Super SGP coming – ECB: “A stronger and stricter fiscal framework is required”

The long-held view in German policy circles has been that the European sovereign debt crisis is a clear indication that the stability and growth pact (SGP) was not sufficiently robust in addressing fiscal discipline. The ECB is now addressing this with a policy paper

Europe edges closer to the endgame

Later this week, I plan to write a more comprehensive post on the European sovereign debt crisis to incorporate what we have learned since the French and Greek elections. Here’s a short preview of what I will have to say

Sovereign debt implications for Netherlands are negative for France and Austria too

Fitch has not been as aggressive as the other two agencies, keeping Austria and France at AAA up until now. As such, its negative comments about the Netherlands are noteworthy and likely signal a harder line by Fitch in the coming months. As a result, we think both Austria and France are likely to come under negative scrutiny by Fitch as well, as we view both as inferior credits to the Netherlands

Euro Zone News Stream Remains Negative

The string of developments has encouraged risk-off behavior. Equity markets are lower. Core bonds are higher. The high beta currencies, such as the freely traded emerging market currencies, the Australian and Canadian dollars, the euro, Swedish krona, and of course, the euro itself, are under strong pressure. The US dollar and Japanese yen are the main beneficiaries

On the Importance of the French Elections

The French premium over Germany rose today to a three-month high. Rumors of a rating downgrade proved wide of the mark, but it reflects the market’s anxiety about the outlook for France going forward

Dutch Treat: More on a Possible Maastricht Breach by the Netherlands

Developments in the Netherlands may steal the limelight as the French election is still more than a month away. The key issue in the Netherlands is that last week, the Dutch Bureau of Economic Policy Analysis warned that next year’s deficit will exceed the 3% target. This has the potential of triggering a political crisis. The overshoot is going to require more austerity measures and the governing coalition may not survive

French Elections Potentially More Momentous Then Greek Vote

Polls suggest that in the first round of balloting in late April, Sarkozy is trailing his Socialist challenger Hollande 31%-24.5%. Marina Le Pen’s candidacy appears sufficiently strong to deny either candidate a majority in the first round

Chart of the Day: Developed economies’ debt levels by sector

This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government

Mild Corrective Forces Unfold

The light news stream, adequate bill auction receptions and comments from Fitch suggesting France’s AAA rating is secure this year encouraged short-term players to take profits. However, sentiment is still wholly euro negative and a large investment bank was out today with new calls to sell the euro. Resolution of credit watch decisions are still awaited from Moody’s and S&P. Separately France defied expectations and contradicted poor PMI readings by posting a 1.1% jump in November industrial output. The consensus was for a 0.1-0.2% gain

Merkozy’s Dinner for One

Soon, Credit Writedowns Pro is coming out with my predictions/forecast for 2012. I am aiming for a Jan 5th release and will also start a few forum topics then as well. See the piece “Introducing Credit Writedowns Pro”, which is stuck to the front page, for pricing. For now, I want to wish you a Happy New Year. And I thank you for making 2011 an enjoyable and unique experience. Here’s my first non-links post of 2012: Merkozy’s Dinner for One video in German. Thanks, Scott. Enjoy

Chart of the day: Euro nations with largest deterioration in fiscal situation

Here are two interesting charts courtesy of the Macro Business Superblog. In outlining how the latest European crisis response policy fails to deal with the underlying issues in Euroland, Macro Business also illuminated the individual debt and deficit trajectory of each euro nation. The charts highlight where the euro area countries have broken the Maastricht stability and growth pact criteria

A Deep Seated Hostility Towards European Construction?

The British decision to veto the proposed new EU treaty is not surprisingly provoking an avalanche of commentary this weekend. Among journalists, at least, there seems to be a consensus that David Cameron committed some kind of major diplomatic blunder.

Possibly this is so, but given the difficulties presented by having to take this agreement forward outside the formal structure of the EU, it is hard to not reach the conclusion that both Angela Merkel and Nicolas Sarkozy have been guilty if not of a similar blunder, then at least a major error of judgment