MacroScope

EU might treat itself to treaty change

By Robert-Jan Bartunek and Robin Emmott

French statesman Charles De Gaulle once famously said “Treaties are like roses and young girls — they last while they last.” Germany seems to have decided that the European Union’s Lisbon Treaty, which only entered into force after a fair amount of upheaval in December 2009, has lost its perfumes and must be reworked to ensure the euro zone’s debt crisis can never be repeated.

European Council President Herman Van Rompuy’s proposal to modify the treaty via a little-known section called protocol 12 has so far been unable to convince German government officials, who warned against a “bad compromise” of small steps or “little tricks.”

Van Rompuy’s sense is that changes to the protocol, which would strengthen legislation to prevent countries running up big budget deficits, could be agreed quickly and send a message to investors that the euro zone is embarking along a path to bring back confidence and resolve its crisis.

But given the critical hour, has anyone in Berlin really considered all the treaty changes and protocol adjustments the EU would really have to implement if there’s to be full fiscal union? It’s a daunting prospect. Andrew Duff, a member of the European Parliament, has identified 29 articles and protocols that would need to be overhauled – and that’s assuming the European Parliament, eurosceptic Britain and others don’t come forward with a host of other demands.

But even if that all went smoothly, there’s the ratification process. In Belgium alone, a treaty change of the magnitude of the Lisbon treaty would need to be approved by nine parliamentary bodies, for example the Flemish and Walloon parliaments, the parliament of the German community and the parliament of the capital, Brussels, which is itself subdivided into a French and bilingual assembly.

from Global News Journal:

Half time at the euro zone cup final

Covering a summit of European leaders is a bit like covering a soccer match with no ticket for the stadium and no live TV broadcast to watch. The only way you have an idea of the scoreline is from the groans and cheers from inside the ground.

With EU leaders meeting on Brussels on Sunday and again on Wednesday to try to resolve the region's debt crisis, the emergency back-to-back summits look like a game of two halves.

A European Commission spokeswoman said as much on Monday, trying to explain why there had been no major announcements so far on solving the debt crisis: leaders had gone in for half time.

from Global News Journal:

Waiting for Europe’s “appropriate response”

Will the euro zone finally act decisively?

Investors are hoping for something big from European leaders at the EU summit on Oct. 23 and of the Group of 20 on Nov. 3. But they also know the 17 nations of the euro have a habit of offering delayed, half-hearted rescues that have cost them credibility.

So there's been a lot of "urging" and "warning" in Brussels lately -- politicians and central bankers have all been demanding Europe act as international alarm grows that its sovereign debt problems may drag the world into recession. "Further delays are only aggravating the situation," said European Central Bank President Jean-Claude Trichet on Tuesday in his last appearance at the European Parliament, before he hands over the post to Mario Draghi on Nov. 1.

A day earlier, Germany's Deputy Finance Minister, Joerg Asmussen, at the parliament to promote his candidacy to join the ECB's board, made his call, saying "cooperation has to be increased," across the euro members, divided as to who should pay to rescue the heavily indebted nations of southern Europe. "I want to see a solution for debt sustainability for Greece," Asmussen said. So do so many others, especially Greek Prime Minister George Papandreou, who in Brussels on Thursday said it was a "crucial element to make the necessary decisions concerning Greece."

Macroeconomics deserves a prize?

Europe on the brink. United States risks double-dip recession. Financial turmoil threatens world economy. Not the sort of headlines you would associate with a Nobel-prize-winning contribution to the progress of humanity. To their credit, recipients Christopher Sims of Princeton and Thomas Sargent of New York University did develop methods and models that are wisely used by economists around the world, including central banks. But it’s unclear what practical applications their findings have for the world’s current economic predicament.

Alfred Nobel himself was not shy about hiding his disdain for the dismal science, which was not part of the original set of awards given in his name. The Nobel prize in economics came into existence in 1968, when Sweden’s central bank decided to create it in the dynamite tycoon’s honor. As German journalist Karen Ilse Horn writes (Thanks to @RecklessMonkeys for bringing the quote to our attention):

Economics was nothing Alfred Nobel appreciated as such, even though he was himself a pretty successful businessman. Rather to the contrary: ‘I have no training in economics myself and also hate it from the bottom of my heart,’ he wrote.

The debt ceiling: wanting to believe

Even if politicians have so far been unable to come to an agreement that will allow the U.S. debt ceiling to be raised by Aug. 2, the popularity of U.S. Treasury auctions this week indicates investors are still keeping the faith. Still, some are starting to get pickier about which Treasuries they would like to hold.

