Credit Writedowns

Whatever the case, the ECB will have to act in order to avoid the dangers of a deflationary spiral, which could take the Eurozone years (or even decades) to exit.

The first left-right coalition in Italy since 1946 has survived its first confidence motion in both chambers. As difficult as it may have been to break the political logjam, the hard work lies ahead for Prime Minister Letta.

Moody’s Investors Service released the following statement in conjunction with a ratings action it took today on Slovenian sovereign debt.

There have been three recent developments in Spain: the new record high unemployment, the earnings reports of several large banks, and the government’s new fiscal forecasts and strategy.

Spanish 10-year yields continued to trend lower over the course of the week. The roughly 35 bp decline in yield brings the drop since early February to about 120 bp and 150 bp from a year ago. The 2-year yield is slipped below 2% for the first time since 2010. The 5-year credit default swap, the price of insuring sovereign exposure, has fallen from 470 bp a year to a little than 250 bp.

Osborne has said in the past that his austerity approach is the right one and has pointed to a 2010 paper on government debt and growth by Carmen Reinhart and Kenneth Rogoff as evidence his approach is the right one. Given the recent furore over errors in the data used in that influential Reinhart-Rogoff paper, the British data and Osborne’s conclusions based on that data take on more significance internationally.

Italy is getting closer to putting together a grand coalition government. This has always seemed to us the most likely scenario, but the route to it has been circuitously torturous. Three considerations have led to President Napolitano granting the prerogative of forming a government to the deputy leader of the center-left, Letta.

The Swedish krona is somewhat firmer today but it is the biggest loser among the major currencies this week. It has lost about 2.3% against the dollar and 2.1% against the euro. According to Bloomberg, this is the single biggest weekly decline of the krona against the euro in about a year and a half. There were two factors that [...]

Here is the video of an interview I did with Max Keiser on the situation in Europe. A lot of our discussion revolves around why the Germans actually do want a cohesive Europe but feel compelled to pursue the present policy path. We also discuss the advancing plan bail-in plans in Europe and the advent of wealth taxes as a talking point in the crisis.

Reinhart-Rogoff’s paper has more serious flaws than an excel error. And austerity hysteria will not go away after Herndon-Ash-Pollin’s review. This is my message to you.

I was on the Daily Ticker with Lauren Lyster talking about Japan yesterday. My view is that there is no material negative change in Japan’s sovereign debt outlook nor will there be in the medium term because of Abenomics. The video is at the bottom of this post. Before you watch it let me say a little bit about why I take this view on Japan and speak more generally about government debt and deficits. Mike Konczal wrote a post that is getting a lot of buzz on high deficits and Reinhart and Rogoff that will be a good jumping off point for discussion.

I caught this FT graphic via David Wessel yesterday. It shows you that while the labour force in the Euro Zone as a whole generally continues to grow, the labour force in Germany has shrunk. During the euro era, Germany’s labour force between 15 and 64 has shrunk by 2% while the euro zone whole has increased by 7%.

A recent ECB household-wealth survey was interpreted by the media as evidence that poor Germans shouldn’t have to pay for southern Europe. This column takes a look at the numbers. Whilst it’s true that median German households are poor compared to their southern European counterparts, Germany itself is wealthy. Importantly, this wealth is very unequally distributed, but the issue of unequal distribution doesn’t feature much in the press. The debate in Germany creates an inaccurate perception among less wealthy Germans that transfers are unfair.