The ECB rates remained unchanged and so it seems that the Europe successfully overcomes its worst days and the super Mario has saved the Europe one more time. We have to say that the some confidence is returning to the EU banking sector. And the most probable reason behind the scene was the proclamation of super Mario that he is prepared to do anything to save the Euro followed by the announcement of OMT program (unlimited purchasing of government bonds with conditions of sterilization of purchases, co-financing with ESM and austerity condition of Troika). The second fact is that Bundesbank TARGET 2 claims decreased by €95 billion and combined Target2 debts owed by Italy, Spain, Greece, Portugal and Ireland shrank by €87 billion at the end of October when they culminated in August 2012. But we have to be very careful to think that everything is saved for now. Remember that the manufacturing activity in main economies in the EU – France and Germany has contracted for 10 month in row, household prices significantly declined in many European countries and the most serious situation is probably in Spain which only means that their banks will need more money for their recapitalization. And please do not forget one of the scariest features of the EU. Unemployment. Unemployment has climbed since 2008 and was 10.7 % (EU27) or 11.8% (EU17) in November 2012. Europe’s youth unemployment rate is another warning. It is on the record level 23.7% (EU27) respectively 24.4% within the EU 17. Greece youth unemployment is over 57% and Spain is 56.5%, Italy 37.1%, Slovakia 35.8% and France 27%. I do not see any recovery. Do you?
Will be small Cyprus responsible for the fall of the Euro? I do not think so but it is interesting to watch the current situation. The country necessarily needs bailout package. Still louder voices especially in German parliament emphasizes that we as European taxpayers will not save Cyprus. Why? German SPD party cannot imagine that German taxpayer’s money will save some Russian or other countries oligarchs’ money which used Cypriot banks as intermediaries to avoid tax obligations due to the fact that Cyprus is considered as tax haven. I think that Cyprus will be saved but it will not be tax heaven anymore at the end of negotiations. Unless negotiators are taking and would like to take advantage of Cyprus services in the future as well as oligarchs do right know.
We had an Index of economic freedom announcement last week. Hong Kong, Singapore, Australia, New Zealand and Switzerland are top 5 free countries in the world. Only Denmark as EU country was among TOP 10 but there are another 8 EU countries in TOP 20 among them Sweden and Germany. Slovakia was 42nd.
If you think that central banks are independent bodies please take a look at Japan. The Bank of Japan (central bank) is allegedly very close to the deal with the government about 2% permanent inflation target and nominal GPD targeting as a consequence of threatening from the side of new government that it will change the law about the bank. We will see in two weeks what exactly happens because of newt week BoJ meeting but many expect further easing steps. Prime Minister Abe said that he wants the central bank “to have a responsibility for the real economy, too.” One is for sure. So called currency wars (weaken domestic currencies to support export) are heating up. Due to the abnormal weather condition rose prices in China more than was expected. Food prices rose more than 4% and CPI index rose 2.5%.
The US is still in the trap of the debt ceiling. Both sides – republicans and Mr. Obama administration do not want to give up their positions. Republicans want more spending cuts and they proposed a dollar in spending cuts for every dollar that the debt ceiling is raised. Obama administration sees the solution in tax hikes of rich American families. Some Democrats proposed to mint a platinum coin with a face value of $1 trillion to deposit it to the Federal Reserve where the Treasury has its accounts. Than the FED would create money worth the coin and the US government can easily to pay government bills. I am not going to comment this because it is very probably unconstitutional and it is the same as the current QE program of the FED which at the end of the day will become monetization of the US debt. But there is one other important and significant information in this suggestion. The US has a real debate currently whether it pays what it owes or not. And I consider this as very dangerous.