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NEWS TICKER, THURSDAY, September 3rd: The Straits Times Index (STI) ended 28.3 points or 0.98% higher to 2906.43, taking the year-to-date performance to -13.63%. The top active stocks today were SingTel, which gained 0.82%, DBS, which gained 0.80%, UOB, which gained 1.40%, OCBC Bank, which gained1.13% and CapitaLand, with a 0.36%advance. The FTSE ST Mid Cap Index gained 0.55%, while the FTSE ST Small Cap Index rose 0.24% - Madrid City Hall announced it would dedicate €10m out of its 2016 budget to a "welcome plan for refugees" to include housing, integration, psychological support and legal aid, City Hall spokeswoman Rita Maestre (Ahora Madrid) said during a press conference on Thursday. Maestre said a budget had been decided upon but that specific numbers had not: "We want to welcome all those who are fleeing from war", adding that given their situation "a permanent housing solution" would be needed in the city. The Mayor of the Spanish capital, Manuela Carmena, said on Wednesday that a decision would be taken at the city government meeting today: "The city of the hug must, of course, be ready to welcome refugees" - The European Bank for Reconstruction and Development (EBRD) is joining international efforts to clean up Tunisia’s Lake Bizerte with a €20m loan and technical assistance to support the expansion and rehabilitation of the sewerage network of the Bizerte region and the rehabilitation of three wastewater treatment plants located near the lake. The EBRD’s investment is part of an integrated environmental programme aimed at de-polluting Lake Bizerte and reducing sources of pollution through investments in wastewater, solid waste and industrial effluents. This programme is labelled by the Union for the Mediterranean and is part of the Horizon 2020 Initiative, which aims to de-pollute the Mediterranean by the year 2020. The European Investment Bank is providing a €40 million sovereign loan to the programme while the European Union Neighbourhood Investment Facility is contributing a €15m grant for both capital expenditure and technical cooperation - Analysis of illicit financial flows (IFFs) by Global Financial Integrity (GFI) shows that over the period 2003-2012 the global volume of IFFs grew by more than 9% annually (. In 2012 (the most recent year for which data are available), illicit flows were estimated at close to $1trn. In response to this unfettered surge in illicit capital leaving developing nations, the UN has endorsed target 16.4 in the Sustainable Development Goals (SDGs), which commits the global community to “significantly reduce” IFFs by 2030. This UN action “represents an historic moment in development policy given that it is the first time the international community has recognized the illicit flows problem and pledged to address it,” says GFI President Raymond Baker - US Secretary of Commerce Penny Pritzker named Eduardo Leite, Chairman of the Executive Committee of Baker & McKenzie LLP, as the new chair of the US section of the US-Brazil CEO Forum. “Mr. Leite has served on the U.S. section of the CEO Forum for several years, and I am pleased that he has agreed to serve as Chairman,” said Secretary Pritzker. The new US section chair was named after the former chair, Ms. Patricia Woertz, Chairman of the Board of Directors of Archer Daniels Midland Company, submitted her resignation from the role. However, Woertz will remain a member of the U.S.-Brazil CEO Forum, and Leite will complete the current three-year term, which ends on August 13th 2016 - MarketAxess Holdings Inc. (Nasdaq:MKTX), the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, today announced total monthly trading volume for August 2015 of $75.5 billion, consisting of $43.7 billion in U.S. high-grade volume, $26.7bn in other credit volume, and $5.1 billion in liquid products volume. MarketAxess is providing both the reported and adjusted estimated US high-grade TRACE volumes on its website. The Company believes that the adjusted estimated volumes provide a more accurate comparison to prior period reporting.

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The European Review

By Patrick Artus, chief economist at Natixis

What kind of economy would the euro zone be without Germany?

