The hearing in front of the German Constitutional Court about the legality of the Outright Monetary Transactions (OMT) scheme of the ECB was on Tuesday and Wednesday, but the final verdict is not expected before autumn. The ECB reconfirm before the hearing that there is no upper limit of the program as a reaction to the German newspaper report published last week on Sunday. Report stated that the ECB had set a limit of 524 billion euros on the OMT scheme. “As indicated on various occasions, there are no ex-ante limits on the amount of Outright Monetary Transactions. Their size would be adequate to meet their objectives,“ said spokesman of the ECB. The German Constitutional Court is primarily is interested about legality of ECB actions and not whether the European Central Bank’s (ECB) was successful with its policy. I am not a lawyer but it seem to me that decision of the court will be complicated and not very clear if we realize that the OMT mechanism were not use anytime and in fact it is more an verbal intervention without any exact written rules and conditions. But expectations about the decision are in the mood that the court will tell something like “yes but …”.

Andy Haldane, Bank of England director of financial stability warned of the risk to global financial stability last week when he stated in a wide-ranging testimony to MPs „Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history … We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.“ The Bank of England immediately issued a statement that Haldane’s remarks were just his „personal views“ and stressed that „Any attempt to return interest rates quickly to more normal levels would recreate recession conditions.“

Switzerland will join the international push against tax dodgers and help develop global standards allowing banks to share customers’ details to combat tax evasion. This is a recommendation of a committee appointed by the finance ministry. This will mean the end of the tradition of bank secrecy in the country. According to Boston Consulting Group Switzerland is the world’s biggest offshore wealth management center. And it seems to end this primacy.

Spain’s credit rating stayed at BBB-. The rating remains at the same level because of the country’s commitment to the implementation of a comprehensive fiscal, structural reform agenda remains strong but outlook is still negative. But high unemployment, recession, shaken banking sector and budget deficits are not the best outlooks for the economy.

It could be Japan which causes some global financial meltdown due to the policy which consists of fiscal stimulus and monetary easing. Japan is one of the most indebted nations and the situation becomes more and more dangerous if we realize that Japan use almost 50 % of its tax revenues to service their government debt. But we needn’t be worried because Mr. Abe has a genial plan to promote buying government bonds by public which is very similar to former Soviet or German propaganda. So let´s meet the Japanese girl band whose skirts get shorter when the Nikkei rises and whose debut single called “Abeno Mix” has direct references to quantitative easing and construction bonds:

http://youtu.be/SlBk_TwWX0k

The U.S. budget deficit increased in May by 10 %. Outlays exceeded receipts by $138.7 billion last month compared with a $124.6 billion shortfall in May 2012. On the other hand the U.S.’s AA+ credit-rating outlook was increased this week after two years to stable from negative by Standard & Poor’s. The main reasons behind are that the U.S. has strong economy and monetary system and that the U.S. dollar has the world’s key reserve currency status. I think that the S&P should also wonder how the U.S. repays its debt worth more than $ 16 trillion. This is also the main reason why the FED is not able significantly taper its bond purchase program although investors are behaving as if they don’t believe to the FED (the yield on the 10-year Treasury note has risen to 2.15 percent from 1.63 percent). The only possibility to taper the program is to rely on presupposition that other central banks will boost their balance sheets and these stimuli go global and keep low yields in the US. Otherwise the U.S. government will have huge problems to service its government debt.

Matúš Pošvanc