22/7/15: Paging from the Planet Debt...

Ah, good old Europe... Austerity, Reforms, Structural Changes, Improved Competitiveness, Return to Growth... and rising, rising, rising debt.

Per latest Eurostat release (see here), euro area Government debt/GDP levels have hit 92.9% of GDP in 1Q 2015, up on 92.0% in 4Q 2014 and up on 91.9% of GDP in 1Q 2014. Year on year, Government debt rose from EUR9.179 trillion to EUR9.433 trillion.

Of the five most indebted (fiscally_ economies (excluding Ireland, which did not report 1Q 2015 GDP figures):

• Debt fell in the case of Greece by 8.3 percentage points between 4Q 2014 and 1Q 2015 to 168.8% of GDP; 
• Debt rose in the case of Italy by 3 percentage points to 135.1% of GDP;
• Debt fell 0.6 percentage points in Portugal to 129.6% of GDP;
• Debt rose 4.5 percentage points in Belgium to 111.0% of GDP;
• Debt fell 0.7 percentage points in Cyprus to 106.8% of GDP.

Italian debt is now at the highest level since the peak of Inter-war period in the 1920s:

Source: @Schuldensuehner 

Congratulations to the inhabitants of the Planet Debt...

22/7/15: Another ECB Plasma Bag for Comatose Greek Banks

Another lift for Greek banks' ELA via ECB - a EUR900 million click, as previously:

Once again, the situation remains unaltered - Greek banks remain tied to ELA for funding, while capital controls cannot be lifted under small tick increases in ELA. In effect, we have a nurse replacing the empty plasma bag for a comatose patient. Nothing new, nothing dramatic...

21/7/15: Central Europe's Lesson: Fixed Euro or Floating Exchange Rates?

The EU report on economic convergence of the Accession States of the Central and Eastern Europe (CEE10) makes for some interesting reading. Having covered two aspects of convergence: real economic performance and financialisation, lets take a look at the exchange rate regime impact on convergence.

This is an interesting aspect of the CEE10 performance because it allows us to consider medium-term impact of euro on CEE10. 

Basically there were two regimes operating in the CEE10 vis-a-vis the euro: fixed regime (with national currency pegged to the euro) or floating regime (with national currency allowed to float against the euro).

First, recall, that "out of the five CEE10 countries which have adopted the euro by 2015, four (i.e. Estonia, Latvia, Lithuania and Slovenia) already operated under fixed exchange rate regimes in 2004. In their case, euro adoption did not represent an essential regime change with respect to the role of nominal exchange rate flexibility in the convergence process vis-à-vis the EA12." 

Now, EU Commission would be slightly cheeky in making this statement, since while in the first order effect this is true, in the second order effect (expectations), this is not true - a peg to the euro could have been abandoned in a severe crisis, albeit less easily under the regime of ongoing financialisation of the CEE10 economies via foreign banks lending; however, once euro is adopted, no devaluation is possible even in theory. And this is not a trivial consideration, since policymakers know that should they mess up in the longer run, there will be a risk of peg abandonment, resulting in direct, transparent exposure of their policies-generated imbalances for all to see and in serious embarrassment vis-a-vis their European counterparts. In other words, the threat of devaluation as a feasible option could have actually acted, in part, to make peg regimes more stable.

But let us allow EU Commission their assumption (undefined as such) and chug on...

From EU own analysis: "Based on the GDP per capita in PPS data, there was no significant difference in the speed of real income convergence to the EA12 between fixers and floaters over the past decade, but there was a large degree of heterogeneity within both groups. Rather than the type of exchange rate regime, a more important relationship existed between the speed of catching-up and the initial income level, with less developed countries in general converging at a faster pace. Accordingly, the fastest growing economies were, among the fixers, the three Baltic countries and, among the floaters, Poland and Romania. In addition, Slovakia, which recorded one of the best catching-up performances, floated its currency until euro adoption in 2009 and the bulk of its real convergence over the past decade actually materialised before 2009." 

