42 thoughts on “Scary Eurozone pictures, industrial production version”

  1. FYI Der Spiegel & back to Capital Flows – part of the explanation … +EZ PMI at 45 … I cannot interpret weak Netherlands? Does Tol phone home?

    Bargain Borrowing Costs
    Euro Crisis Will Help Germany Balance Its Budget

    Low interest rates on German bonds are translating into billions in savings. Now economists have calculated that the country should be able to balance its budget by next year — something that is likely to increase criticism of Germany’s crisis management. Meanwhile, Chancellor Merkel has warned that Germany could be “overwhelmed” by efforts to solve the crisis.

    The European sovereign debt crisis has plenty of losers, but arguably one clear winner: Germany. Demand for German bonds, seen as the safest haven in the euro zone, has pushed Berlin’s borrowing costs so low that some investors are effectively paying Germany for the privilege of lending it money.

    http://www.spiegel.de/international/europe/euro-crisis-helps-germany-by-lowering-borrowing-costs-a-838880.html

  2. From here:

    It has been quite the “crisis” for Germany all right, I am sure that they have no intention of ending it until their share of the European economic pie starts to shrink.

    The French must be terrified of the consequences of admitting their mistakes on EMU but it seems pretty clear a German Europe benefits only Germany industrialists – and that only until the contradictions of everyone running an export surplus become apparent.

    Oskar Lafontaine seems to have had the consequences of German mercantilism for the rest of Europe (and German workers) bang on.

  3. DOD: Watch this space. German 10-yr closed at 1.49 today. It was briefly under 1.20 in the middle of last month. The shorts are betting on a succesful defence of the Euro, the longs on a collapse.

  4. Its just that withen the Euro Germany has a higher fuel ration then would be the case if it was competing with other sovergin players.

    You can clearly see this in the Diesel figures which are closely linked to commercial activity albeit distorted now by the dramatic increase in diesel private cars
    omrpublic.iea.org/demand/ge_dl_ov.pdf

    France is also sucking Diesel for its resourse heavy LGV (high speed construction programme) although to be fair this will save much more precious liquid fuel in the long run.
    omrpublic.iea.org/demand/fr_dl_ov.pdf

    http://www.youtube.com/watch?v=lHcF8H9t56M

    Irelands figures despite a massive increase in the ratio of diesel to petrol private cars.
    omrpublic.iea.org/demand/ir_dl_ov.pdf

    Also If you look at the recent Irish transport 2010 publication you can clearly see a massive decrease in the freight carried / Diesel sucked – post 2007 as the resourse heavy road and housing construction came to a grinding halt.

    As Steve says – they are borrowing off our account.
    Ireland efforts is buying some time for France although I think Germany’s Industrial strategy is seriously flawed – despite putting substantial resourses into rail & tram previously – on a per capital basis it is nothing like France which appears to be renationalising its economy via a peripheral extraction operation although it will perhaps benefit Ireland to a larger extent then Germanys truely mad Mercantile dreams.

  5. @KOR

    That data only surprises to the extent that it is not worse.

    As the order /production lead time in capital goods in much longer than intermediates or consumer goods, the decline in capital goods will get worse before it gets better. That is if the word ‘better’ itself has not been outlawed by the new regime in Europe.

    I am surprised that Ireland is holding up. Anecdotally, the non-export economy had a terrible April.

  6. ACEA new passenger car registrations (May) in Europe to be published tommorow.
    The best Industrial indicator for coming depressions , recessions etc given the credit senstive nature of cars and the huge size and now overcapacity of the European car industry.

    What the betting that when the oil price falls to a certain level thanks to the happy poverty of another few 10s of millions of Europeans they will restart this failed Industrial strategy again……..

    This is much worse then the 70s folks when despite 2 oil shocks the OECD Europe oil ration increased……. now its declining baby.

    http://www.youtube.com/watch?v=ry4ngf766N0

    Me thinks we are better off keeping the Mackerel and thus saving far more Diesel by simply reducing criminal waste – more then the Brussels mandarins can ever hope to save driving around in ever decreasing Mercedes created circles.

  7. I don’t need pictures for the EZ to scare me. Believe me, I’m trembling.

    @grumpy

    “Some readers might like this:”

    Just one ring in that big opaque onion.

