Economic Analysis - Sufficient Resources But Insufficient Resolve To Fight Cris

是 否 +2 论坛币

k人 参与回答

经管之家送您一份

应届毕业生专属福利!

求职就业群

赵安豆老师微信：zhaoandou666

经管之家联合CDA

送您一个全额奖学金名额~ !

立即领取

感谢您参与论坛问题回答

经管之家送您两个论坛币！

+2 论坛币

BMI View: The eurozone crisis is fast reaching its Lehman moment. Despite the severity of the debt market storm and enormity of the figures involved, the eurozone has sufficient resources to overcome its biggest crisis. However, political paralysis, frozen capital transmission channels and 'flight to safety' pose formidable obstacles to unlocking the potential of the bloc's resources to overcome the debt market rout.

We have previously warned that fixing the eurozone would first require a crisis of epic proportions in order to provide the political cover for policymakers to take necessary but unpopular decisions needed to reform the beleaguered currency union. That 'epic crisis' is here. Turmoil in Greece and a botched attempt at an 'in or out' referendum brought the eurozone close to the brink, Italy's bond market has started to unravel as the economy dives into recession and debt sustainability is questioned, while the apparent spread of market contagion to France and insufficient demand for debt at the latest German government bond auction.

Up until recently we adopted a cautiously optimistic stance, expecting the eurozone to muddle through and find a solution to stop the rot. We reasoned that the costs of not doing so would be so great as to spur Europe's politicians into action. However, the anaemic policy response thus far - particularly the poorly equipped and poorly conceived European Financial Stability Facility - and political paralysis has severely dented our optimism. Time is fast running out. Without the announcement of a shock-and-awe strategy, such as the European Central Bank (ECB) being allowed to monetise sovereign debt or the EFSF being provided with several trillion euros of fire power, the likelihood of the currency union being pulled apart by the market increases by the day.

We would stress, however, that the eurozone has the resources at its disposable to tame the crisis. Indeed, this crisis is not a case of there being a lack of firepower or insufficient intellectual capital, but is instead the result of political paralysis, frozen capital distribution channels and 'flight to safety' which has sucked resources out of the periphery and flooded core debt markets. Below we consider a number of factors which we believe highlight the issue of sufficient resources but insufficient resolve.

Show Me The Money

It may be surprising to think that in the midst of an unprecedented crisis there is arguably not arguably a shortage of money. There are a number of ways to look at this. First, central bank policy rates in the West have been held at near zero since the height of the global financial crisis. Although the ECB had pre-emptively begun hiking earlier in the year, it has now started to cut rates and could end up converging towards the zero bound.

Real Policy Rates Have Turned Negative

Central Bank Policy Rates - Headline Inflation, %

Source: BMI, Bloomberg

In addition to slashing policy rates, there have been various attempts across the world to directly inject money into the economy. The US Federal Reserve and Bank of England pursued quantitative easing, while the ECB continues to provide substantial liquidity through various emergency programmes despite vociferously denouncing QE. Indeed, the ECB provides funds through its marginal lending facility (having previously reduced collateral quality requirements to keep thinly capitalised banks afloat) and has forayed into the sovereign debt market by purchasing sovereign bonds on the secondary market through its securities market programme (SMP).

Full-Blown ECB Monetisation May Be The Only Way

ECB Securities Market Programme, EURbn

Source: BMI, ECB

With nominal interest rates near zero and real rates deeply negative, the economy has been primed for credit expansion. However, traditional (and increasingly less traditional) monetary policy has lost traction as the private sector deleverages. There is not only a lack of demand from the end user of credit (i.e. households and firms), but even financially sound debtors seeking credit are being cut off by risk averse banks. Europe's banks have instead exploited the near zero cost of money to widen loan spreads and boost profitability, in a bid to gradually recapitalise. Banks have also started to pile up reserves at the ECB as the heightened uncertainty over the future of the eurozone has scared lenders away to the point that they are more than willing to accept negative real returns through the central bank's deposit facility.

Flocking To The ECB

ECB Deposit Facility, EURmn

Source: BMI, ECB

The ECB itself is the eurozone's biggest trump card. We have recently argued that the central bank will have little choice but to intervene heavily in the debt market in light of the heavy refinancing load and deterioration in risk sentiment. In our view, only the ECB has the ability to stabilise the market. Indeed, it is the ECB, not the EFSF, which is the eurozone's financial bazooka.

Core Debt Markets Soaking Up Capital

Near-zero policy rates have similarly translated into record low sovereign bond yields for those governments that are fortunate enough to have 'safe haven' status bestowed upon them. Indeed, even while sovereign bonds at the periphery of the eurozone have been dumped, demand for US, UK, German (and other core eurozone) bonds has firmed since the onset of the 2008 financial crisis. Core Europe's debt markets are the biggest in the world behind the US and Japan.

The UK gilt and German bunds markets, in particular, continue to soak up capital to the detriment of governments elsewhere in the region that are struggling to refinance at sustainable rates. Again, with long-end bond yields collapsing in these markets, there is clearly plenty of liquidity around, it is just not being distributed widely, creating a massive schism in the debt markets. Ultimately a joint-liability bond market may be a vital component of a long-term solution to the crisis.

A Race To The Bottom?

