Mish's Global Economic Trend Analysis

Chinese Manufacturing Contracts, Gauge Hits 32-Month Low; Soft-Landing Nonsense; Global Recession is Here
Showdown in Greece; EU Gives Deadline on Signatures; Samaras Won't Sign, Sends Letter Instead, Seeks Policy Changes
European Commission Staff Threatens Strike; Would Anyone Notice?
IMF Announces New "Precautionary and Liquidity Line"; Fed Discusses More Stimulus; Both Much Ado Over Nothing; Expect Continued Bull Market in Meaningless Headlines
Three Easy Steps to Getting Rich Quick in Bear Markets
UK Prime Minister "Our Plan to Cut Debt is Failing"; Plans to Cut Debt Fail Nearly Everywhere; One Success Story
Perfect Storm the Most Likely Scenario; Is Europe Set to Declare a Chapter 11 in Early 2012?
Hungary seeks Aid from EU, IMF; Austrian Banks Told to Limit Lending to the East; No Government in Belgium Since June 2010, Negotiator Quits

Chinese Manufacturing Contracts, Gauge Hits 32-Month Low; Soft-Landing Nonsense; Global Recession is Here

Posted: 22 Nov 2011 08:03 PM PST

The global recession has begun. Europe is undeniably in recession, the US is on the way, and Chinese manufacturing just entered contraction.

MarketWatch reports China manufacturing gauge shows contraction

HSBC's preliminary China manufacturing survey fell to a 32-month low in November, well below analysts' forecasts, with the reading signaling the sector is now contracting.

The Purchasing Managers Index printed at 48.0 on a 100 point scale, reversing from a mildly expansionary reading of 51.0 in October, HSBC reported Wednesday.

Consensus forecasts for had called for a 50.1 result, just above the 50 level that separates expansion from contraction, according to CNBC.

"As inflation is likely to decelerate at a faster-than-expected pace, it will leave more room for Beijing to step up selective easing measures, which should gradually filter through to keep China on track for a soft landing," HSBC economist Hongbin Qu said in comments accompanying the flash PMI release.

Soft-Landing Nonsense

Everyone is looking for the Fed, the ECB, and the Chinese Central Bank to steer the global economy to the proverbial "soft-landing".

Yet the fact remains, trillions of dollars have been spent already, hoping to forestall another recession. Every action has added to debt in the US, UK, Japan, and Europe, and created a huge inflationary construction boom in China.

Crude is still hugging $100 a barrel. Food prices are up. Is the Fed going to launch another round of QE into that? I doubt it. I doubt China does either, especially with a regime change coming up.

Is Congress going to approve stimulus changes that would help Obama get re-elected? The idea is laughable.

Crash Landing

Should central banks step in, watch for gold, crude, and oil prices to rise, and little else to happen. Central banks and world governments have applied so much totally useless Keynesian and Monetarist stimulus to prevent the inevitable, there may be no landing at all (soft or hard), until a global crash.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Showdown in Greece; EU Gives Deadline on Signatures; Samaras Won't Sign, Sends Letter Instead, Seeks Policy Changes

Posted: 22 Nov 2011 06:02 PM PST

European officials have had enough of the technocrat leadership in Greece. They have given a week for Antonis Samaras, the leader of New Democracy party, and member of the coalition to sign a document saying he will support the European Union debt plan.

He says he will support the plan (with modifications). The EU wants a signature now, with no changes.

Does a Signature Even Matter?

Other than pigheadedness on behalf of the EU, does a signature even matter? Why? The next government can easily vote to undo whatever this government does. Will Samaras remain in power? Is his signature binding on the next parliament (or even this one)?

I will have more questions in a moment but first consider a couple of articles.

EU Gives Deadline on Signatures

Ekathimerini reports EU sets deadline for signatures

European officials insisted on Tuesday that party leaders in Greece's coalition government must provide written guarantees expressing their commitment to a new European Union debt plan before a Eurogroup summit next Tuesday to unlock crucial rescue funding. But center-right New Democracy appeared unmoved and the right-wing Popular Orthodox Rally (LAOS) -- the third party in the coalition -- appeared to harden its stance against the country's creditors.

Sources in Brussels told Kathimerini that the EU decided to send Athens the ultimatum after talks between European Commission President Jose Manuel Barroso and New Democracy's vice president Stavros Dimas, who is also foreign minister, failed to secure a shift in the stance of ND president Antonis Samaras, who has refused to offer written guarantees to Brussels, saying his word should be enough.

