European Economy

I’ve commented numerous times over the the last 3 years that I considered the IMF’s position on Europe dangerously misguided as I felt it was based more on ideology than evidential analysis ( see more here ).

It was a global PMI data day yesterday and it started well in Asia.

More poor economic news from the ‘core’ of the eurozone last night with the Dutch government and central bank warning that their economy is looking weaker than expected.

As I explained again last week I think the markets have got ahead of themselves in terms of the risk profile they are applying to Europe for the coming year.

I was feeling a little more confident in the German economy after last Friday’s PMIs, but the Bundesbank’s latest monthly report that came out overnight (German only) has put a bit of a dampener on that evaluation.

Friday night saw the December Flash PMI data for the Eurozone and the results were mixed.

I didn’t think they could manage it given the timeframes, but against my predictions Europe’s financial leaders have managed to pull together a deal for the beginnings of a banking union with an agreement to let the ECB become the supervisory authority for major European banks.

As I covered yesterday the most likely approach for the political campaign of a returning Silvio Berlusconi, amongst others, was to play on the fact that under Mario Monti’s technocratic leadership the country had economically worsened.

[Warning: The video feed will start automatically] Overnight the Governing Council of the ECB met for their monthly meeting where they again left rates on hold due to what they saw as temporary inflation pressures.

Back in July I wrote a post on Spain explaining why I thought the country had reached a point where a renewed fiscal push was likely to be counterproductive in terms of the national deficit because of the structure of the economy and the limits of a strategy around internal devaluation.

It was a global November manufacturing PMI avalanche overnight and that included data from Eurozone.

Yesterday on MB a post about the Australian banks being classified as D-SIBs under Basel III led to conversation about capital requirements of the Australian banking system and their use of internal modelling to determine their own capital requirements against assets.

Back in July this year I mentioned that the new Memorandum of Understanding for the bailout of the Spanish banking system was going to include a special purpose vehicle  ( a “bad bank” ) which would allow the banking system to offload non-performing assets.

So Greece got a deal yesterday and , as expected, it was a range of financial and political concessions that will provide temporary relief  in the hope that it will fall off the radar throughout 2013.

Find below the full Eurogroup statement on the new Greek deal, which includes lowering interest rates and extending maturities on existing loans to European governments.

As I type, news is beginning to trickle out that after 12 hours of talks European financial leaders and the IMF have come to a deal on Greece to cut debt down to 124% of GDP by 2020 through a package of extra cuts totaling 20% of GDP.

More Purchasing Manufacturers Index (PMI ) data overnight.

I note that we still haven’t heard from the Euro group meeting about what the exact plan is for Greece.

Another night of poor European data, firstly with Spanish bank bad loans hitting yet another new record: Spanish banks, awaiting the first payments from a 100 billion-euro ($127 billion) European credit line, saw bad loans hit a new high in September, new data showed on Monday.

Breaking from Moody’s: Frankfurt am Main, November 19, 2012 — Moody’s Investors Service has today downgraded France’s government bond rating by one notch to Aa1 from Aaa.

As mass strikes took hold and then turned violent across southern Europe in a co-ordinated protest against austerity, it was yet another rough night of macro data from the continent.