End of the Line?

From the New York Times:

Ertugrul Osman, who might have ruled the Ottoman empire from a palace in Istanbul, but instead spent most of his life in a walk-up apartment in Manhattan, died Wednesday night in Istanbul. He was 97. …

Mr. Osman was a descendant of Osman I, the Anatolian ruler who in 1299 established the kingdom that eventually controlled parts of Europe, Africa and the Middle East. Mr. Osman would have eventually become the Sultan but for the establishment of the Turkish Republic, proclaimed in 1923.

He is survived by his second wife, and had no children.

Born in 1912, Mr. Osman was the last surviving grandson of an Ottoman emperor; his grandfather, Abdul Hamid II, ruled from 1876 to 1909. …

As a young man, Mr. Osman ran a mining company, Wells Overseas, which required him to travel frequently to South America. Because he considered himself a citizen of the Ottoman Empire, he refused to carry the passport of any country. Instead, he traveled with a certificate devised by his lawyer. That might have continued to work had security measures not been tightened after the attacks of Sept. 11, 2001. In 2004, he received a Turkish passport for the first time.

Is there a pretender now?

German election roundup

The last lot of German polls are out, showing a modest recovery for the SPD but nothing strategically epic. However, some polls have shown enough recovery to put some pressure on the FDP’s calculations. We’re in the realm of statistical noise here.

It’s quite surprising just how dull the campaign has been – the main parties essentially arguing that they won’t drop the ball, although they’d be happy with some more votes for their faintly more radical partners. I’m sticking with my prediction that the SPD will pick up a bit more and that then we’ll go into Klausur with the other parties; whatever happens, don’t bet against Angela Merkel as a committee politician. This is despite the economic crisis, and more recently, the Kunduz air raid, which even induced the chancellor to refer to “war”.

It’s not as if nothing is happening; a senior Green resigns over sensational videos of the party’s co-leader. Sensational videos of Renate Künast fishing, that is. This is a resigning matter, but not for her.

As far as the German engagement in Afghanistan goes, there is a row going on about the idea of paying for the training and deployment of 2,500 extra Afghan soldiers in the German sector. This has resulted in a very unusual outbreak of harmony between the CSU and the Greens, both of whom think it’s a good idea; but the government much less so. This wraps into the row between the US and Germany about the Kunduz incident, which seems to be on hold until after the election, just as any decisions about strategy or tactics are.

In fact, all the decisions are. It feels like the current European way; elections without decisions.

Three Million Unsold Properties In Spain?

Yes, up to three million. That was the conclusion reached in the 2009 annual report on the Spanish property market prepared by Madrid-based real estate analysts R. R. de Acuña & Asociados. The report is described by Sunday Times Spanish Property Doctor columnist Mark Stucklin as one of the most influential annual reports on the sector, so the conclusions are hardly to be sneezed at, indeed the assumptions made in the calculations appear on the surface to be entirely plausible. In fact, having read the summary of the report in this article here, Variant Perception’s Jonthan Tepper wrote to me to ask whether I thought we were being “dire enough”. Yep. Sufficient unto the day is the direness thereof. Continue reading

Mr Klaus? It’s Cameron on line 1 and Sarkozy on line 2

Only a guess of course but it’s a metaphor of the situation that will face the Czech Republic on the night of 2 October when the Irish voters approve the Treaty of Lisbon at the second time of asking in a referendum.  And they will approve it.  The opinion polls leave some latitude as to the final margin, but even a generous assumption about the voting behaviour of the “don’t knows” doesn’t alter the prediction that it will pass.

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As Hungary’s “Correction” Heads For A Dead End, Time For A Change Of Course?

Hungary’s economic correction still fails to convince. Indeed I am not the only one who remains unconvined by the viability of what is currently taking place it seems, since according to the opposition supporting local daily newspaper Magyar Hírlap, none other than the Hungarian Prime Minister himself may be having doubts, as he is reportedly thinking of leaving the helm of the struggling ship placed under his charge before the next general election, which is scheduled to take place sometime early next year.

If this version of events is ultimately confirmed it will only add to the IMFs growing problems out East, since events in Latvia are not going at all according to their liking – see FT Alphaville’s Izabella Kaminska’s “Another Latvian wobble” of last Friday – and indeed Latvia’s government rapidly cobbled together another 275 million lati ($575.6 million) in spending cuts for 2010 yesterday after EU Economic and Monetary Affairs Commissioner Joaquin Almunia called on Latvia on Friday to “renew a national consensus”, and Prime Minister Valdis Dombrovskis paid a flying vist to Brussels, following a parliamentary vote against sending a real-estate tax bill through to the committee stage, implicitly rejecting part of an agreement with the IMF and EU. How many times this year does that now make it that the national consensus has had to be urgently renewed under directives from either Washington or Brussels, could someone please remind me?

