The most important news of the week was very probably the impotence of EU leaders to achieve the consensus on the EU budget for next 7 years. France defend farm subsidies, Britain demanded 200 billion cuts, Denmark wanted own cash-back guaranties and eastern and southern countries demanded development projects for poorer countries. President Van Rumpoy has published some remarks on the process after the summit where he stressed that the EU will “continue the work and pursue consultations in the coming weeks to find a consensus among the 27 over the Union’s Multiannual Financial Framework for the period 2014-2020.” He states that nothing bad has happened and it is normal to have two rounds of negotiation about such a complex issue as was the same case in 2005. Rumpoy also stressed that the proposal was definitely for growth oriented and this way must the proposal stay on.
Moody´s downgraded France´s rating to Aa1 from Aaa with negative outlook. The main reasons for the action are negative long-term economic growth outlook, uncertain fiscal outlook and vast exposure of banking sector to the peripheral Europe. It is therefore very probable that Moody´s will downgrade also the rating of the ESM according to its own rules. Moody´s also remained Italy´s banking system with negative outlook because of asset-quality deterioration, week profitability and restricted access to market funding.
Spanish bad loans hit a new record reaching € 178 billion in the meantime. It means that it is almost double amount for Spanish banks which should receive as part of the bank bailout plan (€ 100 billion) disclosed in July. Spain is facing also another problem. There is regional election in Catalonia on Sunday and it seems to be sure that nationalist who asked for secession will win. This is a crucial problem for Prime Minister Rajoy who tries to show stability and fiscal responsibility of Spain. Will we see the end of the Spain?
More and more Greeks commit suicide. Public Order Minister Nikos Dendias produced police figures showing that 677 people had killed themselves in 2009, 830 in 2010, 927 in 2011 and 690 up to August 23rd this year. It is more than 3100 since the beginning of the crisis. And the end of it is far away. Finance miniseries from the EU and IMF tries to find the solution for the Greek problem but as usually not successfully. The final decision to release the next 44 billion-euro tranche of aid to Greece was not reached. So we have to still wait for the final solution which will be definitely not the final because without a big bailout is not possible to save this country.
Who is the sexiest man in Japan? It is the one who holds government bonds. I am not joking. Japan Ministry of Finance prepared the ads which appeal to citizen to help the country in these difficult times when record government borrowing threatens to outstrip demand.
And this is the most important chart of the world. It shows us the Chinese reserves which were created usually by trading surpluses and were used to buy the US government bonds. Russell Napier, a consultant with stockbroker CLSA Asia-Pacific Markets said of the graph: „The growth in Chinese reserves has determined all the key developments in financial markets in the last two decades. It has been the cornerstone of global growth, and now it’s over.“
Chairman of the FED Bernanke urged the Congress and the Obama´s administration as well to solve the problem with so called “fiscal cliff” which means automatic cuts of federal spending on January 2013. He also said that the Congress must raise the debt limit because it will help the economy, foster employment and it reduces the debt in turn. It is interesting that anybody still believe him because he actually said that more debt will reduce the debt. His colleague Treasury Secretary Timothy Geithner supports something more interesting; to rid of the debt ceiling altogether, yes altogether. It is on the video between min. 7:00 to 7:15.