Thursday, 28 June 2012 Written by 
What kind of economy would the euro zone be without Germany? There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans. We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany? We think that Germany’s fears are justified. http://www.ftseglobalmarkets.com/

There is increasing talk about establishing federalist mechanisms (eurobonds, eurobills) and pooling certain risks and investments between euro-zone countries (European bank guarantees, recapitalisation of banks by the EFSF-ESM, increased investments by the EIB, EFSF-ESM access to ECB funding, purchases of government bonds by the ECB). Germany's criticism of these proposals is that they ultimately place all the costs and all the risks on Germany, due to its economic, fiscal and financial situation and its credibility in financial markets. It is claimed that eventually all the bills will be sent to Germany, since the other euro area countries have no fiscal or financial leeway or any credibility to guarantee deposits and loans.

We shall therefore examine the economy of the euro zone excluding Germany and ask the question: Is it in such a bad situation that federalism or the pooling of risks and investments between euro-zone countries would in fact amount to potentially placing the entire burden on Germany?

We think that Germany’s fears are justified.

Federalism: pooling between euro-zone countries

The resolution of the euro-zone crisis will inevitably involve establishing certain forms of federalism (eurobonds, eurobills) and the pooling of certain investments and risks (a European bank guarantee system, the recapitalisation of the banks (e.g. Spanish banks) by the EFSF-ESM, an increase in structural funds or investments by the EIB, ESM access to ECB funding).



The pooling of risks between euro-zone countries already exists: the Target 2 accounts are a pooling of bank risks among euro-zone central banks, and purchases of government bonds by the ECB pool sovereign risk.

This trend to federalism and pooling is inevitable: in a monetary union without federalism, countries with external surpluses and countries with external deficits cannot coexist permanently due to the resulting accumulation of external debt.

A number of financing needs are too substantial to be borne by a single country, e.g. for Spain the need for recapitalisation of its banks. And a number of risks (e.g. the risk of a bank run) are also too great not to be pooled.

Is this move towards federalism and pooling a trap for Germany?

The view in Germany is clearly that this move towards federalism and pooling is a trap for Germany. It is claimed that Germany will have to cover most of the costs because it has public finances in good health, growth that is now stronger, higher living standards than the countries in distress, and excess savings.

Germany also has strong credibility in financial markets, as shown by its interest rate level, and it is the only country to be able to credibly insure risks and guarantee loans.

The Germans' concern is therefore understandable: if there is federalism and a pooling of investments and risks, will Germany "receive all the bills"?

To determine whether this is a real risk, let’s examine the situation of the euro zone without Germany: is it such a worrying region, will it have to be propped up permanently by Germany?

The economic and financial situation of the euro zone without Germany: Is it serious?

Without going into greater detail for each country, we shall examine:

·                   its competitiveness, the foreign trade situation; the weight of industry;

·                   its situation regarding its technological level, skills, productivity and investment; its potential growth;

·                   the situation of its businesses and households;

·                   its public finances.

1. Foreign trade, competitiveness, weight of industry

The euro zone without Germany has:

·                   a structural external deficit;

·                   a shortfall in competitiveness;

·                   a small industrial base;

·                   a large external debt.

2. Technological level, skills, investment, productivity and potential growth, capacity for job creation

The technological level of the euro zone without Germany is fairly low, as is the population's level of education; this zone invests little, has low productivity gains, and since 2008 it has destroyed jobs massively.

3. Situation of businesses and households

Corporate profitability in the euro zone excluding Germany is low, but private (corporate and household) debt is lower than in Germany; however, household solvency has deteriorated (in Germany, household defaults are low and stable; in France, Spain and Italy, they are high and rising).

4. Public finance situation

The public finances of the euro zone excluding Germany are in a very poor state compared with Germany. Indeed Germany’s debt to GDP ratio is expected to fall, while in the euro zone excluding Germany it should rise rapidly toward 100%; Germany has a 1% primary surplus, while the euro zone excluding Germany has a 2% primary deficit.

Conclusion: Are the German fears justified?

If the euro zone were to become a federal monetary union, with solidarity between countries and pooling of certain investments (recapitalisation of banks, for example) and risks, surely the rest of the euro zone excluding Germany could only be:

·                   benefiting from transfers from Germany;

·                   benefiting from Germany's credibility in the markets;

·                   benefiting from Germany's guarantee;

Or could it share this burden with Germany? We suspect that the burden on Germany would be very heavy.

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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