There wasn’t too much real news out of Europe overnight as everyone is on-hold waiting for Friday’s summit. We did hear yesterday that after 541 days without one, Belgium finally has a government. The new PM was sworn in a few hours ago:
Belgium has sworn in a new government, ending a record-breaking 541 days of political deadlock.
New Prime Minister Elio Di Rupo was sworn in by King Albert II at the royal palace along with his 12 cabinet ministers and six secretaries of state.
Mr Di Rupo, a French-speaking Socialist, took the oath of office in French, Dutch and German – reflecting language sensitivities in the country.
The Europe crisis is thought to have spurred politicians to find a solution.
We also saw an uptick in German factory orders, once again highlighting the difference in economic strength in Europe:
German factory orders surged the most in 19 months in October after three straight declines, led by a rebound in demand from abroad.
Orders, adjusted for seasonal swings and inflation, jumped 5.2 percent from September, when they dropped 4.6 percent, the Economy Ministry in Berlin said in a statement today. Economists forecast a gain of 1 percent, according to the median of 34 estimates in a Bloomberg News survey. In the year, orders rose 5.4 percent when adjusted for work days.
Obviously all eyes are on Friday’s summit and as the US markets closed the rumour mill went into overdrive:
Eleventh-hour negotiations have begun to create a much bigger financial “bazooka” to present at this week’s European Union summit that could include running two separate rescue funds and winning increased support for the International Monetary Fund.
This three-pronged rescue system would form part of a carefully crafted package EU leaders hope will win over financial markets, just two months after a similar summit failed to convince bond investors Europe could contain its spiralling debt crisis. The rescue system would be introduced alongside proposals to rewrite EU treaties with far tougher budget rules for the eurozone.
According to senior European officials, negotiators are considering allowing the eurozone’s existing €440bn bail-out fund to continue running when a new €500bn facility comes into force in mid-2012, almost doubling the firepower of the bloc’s financial rescue system.
The proposal, being debated by “sherpas” ahead of Thursday’s crucial eurozone summit, could also include speeding up cash payments into the new €500bn fund – known as the European Stability Mechanism (ESM) – to give it more heft and improve its creditworthiness in the eyes of credit rating agencies.
I will leave it for you to decide the relevance of this “news”, but anyone with a good memory may be having a bit of de ja vue given a similar announcement back in February about doubling funds:
Finance ministers meeting in Brussels on Monday agreed to double the size of a fund set up for future bailouts of eurozone countries.
A permanent rescue fund to be established from the beginning of 2013 will have an effective capacity of 500 billion euros ($675 billion), said Jean-Claude Juncker, head of the eurogroup of finance ministers.
“I would think that this will be enough,” said Juncker after talks.
I have previously explained the issues with the EFSF, which is the problem with any of these rumours and the reason they continue to fail. These proposals, even if they are true, are based on providing “bailout funds”, but “bailout funds” are just a nice way of saying “another loan”. But giving new loans to countries that are insolvent serves no purpose . In fact under EFSF and IMF guidelines, and the new treaties for that matter, all countries that receive bailout funds will be under strict fiscal constraints. Providing even more loans to nations while enforcing austerity budgeting is classic IMF policy. However the leaked Troika report on Greece ( available here ) makes it very clear that “contractionary fiscal expansion” is a failed policy in countries that have large current account deficits, large existing debts and are bound to the euro. The countries need debt relief not more debt and given Europe has just promised private sector investors they will never take a loss, one wonders how this can occur.
Mr Geithner is in Europe yet again and his latest comments about the IMF’s involvement in Europe are very true:
U.S. Treasury Secretary Timothy Geithner Tuesday said the U.S. continues to support a constructive role for the International Monetary Fund in efforts to end Europe’s debt crisis, but denied reports of the U.S. Federal Reserve making huge loans to the IMF.
Mr. Geithner also said he is very encouraged by commitments to economic change made by new governments in Italy, Spain and Greece, and by proposals by France and Germany to move towards a fiscal contract in the euro zone.
“The IMF has been playing an important role in the crisis so far. We expect that to continue,” Mr. Geithner said after talks with German Finance Minister Wolfgang Schäuble.
Maybe I am misinterpreting his words, but I agree completely. The IMF has been playing an important role in the crisis, just as they did in Asia, South America and Iceland.
In other news the ECU wants even more power , the EFSF is looking at a downgrade from S&P , and Portugal appears to be raiding its pension funds in order to meet deficit targets.