Saturday, November 24, 2018

Thoughts from Cologne, Germany: 24.11.18

Spanish life is not always likeable but it is compellingly loveable.
- Christopher Howse: A Pilgrim in Spain. 

If you've arrived here because of an interest in Galicia or Pontevedra, see my web page here. Garish but informative.

Matters German
  • I am now back in Cologne and preparing to visit one of those famous German Christmas markets. And to taste, and possibly enjoy, Glühwein. Mulled wine in English, I think.
  • But just to go back to Dutch cyclists for a second . . . This article, in Dutch, reveals that the government is going to send €74m on much-needed new/expanded station bike-parks around the country, with regional governments allocating €245m for this. Wow! Will there be cars in The Netherlands in 20 years' time? Massive bike-carriages on trains? Including tandems. 
Matters Spanish/Galician
  • Some interesting uses for redundant bullrings.
  • And here's 'an alternative view of Spain's wackiest architect'. Assuming you think that Cataluña is in Spain.
  • I did a double take at a headline this morning telling us that electricity in Spain is the cheapest in Europe. The opposite of the usual view. Of course, as you can see here, it isn't exactly true. Though the signs are good.
The UK/Brexit
  • I see at least one columnist endorses my suspicion: I expect an initiative from our EU partners, opening the door to extending the negotiating period should Britain wish to conduct a new referendum.
  • Of course, there are an increasing number of people who now feel this was the intention all along of the respective British and EU 'establishments'. After all, Brussels is well versed in getting electorates to change their minds. If we can't/won't change the government, let's change the people. Or at least the way they vote. So, let's between us manufacture a deal that absolutely no one will accept in the UK and then move, via a second referendum, to a 'Better the Devil you've known for 40 years than the dreadful new one we've created'.
The EU
  • If the EU does, indeed, fall apart in the next 10-20 years – or change itself put of all recognition – then all the Brexit angst will have been largely pointless.
  • Here's one siren voice: The shocking PMI data is a wake-up call. The eurozone is weak, brittle, and once again on the cusp of trouble. See the full AEP article below, in which the current Brexit situation is reviewed against data which the EU should be worrying about.
Social Media
  • Plans to use snipers to shoot colonies of parakeets that have multiplied across Spain have drawn the ire of animal activists in the country. Can anything sensible be done these days, in the face of the outraged-by-everything eco-warriors et al
  • But at least the London police have arrived at the solution of knocking thieves on scooters to the ground by driving into them, whether or not they've removed their helmets. The problem must have become gigantic for the police to get away with this blatant infringement of the thieves' human rights to life, liberty and the pursuit of criminal happiness.
Finally . . .

  • Reader Geoff has kindly alerted me to the fact that the Feedly reader was no long showing current posts. I then discovered this was true of other readers. Maybe all of them. The message from one of them was: Feed not found. Wrong feed URL or dead feed. Ive wasted hours trying to fix this problem, without success. So, if there's a genius out there who can give advice, this will be immeasurably appreciated. As far as I'm aware, all my Blogger settings are correct.
© [David] Colin Davies


Rising recession risk leaves Europe acutely vulnerable to no-deal Brexit shock: Ambrose Evans-Pritchard

Dieselgate has led to a crisis in the German car industry

Germany and Italy are flirting with recession while eurozone business growth has slumped to a four-year low, leaving the region nakedly exposed to the possible shock of a no-deal Brexit.

The closely watched IHS Markit index of German manufacturing fell to 50.2 in November, close to the ‘boom-bust line’ that divides growth from contraction. It is the weakest level since the tail-end of eurozone banking crisis in 2013. Foreign export orders fell to a six-year low.

Germany’s data office Destastis confirmed on Friday that the country’s economy contracted by 0.2% in the third quarter. It blamed crumbling global demand and disruption in the car industry from new vehicle test standards called WLTP.

Italy’s economy has also stalled. Peter Praet, the European Central Bank’s chief economist, warned that the country is uncomfortably close to a fresh crisis as the budget showdown between Brussels and the insurgent Lega-Five Star coalition in Rome continues to escalate.

Risk spreads on 10-year Italian bonds have been stuck above 300 basis points for nearly two months, gradually tightening the noose on the economy. Italian banks are mostly unable to roll over their bonds, forcing them to curb lending. Mortgage rates are being reset upwards. “No country can sustain such high spreads for a long time,” he said.

