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Off the Charts: A Faster Recovery in Germany Than Elsewhere

May 10, 2013 by Leave a Comment

But not in Germany.

In Germany, alone among the 27 members of the European Union, unemployment rates for both older and younger workers are now lower than they were when the United States slipped into a recession at the end of 2007.

In the rest of the euro zone, the unemployment rate for workers ages 25 to 74 has more than doubled over that period, to 12.8 percent. The rate for younger workers is more than 30 percent, on average — and above 50 percent in Spain and Greece. In Germany, it is less than 8 percent.

The accompanying charts show how unemployment rates for both groups of workers have changed in each of the 17 countries in the euro zone, as well as for Britain and the United States.

In terms of adult unemployment rates, the most recent figures for the United States (6.1 percent) and Britain (5.7 percent) are not that far from Germany’s figure of 5.1 percent. The major difference is in youth unemployment, which is above 16 percent in the United States and above 20 percent in Britain.

What accounts for that difference? Some of the credit goes to Germany’s unusual education and employment system for young workers, as well as to German policies that encourage employers facing downturns to reduce working hours rather than fire workers. In Germany, students are separated into different career tracks, with many put into a system that leads to apprenticeships rather than to college degrees.

But that is not the entire story. The euro zone’s troubles have helped Germany’s export-oriented economy. The weak euro has made Germany’s exports more competitive against those of countries with which it competes, most notably the United States and Japan. Since the end of 2007, the euro is down about 10 percent against the dollar and about 20 percent against the yen.

Were the euro zone to break up, there is little question that the value of a new German mark would rise sharply, while the currencies of many other members of the zone would fall relative both to the mark and other international currencies. That would depress German exports.

The charts reflecting Germany’s unemployment rates, if they were the only evidence available on world economic trends, would seem to indicate there was a mild downturn in 2009 that soon ended, with the economy recovering the next year. The United States charts would indicate a more severe downturn, followed by a recovery that began in 2010 and may now be gathering strength. In Britain, there has been much less progress since unemployment peaked in 2011.

In the 16 other euro zone countries as a group, the chart indicates a deep recession that leveled off in 2010 and 2011 but has since gotten much worse — particularly for young workers. “We will have to speed up in fighting youth unemployment,” the German finance minister, Wolfgang Schäuble, said at a conference this week, “because otherwise we will lose the support, in a democratic way, in some populations of the European Union.”

If that is to happen, it may require a change of course for Europe, where it appears the rich will continue to get richer. The European Commission’s latest economic forecast, released last week, predicted declining unemployment in Germany this year and next, but said joblessness was likely to continue to climb in France, Italy and Spain.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/05/11/business/economy/a-faster-recovery-in-germany-than-elsewhere.html?partner=rss&emc=rss

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DealBook: Maijoor, Chief Securities Overseer in Europe, Stumps for Streamlined Regulation

December 27, 2011 by Leave a Comment

Steven Maijoor, the chairman of the new European Securities and Markets AuthorityJerry Lampen/ReutersSteven Maijoor, the chairman of the new European Securities and Markets Authority

PARIS — Steven Maijoor, the chairman of Europe’s new securities regulator, has been piling up the frequent flier miles.

On a recent three-day trip, Mr. Maijoor, a former college professor, met fellow regulators in Frankfurt, spoke to institutional investors in Tallinn, Estonia, and held meetings with European politicians in Brussels.

“I knew this would be a hard job,” Mr. Maijoor said in his newly furnished office in central Paris with views of local landmarks, including the Sacré-Coeur Basilica and the Louvre. “Sometimes I tend to leave the office late, and I’m certainly still not the last one out of the door.”

As chairman of the new European Securities and Markets Authority, Mr. Maijoor faces a big task ahead. The organization, which started work at the beginning of 2011, is trying to create one set of securities rules for all 27 members of the European Union.

The streamlined regulation is long overdue. While much of Europe’s financial services industry has been integrated over the last decade, the Continent’s regulation is still largely carried out at a domestic level. During the sovereign debt crisis, for example, investors in some European Union countries were able to bet against banking stocks, while such short-selling activity was banned in other jurisdictions.

