IMF Solutions Reinforce Problems [thedailybell]

IMF: Global economic slowdown is getting worse, US must avoid ‘fiscal cliff’ … Updated at 8:30 a.m. ET The International Monetary Fund said the global economic slowdown is worsening as it cut its growth forecasts for the second time since April and warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump. Global growth in advanced economies is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks, the IMF said in its World Economic Outlook, released ahead of its twice-yearly meeting, which will be held in Tokyo later this week. − NBC

Dominant Social Theme: The IMF is concerned.

Free-Market Analysis: The IMF is getting a good deal of play with a worried world forecast. The concern was stated in the IMF’s “World Economic Report.”

Here’s a quote: “A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component,” it said. “The answer depends on whether European and U.S. policymakers deal proactively with their major short-term economic challenges.”

This is a typical elite theme – that only “policymakers” can deal with issues relating to the economy. The idea that the market itself could deal with economic issues is not one the top people at the IMF would be pleased to consider.

In fact, as we’ve often stated, the entire EU downturn, starting with the economic crisis of 2008 has been a kind of engineered takedown. It began with determined bank lending and ended with a “sovereign crisis.”

But EU officials, decades before, are on record as stating that an economic crisis would have to be created in order to strengthen a political union. And that’s just what’s happening.

The IMF is front-and-center in all this because many of the policies now being applied to the EU’s Southern – economically bleeding – flank have been developed by the IMF and now go under the all-embracing nomenclature of “austerity.” Here’s some more from the article:

Meanwhile, German Chancellor Angela Merkel arrived in Greece on her first visit since Europe’s debt crisis erupted here three years ago, braving protests to deliver a message of support — but no new money — to a country seen by many as a prime example of Europe’s ongoing and entrenched economic woes …


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IMF Cuts Global Growth, Warns Central Banks, Whose Capital Is An “Arbitrary Number”, Is Only Game In Town [Zerohedge]

“The recovery continues but it has weakened” is how the IMF sums up their 250-page compendium of rather sullen reading for most hope-and-dreamers. The esteemed establishment led by the tall, dark, and handsome know-nothing Lagarde (as evidenced by her stroppiness after being asked a question she didn’t like in the Eurogroup PR) has cut global growth expectations for advanced economics from 2.0% to only 1.5%. Quite sadly, they see two forces pulling growth down in advanced economies: fiscal consolidation and a still-weak financial system; and only one main force pulling growth up is accommodative monetary policy. Central banks continue not only to maintain very low policy rates, but also to experiment with programs aimed at decreasing rates in particular markets, at helping particular categories of borrowers, or at helping financial intermediation in general. A general feeling of uncertainty weighs on global sentiment. Of note: the IMF finds that “Risks for a Serious Global Slowdown Are Alarmingly High…The probability of global growth falling below 2 percent in 2013––which would be consistent with recession in advanced economies and a serious slowdown in emerging market and developing economies––has risen to about 17 percent, up from about 4 percent in April 2012 and 10 percent (for the one-year-ahead forecast) during the very uncertain setting of the September 2011 WEO. For 2013, the GPM estimates suggest that recession probabilities are about 15 percent in the United States, above 25 percent in Japan, and above 80 percent in the euro area.” And yet probably the most defining line of the entire report (that we have found so far) is the following: “Central bank capital is, in many ways, an arbitrary number.” And there you have it, straight from the IMF.


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IMF gets $456 billion for crisis firewall [france24]

AFP – IMF chief Christine Lagarde said on Monday that member states had promised a total of $456 billion (361 billion euros) for its new crisis fund, $26 billion more than a target set in April.

China, which had held back on how much it would offer for months, will contribute $43 billion, according to the IMF.

“With today’s announcements by an additional 12 countries, a total of 37 IMF member countries… have joined this collective effort, demonstrating the broad commitment of the membership to ensure the IMF has access to adequate resources to carry out its mandate in the interests of global financial stability,” Lagarde said.

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IMF reports Spanish Banks need €37 billion; China CPI up 3.0% [Calculatedrisk]

Earlier today there were reports that Spain could request a bank bailout this weekend. From the Financial Times:Spain poised to seek bailout and from Reuters: Exclusive: Spain poised to request EU bank aid Saturday

Spain is expected to ask the euro zone for help with recapitalizing its banks this weekend, sources in Brussels and Berlin said on Friday, becoming the fourth country to seek assistance since Europe’s debt crisis began.

Five senior EU and German officials said deputyfinance ministers from the single currency area would hold a conference call on Saturday morning to discuss a Spanish request for aid, although no figure for the assistance has yet been fixed.

Later the Eurogroup, which consists of the euro zone’s 17 finance ministers, will hold a separate call to discuss approving the request, the sources said.

“The announcement is expected for Saturday afternoon,” one of the EU officials said.

However, later in the day, from MarketWatch:

Deputy Prime Minister Soraya Saenz de Santamaria told reporters Friday that the government would make no decisions on any aid request before the results of various reports on Spanish banks were known.

