Reuters blog archive
Ukraine continues to top the European worry list.
Monday demonstrated how quickly the financial side of the equation can spiral out of control. The hryvnia currency slumped and the cost of insuring against Ukrainian default soared, forcing the central bank to intervene and urge its citizens not to spark a bank run.
Having turned its back on the EU, Kiev must find more than $17 billion next year to meet gas bills and debt repayments. Presumably Russia will have to help out if it is not to have a basket case on its doorstep.
Has Vladimir Putin factored that into his diplomacy? He is certainly concerned, describing the protestors who blockaded government buildings on Monday of pursuing pogrom – about as loaded a term as he could choose – engineered by “outsiders”, not revolution.
His apparent victory in persuading President Viktor Yanukovich to look to Moscow rather than Brussels could prove short-lived.
The EU/IMF/ECB troika is due to return to Athens to resume a review of Greece’s bailout after some sparring over budget measures.
Greece’s president and prime minister have said they will not impose any further austerity measures and hope that their ability to run a primary surplus will persuade its lenders to cut it some more slack on its bailout loans to make its debt sustainable. The EU and IMF say there will be a fiscal gap next year that must be filled by domestic measures, be they further wage and pension cuts or tax increases.
from Anatole Kaletsky:
While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world.
Let's start with the bad news: Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards, since Abe looks unlikely to offset this massive fiscal tightening with stimulative measures that would maintain consumers’ spending power. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy. Meanwhile, the government’s willingness to risk economic recovery in the cause of fiscal discipline implies that those of us who believed Abe was making an unconditional commitment to do whatever it takes to achieve economic recovery were simply wrong. Now that the forces of budgetary austerity have reasserted themselves, Japan’s probability of ending its decades of stagnation is much reduced.
from The Great Debate:
Today, the International Monetary Fund announced yet another a reduction in its global growth projections for 2014, with its estimate of U.S. growth also reduced (citing reduced government spending, but not the present U.S. government shutdown -- or the heretofore unthinkable notion of the U.S. government defaulting on its obligations). Despite the seeming urgency of global economic slowdown, when world leaders attended their annual fall confabulation at the United Nations in New York last month, they focused on the diplomacy of physical security (Syria, Iran, etc.). Thus another year has passed in which global economic security issues were on no one’s reported agenda.
Policy makers continue to fail to appreciate that the most formidable economic challenge today lies in the area outside the borders of any one nation or region -- and that multilateral action to address this challenge is arguably more important than efforts at increasingly less-effective internal stimulus.
Greece will unveil its draft 2014 budget plan which is expected to forecast an end to six years of recession.
The draft will include key forecasts on unemployment, public debt and the size of the primary surplus Athens will aim for to show it is turning the corner. The government has said any further fiscal belt-tightening will not bring cuts in wages and pensions and that savings will be generated from structural measures.
from Expert Zone:
(Any opinions expressed here are those of the author and not of Thomson Reuters)
I can’t predict where the rupee will eventually land and I don’t think anyone else can either.
Of course, we are not the only country at the mercy of the dollar because almost every emerging market is suffering. But surely, that shouldn’t be any consolation.
The Bank of England will publish the minutes of Mark Carney’s first policy meeting earlier this month which will pored over for signs of how the debate about forward guidance – it’s all the rage in the central banking world now - went, and whether that may herald more money printing or act as a proxy for looser policy.
Carney’s colleague, Paul Fisher, indulged in his own form of guidance yesterday, telling a parliamentary committee that discussions within the Bank were focused on how to give a steer about future policy moves and whether to inject more stimulus, not whether it should start to be withdrawn as the Federal Reserve has signalled it may do before the year-end.
Spain will sell up to four billion euros of six- and 12-month treasury bills, prior to a full bond auction on Thursday. Italy attracted only anaemic demand at auction last week and Madrid has already had to pay more to borrow since the Federal Reserve shook up the markets with its blueprint for an exit from QE.
However, yields are nothing like back to the danger levels of last year and both countries have frontloaded their funding this year. Economy Minister Luis de Guindos, who declared over the weekend that the Spanish economy will grow in the second half of the year, speaks later in the day.
The European Commission will present its blueprint for a body to refloat or fold troubled banks, largely in the euro zone. As we’ve said ad nauseam, there is no chance of a great leap forward on this front ahead of Germany’s September elections. The question is whether Berlin’s line softens thereafter.
Brussels will suggest a cross-border body able to overrule national authorities. Germany is opposed and says that would require treaty change which could take many years. Beyond that the EU’s executive appears to have pulled its punches somewhat.
This could be a perfect storm of a day for the euro zone.
Portugal’s prime minister will attempt to shore up his government after the resignation of his finance and foreign ministers in successive days. The latter is threatening to pull his party out of the coalition but has decided to talk to the premier, Pedro Passos Coelho, to try and keep the show on the road.
If the government falls and snap elections are called, the country’s bailout programme really will be thrown up into the air. Lisbon plans to get out of it and back to financing itself on the markets next year. Its EU and IMF lenders are due back in less than two weeks and have already said the country’s debt position is extremely fragile.