Tuesday 21st April 2015
NEWS TICKER MONDAY APRIL 20TH 2015: European President Donald Tusk has called an extraordinary European Council on migratory pressures in the Mediterranean for Thursday this week to discuss how to tackle the growing tragedy of hundreds of would-be immigrants dying at sea on the way to trying to build a better life. “The situation in the Mediterranean is dramatic,” says Tusk. “It cannot continue like this. We cannot accept that hundreds of people die when trying to cross the sea to Europe. The objective of the summit is to discuss, at the highest level, what we, the Member States and the EU institutions together, can and must do to alleviate the situation now. I do not expect any quick-fix solutions to the root causes of migration - because there are none. Had they existed, we would have used them long ago. But I do expect that the Commission and the European External Action Service will present options for immediate action. And I do expect Member States will contribute immediately.” – The Nasdaq Stock Market says trading was halted today in ForceField Energy Inc (Nasdaq:FNRG) at 10:21:37 Eastern Time for "additional information requested" from the company at a last price of $3.11. Trading will remain halted until ForceField Energy Inc. has fully satisfied Nasdaq's request for additional information. For news and additional information about the company, please contact the company directly or check under the company's symbol using InfoQuotes on the Nasdaq web site - PEGAS, the pan-European gas trading platform operated by Powernext, successfully launched physically settled Spot and Futures contracts, quoted in pence per therms, for the Belgian Zeebrugge Beach (ZEE) gas hub on April 17th 2015. On the same day, a Daily Average Price index for the Zeebrugge Trading Point (ZTP) in Euros per Megawatt-Hour was introduced. The first transaction was completed on the first trading day at 08:49 AM CET on ZEE May 2015 contract at 45.025 pence per therm with a volume of 25,000 therms. This represented the first cleared futures trade ever made on the Zeebrugge hub. 14 trading members are set up for trading of the new products, with more members currently in the process of being admitted. “With the addition of the new ZEE contracts and with the ZTP and ZTPL (ZTP L-gas) products launched in July 2014, PEGAS is offering new trading opportunities through the widest range of products in two of the most important European hubs”, comments Dr Egbert Laege, chief executive officer of Powernext. Moreover, PEGAS is now providing a new ZTP Daily Average Price (DAP) index which is the weighted average of all transactions during a trading day - The value of real estate trades in Kuwait fell by 27% to KWD956m and the number of transactions fell by 28% to 692 in the first quarter this year according to statistics from the real estate registration department at the Ministry of Justice - The International Monetary Fund (IMF) and the Arab Monetary Fund (AMF) have pledged to enhance cooperation to respond more effectively to the needs of their common membership in a Memorandum of Understanding (MOU). The AMF and the IMF share common objectives of maintaining macroeconomic and financial stability, and accelerating broad-based and inclusive economic growth and job creation in the Arab region, in addition to strengthening capacity building. Under the MOU, the AMF and the IMF will continue to provide training opportunities to Arab officials, support the development of domestic capital markets in the Arab countries, and strengthen their collaboration on the Arabstat initiative, which aims at the development of efficient statistical systems in the region. The two parties also intend to carry out joint analytical work to inform Arab finance ministers and central bank governors, and to organise high level events on topics of mutual interests and priority for the region – The Kuwait Turk Bank will open in Frankfurt in July offering Shari’a compliant retail banking services having just received a licence from German market authorities. The bank already has a branch in Mannheim, but this new licence will allow it to operate as a fully functional bank in the country - The Joint Committee of the European Supervisory Authorities (ESAs) is organising the third Joint ESAs Consumer Protection Day on 3 June 2015 in Frankfurt am Main. The event will bring together, from all over Europe, thought leaders of consumer/investor organisations, national regulators, EU institutions, academics and key market participants. The keynote speech will be delivered by Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union. The focus will be on conduct risk; the next decade in the banking, insurance, pensions and securities sectors and the growing digitalisation of financial services. The Joint Committee of the European Supervisory Authorities consists of the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA). The Straits Times Index (STI) ended 21.94 points or 0.62% lower to 3503.25, taking the year-to-date performance to +4.10%. The top active stocks today were SingTel, which declined 1.12%, DBS, which declined 0.80%, Keppel Corp, which closed unchanged, CapitaLand, which declined 1.09% and UOB, with a 0.29% fall. The FTSE ST Mid Cap Index fell 0.32%, while the FTSE ST Small Cap Index fell 0.57%. The outperforming sectors today were represented by the FTSE ST Health Care Index, which rose 1.77%. The two biggest stocks of the Index - Raffles Medical Group and Biosensors International Group – ended 1.02% higher and 5.03% higher respectively. The underperforming sector was the FTSE ST Utilities Index, which slipped 1.65%. United Envirotech shares rose 3.15% and Hyflux declined 1.07% - The performance of the UK buy-to-let (BTL) residential mortgage-backed securities (RMBS) market remained steady in the three months ended February 2015, according to the latest indices published by Moody's Investors Service. The 90+ day delinquency rate and outstanding repossessions stood at 0.7% and 0.1% respectively in February 2015, unchanged from November 2014. Moody's annualised total redemption rate decreased to 9.3% in February 2015 from 11.2% in November 2014, representing a 17.5% drop - Proserv and hazardous environment specialist JCE Group (UK) Limited have announced a strategic working partnership in the Middle East and Africa (MEA) region. The agreement will see Proserv supporting JCE Group by offering its products and services whilst also delivering in-country engineering and technical support. Together, the companies aim to further build on their industry-leading standards of quality, service and reliability, and help cultivate a world-class QHSE culture - Deutsche Asset & Wealth Management (Deutsche AWM) has launched a physical replication exchange-traded fund (ETF) tracking the JPX-Nikkei 400 Index of Japanese stocks. At the same time, three new currency-hedged share classes of existing db X-trackers ETFs have also been listed. db x-trackers JPX-Nikkei 400 UCITS ETF (DR)1 tracks an index of 400 Japanese stocks selected on the basis of quantitative and qualitative screening. As the underlying index is not a standard capitalisation-weighted benchmark the ETF falls into the strategic beta – also known as ‘smart beta’ – category of investments.

