| Finland Vote 100% In; Anti-Bailout Block In Majority; Coalition Math Posted: 17 Apr 2011 07:46 PM PDT The results of this weekend's election in Finland are in. The current pro-euro, pro-bailout government has been ousted and a coalition of other parties will rule. There are 18 parties in Finland in the recent election. Many of them are fringe parties, but the splitting of the vote is such that the winner barely exceeded 20% of the vote. Voters in the US may be interested to see what something other than a two-party system looks like. Finland General Election Results The first eight parties got all but one seat. My friend Tero who lives in Finland has been updating me on the results. A couple days ago Tero wrote ... I'm glad to see that our Finnish stance at the Euro region bailout has been noted by you. Most people here just don't see the point of throwing good money after bad when we know it will not do any good. Eventually it would put us in the same position where Greece is now. We've been there ourselves in the early 90's and the solution was debt restructuring which was done by currency devaluation which obviously is not an option anymore. An average Joe here understands that we would be only bailing out German and French banks.
That is why I'd like to vote for the party you call "True Finns". However, I can't. Other than that one position, the whole party is a big mess. They might make decisions that would be catastrophic for Finland.
By the way, "True Finns" does not describe the party or its name. It doesn't translate into English very well but "regular", "basic" or "average" would be closer than "true". Best translation I can come up with is "common Finns". A few hours ago Tero wrote ... The negotiations to form the government are going to be very interesting. There are many possible combinations. This is the first time in history of Finland that the National Coalition Party is the biggest party.
Because of the surge in the "True Finns" and the position of the Social Democrats, expect very tough terms set for the bailouts if they don't get vetoed outright.
It will be interesting to see how the market reacts next week. Voters Protest Against BailoutsBloomberg reports Finland's Euro-Skeptics Set for Government After Election UpsetFinland's euro-skeptic bloc is poised to form a government with the pro-Europe National Coalition led by Finance Minister Jyrki Katainen after voters used yesterday's election to protest against funding bailouts.
The True Finns, whose leader Timo Soini says taxpayers shouldn't have helped rescue Greece or Ireland, jumped almost 15 points to 19 percent, the Justice Ministry said. Katainen's National Coalition won 20.4 percent to become Finland's biggest party for the first time. Prime Minister Mari Kiviniemi's Center Party got 15.8 percent and the Social Democrats, which also opposed bailouts for Greece and Ireland, won 19.1 percent. Kiviniemi will lead her party in opposition after its "huge defeat," she told broadcaster YLE.
"If Finland doesn't ratify the package, either Portugal won't pay its debts or some other package must be drawn up for them," said Pasi Kuoppamaeki, chief economist at Sampo Bank, a unit of Danske Bank A/S, after the final count was published. "I'm afraid this will cause some anxiety in the financial markets."
Soini's campaign to protect taxpayers from rules made in Brussels has won support from voters who endured their most recent recession without blowing the budget. The Social Democrats have argued Europe's rescue measures don't push enough of the cost onto investors.
The election results, which come 11 days after Portugal became the third euro member to seek a bailout, threaten to disrupt efforts to push through Europe's crisis-handling measures. Should AAA rated Finland withdraw its support, Europe's principle of solidarity "would have failed," said Frank Engels, an economist at Barclays Capital, in an April 14 note. Any steps need the approval of all 17 euro members.
"Portugal's situation is getting very tough," Kuoppamaeki said. "They have large loans maturing in June, so something has to be done." Will Politicians Get the Message?The current prime minister's party came in 4th place proving that voters are fed up with bailouts. The question is: will politicians get the message? Note that Katainen, the National Coalition party leader supports the euro area's rescue tools. "Finland has always been a responsible European Union country," he told supporters. "I'm convinced the new government, whoever is in it, will want to continue this policy." My math says that 20.4% + 15.8% = 36.2%, not enough to insist on a policy continuation. Note that the True Finns plus Social Democratic party total is 38.1%. Additional MathPlease consider Nationalists enjoy surge in support in Finnish electionsThe nationalist and euroskeptic party, True Finns, made big gains in Finland's general election on Sunday, emerging as the third largest party.
The True Finns ranked third behind the winning conservative National Coalition party, whose leader Jyrki Katainen is set to become the country's next prime minister, and the second-place opposition Social Democrats.
The surge in the share of the vote for the True Finns - up to 19 percent from 4.1 percent in 2007 - alters the country's political landscape dramatically, with power traditionally shared between the three main parties.
The True Finns' success could also have a resonance throughout the European Union, as the party could potentially disrupt an EU bailout of Portugal. Opposition to such rescue packages has been central to the party's campaigning, as well as tougher immigration rules.
National Coalition minister Jan Vapaavuori dismissed fears of a new euroskeptic government on Friday, saying that any new government coalition would inevitably be pro-EU.
The True Finns, he said, would probably tone down its rhetoric as a condition of joining the government. The Social Democrats, who are critical of the bailout plan but supportive of the EU, would be even easier to get on board, he said.
