By Caitlin Kenney

Mervyn King, governor of the Bank of England, wants banks to separate their everyday activities from other riskier ventures. King addressed the issue during a speech in Scotland. From the Financial Times:

The Bank governor wants to see the utility aspects of banking -- payment systems and deposit taking -- hived off from more speculative ventures such as proprietary trading. "There are those who claim that such proposals are impractical. It is hard to see why," he said.

Although he said that ideas to force banks to hold debt that automatically turns into equity in a crisis were "worth a try", he downplayed their likely effect. "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion".

The Treasury and the Financial Services Authority in Britain have rejected the idea of splitting up the banks. British Prime Minister Gordon Brown has focused his efforts on requiring banks to create "living wills" which would help regulators wind them down in the event of bankruptcy.

Chart by Matthew Yglesias

By Laura Conaway

Matthew Yglesias made the chart above for a post about the notion of a carbon tariff. Yglesias notes that as part of any climate change bill, the Senate may want to slap a tariff on trading partners that don't try to curb greenhouse gases. The idea is to prevent a cap-and-trade program from putting American manufacturers at a disadvantage -- with the primary bogeyman being China.

Which is compelling enough on its own. But I like Yglesias' chart for the urgency it gives to the latest pricing news from European Union countries. America's largest trading partner is reporting little or negative inflation. As a whole the European Union is experiencing average inflation of a mere 0.6 percent. For the 16 countries that use the euro, it's -0.3 percent. Those are scary numbers. Economists like to see a certain amount of gentle inflation -- something about 3 percent -- and they're not seeing it. "We are seeing another round of substantial contraction of the already depressed economy," writes Carl Weinberg of High Frequency Economics.

Weinberg says the situation amounts to falling output -- in the Eurozone, it's barely ticking upward and still down by double digits from last year -- followed by falling prices, failing businesses and the laying off of workers.

If you like the positive-ish view, try this from Bloomberg:

"Manufacturing surveys continue to paint a rosy picture of the near-term outlook," said Carsten Brzeski, an economist at ING Groep NV in Brussels. "The industrial recovery will continue but, of course, no recovery follows a straight upward line. New setbacks are likely."

Continue reading "European Union: Life Without Inflation" >

By Laura Conaway

From the BBC:

Economic activity in the eurozone shrank by 0.2% between April and June -- worse than originally thought -- according to official figures.

The European Union's Eurostat agency had previously said the economy of the region had contracted by 0.1%.

On the other hand, the latest data show Greece, Poland, Portugal and the Czech Republic joining France and Germany in leaving the recession behind.

By Mathew Katz

We've got more signs today that Europe is entering a recovery. A couple major indexes of the European economy unexpectedly crossed into growth territory, according to data released today by financial information company Markit Economics.

The German service industry purchasing manager's index (or PMI), a gauge of private-sector activity, rose to 54.1 from 48.1 last month. The French manufacturing index jumped from 48.1 in July to 50.2 in August. Readings above 50 indicate industry growth. European stimulus spending was likely a factor in the growth, which is seen as a sign of broader global recovery.

Those two readings -- representing the euro zone's two largest economies -- drove a rise in the composite index of the service and manufacturing industries of all 16 countries in the euro zone. That figure, the Euro Zone PMI, jumped to a 15-month high of 50 in August.

By Mathew Katz

Consumer prices fell in July by 0.6 percent, according to a report today by Eurostat, the European Union's version of the Bureau of Labor Statistics. That's far greater than initial forecasts of a 0.4 percent drop. According the to report, the drop was largely because of decreased demand in consumer goods and services.

Yesterday an IMF official told the European Community Board that deflation is not an immediate risk but can't be ruled out, either.

Eurostat also released some grim data about unemployment in July: it's up to 9.4 percent, up 0.1 percent from May. That's a 10-year high, though it's a lower number than expected. But what's scary are some of the numbers in the report: in Spain, unemployment is at 18.1 percent. In Estonia, unemployment jumped from 4.6 percent to 17 percent in the past year.