  8. @DOCM

    That’s an interesting article in focus. So, before we would be granted the privilege of joining Germany in a fiscal union we would have to prove our worthiness by “living” the “stability culture”.

    In my mind this just goes to show that Germany is adopting a policy of pure obstructionism. No matter what the periphery signs up to, it will never be good enough to change the policy mix because Germany is quite content with the status quo.

    Eventually, maybe, when depression and massive unemployment have inflicted sever deflation in the periphery, then maybe Germany would be willing enter into a banking or fiscal union and if the periphery states don’t have the stomach for the adjustment, then they can leave.

  9. Mervyn King has seen enough

    What I (Mervyn King) can say tonight is that the Bank and the Treasury are working together on a “funding for lending”
    scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK
    non-financial sector during the present period of heightened uncertainty. The Bank would lend, as in its existing facilities, against a much greater value of collateral comprising loans to the real economy to protect taxpayers. But the long term nature of the lending and its pricing mean that the Bank could conduct such an operation only with the approval of the Government, as offered by the Chancellor earlier. So such a scheme
    would be a joint effort between Bank and Treasury. It would complement the Government’s existing schemes, and tackle the high level of funding costs directly. It could, I hope, be in place within a few weeks.

    On liquidity, I want to make clear that the Bank, through its discount window and other facilities, will provide banks with whatever liquidity they require given the prospect of turbulence ahead. Last December, the Bank
    announced the new Extended Collateral Term Repo Facility under which auctions of short-term sterling liquidity can be held at any time. It is now time to activate that scheme, in the words of the Bank’s Red Book,
    “in response to actual or prospective market-wide stress of an exceptional nature” over the coming weeks. The Bank will start holding auctions of sterling liquidity with a maturity of six months, and tomorrow morning
    the Bank will issue a market notice explaining details of the timing and size of these auctions.

    http://www.bankofengland.co.uk/publications/Pages/speeches/2012/587.aspx

  10. @Frank Galton

    Risk on?

    It’s going to be a confusing day on the markets tomorrow with the Greek vote this weekend.

    I don’t think I’ve ever heard so many rumours flying around at one time as there are around Europe at the moment.

  11. @PR Guy

    Perhaps the most revealing thing about King’s speech is the signal they are planning for a massive increase in demand for Sterling.

    It doesn’t help that a G20 meeting that might otherwise discuss this stuff contains participants who think each other is acting in the utmost bad faith in Syria.

  12. @Frank
    This is the only thing the English can do given various actors roles in its deindustrialization such as the IMF / labour party nexus of the 60s and 70s …, the conservative party of the 80s and 90s……Labour again post 1997….

    http://www.railbrit.co.uk/news.php

    But it can’t hope to stop the wall of useless credit to be honest.

    Its a sort of magnificent collapse of everything pointless that was somehow economic dogma over the years with its ignorance of energy issues and the role of bank credit to drag wealth from the future , blow it on grot and somehow express it as a success when the GDP rises a bit but obviously lower then overall debt levels.

  13. @Frank Galton

    The Brits are clearly more worried than I’ve seen them so far in this crisis. They are stealing a march and must know what’s up.
    I have to confess. I’ve already been ‘increasing demand for Sterling myself.’

    Maybe we really are getting into the endgame now? There’s certainly a lot of stuff that looks like ratshit out there.

  14. If the Euro breaks up RBS will too.

    What I don’t understand is that the insanity of the people driving the Euro towards breakup is not even in the interests of your usual capitalist suspects such as food multinationals, car manufacturers, banks etc, not to mind Giuseppe and Josita Soap. So cui bono ? And why aren’t the companies in the CAC40, the S&P 500, the FTSE 100 etc doing anything ?

  15. Daniel Gross has a sense of Humour it seems…see Prime Time.

    Its good to laugh in the face of this Thing me thinks.
    And if I was a German I would also be laughing at Ireland rather then with it.

    Our strange childish need to please knows no bounds it seems.

  16. @bazza, docm

    I don’t see anything surprising in what Weidmann is saying – he is warning that if you agree to fiscal union with Germany thinking that they will make fiscal transfers to support earlier retirement, lower corporate tax, higher pay and higher costs than the Germans think they can afford for themselves – you can forget it!