Further, Hungary’s main opposition party – Fidesz – which looks well-positioned to win next year’s general elections, are threatening to rewrite the current ever-so-carefully written 2010 budget when they comes to powe next year, according to the latest statements from party president Viktor Orban.

“This (the IMF inspired text, EH) is the most dangerous budget of the past 20 years … never before has a budget put hundreds of. thousands, or even millions of Hungarian families at such grave risk,” Orban told private broadcaster Hir TV in an interview late on Friday. “This budget will not remain in place, we will draw up another one instead,” said Orban, a former prime minister, adding that if in power, his government would create one million new jobs in 10 years.

Well, things certainly do not look good either for Gordon Bajnai or for the EU Commission/IMF team who are behind the budget. Perhaps that is why the IMF’s representative in Hungary, Iryna Ivaschenko, told national news agency MTI yesterday that while the government was committed to its 2010 fiscal targets, there were economic and implementation risks on the nature of which she declined to elaborate. Continue reading

Mutual Incomprehension on Missile Defence

As has been widely reported, the White House has decided to abandon the planned radar/interceptor installations in Poland and the Czech Republic and replace them with mobile land and sea based missile interception systems.  The reaction to the decision shows that different people were seeing vastly different things in what the original proposal represented. 

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Spanish Department Of Political Dirty Tricks Calling – Bring Me The Head Of Diego Garcia!

Vengence, they say in Spain, is a dish which is best served cold. Looking at the pace with which things are now moving here, maybe the waiters are getting themselves ready.

According to Bloomberg the Spanish Dept Agency now has a new head – Gonzalo Garcia – who previously lead the Spanish Treasury’s financial analysis department. Garcia is 35 years old, and already has ten years experience working for the Spanish Treasury in the head that is sitting on those ever so young shoulders, while the person he will replace – Enrique Ezquerra – himself only 37, now becomes economic adviser with Spain’s Permanent Representation to the European Union based in Brussels. Something, it seems to me, is afoot, and it isn’t that hard to work out what. With Spain’s banks having something like 75 billion euros in short term loans which need to be renewed with the ECB in Frankfurt next June (see this post for a full explanation of the background to all this), and the Spanish government having a similar (or before we get to the end of the year possibly somewhat greater) quantity of debt outsanding in one year bonds which will need to be renewed next year along with all the extra debt they will also need to finance next year, and with a domestic banking system which is already struggling to refinance existing household and domestic loans, it isn’t hard to see that the position of Head of the Spanish Debt Department and direct coordination with Brussels are two of the key items on next years Spanish government agenda.

And the only issue left in my mind is whether the head which will need to be served up on the proverbial plate as the ritual offering to ensure the free flow of communication (and money) will not be
none other than that of the existing President of the Spanish government, José Luis Rodriguez Zapatero.

Certainly all the early warning signs are there, and no one can watch Spanish television news, or listen to the radio here without becoming immediately aware that something has now changed, and that he who was once all powerful is now, himself, in his turn steadily being subjected to that big squeeze of which he was, in an earlier epoch, such an admirable exponent himself. Basically I have no doubt that, whether the coup de grace comes later or sooner, Zapatero is now on his way out, and the only real outstanding question I have is whether he will in the end go before xmas (the start of Spain’s EU Presidency) or after June (when it finishes). The decision is I suppose in the hands of the Spanish people, and it is just a question of how much more unemployment they are willing to stomach before those inevitable “casserolades” start to break out.

Interestingly, for those us who follow this kind of thing, one of the obvious candidates, if not to replace him, then at least to take a key role in the new government of economic technocrats which is undoubtedly being prepared even as I write – ex Public Administration Minister Jordi Sevilla – recently left his seat in the Spanish Parliament – in an ominous and deeply significant leaving of the sinking ship with two other ex-ministers Pedro Solbes and ex-Defence Minister José Bono – to go and work for Price Waterhouse Coopers. And irony of all ironies, he had earlier been replaced in the Public Administration Ministry by the unfortunate Elena Salgado, who may well be about to see her short term in the Economics Ministry abruptly brought to an end. But Sevilla’s latest move becomes even more charged with symbolic significance when you consider that the role model for what may now be about to befall Zapatero, Ferenc Gyurcsany, was replaced by the current Hungarian Prime Minister Gordon Bajnai, who immediately called the now Finance Minister Péter Oszkó away from his labours at Deloitte. And Gyurcsany in what could be an early anticipation of what Zapatero may now need to do, resigned while muttering “I am leaving as I am being told I am the biggest obstacle to the structural economic reforms my country is said to so badly need”. Who exactly it was that was telling him this it may be judicious not to ask, but one thing is obvious, you can’t have people always coming from the same consultancy group, now can you? It just wouldn’t look right.

High Ratio in Ireland

Calculated Risk points out an interesting number in a Bloomberg report: A public authority will soon be managing a portfolio of bad non-residential real-estate loans whose nominal value is about half of Ireland’s GDP. Probably all sorts of shoes waiting to drop in commercial real estate markets across Europe.