Good times at the London Stock Exchange, bad times for the GDP. carmen_seaby/Flickr

 

The recession may be over in Canada, but things are grim in the U.K. Britain's Office for National Statistics announced today that domestic GDP contracted 5.6 percent in April and June compared to the same period last year. That's the worst annual decline there since the country began keeping records in 1955, and it's the fifth quarter in a row that British GDP has shrunk.

Still, things aren't all bad. The U.K.'s main stock index, the FTSE 100, has been on the rise. The British pound is also recovering against the U.S. dollar, after a sharp drop at the end of last year.

There's often a lag between a market recovery and an overall economic recovery. The situation may look terrible now, but if the stock and currency trend continues, things could be looking up for the Brits. Maybe they'll even see a recovery in their pub numbers.

What was once the Conquerer Pub in Shoreditch, London. Ewan-M/Flickr

 

This could be the greatest tragedy of the recession for the U.K.: Humble British pubs -- the kind of place Britons can go for a relaxing pint (or five) and chips on the way home from work -- are closing at a rate of 52 a week, according to the British Beer and Pub Association. That's 2,377 pubs closed, and about 24,000 jobs lost in the past year.

The association's report also says that local pubs were the hardest hit, especially due to the economic downturn. Interestingly, the key to survival seems to be selling food: pubs that focus more on selling food are only closing at a rate of one a week.

But it isn't only the recession to blame. Industry representatives said that 20 percent increase in the U.K.'s beer tax (which is set to rise), as well as increased regulation (such as the recent pub smoking ban).

The pub is ingrained in the British sense of identity -- so much so that two MPs from the All Party Parliamentary Save the Pub Group tabled a motion in House of Commons urging banks to lend to beleaguered pubs, and encouraging fellow lawmakers to "support their local pubs."

The recession is destroying British pubs, changing how we bury our dead, and ending Sunday in France. It seems like fallout from the downturn is making fundamental changes to our very culture -- on both sides of the Atlantic.

Back in October, while Americans were terrified that their economy was on the brink of collapse, Iceland's actually did. The country's three main commercial banks all failed within one week.

Now, Iceland's new government has revealed a deal that will rebuild banks, to the tune of $270 billion Icelandic kroner, or about $2.1 billion. Under the deal, the government will issue bonds to new banks, Islandsbanki, New Kaupthing and New Landsbanki, which are being built from the good assets of their failed predecessors.

There is, however, just one tiny roadblock in the way of Iceland's journey to economy recovery -- $60 billion owed to foreign creditors. Iceland is depending on $5.1 billion loan from the International Monetary Fund to facilitate its financial recovery, but the government can't receive the full amount until the creditor claims are settled.

Continue reading "'New' Banks For Iceland" >

As the European Union considers new regulations and fines meant to curb bonuses for excessive risk-taking, the U.K. government has its own strategy.

Prime Minister Gordon Brown said today that his government plans to force banks to hold back half of all bonuses for senior traders and executives for up to five years. He also said the Financial Services Authority, which regulates banks, is working on plans that would allow it to force banks to hold more capital if the FSA is unhappy with its bonus structure.

Continue reading "UK Moves To Withhold Bonuses" >

The end of leisurely Sundays at the cafe? killermonkeys/flickr

 

As the French celebrate their revolution on Bastille Day, the government is set to debate another huge change for French society: allowing more work on Sunday.

As it stands now, Sundays are a mandatory day off. There are some loopholes to this, but for the most part, shops are closed. The new law would allow stores in France's large cities to be open on Sundays, and employees who agree to work would be paid double overtime. Not a bad deal.

Continue reading "The End of Sunday In France? " >

The European Union is considering new rules that would fine banks for giving out bonuses to employees who take excessive risks. These are folks like Citibank's ex-CEO Charles Prince, who mired the bank in toxic loans, resigned, and still got a $12.5 million bonus.

If the rules are passed, they wouldn't go into effect until 2011. That's a bit too late to address the current financial crisis, but the proposal is definitely colored by it. Check out some of the recommendation's harsh wording:

A high-fixed component should reduce excessive risk-taking by removing perverse incentives for an individual to increase his or her total remuneration by boosting short-term financial results.

Translation: We've had it with insiders betting someone else's house to make themselves rich.