The lack of coordination has proved problematic. As markets struggled in the aftermath of the financial crisis, European authorities did not have a clear picture about the performance of complicated financial instruments, like credit-default swaps.

“There’s a likelihood that the impact on the financial system could have been smaller if we had access to more information,” Mr. Maijoor said. “Now, we’re in a much better position than before the credit crisis.”

Mr. Maijoor, previously managing director at the Dutch financial markets regulator, has spent much of his first year in charge getting national regulators to share more information. Along with constant trips across the Continent to meet local authorities, he also heads the organization’s board of supervisors, comprising representatives from the European Union’s 27 national regulators, which meets regularly to decide on new regulation.

Mr. Maijoor, the former dean of Maastricht University’s School of Business in the Netherlands, has also consulted with international counterparts, including the Securities and Exchange Commission, as part of a global effort to increase transparency in the financial markets. That includes weekly discussions with authorities to iron out differences that could potentially lead to regulatory arbitrage between the United States and Europe.

“We already have a pan-European financial market, so it’s crucial there’s an institution that can coordinate all the regulation,” said Diego Valiante, a research fellow at the Center for European Policy Studies in Brussels. “It’s highly dangerous to have fragmented supervisory mechanisms.”

But Mr. Maijoor’s efforts could to be hampered by limited resources. The regulator’s 2011 budget is 16.9 million euros, or $22.1 million, compared with $1.1 billion the S.E.C. receives. It has a permanent staff of 60, which will rise to 200 over the next three years. Its counterpart in the United States employs more than 4,000.

Bureaucratic challenges also may take their toll. The European agency’s legal structure gives all 27 of the European Union’s national regulators a vote in rulemaking. Disagreements could delay reforms or force stand-offs between countries that differ on new legislation.

Market participants also are concerned about the agency’s close ties to European politicians, many of whom vocally criticize the financial services sector’s role in the Continent’s debt crisis. The regulator is overseen by the European Commission, the nonelected executive branch of the European Union that is appointed by national governments.

“People are worried that decisions critical to the future of Europe’s economic union are being taken in a nontransparent forum,” said Etay Katz, a banking regulatory partner at the law firm Allen Overy in London. The securities agency “faces a steep change in European financial regulation. There’s a big question whether it has the capacity to stand on its own.”

Despite the lingering concerns, Mr. Maijoor and his team are moving ahead. Two months ago, the organization, whose staff is drawn from more than 15 European nationalities, started supervising credit ratings agencies in Europe.

It has been an especially thorny issue. European politicians have been critical of the big American players like Moody’s Investors Service and Standard Poor’s for failing to catch problems with subprime securities before they started to implode during the financial crisis.

Now, companies offering ratings on financial products to European investors must register with the new authority. It will carry out inspections on their internal governance and risk mitigation practices. If inspectors find problems, the regulator has the right to fine, sanction or even withdraw a firm’s license. The initial checks are expected to start in early 2012.

This is the first time ratings agencies in Europe have been regulated. The regulator will soon get similar powers to supervise the Continent’s trade repositories, institutions that collect data on opaque over-the-counter derivatives contracts.

“We’re going to be knocking on rating agencies’ doors to see what’s been going on,” Mr. Maijoor said.

The major ratings agencies declined to comment. A market participant familiar with the regulator’s new role said the pan-European approach would help improve regulatory consistency, but expressed concerns that it could be subject to political influence.

“Right now, E.S.M.A. doesn’t have direct regulatory responsibility for anything else, so the ratings agencies are being treated like guinea pigs,” the person said.

Mr. Maijoor’s agenda for next year is packed. As part of the push to increase oversight of the financial markets, the new organization has been charged by the European Commission with writing dozens of new regulations. It is the first time a pan-European institution has been given specific powers to draft rules that affect all of the Continent’s markets.

