Tag Archives: G20

Economy, Finance

NOTHING TO WORRY ABOUT ! , by François Leclerc

Guest post. Translated from the French by Tim Gupwell

The G20 in Los Cabos seemed like a preparatory meeting for the Summit of the Heads of State and European Governments! This seems to highlight the fact that they no longer know what to do, and are running round like headless chicken.

The same ideas that had previously been abandoned are back on the table, only to be refused once again by Angela Merkel. Thus, Mario Monti proposed, during the G20, that the EFSF/ESM buy sovereign bonds in order to ease market conditions. He was supported in vain by Mariano Rajoy and François Hollande. The idea of a special treatment reserved for the “virtuous” (sic) European countries is gaining ground, but if one examines it more closely, it assumes – given the financial amounts that are foreseen – that the ESM will dispose of a banking licence in order to obtain finance from the ECB.

Out of sheer desperation – an expression which is likely to be used often – all eyes are turning once again to the European Central Bank (ECB) which could turn the liquidity tap back on again, in the form of a third Long Term Financing Operation (LTRO). The effect of this, as previous operations have shown, would be to further tighten the Gordian Knot between the debt of the states and that of the banks – which is exactly the opposite of what the final G20 press release recommended. This would render the debt-reduction problem even more difficult to escape from.

At the heart of this confusion, the hedge funds have just sent out a bad signal, according to a Financial Times article. They are said to be betting on an increase in German bond rates (Bunds), assuming therefore that the tensions on the European bond market will soon become more widespread. Future episodes are brewing behind the scenes…..

The European crisis used to be permanent with acute phases; it is becoming acute all the time. One thing however is unchanged: it remains on the brink of collapse. Following in the footsteps of Mariano Rajoy, Mario Monti has just declared that Italy will not need a bail-out; nothing to worry about then!

Economy

BACK FROM LOS CABOS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Given that the G20 has confined itself to mere generalities and that the European Summit on the 28th and 29th June is dangerously close, what can be expected of the meeting in Rome on the 22nd June between Angela Merkel, Mario Monti, Mariano Rajoy and François Hollande, intended to serve as preparation for it?

Two projects are being examined in parallel by the European institutions, which are being assembled together and presented as if they were one of Great Wonders of the World. Firstly, by issuing Eurobonds with a short maturity- and thus with limited risk – and secondly by the creation of a fund intended to bring together and finance over a period of 20 to 25 years the stock of debt which exceeds the threshold of 60% each country’s GDP – these countries will have to demonstrate their credentials beforehand with regard to their budgetary commitments. Thanks to these virtuous arrangements, we will all be saved and the chaotic debt-reduction strategy will finally work as it should!

Intended to ease the pressure on the debt-reduction strategy, this wonderful arrangement will not, however, get Europe out of the recession which is the main cause of the investors’ lack of confidence. Due to its global dimension, this prospect was at the heart of the discussions at the G20. In order to help private sector debt-reduction, these two complementary measures will be coupled with a ‘Banking Union’ based on the doubtful premise that the banks will be able to finance their own rescue-packages without any external intervention.

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Economy, Finance

A BIG BANG, OR NOTHING , by François Leclerc

Guest post. Translated from the French by Tim Gupwell

With the G20 meeting being held in Mexico at the start of the week, our perspective will find itself altered, falsely accustomed as we are to only seeing the debt crisis from a European angle. On the 18th and 19th June, the greats of this world are going to gather in Los Cabos, a tourist resort in Southern Lower California, under the double auspices of debt and global recovery.

To avoid standing idly by whilst confronted by a disaster of its own making, the British Government has just announced a plan to relaunch the economy with banking credit, funded by a Bank of England liquidity programme. In the context of an overall 80 billion programme, there are plans for monthly injections of around 5 billion Pounds (6.1 billion Euros). But the question that needs to be asked is whether the results will be as inconclusive as those obtained from the ECB’s massive injections, or indeed the tireless pursuit of zero-rate loans (from 0% to 0.1%) by the Bank of Japan – still without any further success – and whose 700 billion Euro acquisition programme of private and corporate securities is still in force.

The British Government wants to make these banking loans conditional on the latter making specific commitments, but hasn’t this been heard before? The monetary policy instruments of the Central Banks merely allow more time to be bought, and do not resolve any of the unanswered questions.

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