View from Nedbank :
· We think that the MPC will keep rates unchanged tomorrow.
The decision to either cut rates or keep them steady will depend on whether the combined global monetary stimulus sparks some recovery later in the year, in which case rates are likely to remain stable.
However, if the global economy slips into recession then further easing can be expected.
Our baseline view is that rates will remain stable with some reversal in policy easing possible in late 2013 or even early 2014.
Kind Regards
Steven
Steven Morris Chartered Accountant (SA)
3 Bickley Road
Sea Point
Cape Town
8005
Mobile :+27 83 943 1858
Facsimile : 0866 712 498
E-mail : steven@global.co.za
Website : www.stevenmorris.co.za
Wednesday, 19 September 2012
Tuesday, 11 September 2012
Rand may fall vs dollar as challenges multiply - RTRS
Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own --
By Neal Kimberley
"LONDON, Sept 11 (Reuters) - South Africa's rand may be set to weaken against the dollar ZAR= as economic and social challenges conspire to curb investor demand for the currency.
Even with the gold XAU= price buoyant, often seen by traders as rand-positive given South Africa's precious metal output, the dollar/rand is nudging its 100-day moving average line (currently 8.2360).
A daily close above that line could evolve into a test of the base of the pair's daily ichimoku cloud (presently 8.2510) and from there a possible move to the top of the cloud at 8.3580, and then the 8.4970 Aug. 31 high.
Apart from a brief plunge to a three-year low of 8.71 to the dollar in early June, the rand has held within a 8.00-8.56 range since mid-May and last traded on Tuesday around 8.22.
But the sight of around 10,000 striking South African platinum miners marching from one Lonmin LMI.L mine shaft to another on Monday, threatening to kill strike breakers, is unlikely to encourage investor demand for the rand. (Full Story)
The month-long strike has already seen violence with 44 deaths at the Marikana mine in mid-August, and footage of the clashes between strikers and police seen around the world.
An illegal stoppage has also hit South Africa's Gold Fields GFIJ.J, the world's fourth biggest gold miner, with 15,000 workers downing tools on Monday at its KDC West operation, less than a week after a similar strike at KDC East.
Labour problems are at least partly rooted in an intra-trade union turf war which in turn has a political dimension.
The National Union of Mineworkers (NUM), a key stakeholder in the governing African National Congress-led (ANC) government, is being challenged by the more militant Association of Mineworkers and Construction Union (AMCU).
Opponents of South African President Jacob Zuma, such as expelled former leader of the ANC Youth League Julius Malema, have been quick to get involved.
The timing of the unrest is particularly sensitive given that the ANC holds a leadership conference in December.
With all these factors in play, the rand might be hit.
CURRENT ACCOUNT
Tuesday's widening of South Africa's second-quarter current account deficit to its biggest since 2008 is not going to help the rand retain its poise.
In its September quarterly bulletin, which reports on data from the second quarter, the South African Reserve Bank said the deficit hit 6.4 percent of gross domestic product, expanding from a 4.9 percent shortfall in the first quarter of the year.
Economists polled by Reuters had expected the deficit to moderate slightly because of robust portfolio inflows.
The central bank also said that South Africa's Q2 growth of 3.2 percent had been largely propelled by a big recovery in the mining sector which may not be sustainable.
Not good news with an unemployment rate, categorised by the International Monetary Fund on Aug. 23 as "stubbornly high", of around 25 percent.
South Africa's Oscar Pistorius may have won the final Paralympic track gold medal on Saturday but the rand currently looks as if it is running out of steam.
(Editing by Nigel Stephenson)
((neal.kimberley@thomsonreuters.com,
By Neal Kimberley
"LONDON, Sept 11 (Reuters) - South Africa's rand may be set to weaken against the dollar ZAR= as economic and social challenges conspire to curb investor demand for the currency.
Even with the gold XAU= price buoyant, often seen by traders as rand-positive given South Africa's precious metal output, the dollar/rand is nudging its 100-day moving average line (currently 8.2360).