Finance Minister Brian Lenihan will detail tomorrow how much Ireland will pay for about 90 billion euros ($131 billion) of real estate loans now crippling what as recently as 2006 was one of Europe’s most dynamic economies.

The National Asset Management Agency, known as NAMA, will buy 18,000 loans at a discount from lenders led by Allied Irish Banks Plc and Bank of Ireland Plc. The agency will manage the loans, which amount to about half of Ireland’s gross domestic product. … Most of the property-related loans of the biggest Irish banks are being taken over by the agency, excluding residential mortgages.

The office vacancy rate at the end of the second quarter was 21 percent in Dublin, compared with 8 percent in London and 10 percent in Berlin, according to CB Richard Ellis Group Inc. As many as 35,000 new homes are now vacant, estimates Davy, the country’s largest securities firm, up from 20,000 18 months ago.

How Will The ECB Ever Manage To Stop Funding Spanish Government Debt?

The looming problem of what will happen as and when some of the other Eurozone economies eventually start to recover while the Spanish one languishes in decline is finally starting to make the columns of the global financial press. Yesterday Thomas Catan had an article in the Wall Street Journal entitled Spain’s Struggles Illustrate Pitfalls of Europe’s Common Currency while Emma Ross-Thomas and Gabi Thesing also had a similar sort of piece in Bloomberg, under the heading Europe’s Two-Speed Economy Complicates ECB Rate Plans.

So the difficulty Spain could represent for the rest of the Eurozone is now it seems becoming the “Topic du Jour”. Continue reading

The ECB’s Balance Sheet at a Glance

What follows is essentially the fruit of the last week’s labour. It is a detailed look at the ECB’s balance and the related question of whether we can call, what it is that ECB the is doing quantiative easing or not?

Needless to say, I think that this question is an important one in a general context since if my intuition that the epicentre of the global financial and economic crisis has now migrated from the shores of the United States to the periphery of Europe is right, then a detailed look at the ECB’s policies and arsenal is not only merited, it is essential reading.

With the distinct risk of turning this into a cheesy copy of the Oscars show I should thank Edward Hugh for his patient and thorough back-editing of my English language blunders and for his seemingly unlimited availability when I needed someone to sound out about the arguments themselves. All mistakes and mishaps naturally fall on my shoulders and criticism should be directed accordingly. Here I simply reproduce the executive summary but you can download the full report – which is currently in the form of a working paper online here. The analysis includes data up to week 35 (and up to July in the case of monthly data). If you want a copy of the spread sheet, I will willingly provide if you simply let me know.

Executive Summary

Is the ECB deploying a variant of Quantitative Easing in any fashion, way, shape or form?

If you are talking about Quantitative Easing senso strictu then my answer has to be a simple and straightforward no. However, if we stop being quite so by the letter of the book, and broaden our definition slightly, then I would strongly suggest that the battery of credit enhancing measures put in place by the ECB when taken together with the steady increase in securities accepted onto the balance sheet as collateral, do make it evident that the ECB – whether wittingly or unwittingly – has moved into some form of what we could at least call “quasi” Quantitative Easing.

Is the ECB indirectly monetizing the debt issuance of Eurozone governments?

If my initial answer to this question – before actually going through the books – would have been an outright yes, I now feel the need to tread much more carefully on this point, since I have most definitely not been able to conjure up that proverbial smoking gun. In fact, it has proved very difficult to establish any kind of direct link between the amount of funding drawn from the ECB refinancing operations and the purchase of government bonds by the MFIs at the national level.

This is not to say, however, that circumstantial evidence is not available that this process is taking place to some extent, and in some countries. I do believe, for example, that the massive purchase by Spanish MFIs of government bonds in that country does offer prima facie evidence that some such connection may well exist, and thus all I can say at this point is that further research is called for, and especially a much more detailed and discriminating data-mining dig-down.

What are the prospects and possibilities for a viable exit strategy for the ECB from its non-standard monetary policy measures?

The measures collectively known as Enhanced Credit Support are by their very nature flexible. However, if there is anything we have learnt from the operation of monetary policy in Japan over the last twenty years it is that premature exit from the sort of substantial support the ECB is offering only makes matters worse, and in addition this kind of massive liquidity easing is a lot easier to get into than it is to get out of.

A true economic recovery will inevitably be somewhat selective, and it is at this point that the ECB‘s problems will really start, since the recovery will begin in some countries and not in others. To take the extreme case: it will be awfully hard to maintain massive monetary easing for a Spanish economy which remains stuck in an “L” shaped non-recovery if in France headline GDP growth were to start to tick back again towards – say – 2%. Then the real dilemmas which face the ECB will begin in earnest. As such, it is going to be much more difficult for the ECB to instigate that dearly beloved exit strategy than many currently like to believe.