The authority “has taken on a special role because of its powers to set rules,” said Bert Van Roosebeke, head of the financial services division at the Center for European Policy, a policy research organization based in Freiburg, Germany. “In the future, they will want to flex their muscle to show that they’re in charge.”

The organization is in the process of writing new standards for short-selling practices across Europe. The regulator has the power to ban financial products that it believes are a threat to European investors or market stability. This year, Mr. Maijoor helped to coordinate a temporary ban of short-selling in some euro zone countries.

Standards are also expected on the expanded role for clearinghouses — financial intermediaries that guarantee trades if one side defaults — and trade repositories in the over-the-counter derivatives markets. Under current proposals, derivatives contracts traded over the counter will be moved to exchanges and forced to use clearinghouses, as regulators try to increase oversight of the market.

“The flow of regulation that E.S.M.A. has to draft is a huge amount for such a small number of people,” said Mr. Valiante of the Center for European Policy Studies. “It’s going to be very busy during 2012.”

Article source: http://feeds.nytimes.com/click.phdo?i=2ace22efda14682767378cfacac5b6f5

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Britain Worries About Its Status in Europe

November 2, 2011 by Leave a Comment

The broad market sell-off Tuesday on news from Greece only makes that outcome more uncertain.

Before this latest jolt to the euro zone, the British prime minister, David Cameron, was already in a delicate dance, trying to defend his relevance in the European Union while trying to sidestep politicians and policy makers in London who would just as soon pull out of the bloc altogether.

Notably, Mr. Cameron, as prime minister of one of the 10 member states that do not use the euro, was not invited to dine with government leaders of euro nations in Brussels last week. And he was excluded from the talks on how to save the single currency. Those were significant snubs.

But Britain’s concerns go far beyond dinners missed and meetings not attended. There is a growing fear in London that a closer fiscal union among the 17 countries that share the euro, if such a consolidation is an eventual outcome of the crisis, would curb Britain’s influence on decisions that could affect the British economy.

The outline of a rescue plan that the euro zone leaders agreed to last week would result in “more meetings alone,” Mr. Cameron said Friday during a trip to Australia. The 17 nations that share the euro, he said, could possibly create a united voting bloc against the other 10 members of the European Union.

“It is very important that the institutions of the 27 are properly looked after and that the commission does its job as the guardian of the 27,” Mr. Cameron said. The “crisis means that greater fiscal integration in the euro zone is inevitable, but this must not be at the expense of Britain’s national interest.”

In some ways, analysts say, Britain has more at stake in the crisis than the other nine members that do not share the euro. Britain, after all, is home to Europe’s largest financial center, a crucial part of its domestic economy.

At the same time, the British economy is tightly linked with the Continent. As a bloc, the euro zone nations, led by France, Germany and Italy, are by far Britain’s largest trading partners.

“The fear is that a strong caucus of euro zone members would say, ‘Here’s what we want and we’ll push it through,’ ” said Iain Begg, a professor at the London School of Economics.

But some economists argue that such concerns are overblown, saying Britain’s voice would continue to be an important one in European decision making. Fanning any fears to the contrary, they say, mainly serves the ambitions of the British politicians and policy makers who would prefer that Britain leave the union.

It further stoked Britain’s anti-European Union contingent when word emerged that Mr. Cameron had been chided by President Nicolas Sarkozy of France at the Brussels meetings for trying to get too involved.

“You’ve lost a good opportunity to shut up,” Mr. Sarkozy told Mr. Cameron according to an exchange leaked by British officials and not denied by France. “We’re sick of you criticizing us and telling us what to do. You say you hate the euro, and now you want to interfere in our meetings.”

Mr. Cameron, who wants Britain to remain in the European Union but under better terms, faced a rebellion in his own Conservative Party last week. Several members ignored his orders and voted in favor of calling a referendum on Britain’s membership. The referendum plan was eventually rejected in Parliament, but Mr. Cameron was criticized by some of his own party members for not pushing Britain’s interests enough in Brussels.