  17. If the last four years have taught Europeans anything, it is that under no circumstances should Europe enter a ‘fiscal union’ with Germany.
    Why, once again, must a dominant German discourse be allowed to destroy Europe.
    If Germany is convinced that it has a better way, then let Germany choose that way for herself, but she seeks to impose her way on others knowing that it makes the others weaker while making Germany strong.
    It is time to break the link, not with the EZ, but with Germany.

  18. The goal of economics should not necessarily be that we increase production forever and ever. We already have an incredible productive capacity and the problem with the economy is that we have too much debt. We owe far more than exists and as we repay loans to banks they effectively delete the money.

    Money comes from bank loans and if we concentrate on lowering our debts we have no real source of new money for the economy no matter how productive we are.

    A source of debt-free money makes sense on many levels.

  19. @Paul
    I think you underestimate the costs of building a credit hyperinflated envoirment and subsequently functioning withen it.

    Given that the envoirment is so decapitalised printing will be inflationary although I agree – it is necessary.
    The Christmas presents we have bought ourselfs via bank credit came without Duracell batteries.

    The rich who hold most of those deposits via the loan process do not burn energy on a relative scale to their deposit paper claims on the now rump physical economy.

  20. More Euro Zo… no sorry, Cloud-cuckoo Zone weirdness. They are going to try to ban ‘credit events’.

    http://ftalphaville.ft.com/blog/2012/06/14/1045391/placement-of-a-member-state-under-legal-protection/

    “… Hat-tip to the Societe Generale fixed income team for spotting it.

    They said that it “continues a continental European tradition of simply outlawing unwelcome matters”…

    More seriously, the concept here would depart from the basic principles of sovereign debt restructuring pretty squarely, even if it apparently wouldn’t apply until 2017. (Assuming it survives the Council.)

    It looks like bankruptcy protection for sovereign debtors on the European Commission’s terms. What exactly creditors would do in this period – versus getting to talk to their sovereign debtor about a restructuring – isn’t clear.

    It doesn’t sound good for bondholders who are already aware of European officialdom’s less than principled approach to the Greek PSI….”

  21. Kevin, the more I read the more I’m convinced that all this is explained by the unspoken conclusion of your magnum opus, which Michael Pettis captures beautifully in his latest post

    “The pattern is clear: Globalization is primarily a monetary phenomenon in which expanding liquidity induces investors to take more risks. This greater risk appetite translates into the financing of new technologies and investment in less developed markets. The combination of the two causes a “shrinking” of the globe as communications and transportation technologies improve and investment capital flows to every part of the globe. Foreign trade, made easier by the technological advances, expands to accommodate these flows. Globalization takes place, in other words, largely because investors are suddenly eager to embrace risk.”

    Where Power is secure, risk is embraced, and Plenty arises. At least, this is a neessary if not a sufficient condition. And vice versa.

    http://www.mpettis.com/2012/06/11/what-is-globalization/

  22. William Thayer Sr | June 15 1:26am | Permalink
    I recommend everyone take a look at the link offered by John Corcoran below.

    The true value of a real estate property is the present value of its income stream. For example, if you own an apartment building and the rents fall in half, then the value of the building falls in half (assuming the same discount rate etc.).

    What happened in Spain is similar to what happened in the US (as far as price increases). In the US, property values went from 100 in 2000 to 200 by 2008. In Spain it was worse. The values were 100 in 2000 and 300 by 2008. The US property values have dropped to 140 by 2012 but in Spain they are at something like 270. They need to drop to somewhere in the 140 range like the US. This means prices will drop by half. This hasn’t happened yet which means the worst is yet to come.

    Let me get back to the income stream. With 25% of the people unemployed and therefore contributing nothing to the GDP, what does this say about Spain’s present value? It is, unfortunately, overvalued. This means its bonds are going to be a tough sell.

    I really feel sorry for the Spanish people because they are so nice.

