EU Headlines
ECB Has ‘Serious Concerns’ About Irish Bank Proposals

And they call the shots now.

Trichet Says Euro Remains Credible; States Leaving Is ’Absurd’
EU Nations Violating Deficit Caps May Be Fined Up to 0.5% of GDP

Fines have proven unworkable.

My proposal for annual distributions from the ecb to the member govts on a per capita basis with terms and conditions is far more easily enforceable.

It’s a lot easier politically to withhold payment than to fine and collect.

European financials see dollar funding gap widen

Euro banks in dollars are a higher risk than US banks in dollars so a higher price of funding makes perfect sense to me.

Their deposit insurance is not yet credible, and the ECB has limited ability to lend in dollars.

And it also means none of them should be in the libor basket if their rates exceed US banks.
But they are, and the Fed doesn’t want libor to go up beyond its desired rate targets, so this Fed is likely to again lend unsecured to the ECB and other CB’s for the purpose of keeping libor rates down on an as needed basis.

EU rushes to raise bail-out cash

It will ultimately come from the ECB

German Tax Intake Rises as Recovery Firms, Handelsblatt Reports

Growth that reduces the deficit also slows the expansion

Germany’s robust economy not enough to stop record debt
France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit

The are all in ponzi (required to borrow to make payments), including Germany.
The ratings agencies seem to be slowly coming around to viewing them as US States,
as they should have done from inception.

9 Responses

  1. Fed is likely to again lend unsecured to the ECB and other CB’s.

    Warren where in the fed mandate do they have the authority to do this? Why make laws if they are not to be followed.

    On another point, talking about treating those EU nations like states, I heard a good arguement on financial sense last week why that is a not smart. EU states do not have similar cultural backgrounds like states in the USA do. So if a worker in california gets laid off, it is not so hard to go to New York or Florida and get a job, same language and culture probably.

    But if a worker gets laid off in turkey and wants to go work in France or Spain or Germany, much much less labor mobility, for this reason the economist said the EU will fail and never become like a united states of america. Could you address this Warren, certainly you must agree labor mobility in the EU is far far less than inbetween states in the USA correct?

    1. Yes, exactly what I was going to say. The Fed will lend them the dollars, just as they did in the past. Ron Paul will be Chairman of the Monetary Policy Committee in Congress. Let’s see if he catches this. I doubt it.

    2. Turkey is not in the EU. But the whole thing about different cultures, languages and lack of mobility is well-established. In fact, it is one of the main reasons why the EU nations don’t fit the Optimal Currency Area criteria.

      1. Riddle me this batman, why then can the fed send money to these folks if things are not OPTIMAL? I remember reading some academic paper linked here where the original proponet of the euro said it wasn’t going to work the way the powers that be wanted it too. I am not as smart as a lot of you guys, but if we are all in agreement that since alexander the great to napolean that NO one has been able to get those EU guys together as one big happy family, why is it gonna work now? And why is those fed boys lending unsecured to what is going to ultimately be a failure. I don’t talk about this without experience, I lived in Germany for many years and travelled through many of the euro countries, I am fascinated things have went this long.

      2. Regarding the “why”, isn’t it to keep LIBOR rates low for obligations that reference it here in the US? Eurodollar contracts and front-end swap rates would blow up from the combination of scarcity of USDs available in addition the reluctance to part with them due to credit/counterparty lending risks. Probably why so many have drooled over the “cheap” put in the form of 2 year swap spread wideners especially when the spread was in the 15s-16s.

      3. yes, the point is to keep libor low so US homeowners, etc. don’t get hurt by settings above fed rate targets.

        however, there are other ways to do this rather than lend unsecured to foreign cb’s.

        see my proposals at: thanks.

        Hard for swap spreads to widen when the ff target is near 0, as that tends to limit how wide the resets can get?

  2. Agree, really more of a put as I’d assume (perhaps a mistake) that escalating Euro zone concerns could put pressure on front end swap rates and add a bid to US Treasuries. And at 60 bps, the 2 year UST looks somewhat inviting as a carry/roll down the curve trade.

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