Mr. Cameron also faces pressure from his coalition partner, the Liberal Democrats, which favor the union. Nick Clegg, the Liberal Democrat who is deputy prime minister, warned that any attempt by Britain to leave the union would be “economic suicide” and that Britain’s interests are best served by a “united and liberal Europe.”

“Euro skeptics tend to gaze longingly across the Atlantic, but the Americans are interested in us, in large part, because of our sway with our neighbors,” Mr. Clegg wrote in an article in the British Sunday newspaper The Observer last week. “We stand tall in Washington because we stand tall in Brussels, Paris and Berlin.”

The president of the European Council, Herman Van Rompuy, said in the run-up to the meetings in Brussels last week that he was fully aware of the concerns and “all the sensitivities of the relationship between the 27 and the 17 member states, so my intention is to have this exchange of views if possible each time before the euro summit meetings.”

Much of the British anxiety focuses on the City, London’s financial center and a hub for Europe’s hedge funds, derivatives trading and other investment banking activities. About 70 percent of global euro bond trading takes place in London, also a global center for foreign exchange transactions and derivatives trading.

“In London, E.U. legislation is increasingly seen as a threat to the City,” said Philip Whyte, a senior research fellow at the Center for European Reform in London. But the Continent does not always hold London traders in high regard.

Some euro zone members have started to push for a tax on financial transactions across the European Union to limit speculation and raise additional money, an idea Britain strongly opposes — unless it were a worldwide mandate — for fear of hurting London’s competitiveness in global finance. The tax proposal is to be presented to European finance ministers on Nov. 8.

Wolfgang Schäuble, Germany’s finance minister, has said that even if Britain blocked the agreement on such a tax in the full union, the euro zone should press ahead on its own. Mr. Schäuble said he was aware of Britain’s opposition “but it would be wrong to say it is hopeless before we have even discussed it.”

Article source: http://www.nytimes.com/2011/11/02/business/global/euro-crisis-holds-both-hopes-and-fears-for-britain.html?partner=rss&emc=rss

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Slovakia May Hold Key to Euro Debt Bailout

October 8, 2011 by Leave a Comment

The commercial has touched a nerve here in the second-poorest country in the euro currency zone, where the average worker earns just over $1,000 a month. The prospect of guaranteeing the debt of richer but more spendthrift countries like Greece, Portugal and even Italy has led to public outrage. So much so that tiny Slovakia now threatens to derail a collective European bailout fund to shore up the euro, which requires the approval of all 17 countries that use the currency.

Once among the most enthusiastic new members of the European Union, and an early adopter of the euro in Eastern Europe, Slovakia is proud of its strong growth and eager to leave behind its reputation as the “other half” of Czechoslovakia. But it has also become a stark example of the love-hate relationship that many residents of the Continent have begun to feel toward a united Europe.

Adopting the euro required hard sacrifices here that stand in sharp contrast to reports of overspending and mismanagement in Greece. The worries about the union’s future are all too real in smaller, poorer countries like Slovakia, which has about 5.5 million people, and is being asked to contribute $10 billion in debt guarantees to a $590 billion euro zone stability fund.

Not far from the new malls and hotels along the River Danube is Trhovisko Mileticova, a market dating from Communist times, where pensioners search for bargains among the barrels of pickled vegetables and cheap synthetic blouses from Asia. “It’s tough to get by with euros,” said Zuzana Kerakova, 64, who sells grapes at the market to supplement the combined 600 euros — about $804 — that she and her husband receive from a government pension every month.

Like many here on a recent morning, Ms. Kerakova said there always seemed to be enough money to help banks and foreign states but never people like her. On the other hand, she said: “The European Union has been good to us. We live more freely, move more freely.” Asked whether to side with Europe or refuse to help with the bailout fund, she said quietly, “Neviem,” Slovak for “I don’t know.”

“Neviem,” she repeated, shaking her head. “Neviem.”

The future of the euro could well be decided next week in the Slovak Parliament, which meets in a modern building that is too small to hold offices for all its members and their staff because it was originally designed to hold only occasional sessions of Czechoslovakia’s Federal Assembly, which usually met in Prague. The Parliament building overlooks not only the Danube but also the former frontier of the Iron Curtain, which cut off Bratislava from Vienna, less than an hour’s drive upriver and the cold war gateway to the free world.

