC) ECB in panic mode? Experts warn it’ll take more than a central bank to help Europe recover


  • The Frankfurt-based institution surprised markets with a renewed dovish tone.
  • ECB President Mario Draghi said that interest rates would remain at record lows at least until December.

Silvia Amaro@Silvia_AmaroPublished 8 Hours

ECB's Draghi: Near term growth weaker than expected

ECB’s Draghi: Near term growth weaker than expected  9:08 AM ET Thu, 7 March 2019 | 02:30

New monetary stimulus from the European Central Bank (ECB) will do “little” to boost the region’s sluggish economy and tackle its biggest risks, analysts told CNBC.

“(The ECB’s) announcements have some flavor of panic as the ECB’s base case scenario still foresees a gradual recovery and the 2020 and 2021 forecasts were hardly revised downwards,” Carsten Brzeski, chief economist at ING Germany, said in a note Thursday.

The Frankfurt-based institution surprised markets with a renewed dovish tone. ECB President Mario Draghi said that interest rates would remain at record lows at least until December. Growth forecasts for the euro zone were slashed for this year and new loans to euro zone banks were announced.

“The measures as such are not such a big surprise but the timing of the announcement is,” Brzeski added. “(The announcements) are also a bit of a gamble as they will do very little to tackle the biggest risks for the euro zone economy, which according to the ECB stem from external sources.”

Draghi even acknowledged this fact in a press conference following the ECB’s formal rate decision on Thursday. “We are aware that our decisions (new stimulus) certainly increase the resilience of the euro zone economy, but actually can they address these factors that are weighing on the euro zone economy in the rest of the world? They cannot,” Draghi told reporters, adding that protectionism and geopolitics were among those outside risks.

“I wonder if the ECB will ever increase rates in this economic cycle.”-Christoph Schon, Executive director at Axioma

The euro zone economy saw its lowest pace of growth in four years during the final three months of 2018, data showed in January. More recently, manufacturing data have shown a slowdown in activity. This comes amid concerns over global growth, tariffs between the U.S and China, and weakness in emerging markets.

“With few domestic catalysts for a turnaround, it may take a rebound in demand from the emerging world to improve prospects for the (euro zone) region,” Tilmann Galler, a global market strategist at J.P. Morgan Asset Management, said in a note Tuesday.

The ECB slashed its growth forecast for 2019 to 1.1 percent from an earlier forecast of 1.7 percent made in December. The bank also lowered its inflation forecasts for 2019. Annual inflation is set to hit 1.2 percent this year, when December forecasts had pointed to a headline inflation target of 1.6 percent. The ECB’s inflation target is “close but below 2 percent.”

“I wonder if the ECB will ever increase rates in this economic cycle,” Christoph Schon, executive director at Axioma, told CNBC Friday, given the prolonged moribund state of the economy.

(Reuters) Global stocks stuck in worst run of the year ahead of ECB

(Reuters) LONDON (Reuters) – World stocks were stuck in their worst run of the year and bonds were on the rise on Thursday, as investors waited for confirmation that the European Central Bank will start shoveling cheap cash at the euro zone again.FILE PHOTO: Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

The ECB was holding its second meeting of the year, and with the euro almost motionless and stocks suffering from the same growth nerves that will see the central bank chop its in-house forecasts later, markets were poised.

European shares retreated further from five-month highs as MSCI’s 47-country world share index also dropped for a fourth straight session to set its longest losing streak since December’s rout.

Italy’s government bonds rallied to a 7-month high while its banks, which used the biggest share of the previous round of cheap central bank loans, rose 0.1 percent but remained below the highs hit in the previous session.

A return to what was once its flagship crisis-fighting tool would be a wrenching change of direction for the ECB just months after it wound down its 2.6 trillion euro QE program,

But Head of investments at UK fund manager Hermes, Eoin Murray, said he wondered how much impact such measures, or even more U.S. Fed stimulus, would have, considering the potency has tended to wane with every new round in recent years.

“I just don’t think it will have the power to get the economy to the point of takeoff,” Murray said.

Europe’s subdued mood came after Asia and Wall Street had also both stumbled overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.3 percent lower on Thursday, yet hovering not far from its five-month high marked last week, and was up 10 percent year-to-date.

Japan’s Nikkei average fell 0.7 percent, while Hong Kong’s Hang Seng shed 0.7 percent and Chinese blue-chips snapped a four-day winning streak as the boost from new stimulus plans there ran into the sand.

