Friday, 27 April 2012

Hollande. S&P. Spain. US GDP.

Expecting Hollande
The expectation of Francois Hollande winning the French Presidency has triggered some shuffling of feet in Berlin, Frankfurt, and Bruxelles. In Berlin, Chancellor Merkel tries to make sure that Hollande will feel welcome when he arrives for the first of his foreign visits, probably already on the day after the election. On the other hand she is also clear that the Fiscal Pact is not up for renegotiation. However, she subtly changed her language about the necessity of balancing the budget. Now it is needed “over time”.

Francois Hollande on his part said that when he arrives in Berlin, the French people will have given him a clear mandate for renegotiation.

Not particularly surprising, Bundesbank believes that the “fiscal consolidation” should continue. Even if the negative growth makes it increasingly difficult for many countries to actually consolidate.

And perhaps the best news is that the Eurocrats in Bruxelles are discretely pointing out that there is enough legal leeway in the Pact to actually relax it quite a bit. “The pact is not stupid”, as an anonymous source have succinctly put it. Changes must be approved by a majority. Germany holds no veto in this matter.  

Spanish Downgrade
S&P Downgraded Spanish government debt by two notches from A to Bb. Yawn. The press has ignored it. The downgrade happens after everybody has found out there is something wrong in Spain.

Spain takes the bull by the horns
Sorry, could not let that one pass! The Spanish economy minister has announced that the Governent will force a sale of real estate assets from the crisis Cajas. He expects foreign real estate funds to bid for the property. It confirms my impression that Spain are more hands on handling their banking crisis than many other countries. Unfortunately, forcing a firebrand sale of assets will likely leave a colossal hole in the balance sheets of the local savings banks, that the government will then have to fill. It would be better first to nationalise the banks.

Stronger than expected labour market data, an increase in Consumer Spending and better data from the US housing market has made most US economists upgrade their expectation for today’s release of US GDP data. They now expect an annualised growth rate of between 2.5 and 3.0 per cent.

Adam Posen, an American member of the Bank of England Monetary Policy Board, has explained why things are better in the US: There is no austerity programs, and companies are not as dependent on banks for financing as in Europe. European small and medium-sized companies depend critically on bank loans they cannot get. No further explanations are necessary.

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