This first item should shut up Mandelson, if nothing else. Lovely
to see an Italian criticising the UK for not being fit to join the
euro, though ! Taken all in all this is a highly politicised whinge!
Then the world-wide debt problem comes to the fore as Germsany fails
to refinance its debt yesterday. Other countries have a much poorer
rating so there are problems ahead!!! As Darling has just realised
the recession is not over yet!
xxxxxxxxxxxx cs
===================
TELEGRAPH 8.1.09
1. ECB deems Britain unworthy of euro
The European Central Bank has deemed Britain unfit for monetary union
even if it wants to join following the dramatic slide in sterling and
the explosion in the UK budget deficit.
By Ambrose Evans-Pritchard
"Great Britain does not meet the entry criteria for the euro," said
Lorenzo Bini Smaghi, the ECB's board member in charge of
international affairs.
"The public deficit will rise to around 6pc (of GDP) in 2009 and even
higher in 2010. Sterling's exchange rate is not yet sufficiently
stable," he told Italy's La Repubblica newspaper. [That’s the point
of a floating currency - it floats! THAT’s why we should not be in
the euro - it dfoesn’t suit us -cs]
The entry rules impose a deficit ceiling of 3pc of GDP, two years of
currency stability, and a public debt limit of 60pc of GDP. The rules
were waived for political reasons to let Italy, Belgium and Greece
into EMU, but terms are becoming stricter as the ECB seeks to exclude
East European states before they are ready.
If anything, Mr Bini Smaghi may have been too kind to Britain. The
Treasury expects the deficit to reach £118bn in the 2009 tax year -
almost 8pc of GDP - but there are now fears that this will rise even
higher as tax revenues collapse. Some analysts have begun to warn
that Britain will soon face a deficit of 10pc, the sort of
catastrophic levels seen in Latin America in the 1980s.
There is a mounting anger in EU circles over the slide in sterling,
seen by some as a deliberate 'beggar-thy-neighour' policy evoking the
Great Depression. "The 30pc fall in the pound is the biggest
devaluation by any country in the single market since it was created
in 1957," said one ex-commissioner. "There is going to be a serious
political reaction to this in coming weeks."
Sterling makes up a quarter of eurozone's export basket - equal to
the dollar - and Ireland's exposure is much higher. Irish retailers
have been crippled as shoppers flood across the border into Ulster.
But there is also a misunderstanding in Brussels, Paris, and Berlin
over British motives - just as there was during the ERM crisis in
1992. The Bank of England's main concern has been to cut interest
rates to head off a housing collapse and to ease credit strains.
While it views the pound's fall as an added bonus in battling slump,
this is a secondary effect.
Countries such France, Germany, and Italy tend to fret more about the
exchange rate, and less about the interest rates. They have higher
personal savings and lower debts so rate cuts are a mixed blessing
for most people.
The pound's recovery this week from near parity to €1.09 may help
blunt criticism. The euro's Winter rally is petering out as grim data
emerges from across Europe. Eurozone producer prices fell 1.9pc in
November, the biggest drop since records began in 1990. Consumer
inflation has fallen to 1.6pc, the lowest since the launch of the
currency.
The region may be facing deflation by the middle of this year. "We
believe that the ECB will eventually be cutting interest rates as low
as 1pc," said Howard Archer, Europe economist at Global Insight.
Frankfurt is loathe to follow the US, Japan, Switzerland towards zero
rates, fearing that it could "run out of ammunition". It is also wary
of emergency stimulus (quantitative easing [=printing money -cs] ),
in part because this would blur the lines between the ECB and the
national treasuries. This is a political minefield. Berlin fears such
a precedent could nudge the eurozone towards a debt union, enabling
high-debt states to shift liabilities onto German taxpayers.
Mr Bini Smaghi noted with annoyance that Anglo-Saxon commentators now
use the term "PIGS" to describe the eurozone's Club Med bloc of
Portugal, Italy, Greece, and Spain, which all have large current
deficits or public debts.
"This is not a term that's used in the euro area. They use it in
other countries, perhaps to divert attention from internal problems,"
he said, referring explicitly to the City. He resisted the temptation
of deriding Britain as the ultimate PIG.
Mr Bini-Smaghi's comment is a little unfair. The term `PIGS' was
first put into play by a German from a eurozone bank in a private
client note. It is now widely used by currency traders and analysts
from European banks, regardless of nationality. The expression has
become linked to London because the City is the global centre for
currency trading.
Native English speakers rarely use the term. It is the European press
that has had most fun with the "PIGS" , unsually in playful pieces
hinting at an Anglo-Saxon plot to do down the euro. [Whoa, there!
Could it possibly be because the “Pig” joke doesn’t work except in
English? -cs]
=-=-=-=-=-=-=-=-=-=-=
2. Bond scare as German auction fails and British debt hits danger level
Fitch Ratings has warned that Britain's public debt will explode to
almost 70pc of GDP by the end of next year, vaulting past Germany to
become one of the most heavily-indebted states in the industrial world.