A daily close above that line could evolve into a test of the base of the pair's daily ichimoku cloud (presently 8.2510) and from there a possible move to the top of the cloud at 8.3580, and then the 8.4970 Aug. 31 high.
Apart from a brief plunge to a three-year low of 8.71 to the dollar in early June, the rand has held within a 8.00-8.56 range since mid-May and last traded on Tuesday around 8.22.
But the sight of around 10,000 striking South African platinum miners marching from one Lonmin LMI.L mine shaft to another on Monday, threatening to kill strike breakers, is unlikely to encourage investor demand for the rand. (Full Story)
The month-long strike has already seen violence with 44 deaths at the Marikana mine in mid-August, and footage of the clashes between strikers and police seen around the world.
An illegal stoppage has also hit South Africa's Gold Fields GFIJ.J, the world's fourth biggest gold miner, with 15,000 workers downing tools on Monday at its KDC West operation, less than a week after a similar strike at KDC East.
Labour problems are at least partly rooted in an intra-trade union turf war which in turn has a political dimension.
The National Union of Mineworkers (NUM), a key stakeholder in the governing African National Congress-led (ANC) government, is being challenged by the more militant Association of Mineworkers and Construction Union (AMCU).
Opponents of South African President Jacob Zuma, such as expelled former leader of the ANC Youth League Julius Malema, have been quick to get involved.
The timing of the unrest is particularly sensitive given that the ANC holds a leadership conference in December.
With all these factors in play, the rand might be hit.
CURRENT ACCOUNT
Tuesday's widening of South Africa's second-quarter current account deficit to its biggest since 2008 is not going to help the rand retain its poise.
In its September quarterly bulletin, which reports on data from the second quarter, the South African Reserve Bank said the deficit hit 6.4 percent of gross domestic product, expanding from a 4.9 percent shortfall in the first quarter of the year.
Economists polled by Reuters had expected the deficit to moderate slightly because of robust portfolio inflows.
The central bank also said that South Africa's Q2 growth of 3.2 percent had been largely propelled by a big recovery in the mining sector which may not be sustainable.
Not good news with an unemployment rate, categorised by the International Monetary Fund on Aug. 23 as "stubbornly high", of around 25 percent.
South Africa's Oscar Pistorius may have won the final Paralympic track gold medal on Saturday but the rand currently looks as if it is running out of steam.
(Editing by Nigel Stephenson)
((neal.kimberley@thomsonreuters.com,
PAYE Interim reconciliations - Deadline 31 October 2012
Take note !!
All employers who are registered with SARS for PAYE and UIF are required to submitt -
The Bi-annual -
EMP501 PAYE and; UIF recon's to SARS electronically and; for the period 1 March 2012 to 31 August 2012 by 31 October 2012.
Also generate EMP501 reconciliations, IRP5's & IT3A's.
If this is not done a penalty and Interest calculated on non submission could be levied.
Contact me for assistance :
Steven
Steven Morris Chartered Accountant (SA)
Mobile :+27 83 943 1858
Facsimile : 0866 712 498
E-mail : steven@global.co.za
All employers who are registered with SARS for PAYE and UIF are required to submitt -
The Bi-annual -
EMP501 PAYE and; UIF recon's to SARS electronically and; for the period 1 March 2012 to 31 August 2012 by 31 October 2012.
Also generate EMP501 reconciliations, IRP5's & IT3A's.
If this is not done a penalty and Interest calculated on non submission could be levied.
Contact me for assistance :
Steven
Steven Morris Chartered Accountant (SA)
Mobile :+27 83 943 1858
Facsimile : 0866 712 498
E-mail : steven@global.co.za
Monday, 10 September 2012
Equities are riskier than bonds. Except when they are not.