What does this mean? That nature of growth during the period was similar for floating and fixed regimes: both were driven by catching-up of economies, most notably via capital investment. Being fixed to the euro or not, it appears, had no effect on rates of convergence.

But, remember, euro is about stability, not growth. So the key test, really, is in volatility of convergence path, not the path itself. Per EU Commission: "The real convergence path of floaters was in general smoother than that of fixers. This was mainly due to the more pronounced economic overheating in the latter group prior to 2008, which then also led to a larger set back during the financial crisis." Oops… so staying closer to euro hurts. Having fixed rates, hurts. Bubbles got worse in countries with pegged rates. That is not exactly an endorsement of the euro-led regimes.

There's a caveat: "Nevertheless, fixers were able to again largely close their GDP-gap to floaters by 2012, as they enjoyed an export-led recovery, supported by internal price adjustment, structural reforms and favourable export market developments." Yep, that's right: austerity and re-shifting of economy toward external sectors, rather than domestic demand is the miracle that allowed for the fixed rates regimes convergence. That, plus unmentioned, monetary policy activism. 

Still, the view of boom-to-bust euro-driven economy for the fixed rates regime remains. Not that the EU Commission will acknowledge as much.

"The extent of price level convergence over the last decade mainly reflected differences in the speed of catching-up. That said, the average household consumption price level of fixers remained close to that of floaters until 2008, but it became significantly higher in the post-crisis period, as comparative prices of floaters fell." In normal English: deflation hit fixers, while floaters avoided it. 

Core conclusion (despite numerous caveats): "Floaters appear to have been in general able to benefit from their monetary autonomy to achieve a higher degree of price stability. In the pre-crisis period, faster growth and related overheating gradually drove up inflation in fixers significantly above the average inflation rate of floaters. Subsequently, larger output drops and the inability to depreciate against the euro implied that fixers generally also experienced more pronounced disinflation. From late-2010, inflation in the two groups developed quite similarly on average, but the variance was higher among floaters."

So final note on interest rates. Remember - convergence of rates irrespective of risk is one of the poor outcomes of the euro introduction in the EA12, fuelling massive asset bubbles in Spain and Ireland, fiscal imbalances in Greece and so on. In CEE10: "Over the past decade the benchmark long-term interest rate on government bonds was higher on average for floaters than for fixers, both nominally and in real terms. This is partly a consequence of the higher average public debt level among the floaters, but to some extent it is arguably also related to more exchange rate uncertainty inherent in floating." 

EU Commission grumbling acceptance of reality is almost entertaining: "Generally, it takes longer to regain cost competitiveness via internal price adjustment [something that fixed rates economies are forced to do] than via nominal exchange rate depreciation [something that flexible rate economies have access to] and the initial shock to the real economy is more severe. However, the internal adjustment is more permanent as it requires a structural solution to the underlying problems, whereas the temporary boost generated by nominal exchange rate depreciation can actually postpone the reforms necessary for further sustained catching-up." You'd think that flexible exchange rate economies just can't ever compete with fixed rates economies. In which case we obviously have a paradox: Denmark and Switzerland vs Italy and Spain (or for that matter Belgium and France).

So the core conclusion is simply this: things are complex, but having a peg to the euro looks more dangerous in crises and in bubbles build up stages, than running flexible exchange rates regime. Who would have guessed?..

21/7/15: Eastern Europe's post-2004 Convergence with EU: Financialisation

In the previous post, I covered the EU's latest report on real economic convergence in Central & Eastern European (CEE10) Accession states. As promised, here is a look at the last remaining core driver of this 'fabled' convergence: the financial services sector (which drove the largest contribution to growth in pre-crisis period 2004-2008 and remained significant since).

In summary: debt is the currency of CEE10 convergence.

Let's start with Public Debt.

As the above shows, CEE10 debt rose during the crisis despite GDP uptick. Rate of growth in debt was slower in CEE10 than in the original euro area states (EA12), which was consistent with stronger CEE10 performance in terms of fiscal balances and lower incidence / impact of banking crises.

