Thursday, 30 December 2010

Eurozone 'has 80% chance of losing the single currency in next decade,' claims think-tank

Daily Mail
"The financial crisis that has crippled Greece and Ireland will spread to other debt-ridden European countries in the New Year, according to the Centre for Economics and Business Research.Among those in the firing line will be Italy and Spain – the third and fourth biggest economies in the single currency bloc behind Germany and France.'We give the euro only a one in five chance of surviving in its present form for 10 years,' says CEBR chief executive Douglas McWilliams.The hard-hitting report also warns that Britain faces a tough 2011 as austerity measures bite."

Italy's debt costs approach red zone

"Italy's borrowing costs have jumped to the highest level since the financial crisis over two years ago, raising concerns that Europe's biggest debtor may slip from the eurozone's stable core into the high-risk group on the periphery. "

Wednesday, 29 December 2010

Microsoft co-founder relaunches tech patent suit

"Microsoft Corp (MSFT.O) co-founder Paul Allen relaunched a wide-ranging patent lawsuit against Apple Inc (AAPL.O), Google Inc (GOOG.O), Facebook and others with specific allegations that the companies are illegally using technology owned by his company."

G20 and EU 'posturing' could exacerbate future banking crises

"The efforts of the G20 and European Union to overhaul financial regulations have been lambasted for being "disingenuous political posturing" that are "increasing the likelihood of future meltdowns", an influential think-tank has warned. "

Sunday, 26 December 2010

The UK inflation genie is out of the bottle

"Some of us have been warning this would happen. Since late 2008, this column has asserted that the UK faces inflationary dangers and that talk of British "deflation" was deeply disingenuous, an intellectual conceit to justify massive virtual "money printing" and the extension of endless soft credits to banks that should, in fact, be allowed to fail.

Such a position has been seen as heresy – not least because "quantitative easing" has friends in high places. QE, for now, has helped politically connected bankers to dodge the implications of their own hubris and incompetence. It has allowed successive British governments to stick their fingers in their ears and avoid tackling root-and-branch banking reform.

To argue that QE is dangerous and that, as a corollary, the UK faces high inflation has been to be treated by the UK's policy-making elite as some kind of economic Herod. I might as well have been suggesting we slay the first born. In recent weeks, though, the mood has changed. Reality has thankfully broken through. "

Friday, 24 December 2010

Oil pushes closer to $100 as cold snap stokes demand

"Benchmark Brent crude hit an intra-day high of $94.74 a barrel in early trading in London on Friday, the highest level since October 2008."The latest surge has brought $100 per barrel within range for Brent crude in particular," according to analysts at Barclay Capital in a weekly report.The rally in Brent crude is partly due to the severe cold snap in continental Europe and Britain, with more freezing temperatures and snow predicted in parts of Europe over the weekend expected to boost fuel demand further.US crude futures, the global benchmark, are trading at a 26-month high.Oil prices have climbed more than 30pc climb from this year's low in May, reviving concerns that prices could once again hit economic growth for fuel importing countries. "

Wednesday, 22 December 2010

Bloomberg sues European Central Bank over Greece 'hidden borrowings'

"Bloomberg News has filed a lawsuit against the European Central Bank, seeking to make it disclose documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis. The lawsuit asks the European Union’s General Court in Luxembourg to overturn a decision by the ECB not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year, the newswire reported on Wednesday.

The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News.

ECB President Jean-Claude Trichet withheld the documents after the European Union and International Monetary Fund led a €110bn bailout for Greece. The dossier should be disclosed to stop governments from using the derivatives in that way again and show how EU authorities acted on information they had on the swaps, according to the suit, filed by Bloomberg Finance LP, the parent of Bloomberg News. "

Monday, 20 December 2010

Euro falls amid continuing debt crisis fears

"A string of negative announcements from the ratings agencies about various eurozone countries' debt levels have added to the pressure caused by the bail-outs of Greece and Ireland. Moody's also said last week it may downgrade Spain's credit rating again."

Sunday, 19 December 2010

Coming in from the cold Iceland has been tough with creditors and kind to itself. Ireland may wish it had done the same

the economist
"Iceland’s recuperation seems to offer two big lessons for Ireland and other troubled euro-zone countries. The first is that the extra cost to a country of not standing by its banks can be surprisingly small. Iceland let its banks fail and its GDP fell by 15% from its highest point before it reached bottom. Ireland “saved” its banks and saw its output drop by 14% from peak to trough.