"Either it's a pre-condition for them to support Portugal in the next government, or at least not to vote against it," Vapaavuori said. "I'm sure that Finland will be in line with other European countries in the next government."
Center Party Drops Out of Coalition The New York Times reports Anti-Bailout Party Gains in FinlandFinnish voters dealt a blow Sunday to Europe's plans to rescue Portugal and other debt-ridden economies, ousting the pro-bailout government and giving a major boost to a euroskeptic nationalist party.
With all ballots counted, the biggest vote-winner was the conservative National Coalition Party, part of the outgoing center-right government and a strong advocate for European integration.
But its main ally, the Center Party led by Prime Minister Mari Kiviniemi, said it would drop out of the government after falling behind two opposition parties that have challenged eurozone bailouts.
The anti-immigration and staunchly euroskeptic True Finns don't see why Finland should rescue Europe's "squanderers," while the Social Democrats have called for changes to how they are funded.
The outcome means conservative leader Jyrki Katainen will have to invite at least one of them to coalition talks, raising questions about Finland's support for rescue packages that need unanimous approval in the 17-member eurozone.
"This result will give Europe gray hairs," political analyst Olavi Borg said. "It will cause them problems over the bailout funds."
"We can work with any party, as long as the election result and government program make it possible," said Katainen, the conservative leader.
Asked if he can strike a deal with the True Finns on aid to Portugal, Katainen said: "When responsible people sit at the table and discuss matters with Finland's interests at heart then solutions always will be found."
The biggest loser was Kiviniemi's Center Party, dropping 15 seats and a quarter of the support it had in the last election in 2007.
"It would appear to be a crushing defeat for us," the prime minister said, adding her party would go into opposition.
Finland has pledged about euro8 billion ($11.5 billion) in guarantees of a total euro440 billion ($634 billion) in the eurozone's main bailout fund. But those likely will increase significantly as the currency union completes a promised boost of the fund's lending capacity.
"We are five-and-a-half million people," said Tuula Kuusinen, a True Finn candidate campaigning in Helsinki. "We have to stop giving money to every other country. We just can't afford it." If the Center Party does indeed drop out of any coalition prospects, the math changes substantially. The Nationalists will have to deal with either the True Finns, or the Social Democrats (or both) and both oppose bailouts. Note that even a coalition of the Nationalists and the Social Democrats is still 10.5% short of a majority. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Zhou Pledges More Tightening; Moody's downgrades China Property; Clouds Over Global Economy; Yuan Reserve Currency Hype Posted: 17 Apr 2011 12:06 PM PDT Storm clouds are gathering over the global economy but few investors see them as bullish sentiment on equities and bearish sentiment on the US dollar mount. The European economy is hugely imbalanced yet the ECB is tightening, the property bubble in Australia has popped, cutbacks in state budgets will hit the US, and China Raises Reserve Ratios as Zhou Pledges More Tightening in order to combat inflation an rampant property speculation. China increased banks' reserve requirements to lock up cash and cool inflation, and central bank Governor Zhou Xiaochuan said monetary tightening will continue for "some time."
Reserve ratios will rise a half point from April 21, the People's Bank of China said on its website yesterday, pushing the requirement to a record 20.5 percent for the biggest lenders. The move came less than two weeks after an interest- rate increase. Zhou sees no "absolute" limit on how high reserve requirements can go, he said April 16.
"Our monetary policy will continue to move from moderately loose to prudent," Zhou said at a briefing in the southern Chinese province of Hainan, where he attended the Boao Forum for Asia. "The trend will continue for some time." He said that the government will "remove the monetary factors that are related to inflation," echoing comments made by Premier Wen Jiabao.
In China, inflation accelerated to a 5.4 percent annual pace in March, largely driven by food costs, a statistics bureau report showed three days ago.
Officials are grappling with the aftermath of a record 17.5 trillion yuan of lending over 2009 and 2010 that drove up property prices, leading to official concern at the risk of social discontent. Taming inflation is the government's top and "urgent" priority, China's cabinet said after meeting in Beijing to review the performance of the world's second-biggest economy ahead of the release of the quarterly GDP numbers.
The most recent rate increase, effective April 6, took key one-year borrowing costs to 6.31 percent and the deposit rate to 3.25 percent. While higher rates can attract "hot money," or speculative capital, the size of the Chinese economy means that such inflows are not always a problem, according to Zhou. Moody's Downgrades Mainland China PropertyChina Daily reports Moody's downgrades mainland property on gloomy fundamentalsMoody's Investors Service downgraded its outlook on the mainland property sector to "negative" from "stable" on what it says are gloomy fundamentals for developers over the next 12 to 18 months.
Under a tough operating environment driven by tightening regulatory measures, rising interest rates, reduced bank lending and increasing supply, mainland developers will inevitably encounter slowing sales, shrinking profit margins and liquidity pressure, according to the rating agency.
It also anticipates that the proceeds from contracted sales of residential homes will decline by an average 25 to 30 percent in first and second-tier cities this year.
