The Great Debate UK

from Anatole Kaletsky:

Why markets ignore good news from U.S. to focus on bad news from Europe

A trader watches the screen at his terminal on the floor of the New York Stock Exchange in New York

What’s spooking the markets?

One thing we can say for sure is that it is not the slightly weaker-than-expected retail sales that triggered the mayhem on Wall Street on Wednesday morning. Most U.S. economic data have actually been quite strong in the month since Wall Street peaked on Sept. 19.

So to find an economic rationale for the biggest stock-market decline since 2011, we have to consider two other explanations.

The first is the collapse of oil prices, down almost 30 percent since late June in response to Saudi Arabia’s apparent decision to wreck the economics of U.S. shale oil. Falling oil prices are generally beneficial for the world economy -- and for most businesses outside the energy sector.  But investors now fleeing from natural-resource stocks will take time to recycle their money into other industries, such as airlines, retailers and auto manufacturers. Until this rotation happens, broad stock-market indices are dragged down by the plunging oil shares, a process visible almost every day in the past two weeks, especially in the last hour of trading.

A trader watches the screen at his terminal on the floor of the New York Stock Exchange in New YorkIf falling oil prices were the main causes of the market setback, it would not be a big problem. There is, however, a far more worrying explanation: Europe. Not just the obvious weakness of the European economy, but the inability or unwillingness of European Union policymakers to agree on a sensible response.

from Anatole Kaletsky:

An ‘atomic bomb’ is hovering over France’s economy

France's President Hollande and German Chancellor Merkel talk during a conference on jobs in Milan

An “atomic bomb” is about to blow up in “the confrontation between Paris and Brussels.”

It was in these terms that Le Figaro, perhaps the most influential French newspaper, reported the European Commission’s near-certain rejection of President Francois Hollande’s 2015 budget on Oct. 29.  That is the date the commission must issue a judgment on the French budget, which proposes a two-year delay in reducing the  budget deficit to the EU-mandated maximum of 3 percent of gross domestic product.

from Anatole Kaletsky:

What’s Europe’s best hope for avoiding a second euro crisis?

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This week’s theatrical resignation threat by Manuel Valls, the French prime minister, combined with deep European anxiety about deflation, suggest that the euro crisis may be coming back. But a crisis is often an opportunity, and this is the hope now beginning to excite markets in the eurozone.

Investors and business leaders are asking themselves three questions: Will European governments and the European Central Bank recognize the unexpected weakness of the eurozone economy as an opportunity to change course? If they do, will they know how to grasp it? And will they be allowed to do what is necessary by the true economic sovereign of Europe, German Chancellor Angela Merkel?

Don’t Mention the War!

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–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.

Hollande the Brave

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–Kathleen Brooks is research director at forex.com. The opinions expressed are her own.–

The French President has been in the press a lot recently. Firstly, there was the triumph in Mali. “Vive le France!” could be heard in the streets and the swift removal of the Taliban from Northern parts of the country is to be lauded. But after a rousing welcome in Timbuktu, Hollande might find he has a chillier welcome closer to home.

from The Great Debate:

Why isn’t the euro falling even further?

If the euro really is on the verge of collapse, as many pundits are now proclaiming, how come it is still so highly valued against other currencies, including the U.S. dollar?

That may sound like a crazy question, given the euro’s much-publicized decline over the past couple of weeks. It has been dropping as the possibility grows that Greece may seek to pull out of the 17-nation currency union following parliamentary elections there in mid-June. That scenario of a “Grexit” has spooked financial markets and pushed governments and business around Europe to draw up contingency plans.

from The Great Debate:

The abyss and our last chance

By Carlo De Benedetti
The opinions expressed are his own.


In a magnificent book published a few years ago Cormac McCarthy imagines a man and a child, father and son, pushing a shopping cart containing what little they have left, along a back road somewhere in America. Ten years earlier the world was destroyed by a nameless catastrophe that turned it into a dark, cold place without life.

There is no history and there is no future. But there is an objective: to head south toward the sea. Mythical places, only vaguely perceived, where there might be salvation. The father is getting older and is ever more weary. But he has the child with him. And he has his objective. He wants to take him southward to the sea. Toward a future that may still be possible.

The euro zone marriage is over

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By Laurence Copeland. The opinions expressed are his own.

Under the Arc de Triomphe, tourists can gaze up at the engraved list of Napoleon’s great victories: Austerlitz, Jena, Wagram… Perhaps a similar triumphal arch should be built in Brussels to commemorate the string of victories won by a tiny band of heroic Eurocrats over the mass of their combined electorates: Rome, Maastricht, Lisbon, Wroclaw, and now Berlin, where, to nobody’s surprise, the integrationists in the Bundestag have easily seen off the opposition to their plan to bolster the EFSF. Cue the now-familiar backslapping in Europe after each of their knife-edge victories over the forces of democracy.

The starting point for these Eurocrats/integrationists is that the popular will is simply an obstacle on the road to the ultimate destination of a United States of Europe. Whenever they encounter one of these inconvenient roadblocks, they fume, argue among themselves about the merits of alternative routes until they finally swerve triumphantly round the obstacle, congratulating each other for their ingenuity and skill.

Has Ireland de-coupled from the periphery?

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By Kathleen Brooks. The opinions expressed are her own.

Ireland is on a wave. After a bad patch and a massive loss of confidence eventually it looks like it has turned a corner and we can start to believe that there may be brighter times ahead. Of course, I could be talking about the Irish rugby team who had a stunning win over Australia at the rugby World Cup in New Zealand. But the economy isn’t doing too badly either.

Data last week showed that the economy grew by a respectable 1.6 percent in the second quarter, after expanding by an even better 1.9 percent in the first three months of this year. This beats the dismal growth rates in the UK and the euro zone, which both came in at 0.2 percent in the three months to June.

from Felix Salmon:

When fractured politics kills economic solutions

Michael Cembalest's note explaining the EU Mess with lego seems to have touched a nerve, and while a part of that is due to the lego, I like to think that some of it is due to the fact that actually the diagram does very well what few other explanations have done -- which is explain just how messy and multipolar the euro crisis really is.

Cembalest's diagram includes a dozen different stakeholders, each trying to fob off the burden of the euro crisis onto someone else. (The single noble exception here are the opposition parties -- the Social Democrats and the Greens -- in Germany.) It's all too easy, looking at Europe from across the pond, to divide the entire continent into two halves: a profligate south, spending beyond its means, piggybacking on the rich north, which doesn't want to bail them out.

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