Overstepping limits
German member of ECB’s management Jörg Asmussen gave an
interview in Handelsblatt that almost – almost - gave me sympathy for
outgoing French President Sarkozy. Sarko once famously hissed at former ECB
chief Trichet that as an unelected civil servant, Trichet’s role was not to
decide on politics. That should be left to politicians.
Mr Asmussen, who is a career civil
servant, clearly oversteps all limits for public statements from the ECB. He
lectures Greece – where no government is formed. He lectures incoming French
president Hollande. He gives rather precise policy designs – namely that the
deadly austerity policy must be continued at any price. His only admission is
that the austerity drive may be “complemented” with a growth initative. Mr
Asmussen repeats the views of Bundesbank, and acts like a mouthpipe of the most
conservative politicians in Germany. This is not the way for a high ranking
member of the ECB to gain friends. Such a rant from Asmussen would have served
him a stinging rebuke if there had not been a power vacuum in France and
Greece.
Spain dodges an important decision
The Spanish government has apparently
decided to yet again recapitalise a local savings bank, Bankia, created by
merging 7 smaller regional lenders. The top management, including highly
respected former central bank chief Rato, has resigned. The problem with giving
the banks more money instead of nationalising them is that it does not solve
the issue of the bad assets, in this case loans to real estate development. In
the USA, the government gave money to the banks (without demanding a management
change) and lifted a huge amount of bad debts off their balance sheets.
The bad news is that according to all
statistics, Spanish property prices have nowhere fallen enough. More bad loans
will arrive.
The Spanish banking crisis will not be
solved until the government decides how to handle the bad debt. I still believe
there is a simple solution: Package it and sell it in the markets. It may mean
that the banks are insolvent. Some of them should then be allowed to fold.
Denmark enforces tougher rules on bad bank
loans
The Danish banking sector – which started
the banking crisis as one of Europe’s most fragmented – is reeling under new,
tougher rules for loan provisions. After three years where dozens of local
banks have gone belly up, the Danish regulator’s no nonsense approach is likely
to force
more bank closings. Prospective loan provisions are likely to exceed all
market expectations and may push some more of the weaker banks into insolvency.
Last year, tighter practices led to the first senior debt loan losses in Europe
and it shut many Danish banks out of the interbank market.
It is ironical that the country which
arguably is further ahead in the cleaning up of its bank sector is being
punished by the financial markets. It compounds the problems of getting the
economy going again. It proves the old adage: it is better to fail
conventionally than to excel alone. It is better to pretend the problem of bad
loans does not exist than to get it out in the open.
US need more QE??
A number of pundits are trying to change
the tone of the economic debate in the US. Some disappointing economic data
have created renewed doubts about the future growth. It is interesting to see
the difference between perception and reality. The reality is that the US
economy is chugging along with virtually all of the economic indicators
pointing to continued growth. It is particularly good news that small and
medium sized companies are getting more optimistic.
However, the perception is that data are
disappointing. You cannot be disappointed if you did not have expectations. And
we have seen everybody (and his dog) revising forecasts upwards in the past
three months as the US economy recovered from a mini-slowdown in Q3 of last
year. Now the growth is stabilising – and we get disappointing news in
comparison to the new, more optimistic expectations. Following the time
honoured practice of economists and other pundits, it could lead to 2-3 months
of disappointment. Even if there really isn’t anything to be disappointed
about.
No comments:
Post a Comment