Scary bit: "The negative impact of the 2008/09 global financial crisis as well as the following euro-area sovereign debt crisis on financial conditions in the CEE10 revealed that, despite relatively lower general government debt levels (compared to the EA12 average), some CEE10 countries might still encounter problems to (re-)finance their public sector borrowing needs during periods of heightened financial market tensions as their domestic bond markets are in general smaller and less liquid".

And that is despite a major decline in long-term interest rates experienced across the region:

In addition, Gross External Debt has been rising in all CEE10 economies between 2004 and 2014, peaking in 2009:

Which brings us to private sector financialisation. Per EU: "CEE10 countries entered the EU with relatively underdeveloped financial sectors, at least in terms of their relative size compared to the EA12. This was the case for both market-based and banking-sector-intermediated sources of funding. In 2004, the outstanding stocks of quoted shares and debt securities amounted on average to just about 20% and 30% of CEE10 GDP, compared to around 50% and 120% of GDP in the EA12. Similarly, bank lending to non-financial sectors accounted for just some 35% of CEE10 GDP whereas it reached almost 100% of GDP in the EA12."

It is worth, thus, noting that equity and direct debt financialisation relative to bank debt financialisation, at the start of 'convergence' was healthier in the CEE10 than in the euro area EA12.

Predictably, this changed. "As the government sector accounted for the majority of debt security issuance in the CEE10, bank credit represented the main external funding source for the non-financial private sector."

"The CEE10 banking sectors have generally been characterised by a relatively high share of
foreign ownership as well as high levels of concentration. The share of foreign-owned banks and the market share of the five largest banks (CR5) in CEE10 countries remained relatively stable over the last 10 years, on average exceeding 60%. There was however some cross-country divergence as Slovenia stood out with a relatively low share of foreign-owned banks, which only increased to above 30% in 2013. At the same time, the Estonian and Lithuanian banking sectors exhibited the highest levels of concentration, with their respective CR5 averaging 94% and 82% over 2004-14. On the other hand, the role played by foreign-owned banks is rather limited in most EA12 countries while their banking sectors are in general also somewhat less concentrated, with their CR5 averaging around 55% over the last 10 years."

Which, basically, means that the lending boom pre-crisis is accounted for, substantially, by the carry trades via foreign banks: the EA12 banks had another property & construction boom of their own in CEE10 as they did in the likes of Ireland and Spain.

"The 2008/09 global financial crisis …proved to be a structural break in the overall evolution of bank lending to the non-financial private sector in the CEE10. As the pace of credit growth in the pre-crisis period was clearly excessive and unsustainable, a post-crisis correction was natural and unavoidable. However, credit to the NFPS increased by "only" some 13% between May 2009 and May 2014, with bank lending to the nonfinancial corporate sector basically stagnating while lending to the household sector expanded by
about 25%."

Shares of Non-Performing Loans rose quite dramatically, exceeding the already significant rate of growth in these in EA12 across 6 out of 10 CEE10 states.

The following chart shows two periods of financialisation: period prior to crisis, when financial activity vastly exceeded real economic performance dynamics; and post-crisis period where financial activity is acting as a small drag on real economic performance. This is try for both the CEE10 and EA12 economies, but is more pronounced for the former than for the latter:

In summary, therefore, a large share of 'real convergence' in the CEE10 economies over 2004-2014 period can be explained by increased financialisation of their economies, especially via bank lending channel. As the result, much of pre-crisis convergence is directly linked to unsustainable boom cycle in investment (including construction) funded by a combination of bank debt (carry trades from Euro area and Swiss Franc) plus EU subsidies. These sources of growth are currently suppressed by long-term issues, such as high NPLs and structural rebalancing in the banking sector.