By Ambrose Evans-Pritchard
"In terms of debt dynamics, the UK is by far the worst of the `AAA'
club of countries. The underlying fiscal picture is terrrible," said
Brian Coulton, head of sovereign rates at the credit agency.
Mr Coulton said it would become increasingly hard for states to raise
enough funds in the global bond markets to cover bank bail-outs and
big budget deficits at the same time. Britain's bank rescue alone
will cost 7pc of GDP.
The danger became all too real yesterday when even Germany failed to
sell a full batch of government bonds at its annual `Sylvester
Auction', which kicks off the debt season. Investors took up just two
thirds of a €6bn (£5.6bn) sale of 10-year Bunds, leading to
consternation in the markets. Bund price dropped sharply as the yield
jumped 34 basis points to 3.29pc, with copy-cat moves by bonds across
the eurozone. [I sent out a warning about this late last night in
“The crisis - today's 'endpaper'” -cs]
"It's very poor," said Marc Ostwald from Monument Secuirites. "In 20
years covering Bund auctions I can't remember the Bundesbank ever
being left with a third of the bonds."
Traders will be watching very closely to see whether today's bond
auctions in Spain and France go ahead as planned, or whether the
world is starting to see a "buyers strike" as deluge of sovereign
debt floods the market.
There are fears that the next crisis in the global financial system
could prove to be a rebellion by the bond vigilantes, already worried
by talk of a bond bubble. This would push up rates used to fixed
mortgages and corporate bond deals. Central banks can offset this for
a while by purchasing bonds directly -- "printing money" -- but not
indefinitely.
The US alone is expected to issue $2 trillion (£1.3 trillion) of debt
this year, and the Europeans are not far behind. Italy alone must tap
the markets for €200bn as it rolls over its huge stock of public debt
and meets the cost or recession. Fitch Ratings said Ireland, Greece,
the Netherlands, and France face a heavy calendar of auctions as
maturities fall due.
Britain is expected to issue £146bn this year, or 10pc of GDP. While
a £2bn sale of Gilts went smoothly yesterday, the Debt Management
Office has warned of possible trouble later this year.
Robert Stheeman, the DMO's chief, says Britain may be nearing the
limits of investor tolerance. "I'm not predicting that we will have a
failed auction, but I can't rule that out. It's a big amount of debt
to be sold. We are in a different world from a year ago," he told
Bloomberg News.
As long as Britain keeps its coveted `AAA' rating it should be able
to the tap the bond markets at a reasonable price, but this rating is
no longer entirely secure. Fitch says the UK will have jumped from
44pc of GDP in 2007 to 68pc by late 2010, a staggering rise for major
country. It usually takes a war to do such damage.
to see an Italian criticising the UK for not being fit to join the
euro, though ! Taken all in all this is a highly politicised whinge!
Then the world-wide debt problem comes to the fore as Germsany fails
to refinance its debt yesterday. Other countries have a much poorer
rating so there are problems ahead!!! As Darling has just realised
the recession is not over yet!
xxxxxxxxxxxx cs
===================
TELEGRAPH 8.1.09
1. ECB deems Britain unworthy of euro
The European Central Bank has deemed Britain unfit for monetary union
even if it wants to join following the dramatic slide in sterling and
the explosion in the UK budget deficit.
By Ambrose Evans-Pritchard
"Great Britain does not meet the entry criteria for the euro," said
Lorenzo Bini Smaghi, the ECB's board member in charge of
international affairs.
"The public deficit will rise to around 6pc (of GDP) in 2009 and even
higher in 2010. Sterling's exchange rate is not yet sufficiently
stable," he told Italy's La Repubblica newspaper. [That’s the point
of a floating currency - it floats! THAT’s why we should not be in
the euro - it dfoesn’t suit us -cs]
The entry rules impose a deficit ceiling of 3pc of GDP, two years of
currency stability, and a public debt limit of 60pc of GDP. The rules
were waived for political reasons to let Italy, Belgium and Greece
into EMU, but terms are becoming stricter as the ECB seeks to exclude
East European states before they are ready.
If anything, Mr Bini Smaghi may have been too kind to Britain. The
Treasury expects the deficit to reach £118bn in the 2009 tax year -
almost 8pc of GDP - but there are now fears that this will rise even
higher as tax revenues collapse. Some analysts have begun to warn
that Britain will soon face a deficit of 10pc, the sort of
catastrophic levels seen in Latin America in the 1980s.
There is a mounting anger in EU circles over the slide in sterling,
seen by some as a deliberate 'beggar-thy-neighour' policy evoking the
Great Depression. "The 30pc fall in the pound is the biggest
devaluation by any country in the single market since it was created
in 1957," said one ex-commissioner. "There is going to be a serious
political reaction to this in coming weeks."
Sterling makes up a quarter of eurozone's export basket - equal to
the dollar - and Ireland's exposure is much higher. Irish retailers
have been crippled as shoppers flood across the border into Ulster.
But there is also a misunderstanding in Brussels, Paris, and Berlin
over British motives - just as there was during the ERM crisis in
1992. The Bank of England's main concern has been to cut interest
rates to head off a housing collapse and to ease credit strains.