    The solution for Spain is more job creation. Spain is weak in advanced technologies and marketing which are the key to new jobs. What should it do? It should do what China did. It should use Special Economic Zones. China has the kind of growth that Spain needs. Of course, it will be pointed out that China has the wage advantage since they only pay their people about $4/hour. Here is what I think Spain should do. Use its unemployed people. Have Spain continue to pay their unemployment (say $10/hour for example). However, charge the companies coming into the Special Economic Zones the same wage as China….just $4/hour. Then a US or European company would have as much incentive to put their shoe plant in Spain as in China. There would be fewer unemployed people in Spain and these unemployed/Special Economic Zone people would be making $14/hour which would improve their lot. It would also improve Spanish Exports vs. Imports.

    In the last decade, the Eurozone has lost about half of its manufacturing to China. Why not get some of it back rather than just paying the unemployed to sit around?

    http://www.independent.ie/opinion/letters/bubble-values-3034584.html

  23. ACEA
    “Brussels, 15/06/2012 – In May, demand for new passenger cars in the EU* was down (-8.7%) for the eighth consecutive month. In total, 1,106,845 new cars were recorded in the region.. May 2012 counted on average one working day less than May 2011. Five months into the year, new registrations amounted to 5,442,326 units, or 7.7% less than in the same period last year.

    In May, most markets shrank, leading to an overall 8.7% downturn. The major ones faced contractions ranging from 4.8% in Germany to 8.2% in Spain, 14.3% in Italy and 16.2% in France. Only the UK posted growth (+7.9%).

    From January to May, registrations slightly increased in two of the most significant markets, with the German stable at +0.3% and the British recording +2.6%. Elsewhere, demand dropped, by 7.3% in Spain, and more severely in France (-17.2%) and Italy (-18.9%) .”

    Dork – be it the UK , US or New Nuclear Free Japan -non sovergin Europe is actually a gift to these economies as it is transfering its fuel ration / blood supply to these economies.
    Its quite something to see really.

  24. @ Paul quigley

    But what could be the algorithm behind the plague ? Is it just a mathematical formula iterating away towards equilibrium , by which time everything will be in bits ?

  25. Europe is certainly in a state of chassis and Spain is in a state of panic with foreign minister José Manuel García-Margallo claiming that the EU may need to act within hours, while warning Germany that ”If the Titanic sinks, it takes everyone with it, even those travelling in first class.”

    Hours or 3 months, or maybe longer given that China could have at least a fifth of its $3.3tn worth of reserves in euro (the breakdown is a state secret)? For China, Europe is too big to fail.

    An actual fact is that German trade with the rest of the EMU is almost in balance. The foreign trade surplus was €14.4bn in April 2012 and only €300m related to trade with the single currency area.

    As regards industry and tradeable services in Europe, Nokia was the European star in consumer electronics, which is dominated by American and Asian companies. In software, SAP of Germany is a lonely leader and American companies such as Facebook, Apple, Amazon, eBay and Google, have dominant positions in Europe.

    Among global innovators, Europe does well in machinery, in particular the Swedes. However, the ‘Swedish Paradox’ is what the Swedes term the low output for their R&D spend.

    In 2009 Nokia spent almost 14% of sales on R&D while Apple spent 2.9%.

    While 50% of US firms in the current top global 1,000 R&D corporate spenders were founded after 1975, in Europe the figure is just 18% and in Japan a mere 2%.

  26. FYI

    Moody’s downgrades Dutch banks
    Moody’s agency said it had cut the ratings by two notches to Aa2 for Rabobank Nederland, to A2 for ING and ABN Amro, and to Baa2 for LeasePlan Corporation.

    The long-term debt and deposit ratings for SNS Bank were downgraded by one notch to Baa2. The short-term ratings for all the groups were unchanged.

    http://www.irishtimes.com/newspaper/breaking/2012/0615/breaking8.html

    @all

    Short the Bund! (Blind Biddy Hedge Fund; anon. analyst note)

  27. Greece new private car regs

    Y2008 Jan – May :131,993
    Y2012 Jan – May : 26,902 (prov)

    So their new car purchases are down to a fifth of what they were before the crisis…….
    If Prof Sinn was correct they would be buying VWs all over the shop with their cash….. except they did not get much cash.

    The people were always a conduit both during the credit inflation phase and now the money deflation phase.

    Its Donkeys all round now.

  28. @Spain

    Beautiful game!

    @The Dork

    My donkey died last week. I need a loan of Asimov’s mule, preferably cloaked, to bring in the turf … any connections?