Wall Street’s main indexes had fallen for a third straight session, with the S&P 500 posting its biggest one-day decline in a month, as investors sought reasons to buy after a near 20 percent rally since the start the year.

“For some time, markets had been pricing in good news, namely that the talks between the U.S. and China will likely go well,” said Tatsushi Maeno, senior strategist at Okasan Asset Management. “Now markets are having a pause.”

Adding to concerns about the talks was data that showed the U.S. goods trade deficit surged to a record high in 2018 as strong domestic demand pulled in imports, despite the Trump administration’s “America First” policies aimed at shrinking the gap.

Other U.S. data out on Wednesday suggested some slowing in the labor market, though the pace of job gains remains more than enough to drive the unemployment rate down.

The ADP National Employment Report showed private payrolls increased by 183,000 in February after surging 300,000 in January. Economists polled by Reuters had forecast private payrolls advancing 189,000 in February.

The government’s more comprehensive “non-farm” payrolls employment report for February is scheduled for release on Friday.

Stocks sink for a 3rd day

(graphic: Impact of TLTRO on Italian and Spanish banks link:


In the currency market, the euro traded at $1.1304, hovering near a two-week low ahead of the ECB and its expected news on its cheap long-term loans for banks, known more formally as Targeted Long-Term Refinancing Operations (TLTROs).

The dollar was little changed at 111.74 yen, moving away from Tuesday’s 2-1/2-month peak of 112.135, while the dollar index, which measures the greenback against a basket of six of its peers, barely moved at 96.887.

The Canadian and Australian dollar sank to two-month lows on Wednesday as traders scaled back holdings on expectations policy-makers would leave interest rates alone in the foreseeable future or even lower them to counter their softening economies.

Adding to the Aussie’s woes on Thursday was data showing local retailers suffered another bleak month in January, in a sign overall economic momentum was slowing. The Aussie dollar last changed hands at $0.7042, up 0.1 percent on the day.

Brexit uncertainty kept the pound below an eight-month high hit last week as investors waited for some clarity to emerge out of negotiations between Britain and the European Union.

Diplomats said talks in Brussels on Tuesday led by British Prime Minister Theresa May’s chief lawyer, Geoffrey Cox, failed to find common ground, with three weeks to go before Britain’s scheduled departure on March 29.

“Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process, and that is keeping the pound in a tight range,” said Nikolay Markov, a senior economist at Pictet Asset Management.

Among commodities, oil edged up amid ongoing OPEC-led supply cuts and U.S. sanctions against exporters Venezuela and Iran, although prices were prevented from rising further by record U.S. crude output and rising commercial fuel inventories.

U.S. crude futures rose 0.1 percent to $56.29 per barrel, moving closer to its 3-1/2-month high of $57.88 touched Friday, while international benchmark Brent futures gained 0.3 percent to $66.20 per barrel.

(EUobserver) Italy poses risk to eurozone, says EU


The European Commission on Wednesday said Italy’s excessive economic imbalances poses a risk to the countries inside the eurozone. “Italy is experiencing excessive imbalances. High government debt and protracted weak productivity dynamics imply risks with cross-border relevance, in a context of still high level of non-performing loans and high unemployment,” said the EU executive.

(JN) Timmermans: “Portugal é um exemplo para a Europa”

(JN) O candidato dos socialistas europeus a presidente da Comissão Europeia, o ainda comissário holandês Frans Timmermans, apontou Portugal como um exemplo na Europa, ao falar na Convenção Europeia do PS, que se realizou este sábado em Vila Nova de Gaia.  

“António Costa e o seu governo mostram todos os dias que podem ter um país na Europa mais social”, afirmou, para sublinhar que a recuperação da austeridade não foi feita “à custa dos filhos e netos, nem colocando mais um fardo sobre as costas”.

Segundo Timmermans, que é vice-presidente da Comissão Europeia, “Portugal mostra ao resto da Europa como se pode ser responsável com o dinheiro dos contribuintes”, entre outras coisas criando mais empregos e aumentando o salário mínimo. “António e o seu governo mostraram o caminho”, disse.

Qualificando o primeiro-ministro português como um “líder patriota, aberto ao resto do mundo e que diz ao seu povo que seja aberto, optimista, respeite as diferenças e seja simpático para com os refugiados que não têm para onde ir”, o “spitzenkandidat” (cabeça de lista) socialista apelou a que chegou a altura de “fazer alguma coisa” pela Europa.