Shoppers outside of a mall in Krakow, Poland. EnglishGirlAbroad/flickr

 

Spain has record unemployment. Ireland's credit rating keeps getting cut. The UK's national debt could quadruple. And Poland's economy is set to grow over the next several years.

Wait. What?

That's right. Poland, one of the poorest countries in the European Union, a country that still hasn't been allowed to switch over to the Euro currency, is -- relatively speaking -- one of the most booming economies in Europe.

Continue reading "You Could Always Go To Poland " >

Have you seen this tiger? jagian/flickr

 

Ireland just had its government bond rating lowered one level by Moody's Investors Services -- to Aa1 from Aaa. The company also gave Ireland a "negative" outlook, meaning it's likely to decrease even more within in the coming months. Standard & Poor's has already downgraded its rating of Ireland twice this year, and Fitch knocked it down one level in April.

Ireland's suffered one of the worst crashes since the recession began. After riding a huge boom for over a decade, empty houses litter the countryside and the country's deficit is set to rise to 10.8 percent of GDP -- three times the European Union limit.

A way to make ends meet? remolacha.net fotos

As we mentioned earlier today, European Union unemployment rose to its highest in almost 10 years in April. In Spain, the jobless rate is at 17.4 percent -- the highest in the EU -- and is expected to climb.

According to a Spanish consumer organization, desperate times have caused some to resort to a most desperate measure of making ends meet: selling organs on the black market.

Last month, FACUA found 31 Internet ads for human organs for transplant on thirteen websites. Most ads were by Spanish nationals, but some came from people in Latin American countries.

Continue reading "How Much For A Kidney?" >

Ireland has been one of the worst-hit economies during this financial crisis, and today the Irish woke up to even more bad news. Standard & Poors, the credit rating agency, has lowered their credit rating. from AAA (the highest rating) to AA+ with a negative outlook.

Continue reading "Ireland's Economy Takes A Hit " >

More today on why the European Union doesn't think much of America's proposal for a global economic stimulus package. As the New York Times reports, countries like Germany spend oogoodles already to prop up income when workers get laid off or have their hours cut. A furloughed German worker gets two-thirds of the old paycheck, and they go skipping off for more training or extra time with the family.

The social safety net keeps personal spending up, so government doesn't have to prime the pump. Or at least that's the argument from EU. There's a good side and a bad one, the Times reports:

Europe's extensive job protections and unemployment benefits are "bad in the upswing, because firms don't dare to hire people, because then they are glued to them," said Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Munich. "In the downswing, it's good if the people are glued to the companies. They keep their jobs. They keep their income. They keep consuming."

The home of former Royal Bank of Scotland chief executive, Fred Goodwin, was attacked early this morning by an anonymous group threatening more attacks on "criminal bank bosses." Vandals smashed three windows of his home and one window of a car parked in the driveway. The Guardian reports:

Around 5am, emails arrived at the offices of the Edinburgh Evening News, Press Association and other media outlets saying that Goodwin's house "was attacked this morning" and giving the name of the street where he lives.

The email, sent from the address bankbossesarecriminals@mail.com, said: "We are angry that rich people, like him, are paying themselves a huge amount of money, and living in luxury, while ordinary people are made unemployed, destitute and homeless. This is a crime. Bank bosses should be jailed. This is just the beginning."

Goodwin has been at the center of national outrage for receiving a pension worth nearly a million dollars after his bank was propped with over 30 billion in government aid.

Earlier this week, listener Dan G. sent us an indicator about Goodwin. Read his letter after the jump.

Continue reading "Anger Flares In Scotland" >

The U.K. economy is unwell. Like the Obama administration, the government of Gordon Brown planned to spend their way out of the crisis. Sharing more similarities with their neighbors across the pond, the U.K. also need to borrow the money to fund their plan.

But yesterday an auction of gilts (the U.K. equivalent of Treasury bills) did not get fully sold. The demand for all the gilts the government wanted investors to buy simply wasn't there. This is not good news for the government. The headlines such as this one on Bloomberg called it a calamity for Brown and a sign investors did not trust his leadership.