According to a Moody's liquidity stress test on 38 mainland developers, 10 of them - all of which are listed in Hong Kong including Shimao Property Holdings Ltd and Central China Real Estate Ltd - will become "vulnerable" in terms of balance sheet liquidity if their contracted sales decline 25 percent this year compared with 2010.
Du Jinsong, head of China property research at Credit Suisse, told China Daily he agrees the finding of Moody's, adding that Credit Suisse has been underweight mainland property since October 2010.
The investment bank expects mainland home prices to slide 5 to 10 percent this year with trading volume to drop 10 to 15 percent. I expect a bloodbath, not a 5% pullback. Once sentiment changes it will likely be gone for a long while just as happened in the US. China's Sovereign Wealth Fund Manager Sees Clouds Over Global EconomyThe Wall Street Journal reports China Fund Chief Highlights Caution on Global Economy The head of China's sovereign wealth fund, China Investment Corp., said he sees gathering clouds over the global economy, with the continuing debt crisis in Europe, no end in sight to the U.S. property slump and natural disasters that have set back a nascent recovery in Japan.
Lou Jiwei's generally pessimistic outlook for the developed world summed up a broad theme of anxiety at two high-level meetings on the Chinese tropical island of Hainan over the past week: the Boao Forum for Asia, which brings together Asian business and political elites, and a summit of the Brics economies of Brazil, Russia, India, China and South Africa.
Addressing the Boao Forum on Sunday, Mr. Lou said that measures to combat inflation in emerging countries will likely lead to a slowdown in their growth. China's economic growth is widely expected to slow to around 9.5% this year, below last year's 10.3% expansion.
Mr. Lou said emerging markets would carry the global economy along this year, but the momentum could slow in 2012. That could threaten growth in Europe in particular, he said, because it is increasingly reliant on exports to emerging markets even as it grapples with a sovereign debt crisis.
The difficulties would be exacerbated if the U.S. started to withdraw its fiscal stimulus at the same time, Mr. Lou said. In Japan, there is a growing chance of a "major slowdown," he said.
Meanwhile, divergent views on the potential role of the Chinese yuan as a reserve currency emerged at Boao.
Mr. Dai, chairman of China's National Social Security Fund and former chief of its central bank, said on the panel that China will likely need at least 15 years to make the yuan a fully internationalized currency, with full convertibility and other attributes of current reserve currencies such as the dollar.
"The yuan's internationalization is a long-term process," he said. "My estimate is not conservative."
Officials including from France and the U.S. have proposed that the yuan become a component of the special drawing rights, an artificial reserve currency created by the International Monetary Fund. The SDR is now made up of the dollar, the euro, the yen and the British pound. But officials have differed on what changes to China's exchange-rate system that would require.
China's government, while promoting the internationalization of the yuan, has shied away from the idea because of concerns that it may involve bigger, faster changes than Beijing wants to make.
However, Chinese central bank Gov. Zhou Xiaochuan on Friday hinted at support for the idea. "If someone suggests that the RMB should be in the SDR, I welcome this kind of opinion," Mr. Zhou told a panel discussion, using another common term for the yuan.
Former U.S. Treasury Secretary Henry Paulson on Friday dismissed the idea that the yuan could become a reserve currency anytime soon, or even a component of the SDR. He said such moves would require significant further liberalization of the yuan, which is now tightly controlled.
"To me a reserve currency has got to be one that is liquid and is convertible and whose value is determined by the markets, not by governments," Mr. Paulson said. Reserve Currency HypeIn spite of all the hype everywhere about the Yuan as a reserve currency, the idea is complete nonsense given issues regarding convertibility, property rights, civil rights, and the nature of China's command economy in general. Moreover, given China's massive property bubble and unwarranted infrastructure build-out, the Chinese banking system is as bad a shape if not worse than other major countries. It is not even clear the Yuan is undervalued. Paulson has this correct. SDRs are nothing but hype as well. No one trades in SDRs. Moreover, any country that wants to keep reserves in a basket of currencies is free to do so now. Baskets of currencies will not fix any structural problems anywhere. Thus, all these little arrangements where China trades in the Yuan with its neighbors are essentially irrelevant. Articles like China "Attacks The Dollar" - Moves To Further Cement Renminbi Reserve Currency Status are complete silliness. Countries Like to BitchThe BRICs are bitching, with a legitimate reason. Countries like Brazil are mainly bitching about global currency debasement, led by the US and ironically by China. However, bitching will not solve any structural problems, nor will SDRs. In fact, if baskets do not resemble actual trading patterns, they would exacerbate the problems. Gold's Enforcement MechanismGold had an enforcement mechanism that paper currencies and baskets of paper currencies lack. That enforcement mechanism is easy to explain: Countries that run trade imbalances long enough and fiscal deficits deep enough, eventually run out of gold. When Nixon closed the gold window, the last set of controls on reckless monetary expansion went out the window. Neither SDRs nor the Yuan is any part of a reasonable solution, nor is the Yuan likely to be any kind of reserve currency any time soon for reasons explained. Nonetheless, expect the hype to continue because global imbalances are still large and growing, and also because people like to hype. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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