“É tempo de pôr fim ao ódio e ao incitamento à violência, de pôr fim à diferença de vencimentos entre homens e mulheres (…), de fazer as grandes multinacionais pagar impostos como todos, de nos comprometermos com uma economia sustentada”, declarou o holandês, que salientou a necessidade de “criar um mundo com mais justiça” e uma estratégia europeia para África, a fim de ajudar este continente agora.

Neste elencar de necessidades, Timmermans referiu ainda que é preciso arranjar casas para os jovens, “que estão desesperados em encontrar uma em todas as grandes cidades europeias”, bem como de dizer “não” a uma nova corrida aos armamentos e às políticas de exclusão, nacionalismo e ódio.

Evocando o que disse o Presidente francês num vídeo apresentado aos participantes da Convenção – que “estas eleições são sobre a alma da Europa” – Timmermans destacou ainda que Portugal tem uma forte mensagem para dizer à Europa, nomeadamente como se pode recuperar de uma terrível crise económica e recuperar o optimismo.

“Estou orgulhoso de estar aqui, de ser um socialista e do que o Partido Socialista conseguiu nestes últimos anos”, concluiu o candidato dos socialistas europeus, que considerou o PS motivo de “inspiração pessoal”.

(CNBC) The EU could collapse in the same way the Soviet Union did, George Soros warns


  • Billionaire investor and liberal political activist George Soros said Europe needs to recognize its enemies, both internal and external.
  • Europe “is sleepwalking into oblivion and the people of Europe need to wake up before it is too late.”
  • He said the European Union could experience the same fate as the Soviet Union which collapsed in 1991.
George Soros

OLIVIER HOSLET | AFP | Getty ImagesGeorge Soros

Billionaire investor and liberal political activist George Soros has issued a call for Europe to “please wake up” and recognize “the magnitude of the threat” it faces from what he said were its enemies, both internal and external.

Europe “is sleepwalking into oblivion,” the legendary investor warned in an opinion piece published by Project Syndicate on Monday, “and the people of Europe need to wake up before it is too late.”

“If they don’t, the European Union will go the way of the Soviet Union in 1991,” he said, alluding to the dramatic dissolution of the USSR and the fall of Communism in 1991.

The European Union (EU) is experiencing a “revolutionary moment” and the eventual outcome is “highly uncertain,” Hungarian-American investor Soros added.

Worse still, Soros believed that neither Europe’s leaders nor ordinary citizens appreciated this fact.

The current leadership is reminiscent of the politburo (the principal policy-making committee in the Soviet Union) when the union collapsed, Soros said, “continuing to issue ukazes (orders) as if they were still relevant.”

European Parliament elections in May 2019 were the next inflection point for the bloc. Anti-establishment, euroskeptic parties are expected to perform well.

“Unfortunately, anti-European forces will enjoy a competitive advantage in the balloting. There are several reasons for this, including the outdated party system that prevails in most European countries, the practical impossibility of treaty change, and the lack of legal tools for disciplining member states that violate the principles on which the European Union was founded,” he said.

Fatal mistakes

Soros’ commentary comes at a time of uncertainty and instability in Europe amid a rise in populism and anti-establishment sentiment.

Brexit in the U.K., widespread civil unrest in France, an influential right-wing party in government in Italy and political flux in Germany, a country that has witnessed its own rebirth of far-right politics, is shaking the bloc’s foundations. In addition, anti-migrant policies and anti-democratic actions in eastern Europe have put countries like Hungary and Poland on a path towards potential disciplinary action with the rest of the EU.

Soros explored the political situation in Germany, where Chancellor Angela Merkel (who’s serving her last term in office) is seeing her own Christian Democratic Union (CDU) party pressured in office not only by its coalition partners, the Christian Social Union (CSU) and Social Democrats (SPD) but by the far-right “Alternative for Germany” (AfD) that has gained voters with its euroskeptic, anti-immigration pledges.

“As it is, the current ruling coalition cannot be as robustly pro-European as it would be without the AfD threatening its right flank,” Soros noted. On Brexit, he said the public was becoming increasingly aware of the “dire consequences” of the U.K.’s departure from the EU but noted now that “the situation is so complicated that most Britons just want to get it over with, although it will be the defining event for the country for decades to come.”