“The government has to respect the process before taking any decisions about the data of the banks,” said Sáenz de Santamaría, in the televised press conference. She also said there were no plans for any meetings in the coming days, but sidestepped questions about whether a teleconference call would be held.

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Greece Gets Hint of Leeway From Euro Officials [Bloomberg]

By James G. Neuger and Josiane Kremer

European governments hinted at giving Greece extra time to meet budget-cut targets, as long as the financially stricken country’s feuding politicians put together a ruling coalition committed to austerity.

Calling talk of a Greek pullout from the euro “nonsense” and “propaganda,” Luxembourg Prime Minister Jean-Claude Juncker said only a “fully functioning” Greek government would be entitled to tinker with the conditions attached to 240 billion euros ($308 billion) of rescue aid.

“The government would have to stand by the program,” Juncker told reporters after chairing a meeting of euro-area finance ministers in Brussels late yesterday. “If there are dramatic changes in circumstances, we wouldn’t close ourselves off to a debate over extending the deadlines.”

Greece’s post-election impasse multiplied the signs of stress in European markets yesterday. The euro fell for the 10th time in 11 days and stocks surrendered a two-day gain. Bond yields in recession-wracked Spain, the next potential candidate for financial support, touched a five-month high.

“The euro breakup story is gathering steam again,” Marchel Alexandrovich, a senior European economist at Jefferies International in London, said in a research note. “If Greece were to ever exit the euro, no amount of reassuring comments will convince investors that other countries won’t soon follow.”

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IMF’s Vinals: ESM Needs Direct Access to Europe’s Banks []

Jose Vinals, director of the IMF’s monetary and capital markets department, spoke with Bloomberg Television’s Margaret Brennan today and said that the European Stability Mechanism (ESM) should be able to put capital into banks without going through national governments to “de-link the sovereign and banking risk at the national level.”

Vinals also warned against getting “caught into a wave of pessimism by recent market data” even if the “situation is uncertain” in countries like Spain and Italy.

On the strain on Spain right now:

“I do not agree on the premise that it is not a question of if and when. I think the Spanish authorities are taking very important measures in the areas of labor reform, financial reform, and in the areas of bringing under control the public finances of the regions. And all of these are big improvements in medium-term fundamentals. I think the situation is uncertain in terms of financial markets. And not only countries like Spain, Italy, and so on and need to do the job. There are also steps need to be taken at the European level to fully stabilize the situation.”

On how much longer Spain will be able to access market funding:

“I think that Spain has already refunded in terms of public debt about 50% of the total needs for a year. That is not a concern. The concern is that the access may be more expensive than it should. But perseverance with the right policies at the national level and the European level is something that over time should be rewarded. So we should not be too much caught into a wave of pessimism by recent market data. We should look for work and keep doing the right thing.”

On what kind of situation would warrant a recapitalization:

“This is something that we would like the firewall to do, the European Stability Mechanism. It already has the capacity to put money into banks, but only going through a national government. The ESM lends to the national government, and the national government puts the money into the bank if needed. We think the ESM should have also the ability of putting capital directly into banks without having to go through the national government in order to delink the sovereign and banking risk that the national level.”

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Deal on Anglo notes nearing completion []

By Shaun Connolly and Conall Ó Fátharta


A deal on the Anglo Irish Bank promissory note could be reached as early as mid-May.

RTÉ News reported sources saying that the European Financial Stability Facility is the favoured option to replace the promissory notes on more favourable terms.

“The broad idea is to use the EFSF to replace the promissory notes, to try to use it to further strengthen the Irish banking sector so that Irish banks can regain market funding under better conditions,” an EU source was quoted as saying.

The plan would involve the EFSF issuing a long maturity bond, or bonds, worth €28bn. These would come with low interest rates and replace the State’s obligation to pay €3.1bn annually over a 10-year period.

This would be seen as an extension of the current bailout deal, would not amount to a second bailout, and would not impact upon Ireland’s debt levels.

The deal could be reached before the referendum on the fiscal compact, which will take place on May 31.

Meanwhile, ministers yesterday shielded behind better-than-expected tax returns as experts warned that extra spending cuts may be needed due to weak growth.

Alarm bells were sounded by budgetary watchdog, the Irish Fiscal Advisory Council, which was created to keep an eye on Government projections. The council questioned whether growth estimates of 1.3% could be met, as many forecasters are predicting only half of that level will be achieved. Such poor growth could spark the need for the Government’s targets for taxes and cuts to increase by €400m to €3.9bn this year, and soar €2.8bn to €15.6bn in the budgets down to 2015, the fiscal council stated.

The council, which comprises of five academic economists, warned conditions had deteriorated since budget growth forecasts were drawn up and “the latest economic data and more recent external growth projections suggest that the Department of Finance’s real GDP forecast for 2012 is now on the high side”.

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