Eurogroup chief Jean-Claude Juncker, who received Greek Prime Minister Lucas Papademos in Strasbourg, said he hoped party leaders would fulfill EU demands by Tuesday. "Would there be no cross-party agreement, that disbursement of course could not take place," Juncker said, referring to an 8-billion-euro loan without which Greece faces default next month.

There was pressure from elsewhere too. Dutch Finance Minister Jan Kees de Jager said his country would bar further aid unless Samaras changes his tune. "We want to see a signature from Mr Samaras… otherwise, as far as I am concerned, they will get no money. Absolutely not." But ND spokesman Yiannis Michelakis indicated that ND's leader was unmoved. "I have nothing to add on the issue of the signature that is being asked of Samaras," he said.

Meanwhile the leader of LAOS, Giorgos Karatzaferis, shifted from his earlier suggestion that he would do "everything necessary" to secure crucial loans, saying that instead of signing a letter, he would write an article outlining his commitments in his party's newspaper.

Samaras Won't Sign, Sends Letter Instead

Athens News reports Samaras won't sign, EPP letter published

As the pressure mounts on the major Greek party leaders to provide written support for the October 26/27 eurozone deal, New Democracy (ND) president Antonis Samaras has reiterated his stance that he will not sign such a statement.

ND party spokesman Yiannis Mihelakis stressed on Tuesday that he has nothing further to add on the issue of Samaras' signature over commitments requested by the EC-ECB-IMF 'troika'. Mihelakis added that Samaras has made specific statements saying he backs the October 26 EU summit agreement, adding that no request has been made on behalf of the European Union as regards the ND leader's signature.

In the letter, Samaras underlines the fact that he supports Prime Minister Lucas Papademos and the targets of fiscal adjustment but notes that "certain policies have to be modified".

Policy Changes?

Who blinks first? Samaras or the EU?

While pondering that question, consider this logic from my friend Bran who every day sends me links like those above.

Bran writes ...

Imagine a US bill launched by the Democrats affecting international shipping. Suppose the bill gets a mixed vote and passes.

Along come the Chinese who are part beneficiaries of the bill and they then insist not just the President sign it, but also demand the head of the Republican party to do so, or they will not abide by their reciprocally enacted legislation.

Just imagine that setup and tell me how Speaker of the House John Boehner or Senate Minority Leader Mitch McConnell might react.

Even if the Congressional leaders did sign such a document, would it be binding on the next Congress?

In the case of Greece, elections will be held early next year (supposedly). With all these demands and all this political posturing, one has to wonder.

I for one hope Samaras holds firm and does not sign. The quicker the Eurozone blows up, the better it will be for everyone.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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European Commission Staff Threatens Strike; Would Anyone Notice?

Posted: 22 Nov 2011 04:19 PM PST

The Eu Observer reports EU staff to go on strike

EU staff unions have re-iterated their threat to go on strike after negotiations with the European Commission failed to produce an agreement on a new package of pay and pension changes.

"If Sefcovic does not reopen the negotiations, we will go on strike," said Felix Geradon, secretary-general of the Union Syndicale, the biggest of the eleven within the institutions.

Earlier this month, the unions gave the commission a strike notice, giving warning that they are prepared to down tools for one day any time between 23 November and 17 December, a move that would practically shut down the European Commission.

Would Anyone Notice?

The key to answering that question is found in the preceding paragraph: the strike "would practically shut down the European Commission".

If true, people might notice a stunning improvement in productivity, fewer stupid rules as described in EU Bans Claim "Drinking Water Can Prevent Dehydration" Expect More Such Stupidity if European Nanny-Zone Fiscal Union Forms, and a general overall improvement in economic confidence.

Unfortunately, such a productivity-improving strike would likely not last long enough for people to notice the EC is (at best) totally useless, and at worst economically damaging in a major way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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IMF Announces New "Precautionary and Liquidity Line"; Fed Discusses More Stimulus; Both Much Ado Over Nothing; Expect Continued Bull Market in Meaningless Headlines

Posted: 22 Nov 2011 11:28 AM PST

The market spurted higher mid-morning over new and improved credit lines by the IMF, and another never-ending discussion by the Fed about increasing liquidity.

Bloomberg reports IMF Revamps Credit Lines to Lure Nations

The Washington-based IMF today said the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Countries with potential needs can also apply, as they did in the past under the Precautionary Credit Line that the new instrument replaces.

