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

The Calculation for Spain

Tuesday, 31 July 2012 Written by 
The Calculation for Spain To alleviate its debt and escape its state of crisis, we think Spain has two strategies to choose from. The first one, already in place since 2009, involves a reduction in the fiscal and external deficits while accepting aid from other eurozone countries. If Spain were to continue with this strategy, it would need to incorporate regular debt purchases by the ECB and possibly the ESM, and provide assistance to recapitalise its banks. The second strategy would be to leave the euro, which would mean a default on its gross external debt and a sharp devaluation of its currency. Both of these strategies contain negatives that need to be considered: the question is, which one would be the least detrimental to the country’s economic future? http://www.ftseglobalmarkets.com/

To alleviate its debt and escape its state of crisis, we think Spain has two strategies to choose from. The first one, already in place since 2009, involves a reduction in the fiscal and external deficits while accepting aid from other eurozone countries. If Spain were to continue with this strategy, it would need to incorporate regular debt purchases by the ECB and possibly the ESM, and provide assistance to recapitalise its banks.

The second strategy would be to leave the euro, which would mean a default on its gross external debt and a sharp devaluation of its currency.

Both of these strategies contain negatives that need to be considered: the question is, which one would be the least detrimental to the country’s economic future?

Strategy One: Spain's present strategy of adjustment...A Catch-22 situation?

Spain’s high levels of external debt mean it cannot increase its external borrowing (except for emergency borrowing from the EU or the ECB). Therefore, it must balance its current account.



Its present strategy of adjustment is clear: a restrictive fiscal policy; an improvement in cost-competitiveness to rebalance foreign trade; and the acceptance of European aid to recapitalise banks in distress. The last action hinges on purchases of government bonds to push down long-term interest rates. However, this strategy is risky.

A scenario may help us better understand this strategy: a fall in real wages due to price-stickiness discourages household demand, which has a knock-on effect to make business investment decline. Hence, there is a major decline in domestic demand and activity, making it very difficult to reduce fiscal deficit. In early 2012 we saw this in action when Spain’s fiscal deficit widened considerably, due both to tax revenue short-falls and higher-than-expected government spending. A continuation of this strategy therefore may lead to a further increase in unemployment and a decline in activity.

There could also be a reduction in the external deficit due to the decline in purchasing power. That said, imports would have to be reduced by a further 20% for Spain's current account deficit to disappear, which would mean a decline of at least 12% in domestic demand and real income.

The only hope for this strategy is that improvements in cost-competitiveness could increase Spain's exports and market share, and improved profits could eventually increase business investment.

Strategy Two: Exit from the euro, default and devaluation...A possible solution or suicide?

The other strategy would be for Spain to leave the euro, sharply devalue its currency, and inevitably default on its gross external public and private debt. This would obviously be a big problem for Spanish multinational companies, given the size of debt and the impossibility of servicing it following devaluation.

But what would the likely consequences of this strategy be?

For a start, it requires an immediate rebalancing of foreign trade. The country could no longer borrow, which would result in a much weaker economic situation in the short term.

Our econometric estimate shows elasticity to the real exchange rate of 0.73 for Spain's exports and 0 for imports, in volume terms. If we assume 30% devaluation, the foreign trade gain in volume terms would be 7.7 percentage points of GDP, which is very substantial.

Devaluation would increase the price of imports and therefore reduce real income by about 5.9 percentage points, which would leave a net gain of approximately 2 percentage points of GDP.

When the Spanish peseta was devalued in the early 1990s (twice in 1992, once in 1993), the current account deficit disappeared in 18 months, exports accelerated strongly, while domestic inflation reacted only slightly to the rise in import prices. The decline in GDP only lasted one year, and from that point growth was strong because of falling interest rates.

In today’s instance, devaluation would also increase the competitiveness of tourism and increase the surplus for these services in local currency, though perhaps not in foreign currencies such as the euro.

As financing becomes completely domestic, it is not impossible that there could be a reduction in the sovereign risk premium.

Devaluation could subsequently attract direct investment by businesses. With 30% devaluation, for example, labour costs in Spain would fall to EUR 14 per hour, 60% less than in Germany. However, since the size of Spanish industry is relatively small, new activities need to be considered for it to generate a large surplus.

Conclusion: What strategy to choose for Spain?

If the improvement in Spain's cost-competitiveness and profitability does not produce quick results, the present strategy will fail: wages would have to be reduced on a greater scale to eliminate the external deficit, and the fiscal deficit would remain very high.

The other strategy (leaving the euro, devaluation and default) could be successful if the devaluation attracted new activities, but it involves a lot of uncertainties – such as the impacts on Spanish multinationals, interest rates and foreign trade.

As stated earlier, both strategies are rather bleak, but positive aspects are still evident. Considering all of the factors, we believe that the strategy of devaluation and default could be the most efficient, particularly due to the high price elasticity of exports and the fact that Spain's entire current account deficit is accounted for by the interest on its external debt. As in 1992, it could also be effective due to the domestic financing of fiscal deficits, which will prevent a rise in interest rates.

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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