A second lesson is that the benefits to a small country of being part of a big currency union are not all they were once cracked up to be. ......For all the euro’s faults, it is doubtful whether Icelanders would be keen to hold and use kronur if they were not forced to by capital controls. Easing these will be tricky. Local savers have little choice but to buy government debt, keeping yields artificially low. Firms and householders are overburdened with debts, some of which are indexed to inflation. House prices have plummeted, leaving many householders in negative equity. Around 40% of the new banks’ assets are non-performing. Not many Icelanders believe in recovery.

Even so, that Iceland’s economy has done little worse than Ireland’s is still a triumph. It has been tough with its creditors and disregarded some international norms—and recovered. Ireland has stood by its banks to the benefit of the wider European banking system. Its reward has been “rescue” loans at an interest rate that makes it hard to fix its finances. The next Irish government may look at Iceland and decide to play hardball with Europe. "

Will the Euro go down in flames?

Daily Mail
"Even a £635bn safety fund has failed to silence alarm bells over currency crisis spreading to Britain - so can anyone stop the Euro going down in flames?.....Politicians in Europe seem incapable of damping down the flames. An EU summit late last week agreed to establish a permanent £635bn fund to deal with any euro crisis from 2013 onwards. Kapilan Pillai, financial analyst at boutique investment bank Matrix, said: 'If Portugal goes over after what's already been committed to Greece and Ireland, then the £635bn fund will not be big enough to bail out Spain.'

Friday, 17 December 2010

Petrol price hits another new high: Drivers spend £8m a day more than a year ago

Daily Mail
"The price of petrol has soared to a new record high just as the great Christmas getaway begins – with even more pain in the pipeline for Britain’s 33million drivers.The average price has risen from last week’s record of 121.76p a litre to 122.14p. It means it is now selling at the equivalent of £5.55 a gallon.UK petrol car owners are now spending £8 million a day more on fuel than a year ago."

European Central Bank arms itself for Spanish crisis

"The European Central Bank (ECB) is to double its capital base to cope with "credit risk" stemming from the eurozone debt crisis, paving the way for direct action to shore up the Spanish debt markets if necessary. "

Tuesday, 14 December 2010

Non-jobs are out to ruin George's Christmas

"The curious case of the Treasury Christmas tree sounds like a cheery festive fable, but is in fact the stuff of financial nightmares. It began when George Osborne, the Chancellor, ordered his civil servants to buy a £40 tree to adorn their office in Whitehall. They discovered, however, that this was not allowed under the terms of a Public Finance Initiative (PFI) contract, signed by Gordon Brown when he was Chancellor to raise cash to refurbish the Treasury building. Dozens of public infrastructure projects, such as hospitals and schools, have been built or renovated using PFIs, which typically spread repayments over 20 or 30 years.

Doubtless this method of public financing sounded like a good idea at the time; but the country has been landed with costs that far exceed the value of the assets. It is estimated that £260 billion is owed for the provision of £60 billion of investment. In addition, decisions about spending on fixtures and fittings are taken by contractors. So when the Treasury asked for a Christmas tree to be delivered, it was presented with a bill for £875 – at which point Mr Osborne stepped in and demanded something cheaper. After much huffing and puffing, the supplier agreed to donate a tree for free, but declined to decorate it."

Monday, 13 December 2010

Euro has 'one in five chance' of survival, warns CEBR

"In a research paper published today, the Centre for Economics and Business Research (CEBR) claims that keeping "the euro alive will require cuts in living standards greater than the UK faced in the Second World War" for weaker eurozone members.

"There is no modern history of falling living standards in peacetime on the scale necessary to keep the euro in its current form. This is why I think there is at best a one-in-five chance that the euro will survive as it is," Douglas McWilliams, CEBR chief executive, said.

His warning came as the Ernst & Young eurozone forecast raised the prospect of a severe recession in the eurozone to one-in-10. Its "central" prediction is for GDP to grow 1.4pc next year, against 1.7pc in 2010, and an average of 1.9pc for the following three years. Following the resurgence of sovereign debt fears, though, there are now "greater downside risks".

The eurozone is in bad need of an undertaker

"What the German people are being asked to do is to surrender fiscal sovereignty and pay open-ended transfers to Southern Europe, taking on a burden up to six times reunification with East Germany.“If we pool the debts of the countries in the south-west periphery of Europe, we are blighting our children’s future: the debt levels are astronomic,” said Hans-Werner Sinn, head of Germany IFO institute.Any attempt to prop up the status quo will cement the current account imbalances of EMU’s North and South, to the detriment of both sides.“I doubt that the current leaders of Europe fully understand the economic implications of their decisions. They are repeating the mistakes that Germany made over reunification,” he told the Handelsblatt.Transfers to the East are still running at €60bn a year two decades after the fall of the Berlin Wall. There has been no meaningful East-West convergence for the last 15 years. "

Saturday, 11 December 2010

Joseph Stiglitz: America's QE2 poses 'considerable' risks

"Nobel Prize-winning economist Joseph Stiglitz has said the US government's second bout of quantitative easing poses 'considerable' risks to global economies.
Unintentionally, QE2 is leading to a fragmentation of global financial markets because each country takes actions to protect itself,” Mr Stiglitz said. “As more and more do that, it puts more and more pressure on those that don’t, and they will eventually be forced to take some form of action.”