Brown's popularity is down to 30 percent, but these headlines may have been a little hasty. The gilts issued were for 40 years. The U.S. government doesn't even sell Treasuries beyond 30 years, so maybe investors just didn't want their money locked up for such a long time. Today's gilt auction in the U.K. was heavily oversubscribed, by three to one. These bonds are due in 2022, so maybe 13 years is not far enough out in the future to spook investors.

Listener Brad responded to my call for stories of international economic anger. He points our attention to Ukraine where things look really, really bad. Here are a few of the things that are way, way down: the currency, the steel and chemicals exports and jobs. Banks are hoarding cash. People are facing days without heat or water.

Are people angry? Yes. They are gathering for protests, threatening to block roads, calling for their leaders to step down and taking off their clothes in banks.

Yes, Bernie Madoff is heading for a guilty plea, and Citigroup has posted a profit. Let's take a wider view, courtesy of the BBC:

Chinese exports fell 25 percent in February. China's trade surplus went from $39.1 billion in January to $4.8 billion. (Bonus: Calculated Risk dives deep on this.

Norway's Government Pension Fund reminds us of the looming pension crisis, losing $92 billion in 2008.

And in the U.K., the Bank of England is starting its latest attempt to goose the economy, "quantitative easing" -- or what some of you, but not us, call "printing money."

Continue reading "U.K. Tries New Tack" >

From the U.K. Telegraph:"Overvalued euro set to plunge 'within months.' Key bit:

In recent days, futures traders in the US have significantly increased their bets that the euro will fall against the dollar. Data released by the Washington-based Commodity Futures Trading Commission on Friday showed that the "net short position" of trades against the euro by hedge funds and speculators almost doubled in the week to March 3 to 19,431 contracts from 10,081 contracts a week earlier.

What's going on?

Continue reading "Euro Not OK" >

I'm just catching up to this link from @tyoungs: "France to take controlling stake in merged bank."

Politicians in France generally do not find it difficult to say the word nationalization." So as two French banks struggle to weather the financial turbulence, Paris has decided to accelerate their merger, take a controlling stake in the combined company and install a management team of its own.

Quite a contrast to the scene on Capitol Hill yesterday, with Fed chairman Ben Bernanke and lawmakers doing the nationalization dance.

Shopping in Belarus. Viktor Drachev/AFP/Getty Images

 

Dropping terms such as "financial Gotterdammerung" and "monetary Stalingrad," business media around the world today have recently rung a new alarm bell: Eastern Europe's $1.5 trillion of debt is in trouble.

How did things get to this point? We'll have more about this on Monday's podcast. For now, a brief look at a story that seems all too familiar.

Continue reading "The 'Subprime of Europe'" >

I read a fascinating essay in the Economist over the weekend about the overuse of antibiotics in some European countries and what that might say about a population's tolerance for uncertainty in these harsh economic times. Here's the leap: the article makes a possible link between the level of antibiotic use in a country and its penchant for trade protections.

In short, consumption of antibiotic drugs varies strikingly across Europe, with Greeks, the heaviest users, taking three times as many as the Dutch, who use the fewest.

While there are many reasons to explain the phenomenon, the article says many experts suggest key drivers of antibiotic demand may be how anxious a culture it is and how tolerant it is of uncertainty. In theory, that's interesting right now as the global economic crisis is leading to growing protectionist fever in many countries.

Continue reading "Protectionism And Pill-popping" >

It's a tough time to be in the food and drink business. Restaurants are suffering, and shoplifting at grocery stores has become the new entrepreneurship.

However, while various financial indices -- such as the Fed Funds Rate or the price of container shipping -- have gone to zero, we have yet to see eating standards bottom out.

Until now, that is.

Continue reading "Culinary Standards Bottom Out" >

Sean writes from Edinburgh:

I had €1.57 left over from trip to visit a mate of mine who was studying in Brescia, Northern Italy.

Had I changed it back as soon as I returned to Edinburgh I'd have £1.16, however I was too lazy. This has proven to be a fiscally prudent move, typical of my thrifty Scottish upbringing. Due to the falling pound it is now worth £1.73, meaning I'm nearly 50% up. Cause for celebration I'm sure you'll agree.

Coupled with falling house prices across the UK, this has led me to believe that by the end of 2009, my €1.57 should buy me a nice flat in the center of Edinburgh, and maybe some nice curtains.