  29. @ seafoid

    From prudent bear above:

    ‘However, and especially over the past year, financial power has subtly yet markedly shifted from traditional institutional fund managers, the crowded venture capitalist arena, and the scores of IPO dealmakers to “sophisticated” Wall Street financial players incorporating various forms of financial engineering (typically, variations of “spread trades”). ‘

    That is at the heart of the process. To curtail it requires this sort of thinking.

    http://www.bhide.net/

  30. @PQ

    I think the relentless rise in the GINI and inequality and the flow upwards of income to the top 0.1% is the name of the game but they can only squeeze the pips so hard. And it always ends in tears. Ultimately the corps need consumers to buy their stuff.

    I think a lot of plays are knackered- the Murdochs and clear channels have gone as far as they could. Ryanair and the Private Equity boys and stripping out costs and/or loading up debt – it isn’t going anywhere. We did all the Thatcher stuff and it only bought 30 years.

    There is so much volatility and such a lack of concreteness about where we are going that it’s hard to believe anyone has a handle on it. The market is a circus where most believe in growth fairies. Or the China story.

    And we haven’t even got to climate meltdown yet.

  31. @ MH

    The problem is that German industry (including agriculture, which has surpassed that of France) has taken over the markets of other European producers outside the EU, being aided in so doing by a weak euro.

    Why anyone should be surprised by this escapes me. The reunification of Germany was one thing, the fact that it coinicided with the fall of the USSR and the reunification of Europe seemed to have escaped the attention of the leaders of the other major countries. The natural result was a reunification of Germany with its natural hinterland (Mitteleuropa) which it would have been impossible for the entrepreneurs of Germany to ignore.

    I posted this comment on the ECB thread (which has been highjacked rather early in its existence but that is the way it is);

    @ All

    To situate the ECB discussions in their proper context, this article by Philip Stephens makes a quite outstanding contribution.

    http://www.ft.com/intl/cms/s/0/81b7a26e-b4af-11e1-aa06-00144feabdc0.html#axzz1xYqFF8jf

    Hollande is, indeed, standing in the shadow of de Gaulle. The euro, for the management of which the ECB is responsible, is the sword of Damocles which will either make or break Europe.

  32. http://www.ft.com/intl/cms/s/0/e2d944f8-b572-11e1-ab92-00144feabdc0.html#axzz1xi1DR91c

    Below is a comment on the above Financial Times article;

    William Thayer Sr | June 15 1:26am | Permalink
    I recommend everyone take a look at the link offered by John Corcoran below.

    The true value of a real estate property is the present value of its income stream. For example, if you own an apartment building and the rents fall in half, then the value of the building falls in half (assuming the same discount rate etc.).

    What happened in Spain is similar to what happened in the US (as far as price increases). In the US, property values went from 100 in 2000 to 200 by 2008. In Spain it was worse. The values were 100 in 2000 and 300 by 2008. The US property values have dropped to 140 by 2012 but in Spain they are at something like 270. They need to drop to somewhere in the 140 range like the US. This means prices will drop by half. This hasn’t happened yet which means the worst is yet to come.

    Let me get back to the income stream. With 25% of the people unemployed and therefore contributing nothing to the GDP, what does this say about Spain’s present value? It is, unfortunately, overvalued. This means its bonds are going to be a tough sell.

    I really feel sorry for the Spanish people because they are so nice.

    The solution for Spain is more job creation. Spain is weak in advanced technologies and marketing which are the key to new jobs. What should it do? It should do what China did. It should use Special Economic Zones. China has the kind of growth that Spain needs. Of course, it will be pointed out that China has the wage advantage since they only pay their people about $4/hour. Here is what I think Spain should do. Use its unemployed people. Have Spain continue to pay their unemployment (say $10/hour for example). However, charge the companies coming into the Special Economic Zones the same wage as China….just $4/hour. Then a US or European company would have as much incentive to put their shoe plant in Spain as in China. There would be fewer unemployed people in Spain and these unemployed/Special Economic Zone people would be making $14/hour which would improve their lot. It would also improve Spanish Exports vs. Imports.

    In the last decade, the Eurozone has lost about half of its manufacturing to China. Why not get some of it back rather than just paying the unemployed to sit around?

    http://www.independent.ie/opinion/letters/bubble-values-3034584.htm

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