St. Columbanus AG Blog Contributors

In the light of the ongoing Government and NCBs efforts - in Europe and elsewhere - to address the continuing crises of economic slowdown, fiscal insolvency, financial systems stability and monetary policy imbalances, most of the media attention has been focused on the immediate pressures generated by the crises in the euro area, the UK and the US. However, the measures deployed by the policymakers attempting to correct for the aforementioned imbalances have created new risks and challenges that are likely to manifest themselves in the near future. From the vantage point of today, past and present policies are rapidly creating a set of new risks unwinding which will be extremely challenging in years ahead. Read the full post on the True Economics blog

ECB's Bank Lending Survey (BLS) for January 2012 is out, showing dramatic failure of the December 2011 LTRO to kick start supply of credit to the real economy. According to the BLS, credit standards by euro area banks tightened in the fourth quarter of 2011 on:

• loans to non-financial corporations (35% of euro area banks report tighter lending to NFCs in net terms, up from 16% in  the preceding quarter),
• loans to households for house purchase (29% of the euro area banks reporting net tightening of lending to households, up from 18% in the preceding quarter), and
• loans for consumer credit (13%, up from 10% in the preceding quarter).

Looking ahead, euro area banks "expect a further net tightening of credit standards, albeit at a slower pace than in the fourth quarter of 2011" in Q1 2012.  There is no easing of lending conditions on the horizon. Read the full post... Read More

The latest leading indicator for euro area growth -Eurocoin - for January continues to signal recessionary dynamics, albeit at moderating rates of decline. January Eurocoin rose to -0.14 from -0.20 in December 2011. Read the full post on the True Economics blog.

The heated non-debate is continuing to sweep Europe as leaders remain irresolute on finding solutions to the twin fiscal and banking crises. The latest round involves the discussion on the need for 'enlargement' of ESM - the 'permanent bailout fund' that originally was seen as the replacement for the temporary EFSF. Alas, the whole thing is clearly heading for the same outcome as Europe's previous rounds of 'solutions', as ESM and EFSF will fall short of the €750 billion target. Our analysis, contrary to the claims made in the mainstream press, shows that concurrent running of the two schemes will have no material increase on the crisis funding levels available to European sovereigns. Read the full post on the True Economics blog.

Given continued rumors of IMF engagement in Italy and the preparation of €600 billion 'bailout' package for the country, it is worth noting three basic reasons why any IMF lending facility to backstop Italian fiscal crisis is simultaneously, cannot be sufficient for the country and will be infeasible for the IMF. The core reasons for this are:

1. IMF loan of €600 billion will require leveraging Italian SDR allocations to the tune of 6,000% - well in excess of the Lehman Bros' TCE leverage ratio was 4,400% at the time of the firm collapse. As such it will exert immense reputational pressure on the Fund.
2. IMF loan of €600 billion will cover 1/3 of outstanding Italian Government debt, rendering the remaining 2/3rd subordinate to IMF loans and thus propelling Italian yields into double-digit territory. This will, in turn, destabilize Italian fiscal policy in 2014-2016... Read More

Economic insolvency can take several forms, ranging from structural fiscal insolvency, to ordinary fiscal insolvency to the external insolvency of the entire economy. Data for the last 22 years shows that insolvency of one or the other variety is a feature of the Euro area member states well beyond those currently collectively called as PIIGS. Insolvency of the deepest (across all three measures) variety is the domain of 10 out of 17 member states when it comes to the last 12 years of Euro area history. Another 5 member states are insolvent by two out of three criteria. Lastly, only two member states - Finland and Luxembourg - were actually fully solvent since 2000. Read the full post on the True Economics blog.

Overall EU27-wide economic sentiment continued to point South in October with a reading of 93.8 (below 100) coming on foot of 93.9 in September. 3mo MA for the indicator is now at 95.0 against 6mo MA of 98.4, signaling downward trend. The index is now below 100 for three months in a row. Euro area own economic sentiment also deteriorated in October to 94.8 against 95.0 in September. The index is now below 100 for three months in a row. 3mo MA at 96.1 below 6mo MA of 99.3 showing downward trend. Overall, both series show continued downward pressures on European economy and exhibit sustained deterioration over the recent 3 months. Read the full post on the True Economics blog.

Business Confidence indicator fell from -5.7 in September 2011 to -6.8 in October for EU27. The decline marks continued downward trend with index below zero for the third month in a row. 3mo MA is now at -5.0 against 6mo MA of -2.4. Historical average is at -6.1 against pre-Euro period average of -5.6 and Euro period average of -6.8. The indicator slipped to -6.6 in October, down from -5.9 in September for Euro area sub-sample. This too was the third consecutive month of index reading below zero. 3mo MA is at -5.1 against 6mo MA of -2.2. Pre-euro period average is -5.6 against post-euro introduction average of -6.2. Read the full post on the True Economics blog.

Overall Consumer Confidence for EU27 has declined from -19.1 in September to -20.2 in October. 3mo MA is now running at -18.7 which is significantly below the 6mo MA of  -15.9. Year ago, the index stood at -11.5 against the historical average of -11.1, pre-Euro average of -10.7 and Euro-era average of -11.8. Euro area Consumer Confidence index stood at -19.9 in October, down from -19.1 in September. 3mo MA in October was -18.5 against 6mo MA of -15.3, so the underlying trend in recent months is down. Historical average ins -12.2 and pre-Euro era average is -11.3 against Euro era average of -13.2. Our analysis of the long term historical data clearly shows that since introduction of the Euro, consumer confidence across the Euro Area as a whole, as well as across Italy, Spain and Germany has deteriorated compared to pre-Euro... Read More

Ireland's Live Register-implied Standardized Unemployment  rate rose to 14.4% in October, up from 14.3% in September. The latest reading matches levels for July and August 2011. This is the third highest level of unemployment in Ireland (as measured by SUR) since the crisis began. Read the full post on the True Economics blog.