Tag Archives: Economics

3 reasons the euro is plunging

3 reasons the euro is plunging

By Mark Thompson   @MarkThompsonCNN
euro dollar

In Europe, the new year is starting where the old year left off — the euro is on the skids.

The currency briefly hit its lowest level against the U.S. dollar in nine years Monday, before steadying to trade around $1.19.

That leaves the euro down 20 cents, or about 14%, since May 2014. So why has it fallen out of favor so spectacularly?

1. The mighty dollar

Much of the recent decline in the euro has been about the strength of the greenback. During the second half of 2014, the U.S. dollar made significant gains against all other major global currencies, such as the British pound, Swiss franc and Japanese yen.

The U.S. economy is motoring, growing by 5% in the third quarter, and creating jobs at a rapid pace. That has allowed the Federal Reserve to end its emergency stimulus — or quantitative easing — and begin talking about when to raise interest rates from their record lows.

Compare that with the eurozone, where unemployment is stuck near record highs, the economy is stagnating and the risk of deflation looms large. Or Japan, where officials are going all in with stimulus.

2. European QE coming

Just as the Fed begins to tighten monetary policy, the European Central Bank looks poised to launch its own version of quantitative easing — possibly as early as its next meeting on January 22 — to head off the risk of deflation.

ECB President Mario Draghi passed up the chance of using the last big bazooka in the central bank’s arsenal in December, saying he needed more time to assess the impact of the oil price slump on inflation, growth and wages.

The picture has darkened further since then, and ECB officials have been busy working on ways to launch a program of government bond purchases — in effect printing euros in huge quantities.

The first estimate of December inflation in the eurozone, due Wednesday, could show a negative number — recording regional deflation for the first time since the depths of the financial crisis.

“Germany’s inflation rate is expected to have fallen from 0.5% to 0.2% and any further downside surprise will, of course, heighten expectations of [ECB] action — if that is possible from here,” noted Kit Juckes at Societe Generale.

3. Greek fears grow

Adding to pressure on the euro is the risk that Greek elections on January 25 could revive the eurozone debt crisis.

Leading in the opinion polls is Syriza, an opposition party that wants to renegotiate the terms of Greece’s 240 billion euro bailout by the EU and IMF — including canceling part of its huge debt — and reversing some painful austerity measures.

Germany, and others, will resist those demands. Giving ground to Athens could encourage other deeply indebted eurozone countries to insist on similar treatment.

Media reports suggest the German government could live with a Greek exit from the eurozone if it has to.

And there’s been little sign of contagion so far. Yields on Italian, Spanish, Portuguese and Irish government bonds have held steady, while Greece’s borrowing costs have spiked.

The most likely outcome is a messy compromise that is unlikely to enthuse investors.

Russia’s “Startling” Proposal To Europe: Dump The US, Join The Eurasian Economic Union

Russia’s “Startling” Proposal To Europe: Dump The US, Join The Eurasian Economic Union

Tyler Durden's picture
Submitted by Tyler Durden

Russian Rubbles money cash foreign bank

Slowly but surely Europe is figuring out that as a result of the western economic and financial blockade of Russian, it is Europe itself that is suffering the most. And while Germany was first to acknowledge this late in 2014 when its economy swooned and is now on the verge of a recession, now others are catching on. Case in point: the former head of the European Commission, and Italy’s former Prime Minister, Romano Prodi who told Messaggero newspaper that the “weaker Russian economy is extremely unprofitable for Italy.”

The other details from Prodi’s statement:

Lowered prices in the international energy markets have positive aspects for the Italian consumers, who pay less for the fuel, but the effect will be only short-term. In the long-term however the weaker economic situation in countries producing energy resources, caused by lower oil and gas prices, mostly in Russia, is extremely unprofitable for Italy, he said.

The lowering of the oil and gas prices in combination with the sanctions, pushed by the Ukrainian crisis, will drop the Russian GPD by five percent per annum, and thus it will cause cutting of the Italian export by about 50%,” Prodi said.

“Setting aside the uselessness or imminence of the sanctions, one should highlight a clear skew: regardless of the rouble rate against dollar, which is lower by almost a half, the American export to Russia is growing, while the export from Europe is shrinking.”

In other words, just as slowly, the world is starting to grasp the bottom line: it is not the financial exposure to Russia, or the threat of financial contagion should Russia suffer a major recession or worse: it is something far simpler that will lead to the biggest harm for Europe’s countries. The lack of trade. Because while central banks can monetize everything, leading to an unprecedented asset bubble which if only for the time being boosts investor and consumer confidence, they can’t print trade – that all important driver of growth in a globalized world long before central banks were set to monetize over $1 trillion in bonds each and every year to mask the fact that the world is deep in a global depression.

Which is why we read the following report written in yesterday’s Deutsche Wirtschafts Nachrichten with great interest because it goes right to the bottom line. In it Russia has a not so modest proposal to Europe: dump trade with the US, whose call for Russian “costs” has cost you another year of declining economic growth, and instead join the Eurasian Economic Union! From the source:

Russia has presented a startling proposal to overcome the tensions with the EU: The EU should renounce the free trade agreement with the United States TTIP and enter into a partnership with the newly established Eurasian Economic Union instead. A free trade zone with the neighbors would make more sense than a deal with the US.

It surely would, but then how will Europe feign outrage when the NSA is found to have spied yet again on its “closest trading partners?” Some more on Russia’s proposal from EUobserver:

Vladimir Chizhov told EUobserver: “Our idea is to start official contacts between the EU and the EAEU as soon as possible. [German] chancellor Angela Merkel talked about this not long ago. The EU sanctions [on Russia] are not a hindrance”.

“I think that common sense advises us to explore the possibility of establishing a common economic space in the Eurasian region, including the focus countries of the Eastern Partnership [an EU policy on closer ties with Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine]”.