PSG ASSET MANAGEMENT on the boil
"We have often written about the margin of safety we demand from equity investments. This prerequisite should ensure that we stay way clear of equities when they trade at grossly inflated prices, i.e. we avoid the equity bubbles. It is not only shares which can pose this trap. In February 1637, during the famous “Tulip Mania”, some single tulip bulbs sold for more than 10 times the annual salary of a skilled craftsman. Any asset class can be grossly overpriced, even cash. To ensure that our clients don’t suffer the permanent loss of capital which results from the bursting of asset bubbles, “margin of safety” transcends our entire asset allocation process.
In earlier Angles, we discussed how we determine whether an equity investment offers a sufficient margin of safety. But how would one go about determining whether bonds offer a margin of safety?
A first question could be: What could drive bonds to inflated levels?
There are mainly three possible scenarios:
Firstly, domestic yield greed. When cash rates drop yield seekers tend to move up the risk ladder into bonds. The lower the rates on cash, the more drastic this migration.
Secondly, international yield greed. Investors could be driven into, for example, South African bonds when the yields on their domestic bonds become relatively unattractive.
The last scenario is a flight to safety. Frightened investors tend to seek safety in government bonds. Decisions are no longer driven by rational yield comparison, purely the fear of capital loss. During these periods, return of capital becomes more important than return on capital.
The next step would be to consider whether any of these scenarios currently prevail. We think so, in fact we think all three prevail.
Interest rates in South Africa are currently at record low levels and investors desperate for yield have moved from cash into bonds.
Government bonds in many countries in the Western World are yielding near zero and foreigners have been snapping up emerging market bonds, like our own, yielding significantly higher rates.
Concerns around defaults in Europe have drawn investors to the government bonds of safe haven countries like the US and the UK.
The third bullet does not seem to have bearing on domestic bonds, but on closer investigation it seems that our bonds have moved in step with these bonds over time.
Although the South African bonds still yield much higher absolute rates, this difference is currently entirely explained by South Africa’s credit risk premium and the inflation differential:
US 10 Year Government Bond yield + SA Credit Spread (USD) + Inflation differential ≈ SA 10 Year Government Bond yield.
In numbers:
1.57% + 1.37% + (4.9% - 1.4%) = 6.44% vs. 6.62% yield on SA 10 Year Government Bonds.
In more simple terms: Ignoring country specific risks, our domestic 10 Year Government Bonds are priced on par with their US equivalents.
Another purely quantitative measure of the margin of safety offered by bonds is portrayed in the below chart.
The chart indicates by how much the bond yield needs to shift (bond prices need to fall) for investors to have been better off in cash over a 12 month period. So beyond the gold line the higher yield is negated by capital loss to such an extent that cash would offer a better total return. Clearly the margin is thin, 32.5 bps at the widest point.
We are not advocating that the South African bonds are the tulips of our time. We are, however, finding more margin of safety at selected equities and therefore our asset allocation funds are allocated accordingly."
The PSG Angle is an electronic newsletter of PSG Asset Management.
REF : Paul Bosman
"We have often written about the margin of safety we demand from equity investments. This prerequisite should ensure that we stay way clear of equities when they trade at grossly inflated prices, i.e. we avoid the equity bubbles. It is not only shares which can pose this trap. In February 1637, during the famous “Tulip Mania”, some single tulip bulbs sold for more than 10 times the annual salary of a skilled craftsman. Any asset class can be grossly overpriced, even cash. To ensure that our clients don’t suffer the permanent loss of capital which results from the bursting of asset bubbles, “margin of safety” transcends our entire asset allocation process.
In earlier Angles, we discussed how we determine whether an equity investment offers a sufficient margin of safety. But how would one go about determining whether bonds offer a margin of safety?
A first question could be: What could drive bonds to inflated levels?
There are mainly three possible scenarios:
Firstly, domestic yield greed. When cash rates drop yield seekers tend to move up the risk ladder into bonds. The lower the rates on cash, the more drastic this migration.
Secondly, international yield greed. Investors could be driven into, for example, South African bonds when the yields on their domestic bonds become relatively unattractive.