"The reform enhances the Fund's ability to provide financing for crisis prevention and resolution," IMF Managing Director Christine Lagarde said in an e-mailed statement. "This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness."

The changes, which enable countries that pre-qualify to request IMF funds without having to make as many policy changes as with traditional loans, come as Europe's crisis threatens to spread to Spain and France. The IMF is co-financing bailouts in Greece, Portugal and Ireland and is preparing to send a team to Italy for an unprecedented audit of the country's efforts to cut its debt.

The Standard and Poor's 500 Index pared losses after the report.

Not Big News

Via email, Bank of America / Merrill Lynch says "This is Not Big News"

The IMF has announced some easier access to their limited supply of funds (as below). Despite the eye catching headlines, BofAML do not think that this is particularly new news, nor that financially impactful, unfortunately except possibly for smaller countries and even that is unclear.
Thanos (ex-IMF): Thinks the IMF's PLL is in no way a game changer by itself. The PLL could be used in east Europe. It could also be used in Italy and Spain, but more for its conditionality than for its limited firepower compared to funding needs. And in any case, an SBA or even an EFF would be better for Italy and Spain, as such arrangements have more conditions linked to reforms.
Laurence Boone (Head of Euro Econ): Thinks this does not necessarily mean more money. It means easier access to IMF money. In 2008/09 euro national central banks lent about $75bn to the IMF, a repeat of this lending is something they may or may not be able to repeat this time.
Ardash (BofAML APAC): Points out the PLL was flagged during the G20 summit and mentioned in its communique - officials have already suggested it would be more appropriate for financing needs of smaller countries, rather than the big fish (Italy and Spain).. even 10x quota is simply not enough, let alone judging whether they are committed to "sound policies".

Expect Continued Bull Market in Meaningless Headlines

Note the market continues to move on meaningless headlines. Also note the duration of each move higher keeps getting shorter. That means we can expect a huge bull market in meaningless headlines as EU officials, Eurozone officials, and the IMF keep searching for things to say to placate the markets.

"Lure" the Perfect Word

By the way, Bloomberg's headline title is near-perfect. The phrase "lure nations" is appropriate. "To their economic death" needs to be added.

This is what I think of the IMF as noted in To Ireland With Love.

IMF's Trojan Horse Gift to Ireland

I believe we have all heard the story and know how it ends.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Three Easy Steps to Getting Rich Quick in Bear Markets

Posted: 22 Nov 2011 09:11 AM PST

Here is a humorous chart from a nice E-Wave site called Pretzel Logic's Charts and Analysis.

Nasdaq 100 Index

click on chart for sharper image

The above chart is from SPX 1000 Here We Come (Right Back Where We Started From) in which Pretzel writes ...

The NDX just completed a major top formation. On Thursday, the support level of this top was broken, and on Friday, the NDX spent all day unable to rally back above it. The chart also has some helpful hints on how to "get rich quick" in a bear market -- assuming you have enough capital to move the market, that is.

Those of you who are into technical analysis in general, and E-Wave in particular, may wish to check out Pretzel. He has many e-wave charts in the above link and lays out the technical case for a big downdraft quite nicely, complete with an alternate bullish possibility.

Three Easy Steps to Getting Rich Quick

Those of you not into technical analysis but with a proven ability to move the markets, please note these three "easy" steps toward guaranteed profits.

Step 1: Generate quick run up off the lows, using shorts as fuel.
Step 2: Distribute as much of your overvalued inventory as possible to retail investors. Schedule press release "New Bull Market"
Step 3: Let the market go again. Buy back your old inventory at much lower prices. Rinse and repeat.

More seriously, on a fundamental and technical basis, this is not a market to be messing with unless you know how to hedge. Moreover, if you don't know how to hedge, this is not the time to learn how.

Odds of a big market breakdown are both high and rising.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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UK Prime Minister "Our Plan to Cut Debt is Failing"; Plans to Cut Debt Fail Nearly Everywhere; One Success Story

Posted: 22 Nov 2011 08:11 AM PST

Plans to cut debt have failed nearly everywhere I look.

Greece is obvious enough and a government collapsed over it.
Spain is obvious enough and a government collapsed over it.
Italy is obvious enough and a government collapsed over it.
Portugal is obvious enough and a government collapsed over it.
US is obvious enough and the failure of the super-committee to come to agreement is proof enough

In the UK, news is just as "reassuring" as Prime Minister David Cameron says "Our Plan to Cut Debt is Failing"

David Cameron and his senior ministers have admitted for the first time that there is a danger they will not be able to tackle borrowing on time.