“We might think of a free trade zone encompassing all of the interested parties in Eurasia”.

He described the new Russia-led bloc as a better partner for the EU than the US, with a dig at health standards in the US food industry.

“Do you believe it is wise to spend so much political energy on a free trade zone with the USA while you have more natural partners at your side, closer to home? We don’t even chlorinate our chickens”, the ambassador said.

The treaty establishing the Eurasian Union entered into life on Thursday (1 January).

It includes Armenia, Belarus, Kazakhstan, and Russia, with Kyrgyzstan to join in May.

Modelled on the EU, it has a Moscow-based executive body, the Eurasian Economic Commission, and a political body, the Supreme Eurasian Economic Council, where member states’ leaders take decisions by unanimity.

It has free movement of workers and a single market for construction, retail, and tourism. Over the next 10 years, it aims to create a court in Minsk, a financial regulator in Astana and, possibly, to open Eurasian Economic Commission offices in Astana, Bishkek, Minsk, and Yerevan.

It also aims to launch free movement of capital, goods, and services, and to extend its single market to 40 other sectors, with pharmaceuticals next in line in 2016.

And as a reminder: The Eurasian Economic Union, a trade bloc of former Soviet states, expanded to four nations Friday when Armenia formally joined, a day after the union between Russia, Belarus and Kazakhstan began.

So the ball is in your court, Europe: will it be a triple-dip (and soon thereafter quadruple: see Japan) recession as your Goldman-controlled central bank plunders ever more of what little is left of middle-class wealth with promises that this year – for real is when it all turns around, or will Europe acknowledge it has had enough and shifts its strategic, and trade, focus from west (speaking of the TTIP, Germany’s agriculture minister just said “We can’t protect every sausage” referring to the TTIP) to east?

Considering just whose interests are represented by the unelected bureaucrats in Brussels, we won’t be holding our breath.

House approves $1 trillion spending package

House approves $1 trillion spending package

House Speaker John Boehner walks to the House chamber
House Speaker John Boehner walks to the House chamber for an expected vote on a $1.1 trillion government funding bill on Thhursday in Washington, DC.(Photo: Win McNamee, Getty Images)

WASHINGTON — In a dramatic vote late Thursday evening, the U.S. House narrowly approved a $1 trillion government spending package despite a rare uprising from House Democrats. The bill passed on a 219-206 vote.

Congress was set to approve a two-day stopgap funding bill to give the U.S. Senate time to pass the package and get it to President Obama’s desk. Government funding had been scheduled to run out at midnight.

House Democrats derailed plans Thursday afternoon for a vote on the funding bill after lawmakers rebelled over provisions tucked into the measure to roll back regulations on Wall Street and ease campaign finance laws.

The uprising created a rare moment of intraparty warfare, pitting the majority of House Democrats against President Obama. The president had announced support for the package because it includes many of his spending priorities, such as funds to combat the Ebola epidemic and Islamic State militants as well as more money for Pell Grants and early education programs.

But in a blistering speech on the House floor, Minority Leader Nancy Pelosi, D-Calif., characterized the package as a “moral hazard” and said she was “enormously disappointed” in the president.

GOP leaders and the White House were caught off-guard by the Democratic opposition, because the carefully negotiated package had bipartisan input from lawmakers in both chambers before it was unveiled earlier this week.

House GOP leaders pulled the bill from the floor Thursday afternoon in order to ensure they had the votes for passage after every Democrat voted against a procedural motion to advance the bill.

The White House then dispatched Chief of Staff Denis McDonough to meet privately with House Democrats on Thursday evening in an effort to shore up support.

The opposition was sparked Tuesday when Sen. Elizabeth Warren, D-Mass., came out against the bill because it includes a rollback of a regulatory provision of the 2010 Dodd-Frank financial services law that defenders say is intended to shield taxpayers from future risks from complex financial trades conducting by major banks.

A provision that greatly increases the amount private donors can give to fund political conventions also incensed Democrats who saw it as a further giveaway to special interests. Pelosi said she was not briefed on the full extent of the provision before the bill was unveiled.

Some Democrats voiced strong support for the package because it reflects many Democratic spending priorities and said scuttling it would only result in a more conservative package next year when Republicans take full control of Congress. Minority Whip Steny Hoyer, D-Md., the second-highest-ranking House Democrat, came out in support of the measure.

Retiring Rep. Jim Moran, D-Va., a member of the Appropriations Committee, said Democrats with “more liberal constituencies” were under political pressure to oppose it.

“Frankly, there are some people who will not let Elizabeth Warren get to the left of them,” he said. Warren is a popular figure among the party’s liberal base and one of the most prominent advocates for tougher oversight of Wall Street.

The package is the result of weeks of negotiations between House Appropriations Chairman Hal Rogers, R-Ky., and Senate Appropriations Chairwoman Barbara Mikulski, D-Md., and their party leaders. Rogers said its passage “will show our people that we can and will govern responsibly.”

The funding behemoth includes 11 of the 12 annual spending bills for the fiscal year that ends Sept. 30, and one short-term funding bill for the Department of Homeland Security. Republicans insisted on a short-term DHS bill because they want another opportunity next year — when the GOP takes control of the Senate — to battle the president over his recent executive order that would delay deportation for as many as 4 million undocumented who meet certain criteria.

Some Republicans opposed the measure because they said it did not go far enough to rein in the president’s order. GOP opposition meant Republicans needed Democratic votes to pass it, which is where Pelosi saw an opportunity to try to remove the two provisions.

In the end, enough Democrats sided with Republicans. “In a world of alternatives, I have concluded that it’s better for us to pass this (bill)… than it is to defeat it,” Hoyer said.