Here are a number of shorter news items on the continuing world economic turmoil
Christina
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OTHER REPORTS TODAY - 5.10.09
TELEGRAPH
1. Euro is Ireland’s life-jacket – and straitjacket
It is hardly surprising that Ireland has warmed to the Lisbon treaty. Ireland is immersed in freezing waters. Europe is its life-jacket.
By Ian Campbell,
The Irish seas could scarcely be more menacing. Only the Icelandic and Baltic economies are in worse shape. Irish GDP has shrunk by 7.4pc in the past year; the inflation rate is a negative 5.9pc; the unemployment rate is 12.8pc. Despite cuts and tax increases, the budget deficit is forecast to rise to 11pc of GDP this year. Government debt, a low 25pc of GDP going into the crisis, is forecast to rise to 59pc of GDP by the end of this year.
At the centre of the turmoil is the burst housing bubble. In August, house prices were down 8pc year-on-year, back to January 2004 levels. But the decline is far from over. The 80pc rise in house prices between 2001 and 2006 provides plenty more downward scope. As does the state of the banks. The government has created a ‘bad bank’, into which the banks are expected to pour toxic debts of E80-90bn – almost half Ireland’s GDP. But declining asset values will keep the pressure on.
In these sinking straits, Europe has come to the rescue. Unlimited 1pc one-year financing from the European Central Bank: that is reassurance. There is also a feeling that if Ireland were unable to pay its debts a lifeboat bearing emergency funds would be sent out. The zone won’t let one of its members drown.
But the EU’s lifejacket is also a eurozone straitjacket. The UK has its competitive, weak pound while Ireland is stuck with the super-dear euro. Ireland’s recession, deflation and budgetary deterioration resemble the Baltics’ agony because like them Ireland is locked into a fixed exchange rate.
"At least we are not Iceland" is the Irish response. The old Irish pound might have proven an Icelandic krona – for a bankrupt island. The euro, for now, is safety. But it leaves Ireland with no easy route back to competitiveness, other than by cutting prices and wages.
That journey will take years and won’t be straightforward. The lifejacket might feel good now, but it will soon start to squeeze painfully tight.
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2. UK RECOVERY WON’T EASE JOBLESS RATE (article not on web! - Paraphrased highlights only)
“Britain is facing a “jobless recovery: wityh unemployment likely to remain high - IMF warns” - - - - the fund said UK Germany and spain unlikely to create sufficient jobs” “Uk banking sector particularly hard-hit - workers have been ‘hoarded and will have to go” Unemployment likely to be 10%” “Darling agrees - will rise throughout 2010”
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3. German banks fear drive for higher capital ratios will trigger 'dramatic' contraction [or in print version “- - fresh credit crunch”]
Germany's top bankers fear the global drive for higher capital ratios will trigger a "dramatic" contraction in lending and smother economic recovery.
By Ambrose Evans-Pritchard
Heinrich Haasis, head of Germany's federation of savings banks (DSGV), said the new G20 rules under way threaten to shrink the capital base of German banks by "tens of billions" and cause a permanent credit crunch.
"This could have dramatic consequences for banks and their clients. Economic growth in Germany would be completely out of the question if that were to happen," he said, speaking at the meeting of the Institute of International Finance in Istanbul.
The key concern is that the passive deposits of German saving banks would no longer count as core capital, forcing them to shrink their loan books. Mr Hassis said that every euro subtracted from core capital would force banks to rein in lending by a multiple of 12.5 times, and as much 30 times on hybrid capital.
Josef Ackermann, Deutsche Bank chief, echoed the warnings, calling for calibrated policies to avoid killing off the "green shoots of recovery". He said it was far from clear that world leaders had thought through the consequences. "Whoever makes premature changes, only creates new problems," he said.
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FINANCIAL TIMES
HSBC chief fears a second downturn
By Patrick Jenkins, Banking Editor
Michael Geoghegan, chief executive of HSBC, is so convinced there will be a second downturn in the coming months that he plans to delay any rush to expand the bank.
“Is this a V recovery or a W?” Mr Geoghegan asked in an interview with the FT. “[I think] it’s the latter. [If I’m right], we have to be very careful we don’t grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on. I’m cautious about growing too fast.”
Michael Geoghegan, chief executive of HSBC: 'I'm cautious about growing too fast'
At the same time, Nani Beccalli – head of GE International, who runs the conglomerate’s businesses outside the US – said he was worried that talk of governments preparing exit strategies from the huge amount of cash they have poured into their economies was “premature”.
Mr Beccalli was one of the first business leaders to detect “glimmers of hope” in an interview with the FT in March.
His concerns come as policymakers face the dilemma of when to withdraw their stimulus packages. Act too soon and they could precipitate a double-dip recession, but act too late and there are worries about a return of inflation and sowing the seeds for the next crisis.
Mr Geoghegan was speaking after HSBC announced a shake-up of its governance 10 days ago. He is now responsible for strategic issues that previously lay with Stephen Green, chairman. “I’m not as convinced we’re through the worst as others are. The reality is that profits will be quite reduced.”
His comments come in spite of expectations that in his amplified role he will push HSBC to grow more aggressively.
HSBC insiders and advisers say the bank could aim for an acquisition in mainland China as a quick route to boosting its position in the country. Mr Geoghegan said when he was given his extra responsibilities that he would move his office to Hong Kong to better co-ordinate its push into China. The bank is aiming to become the first foreign company to list on the Shanghai stock exchange, possibly in the first half of next year.
Mr Geoghegan was also bearish on the outlook for banks’ regulatory capital – in particular the so-called tier one ratio that measures the top grade of capital as a proportion of risk-weighted assets, and the “core” tier one ratio that counts mainly equity. He said he expected the requirement for core tier one capital ratios to be “around the 10 per cent mark”. That is far higher than the 8 per cent that regulators have been suggesting in private.
HSBC is among the better capitalised banks, with a core tier one ratio of 8.8 per cent and headline tier one of 10.1 per cent.
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Additional reporting by Richard Milne in London
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