Mortgage lending is at near record lows. A new development is that business credit is drying up much faster in Italy and Spain than in Germany. “Fragmentation is a recurring theme,” said Bank of America’s Barnaby Martin.
According to a study by the Bank for International Settlements, the euro area is also importing monetary tightening from the US Federal Reserve through the effects of the disappearance of dollar liquidity and the repricing of global dollar debt contracts.
That’s why the ECB’s latest interest rate hike of 4% last week is larger than it appears.
At the same time, the entire budget oversight apparatus in Brussels is pushing eurozone countries into varying degrees of austerity. The worse the situation, the more austerity will be required under the euro area’s ordoliberal fiscal rules, which the UK Treasury has unfortunately copied.
The full impact of this three-stage tightening will not be seen until after 2024. But the ECB insists that the elusive economic recovery is just around the corner and has simply been postponed until the first half of next year.
The actual premise seems to be that Europe can return to health by collecting demand from other countries. This is detailed in the forecasts of his three main research institutes in Germany (IFO, IWH, IfW).
They expect exports to rebound explosively, Germany’s current account surplus to rise from 4.2% of GDP last year to 7% this year, and a return to normal mercantilism.
Their views matter because Germany is currently determining eurozone policy. That is, through Finance Minister Christian Lindner of the Eurogroup, which is the de facto government of Europe. and through the ECB’s Isabel Schnabel, who wants a policy of monetary excess as an “insurance” policy against lingering inflation risks. But did she overlook the converse risk that the world would not be obligated?
In this way, the idea of a medium-sized country is to depend on other people’s fiscal spending. This is a recipe for stagnation in large monetary unions, where most trade occurs within national currency blocs.
The lessons of the lost decade from 2008 to 2016, if learned, have been forgotten.
China’s real estate failures are probably nearing the bottom, but there will be no V-shaped recovery, and there will be no return to the old reflexes of extreme credit leverage.
The central bank (PBOC) is trickling out stimulus packages to prevent defaults by real estate developers from triggering a chain reaction through the shadow banking system.
State control over credit allocation by major banks ensures, or should guarantee, that China will always be able to avoid the financial Minsky moment associated with the Lehman crisis.
Long-term damage to balance sheet repair due to the decline of the credit boom cannot be avoided. Capital Economics believes China’s trend growth rate has already declined to 3% based on proxy indicators and will further decline to 2.4% in the second half of the 2010s.
Chinese savers burned through $760 billion in certificates of deposit in the first quarter, evidence of almost terrifying cosmic pessimism. Some people pay off their debts as quickly as possible. “It’s like money falling into a black hole,” said Fan Gan, the People’s Bank of China’s former rate-setting chief.
Such a collective squeeze increases the risk of an intractable recession and increases pressure on China to export the recession through currency devaluation and beggar-neighbor trade policies.