All three government bond auctions this week enjoyed a strong reception. Yet buyers of the 30-year bonds sold on Thursday, for example, might have felt particularly sanguine about the August debt ceiling date because the first coupon payment on those bonds is not due until Nov. 15.

That contrasts with some older Treasury securities that have payments due Aug. 15 or Aug. 31 which have not traded due to “concern that the coupon payment could be missed,” said Justin Lederer, interest-rate strategist at Cantor Fitzgerald.

from Davos Notebook:

Groundhog Day in Davos

groundhog

The programme may strike a different  note -- this year's Davos is apparently all about Shared Norms for the New Reality -- but much of the discussion at the 41st World Economic Forum annual meeting in Davos this month will have a distinctly familiar ring to it.

Last January, the five-day talkfest in the Swiss Alps was dominated by Greece's near-death experience at the hands of the bond market and recriminations over the role of bankers in the financial crisis, as well as worries about China's rapid economic ascent and a lot of calls for a new trade deal.

Fast forward 12 months and not much has changed.

Ireland has joined Greece in the euro zone's intensive care unit and Portugal and  Spain are getting round-the-clock monitoring. The annual round of bankers' bonuses is once again stirring up trouble. China looms larger than ever on the global stage, after overtaking Japan in 2010 to become the world's second-biggest economy. And trade ministers who signally failed to make headway last year say they really must get down to business when they meet on the sidelines of Davos this time round.

APEC’s robots stealing the show

robot

A guide at the “Japanese Experience” exhibition talks to Miim, the Karaoke pal robot, on the sidelines of the APEC meetings in Yokohama, Japan on Nov. 10. REUTERS/Yuriko Nakao

    Miim is one of the more popular delegates at the APEC meetings in Yokohama Japan. She sings. She dances. She tosses her shoulder length hair. She may not be able to spout an alphabet soup of APEC acronyms like the other Asia-Pacific delegates. But she’s still pretty lively. For a robot.

    This week’s meetings of the Asia-Pacific Economic Cooperation forum have been earnest and most comprehensive . Foreign and trade ministers issued a 20-page statement about all the things they talked about — a giant free trade zone, protectionism, the Doha round, easing restrictions on businesses, simplifying customs procedures, promoting green industries, cooperating on health and security, you name it. They also have been, and pardon my French here, excruciatingly dull. So far, the meetings and their stupefying statements have been a testimonial to Japan’s skill at stating the ambiguous. Call it the opaque meetings. Journalists from around the Pacific rim have been desperately trying to find news as the 21 APEC leaders gather for their annual pow-wow this weekend.

UK GDP: Should have gone to Specsavers?

twice as fast as expected in the second quarter of this year propelled by a sharp pick-up in services and the biggest rise in construction in almost 50 years.

Markets are getting used to volatile swings in economic data since the financial crisis set in three years ago. But UK GDP figures for Q2 were so eye-poppingly strong they caused confusion on trading floors.   

 

“Should have gone to Specsavers??” wrote Philip Shaw, chief economist at Investec, referring to British television commercials lampooning myopic citizens who desperately need a new pair of corrective lenses.

 

“Perhaps critics will suggest that the ONS has got it wrong again, but traders’ initial suggestions, calling into question the accuracy of the newswire reports — and this author’s eyesight — proved to be misplaced,” wrote Shaw.

The octopus and the economists

What do an eight-legged creature in an aquarium in Germany and 74 economists have in common? The consensus view that Spain would claim the World Cup — until the economists, as they so often do, changed their minds.

worldcup.jpgIf World Cup 2010 goes down as one of the most unpredictable and exciting competitions in recent history, bringing underdogs Holland and Spain to the final showdown, what was hopelessly routine was watching so-called expert opinion converge around the safest bet. At least among financial professionals, who have done so well of late predicting the future.

When Reuters first surveyed economists and forecasters in May on which team would be kissing the golden grail on July 11, 2010  in South Africa, it made for interesting reading. Spain would take it — by a narrow margin, it has to be said — followed by Brazil, Argentina and England. Improbable probability analysis, perhaps, but not boring.

from UK News:

BoE’s King “doesn’t do sex appeal”

Bank of England Governor Mervyn King was on good form when he addressed the Royal Society – Britain’s oldest scientific discussion club – on the vexing issue of communicating complex forecasts to the great unwashed.

Aside from his usual moan about the media’s desire to reduce the BoE’s beautiful but baffling ‘fan charts’ of inflation forecasts to one or two numbers, he made a rare and welcome admission that in past years the central bank had not done as well as it could have to flag up the risk that a financial crisis was about to happen.

The BoE’s financial stability reports – like those from many other central banks – sometimes sounded as if they were crying wolf in the years running up to the credit crunch by warning of pretty much every risk to markets short of Martian invasion.