Friday, 10 December 2010

Petrol prices hit record £1.22 a litre... but oil giants deny claims of profiteering

Daily Mail
"Motorists faced renewed misery today as petrol prices hit a new record high of £1.22 a litre.After a week of traffic chaos in the Big Freeze, the cost of filling up at the pumps has soared - adding almost £25 to the monthly bill of a two-car family.It comes as families across Britain struggle with higher food and energy bills.Escalating oil and wholesale fuel prices - and alleged profiteering by oil giants and retailers - are blamed for the increases in the price of petrol.Prices are likely to rise even higher in the New Year when the VAT rate goes up another 2.5 per cent - to 20 per cent.The AA, which has accused oil giants and fuel retailers of profiteering, has predicted highs of up to 124p in the coming weeks."

Tuesday, 7 December 2010

Euro at risk of collapse, says Treasury watchdog as economic crisis sweeps Continent

Daily Mail
# Eurozone finance ministers insist £635 billion bailout fund is big enough to deal with debt crisis
# Ireland braced for 'the most feared budget in living memory'
# Dublin government's £5 billion cost-cutting package to slash social welfare and cap public workers' wages

Human rights laws cost Britain £42bn in rulings and payouts

Daily Mail
"Membership of the European Court of Human Rights has cost UK taxpayers more than £42billion, according to a report.The bill for complying with its judgments has seen money thrown at litigation and diverted from essential services, it is claimed.The court, based in Strasbourg, France, has even forced Parliament to overturn a number of UK laws. It even made the government give prisoners the vote – despite strong opposition from ministers and the public."

Sunday, 5 December 2010

Cadbury goes Swiss to avoid British tax: Move by U.S. bosses will cost Treasury £60 million a year

Daily Mail
"The US owners of Cadbury are to switch control of the company to Switzerland in a move that could deprive Britain of more than £60 million in tax every year.The plan has been hatched by food giant Kraft, which took over the iconic British chocolate manufacturer earlier this year after a bitter £11 billion bid battle.It will see ownership of much-loved Cadbury brands including Dairy Milk, Crunchie and Twirl handed to a holding company in Zurich, where Kraft already has a major base."

Friday, 3 December 2010

Nearly 60% of Germans want their Deutschmark back instead of ailing euro

Daily Mail
"The latest poll for the ARD TV broadcaster also showed that 66 percent of Germans fear that the current financial crisis will torpedo their savings.While 57 percent want the D-mark back, only 32 percent said they found anything positive about the common currency.The last euro survey earlier in the year - before Greece and Ireland meltdowns - showed 51 percent wanting the mark back.And seventy five percent believe that it is the financial markets and not the politicians who will decide the eventual fate of the troubled euro.This is the highest percentage of Germans wanting the D-mark to return since several polls in the 1990's showed close to 70 percent of them wanted to retain the currency of the 'economic miracle.'The zone's financial stability is still far from certain and many analysts believe the crisis will worsen before it gets better."

Thursday, 2 December 2010

Will it work? No. What can Ireland do? Remove the bank guarantee and default
"If the analysis concludes that Ireland is insolvent, the Government should waste no time, and restructure the debt. Massive pressure from the EU will be brought on Ireland not to do so. But the right answer to insolvency is default – not liquidity support. Let the German government pay for the German banks, and for the recapitalisation of the European Central Bank, which may need to be refinanced under such a scenario as well.

A default would cause havoc, no doubt, and would cut Ireland off from the capital markets for a while. But I would suspect that the shock would only be temporary. With a more sustainable level of debt, and the benefit of a real devaluation, Ireland should be able to pull through this. Once the market recognises that solvency is assured, I would bet international investors would once again be willing to lend. Even Argentina was able to gain funding from investors a few years after its default."

Wednesday, 1 December 2010

Europe pins hopes on ECB as crisis fears spread

(Reuters) - The European Central Bank is under pressure to unveil new steps to stabilise the euro zone when it meets on Thursday as the bloc battles a crippling debt crisis that has stoked contagion fears in the U.S. and Asia.