When it comes to Italy, Soros said Europe had made a “fatal mistake” in 2017, during the migration crisis, when it enforced the Dublin Agreement which meant that migrants arriving on European shores had to claim asylum in the first country of entry. Italy struggling to cope with the number of migrants arriving drove the electorate “into the arms of the anti-European League party and Five Star Movement in 2018,” Soros noted.

To counter anti-European forces, both within and without the bloc, Soros said Europe needed to recognize its enemies and then “awaken the sleeping pro-European majority and mobilize it to defend the values on which the EU was founded.”

“Otherwise, the dream of a united Europe could become the nightmare of the twenty-first century.”

(P-S) The European Commission’s Taxing New Idea – Otmar Issing

(P-S) The European Commission is proposing that EU tax policies be subjected to qualified-majority voting just when the balance of power in the bloc is about to shift decidedly to the southern member states. That would set the stage for a rebellion among northern members, which will have effectively lost fiscal sovereignty.

FRANKFURT – Under the Treaty of Lisbon, in effect since 2009, the European Union became a more agile and effective operator, because EU policies across a range of issues were now to be decided by qualified-majority voting instead of unanimity.
But as recent efforts to allocate refugees within the EU show, in some cases, particularly where fundamental issues of national sovereignty are involved, outvoted member states are unprepared or unwilling to implement collective decisions. Nonetheless, the European Commission is now wading into yet another domain where fundamental issues of sovereignty are at stake.

For many years, some EU member states have refused to cooperate fully in the fight against tax evasion and avoidance. And because EU tax policies still require unanimity, each country has a veto. It seems only natural, therefore, that the EU would want to introduce qualified-majority voting here, too. Under a new proposal from Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs, Taxation, and Customs, if 55% of member states representing at least 65% of the EU population were to vote in favor of a new tax policy, it would pass.

At first glance, the situation certainly does seem to merit a strengthening of the EU’s hand on tax matters, so that it can finally correct a glaring shortcoming. Yet once qualified-majority voting has been introduced as a means of reining in tax evasion and avoidance, it will also determine all future tax policies.

This is not merely an assumption. The Commission’s stated objective is to apply qualified-majority voting to all tax-policy initiatives that are “necessary for the Single Market and for fair and competitive taxation.” Such a vague formulation opens the door to all manner of interventions.

As a further justification of his proposal, Moscovici also points to the potential to secure additional EU revenues through new financial-transaction and digital taxes – both of which his proposal explicitly mentions as possible policy options. It remains to be seen whether these special taxes will meet their proponents’ expectations. But even if they fail, previous experience suggests that the Commission will nonetheless use the new voting rule to secure ever-higher tax revenues “for Europe” through whatever means available.
As it happens, the United Kingdom’s impending departure from the bloc will dramatically alter the conditions for achieving a qualified majority on tax matters. The UK is among the northern member states that, together, account for 39% of the EU population and tend to resist protectionist measures, tax increases, and transfers to highly indebted countries. By comparison, the Mediterranean countries that generally favor transfers and taxes currently account for 38% of the EU population.

This is as it should be. Under the Treaty of Lisbon, the conditions for a qualified majority have been balanced in such a way as to give both the “North” and the “South” a blocking minority of (at least) 35% of the EU population. As long as the northern member states were aligned, they could prevent any initiatives that were against their interests. After Brexit, however, the North’s share of the population will fall to 30%, while the South’s share will rise to 43%. In other words, the North will no longer have a veto. Making matters worse, following the upcoming election in May, a similar southward shift is also imminent in the European Parliament, which would also gain a greater say in tax-policy questions if the Commission’s proposals are enacted.

The Commission’s proposal should be seen for what it is: an attempt to undermine the fiscal competence of sovereign states through a seemingly harmless back door. With the upcoming rebalancing of power within the EU clear for all to see, one need not be a prophet to predict higher taxes in the future. Even if the northern member states’ national parliaments are uniformly opposed to tax increases, they will have no way to block them. And, sooner or later, the backlash against this loss of sovereignty and wholesale soaking of the northern EU countries will be directed against the EU itself.

In light of these ramifications, the Commission’s proposal to subject tax policies to qualified-majority voting not only runs counter to the already-fraught efforts to achieve an “ever closer union,” but also jeopardizes the successful integration that has occurred to date. Apparently, the Commission has learned very little from the bruising Brexit debate of the past two and a half years. With its latest tone-deaf initiative, it continues to add grist to the Euroskeptics’ mill.