Mr Praet told the Handelsblatt that there would be no ECB reprieve for Italian lenders at the next meeting in December, a warning that may cause alarm in banking circles. “It is too early to decide on a new TLTRO,” he said, referring to a renewal of the ECB’s €800bn (£708bn) lending window for banks.

Hopes that the economic slowdown in the third quarter would prove nothing worse than a 'soft patch' have been dashed as a blizzard of ominous figures point to further trouble in the fourth quarter. The eurozone’s open trading economyand heavy reliance on export demand makes it more leveraged to the ups and downs of the world cycle than the US economy.

It is becoming clear that the credit crunch in emerging markets - caused by vanishing dollar liquidity - is doing more damage to Europe than anticipated. So is the economic slowdown in China, where monetary and fiscal policy stimulus has so far failed to gain much traction.

Phil Smith from IHS Markit said Germany had seen a “sustained loss in underlying growth momentum”. The manufacturing sector has been hit by “falling sales in China, Italy, and Turkey”. The composite PMI survey for manufacturing and services across the eurozone dropped to a four-year low.

The abrupt downturn in Germany and Italy has echoes of mid-2008. We now know that the two economies went into recession in the second quarter of that year, leading the rest of the eurozone into crisis.

The ECB was oblivious to this at the time, distracted by the short-term ‘noise’ of oil prices. It famously raised interest rates into the storm in July 2008. This was a crucial ingredient in the strange mix of events that led to the near-collapse of the western financial system two months later.

The central bank is under more sophisticated management today but it is nevertheless taking a risk by proceeding with pre-set plans to wind down quantitative easing and halt bond purchases at the end of this year - not least because it has been the lonely buyer of Italy’s net debt issuance for almost three years.

The reduction in QE has mechanical effects on the growth rate of broad M3 money, and therefore constrains bank lending. M3 was growing at around 5% a year during the peak QE period when the ECB was buying €80bn of bonds a month. It has been slowing ever since. The rate dropped to 2.1% in September on a three-month annualized basis.

“On announced policies M3 will stop growing completely in 2019. Frankly, they are setting themselves up for a catastrophe unless there is a change of course,” said Professor Tim Congdon from the Institute of International Monetary Research.

“The eurozone is in state of monetary civil war. There is a game of chicken going on between Italy and the protestant ethic countries of the North, and Germany in particular. This is very dangerous for the whole world economy,” he said.

Italy's populist leaders are on a collision course with the EU. Italy's Minister of Labor and Industry Luigi Di Maio (left) gestures next to Interior Minister Matteo Salvini

Fabio Balboni from HSBC said the ECB’s forecast for a growth rebound late this year and into 2019 “look increasingly at odds with reality” and may have to be torn up. The European Commission’s prediction for 2.1% growth in 2018 issued just two weeks ago already looks impossible.

The clear risk for the eurozone is that a no-deal Brexit would push the region’s fragile economy over the edge, setting off an unstable chain reaction. This would be hard to counter, if allowed to happen. The ECB’s policy rate is already minus 0.4%. The apparatus of fiscal rules makes it almost impossible to respond quickly with radical budget stimulus.

The outcome would be worse if the EU chose to act on any of the threats circulated during the Brexit talks of shutting air links and transport ties, and severing the cross-Channel supply chains of European multinationals, let alone imposing a de facto blockade on their biggest export market, as some have suggested. The shock to the German car industry would be systemic. It is already reeling from multiple blows.

The EU side would have to introduce emergency “continuity measures” in the current global circumstances as a matter of vital self-interest. If it did not do so - by misjudgment, or to make an example of Britain - the eurozone would risk crashing into a deep recession. This would open a political Pandora’s Box within monetary union.

There is no sign yet that EU leaders are fully alert to this risk, just as they were slow to recognize the danger in September and October 2008, when most of them thought the banking crisis was a contained Anglo-Saxon affair with no implications for them.

The shocking PMI data is a wake-up call. The eurozone is weak, brittle, and once again on the cusp of trouble. Pressuring Britain into accepting the indefinite writ of the European Court in Brexit talks is a high-risk strategy. What if Parliament says no?

1 comment:

Lenox said...

Animal activists might be against shooting the cotorras, but the 'ecologistas' are all in favour. It must be hard for some people to choose sides!