The great mess of 2008 claims another victim. From the Financial Times: Financial crisis fells Belgian government. First sentence:

The Belgian government on Monday night became the first national administration to fall as a direct result of events linked to the global financial crisis.

Prime Minister Yves Leterme's government coalition told King Albert ll it was resigning after accusations that his side tried to influence a court ruling against the dismantling of the Fortis financial services group. Leterme has denied any wrong doing.

"Everybody had said that he showed himself to be a true leader and a confident leader in dealing with the financial crisis," one commenter told Forbes. "He knew that and he tried to show people that he could manage a crisis. Maybe he tried too much, and tried to use too much influence, to prove it."

Continue reading "Belgian Gov't Resigns" >

Out of Iceland, back to Norway.

(Thanks, Aimee Ennis.)

Let's consider Greenland for a moment. Currency strategist Mark Chandler did, in a note just now from Brown Brothers Harriman. Chandler writes:

Some 39,000 inhabitants of Greenland will go to the polls today and are expected to approve of great autonomy from Denmark and may lay the ground work for independence ultimately. Currently, Denmark would have to consent to Greenland's independence.

There will likely be an economic price for Greenland's independence. Subsidies from Denmark account for roughly half Greenland's public spending or DKK3.2 bln. Most of the political parties in Greenland support greater autonomy, except the Democrats the 4th largest party on grounds that the costs for running a government could be twice the current budget of roughly DKK305 mln (~$52 mln).

The conceit is that Greenland would be a commodity economy.

Continue reading "A New Poor Country" >

Third quarter GDP numbers in Europe are out and guess whose economy stormed to the top of the pack? In a surprise, it's France. While Germany and Italy are already in recessions and Britain isn't far behind, France posted an anemic but respectable 0.1 percent growth rate.

How bad is it out there?

Russia's two stock exchanges halted trading today after each dropped more than 7 percent.

Bloomberg says it's about the falling price of crude oil, sales of which are crucial to the Russian economy. The ruble's at its lowest level since 2006.

Iceland's banking crises spun out even more overnight as the government took control of the country's largest bank, hoping to prevent an all out collapse over its banking system.

In recent days, the government seized its second and third biggest banks -- which are both now in receivership -- after the Prime Minister warned that the country was at risk of "national bankruptcy."

Why would a country with a population smaller than that of Pittsburgh mean much to the global economy?

A full-blown collapse of Iceland's financial system could be a blow to the rest of Europe, where Icelandic banks and companies have invested heavily in businesses. If they're scared enough, investors could continue to push down dominoes around the world.

Here's a piece from Tina Brown's new Daily Beast news site.

With their stock markets falling, EU leaders are scrambling to find a way to restore confidence in the banking system. Newspapers in the U.K. are reporting that British Treasury chief Alistair Darling and Bank of England governor Mervyn King met with executives from Britain's largest banks Monday night to discuss the possibility of the government providing funding to the banks, in exchange for stakes in the banks...sound familiar? Several major banks across the EU have already been bailed out and some countries are now guaranteeing bank deposits.

If folks in America thought they woke up to tough headlines, try having breakfast in Reykjavik. The Wall Street Journal went with "Iceland Risks Bankruptcy, Leader Says" -- and yes, the leader is talking about whole nation.

Which brings us to the morning note from Win Thin, currency strategist for Brown Brothers Harriman. Thin notes that the International Monetary Fund is on the case:

We note that the IMF is one of the few institutions right now that has liquidity, and most likely will start to parcel out that liquidity as this crisis deepens. As of March 31 2008, the IMF had $209.5 billion in loanable funds and only $16.1 billion in outstanding loans to 64 countries, much of that to Turkey. As such, the IMF is open for business, and we are surprised that more countries have not approached the IMF for assistance during this turbulent period. It's a win-win situation, and could put the IMF back in black.

In a quick call, Thin explains a little more -- especially that part about putting the IMF back in black. The IMF makes money by lending money to countries that need help, he says. One look at that $209.5 billion on hand, versus the $16.1 billion on loan, and you can see the IMF isn't raking in the interest. "If it's not lending, it's not making any money," he says.

Continue reading "IMF Rides To Iceland" >