The Prime Minister on Monday conceded that tackling Britain's debts was "proving harder than anyone envisaged", raising the prospect that the Coalition would be unable to close the deficit by 2014-15.

That would rule out any significant tax cuts before the next election. It also raises questions about the Coalition's fundamental purpose.

Departing from the deficit-reduction timetable could raise fears that Britain will face rising borrowing costs as bond markets take fright.

Debt is "a drag on growth", Mr Cameron told business leaders. "We are well behind where we need to be," he said.

Kenneth Clarke, the Justice Secretary, has warned that the global economy is "in a devil of a mess", which is "bound to have an effect" on the Coalition's plans to clear most of the deficit before the next election.

The candid remarks pave the way for George Osborne, the Chancellor, to admit next week that his target will be missed and the structural deficit will not be erased until at least 2015-16.

The odds Cameron will succeed by 2016 are the same as the odds he would succeed by 2014. Zero.

At least the UK admits failure. In the US we have a situation best described as Mission Accomplished: Nothing; Kerry Says No Problem "Lawmakers Have a Year"; Boehner's, Pelosi's "Moral Obligations" Fly Out the Window

Mission a Brilliant Success, Achieves 100% of Its Goals

The Super Committee accomplished nothing, as expected, and more importantly, as designed. Neither political party really wanted to do anything about the deficit (because it would cost them votes). By D.C. standards this mission was a "brilliant success". It achieved its purpose, which was to do nothing. Both parties got the smoke-and-mirrors delay they wanted, while pointing fingers at the other side.

One Success Story

Those looking for a success story can find it in Iceland. It truly is different in Iceland because Icelandic citizens were actually give a chance to vote on what to do, and vote they did against the wishes of parliament, to tell the IMF and EU to go to hell (twice I need to add, because incompetent politicians were hell-bent on stopping default following the first vote).

Iceland defaulted. The result has been spectacular. Iceland is well on its way to recovery.

Meanwhile, PIIGS flounder around like fish out of water, shoved bales of austerity and ordered by outsiders and unelected officials to breathe.

The current situation is hopeless. Politicians either need to accept that fact, or put things to a vote like Iceland did.

Serious restructuring and a breakup of the Eurozone is the only solution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Perfect Storm the Most Likely Scenario; Is Europe Set to Declare a Chapter 11 in Early 2012?

Posted: 22 Nov 2011 02:18 AM PST

Panic is spreading says Steen Jakobsen, chief economist at Saxo Bank. Steen eyes the perfect storm including a potential "Chapter 11" call for European banks.

Via Email

This morning there is too much bad news.

US Super Committee failed to find the 1.2 trillion US Dollar needed to stop the automatic spending cuts being initiated from 2012, but the more acute problem being the expiration of the payroll tax and the emergency benefits by year-end 2011. It now looks less likely a deal can be struck as Congress now have even less incentive to find common ground ahead of next year US election.

The immediate impact could be a full one percent slower growth in the US – Goldman Sachs provided this excellent graph detailing the potential negative impact: The number could be -2.0% to -0.5% in first two quarter of 2012 – again underlining our believe in an economic perfect storm as the most likely scenario:

click on chart for sharper image

The debt crisis is taking a new negative turn – as seen in prior liquidity crisis' the EMG Europe bloc comes under attack and this morning there are two extreme worrisome news pieces out:

Hungary seeks Aid from EU, IMF: Hungary have submitted formal request to the EU and IMF for help. Hungary feels this is needed to secure risk-free growth for the economy – talks should be concluded in early 2012.

Austrian banks told to limit lending to the east: Basically, they need and want to protect their AAA and they seems to believe, rather naively, that the best way is to cut lending to the their EEC bloc lending. Again the credit-cake is getting smaller.

Finally, another core country Belgium may lose its caretaker PM – Belgium been without elected government since June 2010! – the political landscape in Europe getting slightly concerning:

Greece – Technocrat – non-elected Government – Opposition still refuses to sign EU letter.

Italy – Technocrat- non-elected

Spain – new majority government, but on the basis of big no to austerity from prior government, not exactly vote of confidence to fiscal restraint.

France- Election next year – Marine Le Pen could surprise in the polls, as the French election is two rounds. She is making heavy anti-EU noises and starting to raise her campaign

Belgium – Belgian chief government negotiator asks to quit.

