The ECB announced that half of the LTRO participants – 278 banks voluntarily pay back € 137 billion to the ECB. LTRO is the ECB´s lending program worth a little bit more than € 1 trillion which had provided liquidity to 523 banks a year ago. It means that € 882 billion remain outstanding (86%) in less of 50% of banks. The ECB did not announced country breakdown but it is very likely that 278 banks which will pay back are from the core of the Europe and which do not want to have a label of the LTRO. The rest of money is therefore very probably concentrated in the banks from periphery. If some statistic data would show some recovery in Europe it could be considered as positive signal of increasing confidence within the banking sector. But as Moody´s warned it seems to be very probably that European banks especially in Spain, Italy, Ireland and UK will need more cash this year to cover losses from their bad loans. To be careful is always meaningful. Otherwise you will not be surprised by any news as for example that the oldest bank in Europe Banca Monte dei Paschi di Siena was involved in derivate trades with Deutsche Bank in 2008 which allegedly caused huge loses. How much is not revealed yet. Another problem connected with the European banking sector is decreasing of housing prices. Standard & Poor’s has warned that it expect downturns in nominal prices all over Europe except Germany where it predicts 3% nominal rise of housing prices.
David Cameron gave an important speech last week about UK position within EU. He promised that if he would be re-elected in 2015 he will announce referendum in the country till 2017 to let the people to decide if UK remains in the EU. We could consider this speech as buying time. 2017 is too far ahead and everything could happen in the EU. The EU need not be the same necessarily as is today because many Germans are against further spreading of Brussels competences as well. Angela Merkel responded on the speech very diplomatic and said that „We are prepared to talk about British wishes but we must always bear in mind that other countries have different wishes and we must find a fair compromise.”
The financial transaction tax was approved by 11 EUs member states. Its purpose is to help to pay for a bailout of EU banks. The UK but also Czech Republic was against the tax. The tax would be applied to anyone in the 11 countries who makes a bond or share trade or bets on the market using complex financial products called derivatives.
The IMF 2013 outlook is not very optimistic. It predicts the GDP growth on 1.4% for advanced economies but fall of the GDP for the EU (-0.2%). Growth of Germany´s GDP should be on 0.6%, France 0.3%, but fall is predicted for Italy (-1%) and Spain (-1.5%).
Japan as expected unleashed its decision about historic easing of monetary policy. Bank of Japan set an inflation target of 2%, and announced unlimited QE. Inflation target has no fixed time and it will be very important what exactly will the BoJ do in the near future to achieve of set target. China is still growing although it was one of the smallest growths for last 13 years. Official statistic data (which need not be accurate) shows that largest economy expanded 7.8 percent last year and the same pace is expected for 2013.
The US Fiscal cliff situation was commented by Mrs. Lagarde the head of the IMF. The US House voted to suspend the debt ceiling until May 19 last week and Lagarde said that the US should to solve the problem definitely till that day. She unsurprisingly urged the US to raise its borrowing limit and warned that the US leading role is at stake. The Fed´s balance sheet hit a new time record $3 trillion as a consequence of its monetary policy of buying treasuries, mortgage bonds guaranteed and debts issued by government housing agencies. Real economy outcome? No real recovery, no real jobs, more people on food stamp program, more people on social programs and real threats of higher inflation.
Matúš Pošvanc