German & UK 10-Year Government Bond Yields, %

Source: BMI, Bloomberg

Even in the case of Germany and the UK, the flood of money seeking a safe haven could ultimately prove more of a curse than a blessing. Locking up capital in the bond market at negative real yields is a worrying sign for future growth. The longer that money is tied up in this way, the less funds are being put to more productive use. As such, the lack of investment in projects that generate return can lower productivity and broader economic growth over the longer term, potentially elevating the debt burden for Europe's safe havens.

扫码加我 拉你入群

请注明：姓名-公司-职位

以便审核进群资格，未注明则拒绝

分享0 收藏0 回帖

关键词：Insufficient sufficient Resources resource Analysis previously sufficient political potential resources

Borrowing Capacities Differ

Following on from the line of reasoning above, we would stress that there is scope for government's in the core of the eurozone to borrow further. Indeed, despite the precarious level of debt in Greece, Portugal, Ireland and Italy, the aggregate public debt level for the eurozone as a whole stood at 85.4% of GDP in 2010 - high but far from being unsustainable. As the chart below shows, a number of economies have debt levels close to or below 60% of GDP and have scope to raise additional capital in the debt markets. Even France, Germany and Spain could increase borrowing further provided the respective government's were willing to accept a lower credit rating and have a coherent plan to revive economic growth. Indeed, if the eurozone provided a comprehensive plan for resolving the debt crisis and reviving growth, which would go a long way to reducing uncertainty and restoring confidence, there would be scope for the core economies to borrow further.

Debt: Too Much Or Too Concentrated?

Eurozone - Government Debt, % of GDP

Source: BMI, Eurostat

That the Italian government was able to shoulder a debt load of around 120% at reasonable yields until recently certainly suggests that core sovereigns could up the ante. If the core borrowed additional funds with the view to investing in productivity enhancing infrastructure or education, while the periphery pared back on borrowing, aggregate public debt across the eurozone need not increase significantly from current levels - the debt burden is instead redistributed from weaker to stronger sovereigns. Similarly, governments in the core could borrow from the capital markets to invest in the peripheral economies as a means of restoring growth and alleviating the debt burden. While on a practical level the probability of this occurring is extremely slim, we nonetheless stress that this would in theory contribute to a solution to the debt crisis.

Corporate Sector Riding Out The Storm

Cash hoarding is not just restricted to the banking sector. The corporate sector has also stored up resources during the recovery. German exporters have benefited significantly from emerging market orders which have bolstered profit margins, while even those struggling elsewhere in Europe have sought to minimise costs as means of shoring up the bottom line. Similarly, pension funds have been closed out of many markets due to volatility and uncertainty, which suggests another source of capital to be tapped. Eventually the corporate sector will need to increase capital expenditure to maintain a competitive position in the market, while pension funds will need to deploy capital in order to generate sufficient returns for their beneficiaries. Given that shoring up economic growth is a key component of stabilising the eurozone's debt markets, increased spending by private agents would be a positive development.

The Other Side Of The Balance Sheet

The current obsession with debt has become highly emotive, in our opinion. While precariously high debt burdens and rising interest rates are certainly causes for concern, and in some cases will push debtors inexorably towards insolvency, much less attention is paid to the asset side of the balance sheet. Investments in productive industries, infrastructure projects, prime real estate, land and so on, can generate returns in the future that can justify debt financing. As such, government's could privatise state assets to generate revenue for paying down sovereign debt. While a full exposition of asset valuations across the eurozone is beyond the scope of this piece, we nonetheless wanted to highlight again that there are sufficient resources available that could be deployed as part of the crisis response.

Europe's Fort Knox

There is also a sizeable amount of gold standing idle in the vaults of many European central banks. After the US, Germany has the second largest central bank gold holdings in the world, followed by Italy and France. At market rates, we estimate the value of eurozone central bank gold holdings at around EUR400bn. While we have not looked into the specifics of these gold holdings and how easily they would be to sell, it is nonetheless another sign that there is 'cash' under the mattress if you care to look for it.

Germany Needs To Redistribute Its Surplus

Aside from the eurozone's debt woes, the economic crisis is also reflective of productivity and labour cost differentials which have destabilised the internal balance of payments. Uncompetitive economies in the periphery have accumulated substantial current account deficits and debts, while those in the core have in general generated surpluses (or at the very least more modest deficits).

Redistribution Needed

Eurozone - 2010 Current Accounts, EURbn

Source: BMI, Eurostat

In aggregate, however, the eurozone's total current account is close to zero as shown in the chart below. It is worth stressing that the data provided by Eurostat generates different results depending on whether headline data for the eurozone or individual economy-level data is used.

Close To Zero

Eurozone - Current Account Deficit, % of GDP

Source: BMI, Eurostat

The enormous current account surplus generated by Germany has not only helped underpin the eurozone debt crisis, but is also key to its resolution. In simple terms Germany needs to consume more and produce less, allowing peripheral economies to start exporting more demand. By allowing these economies to produce external surpluses, mammoth debt loads can be paid down and the regional economy can rebalance towards a more sustainable structure. This is a problem that the eurozone alone needs to address. It makes little sense for foreign players such as China to intervene in the debt market as the increase in capital imports could prevent the eurozone generating the surpluses it needs to pay down debt.