Broomer's Blog

From the category archives: Europe

Europe

Pedalling Harder Just as the Brakes are Being Applied

My brother-in-law is a cycling fanatic. I asked him the other day if there is a technical term to describe pedalling while the brakes are being applied. He thought about this for a moment, before suggesting 'stupidity'.

It is almost 10 years since the financial crisis and the long drawn out recovery finally appears to be on a self-sustaining path. Monetary policy is gradually being tightened in the US, emergency rate cuts are being reversed in the UK and the ECB is dialling down its QE programme. With US unemployment just hovering above 4%, many monetary hawks will be thinking this is not before time.

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The Euro: How a Common Currency Threatens the Future of Europe

Followers of my blog will be aware that I am no great fan of the European experiment (or at least the way it is being sold to the European electorate). The euro was fatally flawed from birth and we should take care never to forget this. The rather ponderous title of this blog has been taken from a new book written by no less an authority than Nobel Laurent Joseph Stiglitz. The Eurozone operating with a fixed exchange rate and single interest rates causes enormous imbalances that are very difficult to correct.

Quite simply, Germany is massively outcompeting its European cousins and now thanks in part to a relatively cheap euro is amassing the largest current account surplus in the world (even ahead of China and Japan). Germany accounts for around 75% of the Eurozone current account surplus which is running at a massive 8% of GDP. Externally, this can be managed but within the single currency it is a major problem as Greece and Spain have discovered.

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Greece, Still in the Midden

Greece continues to be hounded by the EU and IMF to implement further economic reforms. Despite massive cuts to spending and the impoverishment of large segments of the population, the fiscal budget is still way in the red (5.8% in 2016) and the national debt remains at crushing levels.

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The Rising Risks of Eurogeddon

As we feared in June, Brexit has spawned a clutch of ugly portmanteaus. The failure of the Italian referendum will see the back of the pro European Renzi. While Itaxit is not yet fully on the cards, support for the nationalist Five Star Movement is getting within shouting distance of the Democratic Party. The chart below details the depth of discontent in Italy with the euro, which is growing to worrying proportions.JPM Guide to the Markets Sept 2016Even through a thick veil of French arrogance, President Hollande has recognised the futility in attempting re-election with a popularity rating of a mere 4%. This at least opens the door to the Socialists to find a decent candidate to stand. The pollsters currently tip the conservatives to win in May but Marine Le Pen too has a firm base of support. If Le Pen does prevail, unlikely but not impossible according to the polls, expect to hear a great deal about Frexit through 2017.Outside of the larger EU nations, populist parties are also gaining momentum. We should ...

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Protesting with Trump

In the run up to polling day, one commentator rather cheekily suggested that a vote for Trump is actually a vote for Pence. This is on the basis that it will not be long before Trump is impeached and that his Vice President assumes the role. We would not be as glib as this but the overnight news is definitely a surprise. Trump has led a confusing campaign and it is not clear what he stands for but he has successfully convinced the majority of American electorate that he at least stands for them. I guess this is what democracy is all about.

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What happens when you criticise central bankers?

"It's [the Bundesbank] like cream, the more you whip it the harder it gets." Willem Duisenberg 1996

The Bundesbank has been eerily quiet over the last few months despite the growing popular discontent in Germany with European monetary policy.

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Europe’s Sagging Underbelly

The shocking state of the Italian banking system has once again made headlines in the financial press. Italy has €360bn of gross non-performing loans (NPLs), equivalent to almost a fifth of GDP, and Street estimates put €196bn of these having collateral backing of less than 60%. While some provisioning has been made, eight years on from the credit crisis, it is simply appalling that a problem of this magnitude has been left to fester and overhang the Italian financial system for so long. Renzi introduced a new bankruptcy law last year which will bring down the time required to foreclose loans and ought to make it easier for investors to buy NPLs from banks. The Government has launched a bank rescue fund, Atlas, earlier in the year to accelerate this process.

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Brexit?

A Mail on Sunday poll found that 43% are now in favour of Brexit v 40% favouring the status quo. This is the first poll in favour of pulling out of the EU though

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