The tale of 'convergence' is of little substance and a hell of a lot of froth… 

21/7/15: Eastern Europe's post-2004 Convergence with EU: Unimpressive to-date

EU Commission latest report on real economic convergence in the EU10 Accession states of Eastern and Central Europe (CEE10) sounds like a cheerful reading on successes of the EU and the Euro. The report overall claims significant gains in real economic convergence between the group of less developed economies post-joining the EU and the more advanced economies of the EU.

However, there are some seriously pesky issues arising in the data covered.

Firstly, consider the sources of convergence (growth) over the period 2004-2014.

As chart above shows, in 2004-2008 pre-crisis period, Private Consumption posted significant contributions to growth in all EU10 economies )Central and Eastern European economies of EU12 group). This contribution became negative in 6 out of 10 economies in the period 2009-2014. It fell to zero in 2 out of 10 and was negligibly small in another one. Poland was the only CEE10 economy where over 2009-2014 contribution of personal consumption was positive and significant, albeit it shrunk in magnitude to about 40% of the pre-crisis contribution.

Likewise, Gross Fixed Capital Formation (aka investment) contribution to growth also fell over the 2009-2014 period. In 2004-2008, investment made positive and significant contribution to growth in all CEE10 economies. Over 2009-2014, Investment contribution was negative for 7 out of 10 economies and it was negligible (near zero) for the remaining 3 economies.

Thus, about the only significant factor driving growth in 2009-2014 period was net exports - the factor that does not appear to be associated with investment growth.

As the result, overall growth rates have fallen precipitously across the region in 2009-2014 period compared to 2004-2008 period.

Gross value added across all main sectors of the economy literally collapsed over the 2009-2014 period across all CEE10 economies, with only Poland posting somewhat decent performance in that period compared to 2004-2008.

One thing to note here is that even during the robust growth period of 2004-2008, Agriculture - a significant sector for a number of CEE10 economies was largely insignificant as a driver for gross value added in all but one economy - Hungary, where agricultural activity strength in overall economic activity traces back to the socialist times (1970s reforms).

Market services activity registered robust growth in 2004-2008 across the region predominantly on foot of major expansion of financial services.

Adding farce of a comment to the real injury of the above data, per EU Commission report: "As a result of relatively higher GDP growth rates, CEE10 countries achieved significant real convergence vis-à-vis the EA12 between 2004 and 2014. The CEE10 average GDP per capita level in purchasing power standards (PPS) increased from about 50% of the EA12 level in 2004 to above 58% in 2008. After having declined somewhat in 2009, it increased gradually to some 64% of the EA12 level in 2014." Much of this convergence is really due to the decline in GDP in the rest of the EU, rather than to growth in GDP in the CEE10. Not that the EU Commsision would note as much.

"However, there was a considerable cross-country variation with the pace of convergence in general inversely related to initial income levels. Considering the three most developed CEE10 economies in 2004, Slovenia has not enjoyed any real convergence, while the catch-up was also relatively limited in the Czech Republic and Hungary (as also pointed out by e.g.
Dabrowski (2014)). On the other hand, relative GDP per capita levels in PPS increased by about 20 percentage points in Baltic countries, Poland, Romania and Slovakia. Nevertheless, Bulgaria, which started with the second lowest GDP per capital level in 2004, also only achieved a below-average pace of convergence of some 11 percentage points."

In simple terms, the above means that the core drivers for any convergence would have been down to reputational and capital markets effects of accession, rather than to real investment in future capacity, skills and knowledge. Building roads, using Structural Funds, and getting Western Banks to lend for mortgages seems to be more important in the 'convergence' story than creating new enterprises and investing in real jobs.

