Monthly Archives: May 2011

Fitch downgrades Greece…

… and David Oakley and Neil Dennis from FT are very worried about it.
However, we have not yet reached the level of 10 year bond rate that we had in April. In April we had 16.18 percent. Now we have a little less.

Hopeful comments on economic development in Sub-Saharan Africa

Economist’s audio article:

A more hopeful continent

I believe this is mainly driven by high capital inflows and “good governance”.

A Greek default may cripple the German banking sector

The Greek crisis should be serious concern for Germany, yet not for altruistic reasons. Nor are the adverse effects of a broken euro zone on the export sectors of the net-exporters the main issues that Merkel, Sakozy and others should worry about.
It’s the banking sector, stupid!

Desmond Lachman sums up the concerns of ECB chief economist Jürgen Stark:

Mr Stark’s concern was not simply that a Greek default would all too likely result in contagion to Ireland, Portugal, and Spain. Nor was it that this would have dire economic consequences for those countries’ economies. Rather, his main concern was about the potential damage that a wave of defaults in the European periphery would have on the German, French, and United Kingdom banking systems.
For Mr. Stark knows that the combined sovereign debt of Greece, Ireland, Portugal, and Spain totals around U.S.$2 trillion and that a large proportion of that debt is held by the European banking system. He also knows that a possible 30 percent average write down of that debt could inflict losses on the European financial system in an amount that is all too similar to that inflicted on the U.S. banking system by the sub-prime loan crisis in 2008.

Some data here:

involvement in the peripheral banking sectors

Coup de tonnerre – Why Strauss-Kahn's arrest is bad for Europe

The detention of Dominique Strauss-Kahn is harmful for Europe.
Or, to put it more concisely, it reduces the EU’s changes for recovery.

The reason is here: Political trends in France

What is important here, is on the one hand the shocking “rise of Ms. Le Pen”. But on the other, we can see that Strauss-Kahn had good chances to be elected next year, despite the decline of its popularity between January and March 2011.
Furthermore, there seems to be some kind of polarisation in the political landscape of France; a trend we can also witness in other Northern European Countries like Germany or Finland.

Therefore, I am not saying that D.S.-K. was the man who would have saved Europe from being locked in a right wing trap. I do not believe that the actual political leaders matter too much when it comes to the implementation of polito-economic concepts. But the candidates matter for elections. And if one candidate is famous and favoured like D.S.-K. was until last weekend, this would have made a difference for the outcome of the following election in France. In fact, it would have been one key determinant for the question if France shifts to the left or even more to the right.
And what Europe desperately needs right now, is a centre-left government in one of its core countries. The fact that there is no core country government in Europe that is willing to address the needs of the peripheral countries for debt restructuring, increased competitiveness, and less tightened monetary policy is one of the major constraints of the EU recovery and one of the greatest dangers for the euro.

The following elections in France will affect the situation of the EU a great deal. And the events last weekend have made it less likely that the outcome will be favourable for a unified Europe.

(By the way @CNN: The Word “Strauss” belongs to the surname. Thus, you should say “Mr. Strauss-Kahn”, not “Mr. Kahn”).

Strauss-Kahn's detention

Dominique Strauss-Kahn’s arrest is a little catastrophe for the currently shaken European Union.

Gideon Rachman put it concisely:

[…] [I]t is almost impossible to imagine that Strauss-Kahn will recover fast enough from this scandal to run for the French presidency next year. In some ways that is a shame because – whatever his personal flaws – he represented a rational, internationalist, financially-literate, centre-left politics that France and Europe needs.

Portugal and Spain

Spain is not Portugal yet.

The 10 year bond rate for Spain:

Spain's 10 year bond rate

…and for Portugal:

Portugal 10 year bond rate

But contagion is most likely to be around the corner.

Portugal's bail-out: First impressions

The source of this kind of information is typically the country that receives the fund, not the lenders of last resort.
So far, we hear from the Portuguese side:

– amount of bail-out: 78 bn euros (116 USD)
– required deficit cuts: 5.9% (2011), 4.5% (2012), 3% (2013)
– Portugal’s austerity plans before the bailout: 4.6% (2011), 3% (2012), 2% (2013)
– we do not have information about the interest rate, yet
– today the announcement only had little impact on Portugal’s 10 years bond yields