Keep an eye on Belgium rates today – they have risen from 3.6% in early October to now close to the magic 5.00 which spells trouble, with capital T…

Conclusion

Market bounced of the 1180-00 target for now, but a test still looks like on the down-side as 2012 more and more looks like one big perfect storm both politically and economically. This is not the time to be brave. This week will see dramatic revisions to US growth based on Super Committee failure, and same for Europe as PMI will show lacking confidence. This is now full blown "confidence crisis" – there is increasingly a need for my call for "Chapter 11" for Europe.

Safe travels,

Steen Jakobsen | Chief Economist

Chapter 11 in early 2012?

On his blog, Steen asks Is Europe set to declare a Chapter 11 in early 2012?

Europe may need to pull a Chapter 11 – a US-style bankruptcy, which would permit a market shutdown and Euro Zone reorganization before reopening for business.

The EU desperately needs a break from market pressures in order to allow the political apparatus to really gather its forces and finally move Europe and its debt crisis ahead of the curve. Here we are just a couple of weeks after the feeble attempt to apply an EFSF plaster on the problem and we're already back to Square One: the EU debt crisis has reached the point at which none of the readily available tools or institutions are sufficient to match the magnitude of the crisis. This dictates the need for an out-of-the-box solution.

EU policy makers played the extend and pretend game for as long as they could - but now the writing is on the wall: popular outrage is on the rise and putting increasing pressure on the political process - as we are seeing increased demonstrations and grass-root activity taking over both the political agenda and the media. And markets are now balking as empty promises and now a real lack of funds are seeing bond yields beginning to spike out of control. The self-reinforcing cycle of downgrades and austerity and recession are taking us to the very brink of a full scale Crisis 2.0.

It's important to point out that politicians will only do something drastic in a true state of emergency, so one catalyst we've yet to see to prompt action is a serious drop in the stock market.

The extend-and-pretend policies that have continued through 16 EU Summits have only led us to a Catch-22 in which everything that is done with good intentions (or not) is to the detriment of something else.

So what form might a Chapter 11 for the Euro Zone take? It is increasingly likely that some kind of total "bank holiday" is enforced to put a stop to market pressures – and then to reinforce and relaunch a stricter EU Growth and Stability Pact as a price for cranking up the ECB printing presses to full speed.

Before accusing me of lunacy on my idea of a market holiday, it's important to point out that banking holidays are not without precedent. In 1933, President Roosevelt declared a bank holiday that ran for an entire week in March of 1933, during which he passed the Emergency Banking Act and the Federal Reserve moved to supply currency to banks.

After 9/11 we also had a "forced" bank holiday. The banking panic of 1907 saw massive illiquidity and bank closings as can be seen in this excellent link. The main point for 1907 however remains: The biggest and most solvent banks survived, the small ones failed – 73 banks failed but it created a rebirth which catapulted the stock market higher.

Germany and Northern Europe understand that printing money at the ECB will not solve anything, as it would only throw more debt on an already back-breaking load. But if this bloc countries wants to buy time to implement stronger constitutional changes, the most path is a quid-pro-quo solution in which Germany gets a stronger Growth and Stability Pact implemented, not only into EU law, but also ratified as part of a new standard for restrictive fiscal policies with built-in debt breaks for all individual countries. Germany gets it "discipline leads to growth" for the long term, while the Keynesians get their "liquidity fix" from the ECB.

In short, the main issues are the following (in no particular order of prioritization):

Time is up – the market needs solutions, not plans for plans. The timeline for Political Europe is way too slow for market comfort.

Interbank funding is starting to freeze over. Every day sees risk factors pointing higher and a systemic liquidity crisis could develop at any time.

Financing gap. EFSF has 440 EUR 440 billion (though it has never been funded). Some estimate that Italy and Spain need EUR 400-500 billion per year to refinance and recapitalize its banks – per year! Talk about mismatch of supply and demand.

Lack of constitutional frame-work to establish or enact changes.

Democratic and constitutional rights are close to being violated, if not in the letter of the law, then certainly in the eyes of the voters.

As we head into 2012, I am increasingly convinced that we have an almost perfect economic and political storm brewing on the horizon.

Germany Will Not Go Along

The obvious flaw in the idea of a Europe-wide bank holiday is Germany.

The German supreme court has ruled there must be a voter referendum for these kinds of changes. Would Merkel risk putting the German Supreme court to that test? I highly doubt it.

Individual countries, notably Greece, are another matter as I have mentioned a couple of times recently. For further discussion, please see...