As the EU notes: "The rapid pace of economic convergence in the pre-crisis period partly reflected an investment boom. The average share of gross fixed capital formation (GFCF) in the CEE10 increased from below 25% of GDP in 2004 to above 29% of GDP in 2007 and 2008 while it remained below 24% of GDP in the EA12. This investment boom was stimulated by optimistic growth expectations and supported by external funding availability. …Although on average roughly half of GFCF consisted of construction both in the CEE10 and the EA12, housing accounted for only about fourth of construction activity in the CEE10, compared to more than 50% in the EA12. This could be interpreted as overall indicating a more productive investment mix in the CEE10 in the run-up to the 2008/09 global financial crisis." Or it can be interpreted as heavier reliance on EU Structural Funds and Convergence Programmes that pumped money into roads and public infrastructure construction. Which may be productive or may be irrelevant to future capacity, as all of us can see driving on shining new roundabouts in the middle of nowhere, Ireland.

Nonetheless, "The contribution of investment activity to real convergence was not sustained in the post-crisis period. The average share of GFCF in the CEE10 declined to about 22% of GDP in 2010 and then remained broadly stable up to 2014 (while it declined to below 19% of GDP in 2013-14 in the EA12) as growth prospects were reassessed and private funding availability tightened but investment activity in the region was still supported by substantial inflows of EU funds. ...On the other hand, the decline was overall broadbased
across all main asset types in the CEE10 while it was largely driven by a drop in housing
construction in the EA12."

On External Balance side, current account balances turned positive for the CEE10 only in 2013-2014, much of this due to contraction in domestic demand:

Meanwhile, FDI collapsed across all countries, ex-Slovenia (where FDI figure for 2009-2014 is distorted to the upside by banking sector flows). As EU notes: "Although net FDI inflows remained positive in all CEE10 countries they on average amounted to some 2% of GDP in 2009-14 (after having exceeded 5% of GDP in 2004-08)."

All together, the picture of economic convergence is there, but it is more characterised by convergence via financialisation and transfers (both public and private) than by organic growth. This conclusion is equally pronounced before and during the crisis period. Much of the 2004-2008 period convergence was driven by private debt accumulation and 2009-2014 period convergence was primarily driven by adverse growth environment in the rest of the EU, plus public debt accumulation. 

Note: I will be blogging on debt issues in the next post, so stay tuned.

You can access full report here: http://ec.europa.eu/economy_finance/publications/eedp/pdf/dp001_en.pdf.

20/7/15: Of 'Break-Even' Oil Prices & Russia

An interesting chart via Deutsche Bank Research putting break-even (fiscal budget) figures on oil prices for major oil producers:

Which puts Russian break-even at USD105 pbl.

Reality is: Russia has capacity to increase oil output further and has done so already (note that it is now world's largest oil producer). It can also raise some other exports volumes, though general global conditions are not exactly supportive of this. Which underpins revenue side of the budgetary balance somewhat.

Meanwhile, Russian Government own budgetary estimates put break-even price of crude at around USD80-85 pbl, not USD105 pbl, closer to UAE, than to Oman.

Worse, for Deutsche, Russian budget is expressed in rubles, not USD, which means that FX valuation of the Ruble to a basket of currencies (Russian exports are not all priced in USD) co-determines the break-even price. Moderating (albeit still very high) inflation and EUR trend, compared to USD trend, suggest falling 'fiscal break-even' price of oil for Russia.

There are too many variables to attempt to estimate effective and accurate 'break-even' price for oil for Russia.

What is, however, clear is that Russian current account (external balance) is in black and it is improving, not deteriorating. Latest Balance of Payments data shows current account surplus of almost USD20 billion in 2Q 2015. Over 12 months through June 2015, current account surplus is at 4% of GDP. The driver here: decline in imports (down 40% in dollar terms in 2Q 2015 y/y) outpacing drop in exports (down just under 30% y/y). In January-June 2015, trade surplus was USD70 billion (USD210 billion in exports, USD140 billion in imports).

Balance of payments is also being supported to the upside by a decline in capital outflows. 2Q 2015 capital outflows amounted to ca USD20 billion, predominantly comprising banks repayment of maturing foreign debt (remember, this improves banks' balancesheets and deleverages the economy). However, direct investment from abroad into Russian non-fianncial corporations rose over the 2Q 2015, resulting in an increase in foreign debt held by the non-financial sector.