The last scenario is a flight to safety. Frightened investors tend to seek safety in government bonds. Decisions are no longer driven by rational yield comparison, purely the fear of capital loss. During these periods, return of capital becomes more important than return on capital.
The next step would be to consider whether any of these scenarios currently prevail. We think so, in fact we think all three prevail.
Interest rates in South Africa are currently at record low levels and investors desperate for yield have moved from cash into bonds.
Government bonds in many countries in the Western World are yielding near zero and foreigners have been snapping up emerging market bonds, like our own, yielding significantly higher rates.
Concerns around defaults in Europe have drawn investors to the government bonds of safe haven countries like the US and the UK.
The third bullet does not seem to have bearing on domestic bonds, but on closer investigation it seems that our bonds have moved in step with these bonds over time.
Although the South African bonds still yield much higher absolute rates, this difference is currently entirely explained by South Africa’s credit risk premium and the inflation differential:
US 10 Year Government Bond yield + SA Credit Spread (USD) + Inflation differential ≈ SA 10 Year Government Bond yield.
In numbers:
1.57% + 1.37% + (4.9% - 1.4%) = 6.44% vs. 6.62% yield on SA 10 Year Government Bonds.
In more simple terms: Ignoring country specific risks, our domestic 10 Year Government Bonds are priced on par with their US equivalents.
Another purely quantitative measure of the margin of safety offered by bonds is portrayed in the below chart.
The chart indicates by how much the bond yield needs to shift (bond prices need to fall) for investors to have been better off in cash over a 12 month period. So beyond the gold line the higher yield is negated by capital loss to such an extent that cash would offer a better total return. Clearly the margin is thin, 32.5 bps at the widest point.
We are not advocating that the South African bonds are the tulips of our time. We are, however, finding more margin of safety at selected equities and therefore our asset allocation funds are allocated accordingly."
The PSG Angle is an electronic newsletter of PSG Asset Management.
REF : Paul Bosman
Friday, 7 September 2012
Glencore sweetens offer for Xstrata
Glencore has made a last ditch proposal to save its $80bn combination with London listed Xstrata, improving its offer for the miner’s shares, after the involvement of Tony Blair, the former UK prime minister.
Glencore, which has adjourned a meeting to vote on a tie-up, has raised the merger ratio from 2.8 of its shares for every Xstrata share to 3.05 shares and proposed that Ivan Glasenberg, the chief executive of the trader, lead the enlarged group.
Glencore, which has adjourned a meeting to vote on a tie-up, has raised the merger ratio from 2.8 of its shares for every Xstrata share to 3.05 shares and proposed that Ivan Glasenberg, the chief executive of the trader, lead the enlarged group.
Hopes for last-minute Glencore-Xstrata deal rise
Glencore and Qatar are in last minute negotiations to save the $80bn merger between the trading house and miner Xstrata.
Glencore on Friday morning adjourned an extraordinary shareholder meeting set to approve the deal in an effort to reach agreement on a revised offer in the next two hours.
Glencore on Friday morning adjourned an extraordinary shareholder meeting set to approve the deal in an effort to reach agreement on a revised offer in the next two hours.
Thursday, 6 September 2012
Draghi Credibility at Stake as ECB Tries to Save The Euro
Sept. 6 (Bloomberg) --
TIME WILL TELL !!
"European Central Bank President Mario Draghi’s task today is straight-forward: produce a plan to save the euro.
Draghi pledged more than a month ago to do what’s needed to preserve the single currency; now he’s under pressure to follow through with details of a bond-purchase plan to lower borrowing costs in Spain and Italy and prevent a breakup of Europe’s monetary union. Expectations have built to such an extent that Draghi risks losing credibility unless he delivers at a press conference after today’s Governing Council meeting in Frankfurt, economists and investors said.
“Draghi has put his credibility squarely on the line,” said Julian Callow, chief European economist at Barclays Capital in London. “He has made it his business to save the euro, so he is going to be called on that.”
Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in a fragmented euro-area economy and save the currency, according to a recording of a closed-door session obtained by Bloomberg News. His blueprint, sent to council members just two days ago and opposed by Germany’s Bundesbank, proposes unlimited buying of government debt with maturities of up to about three years, two central bank officials said yesterday on condition of anonymity.
Rate Cut?
Draghi will hold a press conference at 2:30 p.m., 45 minutes after the ECB announces its interest-rate decision.
Economists are split over whether policy makers will lower the benchmark rate to a new record low, with 30 of 58 in a Bloomberg survey predicting a quarter-point cut to 0.5 percent and 28 forecasting no change.
Separately, the Bank of England will keep its key rate at 0.5 percent and maintain its bond purchase target at 375 billion pounds ($597 billion), another survey shows. That decision is due at noon in London.
The ECB’s 23 council members have a full agenda. As well as discussing rates and the modalities of Draghi’s asset-purchase plan, they will also consider new economic projections and decide whether to loosen rules on the collateral banks can submit in return for central bank loans.
“We think that a loosening of collateral requirements for refinancing operations is likely to be announced, but the ECB does not yet seem ready to move its deposit rate into negative territory,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam.
Negative Territory
If the ECB were to cut its benchmark, it would also need to lower its deposit rate if it wanted to maintain the 75 basis- point gap between them. That would mean taking the deposit rate, currently at zero, into negative territory, so that banks would have to pay the ECB to park excess cash with it.
Still, the main focus will be on the bond plan, and Draghi “has set the bar very high for market expectations,” said Andrew Bosomworth, head of Pacific Investment Management Co. in Germany. “To not disappoint, the ECB will have to make its reaction function transparent and at least spell out the maturities it is going to buy.”
Draghi’s plan involves the ECB buying short-dated bonds on the secondary market of countries that ask Europe’s bailout fund to purchase their debt on the primary market, which would require them to sign up to conditions. Neither Spain nor Italy has made such a request yet.
Draghi’s Rationale
Draghi’s rationale for the purchase plan is that ECB interest rates are not being transmitted in most euro-area countries because investors are pricing in the risk of a breakup, something he considers unacceptable. The ECB must regain control of rates in order to fulfill its primary mandate of price stability, he told lawmakers in Brussels on Sept. 3.
The ECB will sterilize its purchases to soothe concerns about printing money, two officials said yesterday. The ECB won’t have seniority on any bonds it buys, and no yield-spread targets or bands will be set publicly, they said.
Draghi will stress the conditionality of the program, with the ECB likely to stop buying the bonds of any government that fails to meet the terms it agrees to when it signs up for aid from Europe’s rescue fund, the people said.
Prime Minister Mariano Rajoy and German Chancellor Angela Merkel meet in Madrid today to discuss the euro crisis and are due to hold a joint news conference at about 2:30 p.m. in Madrid, the same time Draghi speaks.
Tightrope
French President Francois Hollande also meets with U.K. Prime Minister David Cameron in London and Italian Premier Mario Monti hosts European Commission President Jose Manuel Barroso in Florence.
Draghi is walking a tightrope, said Ken Wattret, chief euro-area economist at BNP Paribas in London.
Because Italian and Spanish bond yields have dropped in anticipation of ECB action, there’s a risk that the two countries won’t see the need to ask for help, Wattret said. On the other hand, disappointment with Draghi’s plan today may trigger a market selloff that “could be the circuit breaker that forces Spain at least to ask for aid,” he said.
Spain’s two-year yields dropped to as low as 3.04 percent yesterday from a euro-era high of 7.15 percent on July 25. Italy’s two-year yields have dropped almost three percentage points over the same period.
Spain plans to sell as much as 3.5 billion euros ($4.4 billion) of short-dated bonds at an auction at about 10:40 a.m. in Madrid today.
German Opposition
The ECB has been at the forefront of fighting the debt crisis, which has so far pushed five countries into bailouts and driven the 17-nation euro economy to the brink of recession.