Greece is at the breaking point now if they do not get the next tranche of money, and it still is not clear they will get it. If Greece left would Portugal be far behind? It's hard to say for sure.

Might Italy decide on a bank holiday? Yes, that is possible too, just not as likely, at least right now. It may be a different matter after the next election.

The ideal solution would be for Germany to leave. Might that involve a Eurozone-wide bank holiday? Certainly, just not yet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Hungary seeks Aid from EU, IMF; Austrian Banks Told to Limit Lending to the East; No Government in Belgium Since June 2010, Negotiator Quits

Posted: 22 Nov 2011 01:22 AM PST

Credit stress continues in Europe with a spotlight on several countries, none of the typical culprits.

Hungary Seeks Aid From EU, IMF

The Wall Street Journal reports Hungary Seeks Aid From EU, IMF

The European Commission said Monday that it has received a formal request from Hungary to receive financial assistance from the European Union and the International Monetary Fund.

"The Commission will examine the authorities' request in close consultation with EU member states and the IMF," the commission, which has antitrust powers in the EU, said in a statement.

In a separate statement, International Monetary Fund Managing Director Christine Lagarde also said it has "received a request from the Hungarian authorities for possible financial assistance."

The ministry said it expects to start the negotiations before Christmas, with a new agreement to be concluded in the initial months of 2012. It didn't disclose details on the nature of the requested IMF support. The government would seek a deal with the IMF on an insurance contract to reassure investors and to allow Hungary to raise the capital it needs, it said.

No Government in Belgium Since June 2010, Negotiator Quits

Belgium is still without a government and has been since June 2010. Every time there has been a hint of a breakthrough, the setup collapses. Fed up with lack of progress, the Belgian chief government negotiator asks to quit

BRUSSELS: The lead negotiator in Belgium's drawn-out government formation tendered his resignation on Monday after talks for a 2012 budget ground to a halt, a move which threatened to derail the country's near 18-month search for a new administration.

Elio Di Rupo, leader of the French-speaking Socialists, had attempted to form a government based on a six-party coalition of Dutch and French-speaking Socialists, Liberals and Christian Democrats but there was little common ground on how to make the budget cuts mandated by the European Union.

Parties in the debt-heavy country had sought to save 11.3 billion euros and keep the country's deficit below 2.8 percent of gross domestic product (GDP), in line with EU rules, but could not agree how to divide the deficit reduction between new taxes and savings.

When the budget talks, which are essential to the formation of a new government, made no progress on Monday, Di Rupo handed in his resignation to the country's monarch, King Albert II.

Di Rupo handed in his resignation once before, in July, when talks over the electoral boundaries collapsed. At that stage the palace did not accept his resignation and talks resumed shortly after.

Belgium has come under market pressure over its lack of a new government and sovereign debt nearly as big as its GDP, with its cost of borrowing increasing steadily. Spreads between Belgian 10-year bonds and benchmark German Bunds rose sharply in November, going above 300 basis points, up from 103 basis points at the start of 2011.

Belgium's interim government, headed by Yves Leterme, is preparing an emergency budget, based on the 2011 budget.

Austrian Banks to Limit Lending to East

The Financial Times reports Austrian Banks Told to Limit Lending to East

Austrian bank supervisors have instructed the country's banks to limit future lending in their east European subsidiaries, a further sign of the potential knock-on effects of the eurozone crisis for economies around the world.

The restrictions come as Austrian officials seek to defend the country's AAA credit rating, amid concerns that the government might have to bail out its banks because of losses in central and eastern Europe, where they are the biggest lenders, and their exposure to Italy.

The moves by Austria, which appear to be unilateral, show how even the eurozone's strongest economies are feeling the pressure of the sovereign debt crisis.

The Austrian central bank said in a statement that Erste Group, Raiffeisen Bank International and Bank Austria, owned by UniCredit of Italy, would be prevented from loaning significantly more in CEE countries than what they raise in local deposits. Subsidiaries that are "particularly exposed" must ensure the ratio of new loans to local refinancing is not more than 110 per cent.

The three banks' CEE exposure exceeds Austrian GDP, raising concerns that the government would be unable to bail them out if their loan portfolios turned sour. The announcement came just as the spreads of Austrian bond yields over German Bunds rose to record highs and was also designed to calm market jitters, a central bank official said.

A quick check of Belgium 10-year government bonds shows the yield has risen to 4.87% vs. 1.91% for Germany.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Mish's Global Economic Trend Analysis

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