Overall, Russian Central Bank shows foreign debt position at ca USD560 billion (or 30% of GDP) at the end of 2Q 2015 - basically unchanged on 1Q 2015 and down from USD730 billion at the end of 2Q 2014.

And another reminder to fiscalistas:

• Russian public (Government) external debt currently stands at USD35 billion. 
• State-controlled banks hold further USD90 billion in external debt (total banking sector external debt is USD150 billion and 60% of that is held by state-owned banks).
• State-controlled NFCs firms hold ca 40% of USD360 billion foreign debt written against Russian NFCs, or USD144 billion. 
• Accounting for cross-holdings and direct equity-linked debt, net foreign debt that has to be repaid at maturity or refinanced by NFCs and Banks owned by the Russian Government is probably around USD150-160 billion. 

Sizeable, but less than 12% of GDP even after including the official public debt and state-owned enterprises debts.

20/7/15: Greece clears IMF arrears. Almost broke, again.

Having borrowed EUR7.2bn, Greece promptly settled its arrears with the IMF (EUR1.996 billion at exchange rates of June-July, but closer to EUR2.05bn in current rates), opening up the way to pay on maturing EUR3.492 billion ECB and NCBs funds today.

Have a new credit card? Will travel… for now… but only for now, as with today's payments we have less than EUR2 billion credit line remaining available for the country.

Next stop: see here http://graphics.wsj.com/greece-debt-timeline/.

Meanwhile, banks reopening - overhyped on both sides (by the mainstream media as a non-event (re: no mayhem) and by alternative media as a run-waiting-to-happen (re: mayhem)) - came relatively calmly, as banks remain under severe capital controls, limiting withdrawals to EUR420 per person per week. On top of which, checks are cashed only into bank account (no cash); withdrawals abroad and money transfers abroad are not allowed, even on pre-paid cards; limits placed on use of credit and debit cards abroad; no new savings or deposits accounts can be opened; repayments of loans can only be done in line with scheduled payments (no advanced repayments possible except by using cash or transfers from abroad); only unrestricted payments are for tax purposes, social security or bank liabilities payments, plus payments to hospitals and for education.

Any wonder there were no bank runs today? Ah, sure, who would run on an open bank with no cash in it? A taxman?..

But coming back to those bridge finance funds. The EU is now saying the Bailout 3.0 will take 6-8 weeks to agree and structure. There is EUR3.188 billion worth of ECB maturities coming up in 5 weeks, EUR1.344 billion of IMF loans due in September, and EUR3.8 billion worth of short term bonds maturing before 8 weeks runs out. Which begs a question: where will Greece get the money to cover these liabilities?

19/7/15: The Hardships of our Politico's Public Sacrifices: Pensions

One of them rare occasions that RTE supplies a superb data summary. This time around - it is on politicians' pensions packages: http://www.rte.ie/iu/pensions/.

Just take a look how the Great of this Land live... at your expense...

19/7/15: Ireland's Commitment to Competition in Banking... It's Overwhelming...

Let's take three stylised facts:

Fact 1: Irish Government policy from 2010 on consisted of two contradictory objectives: sector consolidation in the hands of 3 Pillar banks, and rhetorical justification of higher lending margins as being necessary to attract new competition to the market.

Fact 2: In recent months, the only significant uplift in new lending to non-financial enterprises took place in the segment of larger corporates, larger loans issuance, consistent with lower risk lending.

Over the last 24 months (though April 2015), compared to 24 months through April 2013, quantum of new loans issued to households in Ireland fell 14.1%, while new loans issued to Non-Financial Corporates rose 31.2%. Within the corporate market segment,  larger (>1 million euro) loans rose 43.6% for loans with short rate fix, and 83.2% for longer rate fix. Smaller corporate loans (<1 12.2="" 44.2="" and="" by="" euro="" fell="" fix.="" fix="" for="" in="" lending="" longer="" million="" nbsp="" new="" p="" rose="" short="" term="" volume="">
Fact 3: In the segment of safest (lowest risk) new lending, Irish banks currently enjoy high margins compared to their euro area counterparts and compared to historical averages for their own market history.