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The European Review

By Patrick Artus, chief economist at Natixis

Is Greece offered any other choice to a slow death and a sudden death?

Friday, 06 July 2012 Written by 
Is Greece offered any other choice to a slow death and a sudden death? The adjustment programme that Greece is putting in place with the Troika, even if it is toned down and spread out over time, will eventually lead to a fall in Greeks' purchasing power until Greece's external deficit disappears. And in light of Greece's economic structure and the disproportion between its imports and exports, this will imply a collapse in living standards in Greece. The other possibility for Greece is to leave the euro and massively devalue its currency, but this would instantly mean a loss of purchasing power due to the deterioration of the terms of trade, and a massive decline in domestic demand, which would in any case be inevitable because there would then be no more lenders to finance Greece's external deficit. http://www.ftseglobalmarkets.com/

The adjustment programme that Greece is putting in place with the "Troika", even if it is toned down and spread out over time, will eventually lead to a fall in Greeks' purchasing power until Greece's external deficit disappears. And in light of Greece's economic structure and the disproportion between its imports and exports, this will imply a collapse in living standards in Greece. The other possibility for Greece is to leave the euro and massively devalue its currency, but this would instantly mean a loss of purchasing power due to the deterioration of the terms of trade, and a massive decline in domestic demand, which would in any case be inevitable because there would then be no more lenders to finance Greece's external deficit.

For Greece to escape a slow death (austerity programme) or a sudden death (exit from the euro), a massive European aid plan would be needed to rebuild the Greek economy and create jobs, a plan that is unlikely at present, and very different from the present bailout which merely finances debt servicing on Greek government bonds held by public investors.

The logic of the adjustment programme for Greece: Slow death



Even if Greece and the Troika renegotiate the adjustment programme, its fundamental characteristics will remain the same:

·                                  a restrictive fiscal policy to eliminate the fiscal deficit;

·                                  a fall in wages to improve competitiveness and reduce domestic demand, until Greece's external deficit disappears.

The main idea of the adjustment programme is that Greece's domestic demand exceeds its production capacity, thereby generating a structural external deficit. So Greeks "are living beyond their means", with a rise in living standards far exceeding growth in production capacity, and it is therefore legitimate to reduce domestic demand both through a restrictive fiscal policy and wage cuts.

The fall in wages could also bring about an improvement in competitiveness, hence an improvement in foreign trade, but its main objective is to reduce domestic demand and imports.

The problem with this approach is that:

·                                  it is showing its ineffectiveness: despite the decline in domestic demand, the current-account deficit has declined little; due to the shortfall in activity, public finances are no longer improving;

·                                  its cost in terms of jobs and purchasing power is gigantic. Greece is a country in which the weight of industry is very small and where, as a consequence, the disproportion between imports and exports is very great.

A substantial decline in purchasing power in Greece is therefore needed to eliminate the external deficit, with a further fall of about 30% in real wages. Purchasing power would have to be brought back to the level of the early 1990s to balance the current account, and this is of course rejected by the population. The fundamental problem is twofold:

·                                  even if there is a fall in wages, the improvement in price-competitiveness is limited by price stickiness;

·                                  since the size of industry is small, the adjustment must be achieved mainly through a fall in imports, hence a decline in income.

Exit from the euro and devaluation: Sudden death

Faced with this prospect of a "slow death" due to the austerity programme, Greeks could decide to leave the euro and devalue. But in that case the shock would be sudden and terrible, because there would be both:

·                                  a rise in import prices;

·                                  an obligation to eliminate the external deficit, because no one (neither the private sector nor the public sector) would any longer lend to Greece;

·                                  a weak positive impact of the gain in competitiveness, due to the small size of industry.

Greece would default on its gross external debt, and would therefore no longer have to service that debt, which is positive (it would gain six percentage points of GDP in interest payments on external debt). But the rise in import prices would even further exacerbate the foreign trade imbalance, while the potential for external borrowing would disappear. There would inevitably have to be a reduction in domestic demand to restore the foreign trade balance despite the rise in import prices, hence inevitably a collapse in imports in volume terms.

This is reminiscent of the process in Argentina, in similar circumstances, in the early 2000s: a collapse of activity following the huge devaluation, the need to switch to a current-account surplus which required dividing imports by three - hence a collapse in the real wage due to imported inflation, and in domestic demand and employment.

From 2003 onwards, there was  a sharp improvement in Argentina's situation, but it is important to remember that it had considerable structural advantages by comparison with Greece at present:

·                                  substantial weight of industry (22% of jobs);

·                                  before the crisis, exports and imports of the same size;

·                                  a smaller current-account deficit to reduce (five percentage points of GDP).

The shock would be far more violent and prolonged for Greece.

So what would be the solution for Greece?

We have seen that Greece is at present offered two solutions:

·                                  a "slow death", through a stifling of the economy via the austerity plan, even if it is softened down;

·                                  a "sudden death", if there is an exit from the euro and devaluation.

In either case, gradually or suddenly, there must be a substantial decline in purchasing power to eliminate the external deficit which is no longer financeable. For Greece to escape this dreadful choice, Europe's aid would have to be allocated not to debt servicing on Greece's government bonds held by public investors (EFSF, ECB) - which in and of itself is an incredible situation where Europe is borrowing in order to pay to itself the servicing of the Greek debt it holds - but to help rebuild the Greek economy and create jobs, which is definitely not being done at present.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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