The expansion of the bailout fund is in danger because the free-market Freedom and Solidarity Party, just one member of the four-party governing coalition, has held out against it. “I am not the savior of the world,” Richard Sulik, who is both the party’s leader and the speaker of Parliament, said in a recent interview here. “I was elected to defend the interests of Slovak voters.”

The opposition Smer-Social Democracy party could bridge the gap, but its leader, the leftist former Premier Robert Fico, hopes to bring down the government and win new elections, paving the way for his return to power, and is holding out for the coalition to crack.

The situation in Slovakia illustrates how ambitious young politicians, outspoken populists and struggling small parties can hinder collective action — or even derail it. Even if a compromise is found here, as it was in Finland, by the time agreement is reached among all 17 countries, investors will have long since moved on to a new batch of fears.

The vote over the expansion of the bailout fund, the European Financial Stability Facility, and its powers, is only one step. “The E.F.S.F. is not the end of the story. We will need to have other solutions,” said Slovakia’s finance minister, Ivan Miklos. “This is the dilemma. Everyone agrees that we need more flexibility.”

Slovakia’s relationship with the European Union runs far deeper than a single debt crisis or bailout. In the 18 years since independence, few countries have experienced such unusual twists of fate and fortune. From the “black hole in the heart of Europe,” as Madeleine K. Albright described the backward, isolated state in 1997, the country transformed itself into a neoliberal champion of the flat tax.

With automobile factories springing up across the country, it earned the nickname the Detroit of Europe. It is also called the Tatra Tiger, a name derived from a local mountain range, because of its rapid growth, including the 10.5 percent economic growth rate it reported in 2007, just a decade after Ms. Albright’s dire pronouncement.

But perhaps Slovakia’s greatest sense of accomplishment came from beating its former partners, the Czechs; its former rulers, the Hungarians; and its larger neighbor, Poland, into joining the euro currency zone. Many Slovaks are reluctant to be the stumbling block for the euro’s rescue after all the European Union has done for them.

“Thanks to joining the European Union and the prospect of joining the euro zone, investors were more likely to show interest here,” said Mayor Vladimir Butko of Trnava, a city about 35 miles east of the capital where a car factory produces Citroens and Peugeots.

The European Union helped to pay for improvements to the rail link to Bratislava, Mr. Butko said, and for a highway bypass. But he ranked the psychological benefits of European Union membership even higher than the economic ones. “When you can now sit in your car and go to Munich, and the same money in your pocket here can pay for a beer there, and you don’t have to stop at the borders,” said Mr. Butko, 56, “this is a very strong experience for people over 45.”

It is an experience that makes far less of an impression on the younger generation. Sebastian Petic, 18, a law student in Trnava who was spending a sunny afternoon on a bench in the town square with his Lenovo laptop, repeated a popular joke. “For 500 euro, you can adopt a Greek. He will sleep late, drink coffee, have lunch and take a siesta,” Mr. Petic said, “so that you can work.”

He opposed increasing the bailout fund, saying that debt would only snowball. “I was quite positive about the advent of the euro,” Mr. Petic said. “Now, I’m not so sure.”

Miroslava Germanova contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=e19e91044e5f542128ddf18b6d927380

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Economix: Banks Have Powerful New Opponent

April 7, 2011 by Leave a Comment

Today's Economist

Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

As a lobbying group, the largest American banks have been dominant throughout the latest boom-bust-bailout cycle – capturing the hearts and minds of the Bush and Obama administrations, as well as the support of most elected representatives on Capitol Hill.

Big banks are lobbying Congress to delay a limit on fees they charge for debit-card transactions, and retailers are countering with an advertising campaign.Elaine Thompson/Associated Press Big banks are lobbying Congress to delay a limit on fees they charge for debit-card transactions, and retailers are countering with an advertising campaign.