So what is the outcome of the three facts above? Where did we get with this model of higher charges = greater competition when it comes to banking?

Now, remember, Ireland pursued the same model (higher charges on end-users in exchange for more competition) in energy sector under the CER regulatory remit for years. As the result, we achieved the exact opposite: no real competition and highest / second highest energy costs in Europe.

Just as in the energy sector, in Irish banking, the incumbents are enjoying pricing power protected by the State policy. Just as we talk about competition, markets and consumer benefits... Aptly, the degree of market concentration in the hands of incumbent banks in Ireland rose from the average of 0.0547 for 1997-2006 period to 0.0674 for 2009-2014. 

Just because we really, really, really 'want' competition for our banks...

17/7/15: Eurogroup tightens screws on Greece: Bridge v MoU

Eurogroup statement on Greece (h/t @FGoria):

Key:

• Bridge finance via EFSM (as rumoured, so no surprise here);
• Bridge finance security cushion via SMP profits being moved to an escrow account (unexpected) clearly to ensure Denmark's and UK agreement to use EFSM. Bad news: SMP profits should be rebated back to Greece to alleviate debt burden, not 'securitised' to increase debt burden;
• Good bit - SMP profits are to be returned to Greece unless used as EFSM bridge loan cushion. So at some point in time, Greeks will get these funds to, presumably, cover a part of bridge finance funding;
• The bit "...he risks of not concluding swiftly the negotiations with the ESM remain fully with Greece" (emphasis mine). This amounts to setting pressure very high on Greek Government to basically accept MoU conditions unaltered, as presented to them and, thus, makes the very idea of 'negotiations' a farce. Given that EFSM cover (bridge) is only for July, at most for first week of August, this statement basically puts Greece on notice: either agree immediately to ESM (Bailout 3.0) conditions or face a loss of SMP funds on top of everything else.

In effect, Eurogroup is driving home the tactical advantages gained by over-extending Bridge loan negotiations into the last minute and from Tsipras' total surrender at July 12-13 meetings. Greece has no where to go, but to ESM at this stage, so my suspicion is that MoU will be tougher than Bailout in Principle position of July 12-13.

17/7/15: Brussels makes its excuses and leaves us with no answers

My op-ed for Irish Independent on the EU Commission report on Ireland's 'Adjustment Programme' 2010-2013 and its analysis of the Irish Banking Guarantees: http://www.independent.ie/opinion/comment/brussels-makes-its-excuses-and-leaves-us-with-no-answers-31383508.html.

17/7/15: ECB Rate Decision & Monetary Conditions in the Euro Area

Yesterday, ECB left unchanged their key policy rates. Updating my central banks' policy charts,

First, current policy rates for major advanced economies:

Next: duration and magnitude of rates overshooting (target range set outside mean (pre-crisis period, Euro coverage) +/-1/2 STDEV)

We are now into 80th consecutive month of interest rates statistically outside the mean range, with magnitude of deviation of some 3.05% down on the mean. This implies mean-reversion (increase in the rates) of between 2.70-3.4%.

Meanwhile, 12 mo Euribor margin over policy rates is up to 0.119% in Jul (to-date) compared to 0.113% in June. Corporate rates for new loans (>1mln Euro and 1-5 years duration) margin over ECB rate was up at 2.28% in May compared to 2.03% in April. May was the month when direction of Euribor margin diverged from direction of corporate loans margin, implying increase in banks margins.

Overall, the above shows that pressure on rates reversion to the mean is building up, while banks margins were improving (though we only have data through May on this). Nonetheless, banks margins are down on 2012-2014 averages, implying that more of the costs of any mean reversion in policy rates under current conditions will have to be absorbed by the borrowers.

Good thing, ECB is in no rush to get ahead on rates increases, yet…