While it views the pound's fall as an added bonus in battling slump,
this is a secondary effect.
Countries such France, Germany, and Italy tend to fret more about the
exchange rate, and less about the interest rates. They have higher
personal savings and lower debts so rate cuts are a mixed blessing
for most people.
The pound's recovery this week from near parity to €1.09 may help
blunt criticism. The euro's Winter rally is petering out as grim data
emerges from across Europe. Eurozone producer prices fell 1.9pc in
November, the biggest drop since records began in 1990. Consumer
inflation has fallen to 1.6pc, the lowest since the launch of the
currency.
The region may be facing deflation by the middle of this year. "We
believe that the ECB will eventually be cutting interest rates as low
as 1pc," said Howard Archer, Europe economist at Global Insight.
Frankfurt is loathe to follow the US, Japan, Switzerland towards zero
rates, fearing that it could "run out of ammunition". It is also wary
of emergency stimulus (quantitative easing [=printing money -cs] ),
in part because this would blur the lines between the ECB and the
national treasuries. This is a political minefield. Berlin fears such
a precedent could nudge the eurozone towards a debt union, enabling
high-debt states to shift liabilities onto German taxpayers.
Mr Bini Smaghi noted with annoyance that Anglo-Saxon commentators now
use the term "PIGS" to describe the eurozone's Club Med bloc of
Portugal, Italy, Greece, and Spain, which all have large current
deficits or public debts.
"This is not a term that's used in the euro area. They use it in
other countries, perhaps to divert attention from internal problems,"
he said, referring explicitly to the City. He resisted the temptation
of deriding Britain as the ultimate PIG.
Mr Bini-Smaghi's comment is a little unfair. The term `PIGS' was
first put into play by a German from a eurozone bank in a private
client note. It is now widely used by currency traders and analysts
from European banks, regardless of nationality. The expression has
become linked to London because the City is the global centre for
currency trading.
Native English speakers rarely use the term. It is the European press
that has had most fun with the "PIGS" , unsually in playful pieces
hinting at an Anglo-Saxon plot to do down the euro. [Whoa, there!
Could it possibly be because the “Pig” joke doesn’t work except in
English? -cs]
=-=-=-=-=-=-=-=-=-=-=
2. Bond scare as German auction fails and British debt hits danger level
Fitch Ratings has warned that Britain's public debt will explode to
almost 70pc of GDP by the end of next year, vaulting past Germany to
become one of the most heavily-indebted states in the industrial world.
By Ambrose Evans-Pritchard
"In terms of debt dynamics, the UK is by far the worst of the `AAA'
club of countries. The underlying fiscal picture is terrrible," said
Brian Coulton, head of sovereign rates at the credit agency.
Mr Coulton said it would become increasingly hard for states to raise
enough funds in the global bond markets to cover bank bail-outs and
big budget deficits at the same time. Britain's bank rescue alone
will cost 7pc of GDP.
The danger became all too real yesterday when even Germany failed to
sell a full batch of government bonds at its annual `Sylvester
Auction', which kicks off the debt season. Investors took up just two
thirds of a €6bn (£5.6bn) sale of 10-year Bunds, leading to
consternation in the markets. Bund price dropped sharply as the yield
jumped 34 basis points to 3.29pc, with copy-cat moves by bonds across
the eurozone. [I sent out a warning about this late last night in
“The crisis - today's 'endpaper'” -cs]
"It's very poor," said Marc Ostwald from Monument Secuirites. "In 20
years covering Bund auctions I can't remember the Bundesbank ever
being left with a third of the bonds."
Traders will be watching very closely to see whether today's bond
auctions in Spain and France go ahead as planned, or whether the
world is starting to see a "buyers strike" as deluge of sovereign
debt floods the market.
There are fears that the next crisis in the global financial system
could prove to be a rebellion by the bond vigilantes, already worried
by talk of a bond bubble. This would push up rates used to fixed
mortgages and corporate bond deals. Central banks can offset this for
a while by purchasing bonds directly -- "printing money" -- but not
indefinitely.
The US alone is expected to issue $2 trillion (£1.3 trillion) of debt
this year, and the Europeans are not far behind. Italy alone must tap
the markets for €200bn as it rolls over its huge stock of public debt
and meets the cost or recession. Fitch Ratings said Ireland, Greece,
the Netherlands, and France face a heavy calendar of auctions as
maturities fall due.
Britain is expected to issue £146bn this year, or 10pc of GDP. While
a £2bn sale of Gilts went smoothly yesterday, the Debt Management
Office has warned of possible trouble later this year.
Robert Stheeman, the DMO's chief, says Britain may be nearing the
limits of investor tolerance. "I'm not predicting that we will have a
failed auction, but I can't rule that out. It's a big amount of debt
to be sold. We are in a different world from a year ago," he told
Bloomberg News.
As long as Britain keeps its coveted `AAA' rating it should be able
to the tap the bond markets at a reasonable price, but this rating is
no longer entirely secure. Fitch says the UK will have jumped from
44pc of GDP in 2007 to 68pc by late 2010, a staggering rise for major
country. It usually takes a war to do such damage.
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