Their reign, however, is being seriously challenged – finally – by an alliance of retailers, big and small, on whose behalf a variety of ads are now running, including on television (such as this one, by Americans for Job Security), the Web (such as this, by American Family Voices) and a powerful radio spot directly attacking the too-big–to-fail banks.

The immediate issue is the so-called Durbin amendment –- a requirement in the Dodd-Frank financial overhaul legislation that would lower what are known as the interchange fees that banks collect when anyone buys anything with a debit card. Retailers pay the fees, but these are then reflected in the prices faced by consumers.

The United States has very high debit-card fees, colloquially known as swipe fees –- 44 cents on average (that amounts to 1.14 percent of the average purchase price of $39) and up to 98 cents for some kinds of cards. These fees are per transaction and although the formula is complex, the payment is a significant percentage of many purchases and poses a particular problem for smaller merchants. These fees are estimated to amount to $16 billion to $17 billion annually.

Other countries, including Australia and members of the European Union, have acted to reduce interchange fees – because the actual cost of such transactions is quite low. Think about it: the interchange fee for checks, which also draw directly on bank deposits, is zero.

The United States severely lags behind comparable countries in terms of how consumers are treated by banks in this regard.

The intent behind the amendment offered by Senator Dick Durbin, Democrat of Illinois, was quite clear: Fees should be lowered – to a level commensurate with the costs of that particular transaction. The amendment attracted bipartisan support (the vote was 64-33 in the Senate, with 17 Republicans among the supporters).

The Federal Reserve was mandated with determining reasonable fees through a regulatory rule-making process, and, after some foot-dragging, the proposal is that interchange fees be capped at 12 cents.

Unsurprisingly, the big banks’ lobbying machinery sprang into action, arguing that the fee cap would hurt small banks and credit unions. Senators Jon Tester, Democrat of Montana, and Bob Corker, Republican of Tennessee, are offering legislation –- as is Representative Shelley Moore Capito, Republican of West Virginia –- that would postpone implementation of the fee reduction for up to two years, pending further study.

In Washington, the best way to kill something is to study it further.

This is an issue that cuts across party line –- witness the eclectic Dick Morris weighing in for the amendment – but supporters of the big banks sit on both sides of the aisle. Tea Party-inclined Congressional conservatives are arguing that the Fed should not get involved with the market. And the Financial Services Roundtable asserts that the amendment is wrong from top to bottom.

But this is a badly broken market, as James C. Miller III, the budget director under President Reagan, has argued. Too-big-to-fail banks are not a market – they are a government subsidy scheme, because they are backed by implicit government bailout support (to be provided at below market cost whenever needed).

These subsidies enable megabanks to borrow more cheaply and grab market share relative to smaller banks (those with less than $10 billion of assets.) On top of this, and working closely with the biggest banks, Visa and MasterCard have around 90 percent of the market for debit cards – hardly conducive to reasonable competitive outcomes.

At the same time, some on the political left are confused (or captured) by the assertion that lower interchange fees will hurt small banks and credit unions. This is a pure smokescreen – banks with less than $10 billion in total assets are specifically exempt from the provisions of the Durbin amendment.

This exemption was a smart political move, and it also makes economic sense, given the disproportionate size and power of our largest banks. Adam Levitin, writing on the Credit Slips blog, makes a strong case that small banks will actually win under the proposed cap, as this can level the playing field with larger banks to some degree:

If they end up with higher interchange revenue than big banks as a result of Durbin, that is a step toward undoing the troubling consolidation of financial services around too-big-to-fail institutions.

See also Mr. Levitin’s paper on credit unions, showing that they may also benefit – again as most have less than $10 billion in total assets.

Of course, the big banks are threatening to punish customers in other ways if debit fees are capped — for example, by ending free checking. But this makes no sense, given that these banks have to compete with smaller institutions for retail business that will not be affected by the caps on debit fees.

The dispute between big banks and the nonfinancial sector has started to get interesting.

Article source: http://feeds.nytimes.com/click.phdo?i=0d1ab41e7948d70896db3b976b3d1f38

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