MacroScope

Euro zone hopes for funds from the Fund

Focus for the euro zone is firmly on Washington with G20 policymakers gathering ahead of the IMF spring meeting. The Fund is seeking an extra $400 billion-plus in crisis-fighting funds which, tallied with the $500 billion euro zone rescue fund about to be established, adds up to a meaningful firewall for the markets to ponder before they consider pushing Spain and Italy to the edge.

But as many sage minds are saying – U.S. Treasury Secretary Timothy Geithner among them – a firewall does not solve the root problems of the euro zone debt crisis. As our very own Alan Wheatley puts it, “It is not obvious why a stronger firewall should encourage anyone to enter a burning house”. Nonetheless, Reuters polling yesterday ascribed only a 25% and 13% chance respectively to Spain and Italy needing an international bailout.

If the IMF falls short, given the jittery mood in financial markets, that could be cue for a further sell-off. The IMF has pledges of $320 billion so far. The Chinese and British have yet to show their hands and the BRICS led by Brazil are demanding more power at the Fund before handing over extra cash. German Finance Minister Wolfgang Schaeuble told us earlier in the week that conflating those two issues was not acceptable so there is potential for a rift. The U.S. and Canada have already said they will provide no more funding. Finance ministers and central bankers from the Group of 20 advanced and emerging economies had dinner on Thursday night, ahead of a longer session on Friday.

Concerns about Spain in particular are well justified but it is not yet close to the precipice. The banks are at the heart of the country’s problems and data this week showed they are carrying the biggest burden of bad loans since 1994. They will almost certainly need more capital at some point. On the other hand, the central bank pointed out yesterday that thanks to the ECB’s three-year money offer, Spain’s banks have their funding needs covered for this year, and maybe next too. Add to that the fact that Spain has shifted half its government debt issuance for 2012 in the first third of the year and it is clear it has some time to turn around market sentiment, which soured sharply when Madrid reneged on an agreed deficit target back in March.

In the end, having lost confidence, Spain will have to do something to regain it. A strong agreement with its regions on where to cut spending might help. Ministers have met regional chiefs this week and a deal could be announced today. There is a weekly cabinet meeting today which could spell out health and education cuts, which are supposed to amount to 10 billion euros.

Live video: Geithner testifies on China and the Yuan

Live video of Timothy Geithner’s testimony to the U.S. Senate Banking Committee today.

from Summit Notebook:

The Geithner approach: make the best of bad choices

Ever wonder how the U.S. Treasury Secretary gets through some of the most economically stressful times this country has seen in a while -- does he go for long runs? Sleep two hours a night?

Timothy Geithner has been in the job less than a year, and came in after the economy had slumped into recession. Now unemployment is approaching 10 percent, he's had to navigate through an economic stimulus package, and on top of all that the weakness of the U.S. dollar has other countries questioning whether it should still be the reserve currency.

Enough problems, we imagine, to give anyone a big giant headache and more than a few sleepless nights.

from Photographers' Blog:

Tim Geithner : What’s In Your Wallet?

What's in U.S. Treasury Secretary Timothy Geithner's wallet? Not much.

While testifying in front of a House Appropriations Subcommittee on Capitol Hill Thursday Geithner was shown a $50 Billion Zimbabwean bank note (rendered worthless by Zimbabwe's hyperinflation) by U.S. Representative John Culberson (R- TX) and asked if he had ever seen one himself. Geithner immediately pulled a piece of Zimbabwean currency out of his own pocket and showed it off to the committee. At the next break in the hearing I approached Geithner and asked how he happened to have a piece of foreign currency in his pocket. His response was "I often have some foreign currency in my wallet. Want to see?" He pulled a very thin and mostly empty wallet from his pocket.

Amongst many empty slots in the thin weathered leather wallet there could be seen three credit or debit cards with Visa and Mastercard logos (all inserted into the wallet upside down so that the card issuers could not be seen) and an old and yellowed looking identification card of indeterminate origin.

From inside the wallet Geithner extracted a small pile of receipts and paper including a New York City MTA farecard, pointing out that there were European Euros tucked amongst the paper.

Japanese lessons

Japan, slightly sidelined by the U.S.-UK “special” relationship and the Franco-German alliance at the G20 summit, is keen to stress the country can offer lessons to be learned from the country’s banking crisis in the 1990s.

Here’s a re-cap of what happened. In 1992, then-PM Miyazawa warned of a financial crisis unless banks were recapitalised using public funds now. Yet no action was taken. Between 1995 and 1997, staggering 5 financial institutions failed, forcing the government to inject public funds into 21 banks in 1998. Then two major banks were nationalised, then the government injected additional capital into 32 banks.

U.S. Treasury Secretary Timothy Geithner experienced the crisis himself as a financial attache at the U.S. embassy in Tokyo in the 1990s.

Krugman for Treasury Secretary?

On Monday, Nobel-laureate Paul Krugman wrote that Treasury Secretary Timothy Geithner’s plan was not only doomed to fail, it was, in fact, filling him with despair.

But life can’t be all despair for the Princeton prof. Earlier this month, an enterprising songwriter named Jonathan Mann wrote a catchy little diddy wondering why the New York Times columnist wasn’t in the corner office at 1500 Pennsylvania Avenue.

Tell us what you think. Should Obama dump Tim and put in Paul?