Today is the 10th anniversary of the agreement that launched the single currency. However, residents of the first 12 EU states that adopted the Euro didn’t begin using Euro banknotes and coins until 1 January, 2002.
When the euro was launched there were plenty of people who thought it would crash and burn. Ten years on, its role as a global currency is secure, even if it hasn’t achieved everything its founders hoped such as higher living standards (per capita income) and less divergence between national economies. But it has achieved macroeconomic stability and financial stability when reflecting to the recent credit crunch.
There are now 15 European countries who are members of the Eurozone, with a common currency, the Euro, and a single interest rate set by the European Central Bank (ECB). They make up 72% of the EU’s GDP. Click here for the Eurozone in figures.
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The International Monetary Fund has come out with its latest set of forecasts of the world economy. The report says at one point:
“The IMF staff now sees a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009—equivalent to a global recession.”
Since when is 3% growth equivalent to a “global recession”? According to my textbook, periods of negative GDP growth are called recessions.
By this “new’ definition, the world economy has been in recession 1980-83, 1990-93, 1998, and 2001-2002. In other words, 11 out of the last 28 years. There are no negative years of world growth.
Here are the IMF’s latest world growth numbers, and forecasts out to 2013.
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UBS AG together with Citigroup and Merrill Lynch are the top three losers of the US subprime mortgage crisis, together they wrote down US$106 billion to date.
During UBS’ annual meeting on Wednesday April 23rd in Basel, shareholders were asking just one question: How did UBS manage to lose $37 billion betting on American mortgage-backed assets, battering its core capital and share price in the process?
The UBS internal investigation report on the write-downs gives three broad explanations for the bank’s woes. The investment-banking arm’s preoccupation with growth, the reliance of the control team on flawed measures of risk, and the culture of the bank. A more detailed explanation on all three causes can be found here. The credit squeeze is graphically explained by the Financial Times here and by the BBC here.
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The mood in London financial markets is not good. House prices are going down, and with them the British pound. Investment bankers within UBS are looking around for jobs, and the Royal Bank of Scotland is sweeping ABN Amro’s trading floor clean with incredible lack of style:
ABN’s structured credit traders were apparently told on Thursday that they should report to RBS’ London office in preparation for a move there on Monday. Terminals needed to be checked and such like. And when they got there… they were all fired (full story).
Luckily, the British have a great sense of humour, and I couldn’t stop laughing at this economic assessment of London 2010 from the price of everything blog:
London, April 2010 – Wall Street firms have just announced their latest results for FY 2009;
300 million staff have been “written down”, leaving just two (Sid and Doris Bonkers) to manage the investment banks’ remaining worldwide debt, equity, merger and advisory, securitisation, syndication and prime brokerage businesses.
Marti Peeps, sole analyst at the last remaining research house, Teletext, welcomed the results as “a bold step in the face of ongoing bad debt provisioning,” though conceded that the City’s newly “rightsized” payroll might struggle to take on board the burgeoning supply of new issuance, namely the packet of Walkers Crisps rumoured to be hitting the primary market in late summer 2012.Hopes for a recovery in Wall Street earnings have for several quarters hinged on the prospects for the successful completion of a 40p private placement of a bag of Salt and Vinegar flavour crisps on behalf of the Walkers Crisps Company. Lead underwriters JPCitigroupMerrill, a subsidiary of the US government, and Northern Rock SocGen KFW Nomura, a wholly owned subsidiary of Tesco plc (Neasden branch), are rumoured to have “solid” interest for the underwriting, most notably from Asia, itself a subsidiary of Texas Pacific Group, but declined to go into further detail. (click here for pdf version. Enjoy!)
Update @ April 15th: London’s financial services sector faces a loss of 20,000 jobs over the next two years. Cuts by Citigroup and RBS are the tip of the iceberg (BusinessWeek).
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There’s a paradox in Asian markets, according to Rafael Nam of Reuters. Balance sheets of Asian companies look like they’re in good shape, yet the cost of insuring against debt defaults by these businesses is even higher than it was a decade ago, during the Asian crisis. That makes life harder for them, but it could create an opportunity for investors.
In this case, the only rational explanation seems to be that investors - who are ultimately the ones doing the insuring - simply prefer to keep their money in highly liquid securities denominated in dollars or euros. Yet to the extent that investors’ preferences for the United States and the euro zone come from habit rather than from economic fundamentals - and habit is undoubtedly a part of it - the opportunity in Asia is real. So, who will take advantage?
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Gold traded above $1,000 a troy ounce for the first time on Thursday March 13th. Read more on The Economist here and here.
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BusinessWeek has written a report on crude oil surpassing $110 for the first time on Wednesday March 12th.
Please also visit my previous post on “What’s next for oil prices?”
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A symbolic visual for this week’s ups and downs at stock markets across the world.
On the bright side of all the market tumble news, I just found out that Western chocolatiers experimenting with new flavours aimed at targeting Asian markets in order to fuel growth in a saturated Western chocolate market. You can think of ginseng, red bean and green tea flavours! What’s more to come? As I just finished reading the book “The Long Tail by Chris Anderson” creating more product variety aimed at niche markets has a big future! A glimpse into the beginning of a world with unlimited variety of chocolate can be found here.
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Well, don’t say I didn’t warn you. Yesterday oil touches the $100 barrier and its front page news across the world. The primary question remains: Will it last? A long-term perspective demands that the world’s leading economies reduce their dependence on fossil fuels. However, the short-term imperative is still to find more of the stuff. Nevertheless, the main four influencers are: today’s demand, tomorrow’s demand, today’s supply and tomorrow’s supply.
It’s tough to make big changes in today’s demand; people would have to change their behaviour overnight to use less jet fuel gasoline, fuel oil, chemicals, plastics, etc. Tomorrow’s demand, on the other hand, is more malleable. E.g. creation of a new international agreement on climate change including both developed and developing nations, the new fuel standards in the United States, the shift to non-oil-based energy in Europe and Chinese efforts at conservation. In the meantime, however, the global economy is growing at about 4 percent per year - and demand for oil is likely to expand at least as quickly.
On the other side of the equation, today’s supply is already changing rapidly. Just this week, Iraq’s oil ministry predicted that its output this year would, at last, be higher than before the war. In addition, new oil supplies - even from high-cost sources - are coming online in big countries from Canada to Kazakhstan, and in small countries from Equatorial Guinea to East Timor. Supply tomorrow is a tougher nut to crack; so many geopolitical factors can affect it, to say nothing of the amount of oil actually left in the ground. But with peace, and with real changes in behaviour, oil need not see $100 again for a long time. Without them, we’ll keep checking off these landmarks: $110, $120, $130..
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Today is the 10th anniversary of the agreement that launched the single currency. However, residents of the first 12 EU states that adopted the Euro didn’t begin using Euro banknotes and coins until 1 January, 2002.
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