In addition to governments dragging their heels, Draghi’s bond-purchase plan faces opposition from German policy makers, politicians and executives.
“An unlimited and far-reaching intervention by the central bank by buying sovereign debt is beyond the mandate of the ECB,” Commerbank AG Chief Executive Officer Martin Blessing said at a banking conference in Frankfurt yesterday. “I cannot image how one can build trust and a strong currency union by violating the law. There is the danger that we keep on buying time while the pressure to reform is declining.”
Germany’s Constitutional Court could also throw a spanner in the works when it rules on the legality of Europe’s permanent bailout fund, the European Stability Mechanism, on Sept. 12.
“The ECB is taking a leap of faith that governments will pursue and implement the reform agenda,” Bosomworth said. Still, unlike in the past, “there is more of an awareness among governments about how important this is,” he said.
Draghi’s bond-purchase plan won’t solve Europe’s debt crisis, said Erik Nielsen, global chief economist at UniCredit Bank AG in London. “But he’s fed up with markets pricing in euro-area breakups, and I wouldn’t mess with him if I were a trader.”
To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net "
TIME WILL TELL !!
"European Central Bank President Mario Draghi’s task today is straight-forward: produce a plan to save the euro.
Draghi pledged more than a month ago to do what’s needed to preserve the single currency; now he’s under pressure to follow through with details of a bond-purchase plan to lower borrowing costs in Spain and Italy and prevent a breakup of Europe’s monetary union. Expectations have built to such an extent that Draghi risks losing credibility unless he delivers at a press conference after today’s Governing Council meeting in Frankfurt, economists and investors said.
“Draghi has put his credibility squarely on the line,” said Julian Callow, chief European economist at Barclays Capital in London. “He has made it his business to save the euro, so he is going to be called on that.”
Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in a fragmented euro-area economy and save the currency, according to a recording of a closed-door session obtained by Bloomberg News. His blueprint, sent to council members just two days ago and opposed by Germany’s Bundesbank, proposes unlimited buying of government debt with maturities of up to about three years, two central bank officials said yesterday on condition of anonymity.
Rate Cut?
Draghi will hold a press conference at 2:30 p.m., 45 minutes after the ECB announces its interest-rate decision.
Economists are split over whether policy makers will lower the benchmark rate to a new record low, with 30 of 58 in a Bloomberg survey predicting a quarter-point cut to 0.5 percent and 28 forecasting no change.
Separately, the Bank of England will keep its key rate at 0.5 percent and maintain its bond purchase target at 375 billion pounds ($597 billion), another survey shows. That decision is due at noon in London.
The ECB’s 23 council members have a full agenda. As well as discussing rates and the modalities of Draghi’s asset-purchase plan, they will also consider new economic projections and decide whether to loosen rules on the collateral banks can submit in return for central bank loans.
“We think that a loosening of collateral requirements for refinancing operations is likely to be announced, but the ECB does not yet seem ready to move its deposit rate into negative territory,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam.
Negative Territory
If the ECB were to cut its benchmark, it would also need to lower its deposit rate if it wanted to maintain the 75 basis- point gap between them. That would mean taking the deposit rate, currently at zero, into negative territory, so that banks would have to pay the ECB to park excess cash with it.
Still, the main focus will be on the bond plan, and Draghi “has set the bar very high for market expectations,” said Andrew Bosomworth, head of Pacific Investment Management Co. in Germany. “To not disappoint, the ECB will have to make its reaction function transparent and at least spell out the maturities it is going to buy.”
Draghi’s plan involves the ECB buying short-dated bonds on the secondary market of countries that ask Europe’s bailout fund to purchase their debt on the primary market, which would require them to sign up to conditions. Neither Spain nor Italy has made such a request yet.
Draghi’s Rationale
Draghi’s rationale for the purchase plan is that ECB interest rates are not being transmitted in most euro-area countries because investors are pricing in the risk of a breakup, something he considers unacceptable. The ECB must regain control of rates in order to fulfill its primary mandate of price stability, he told lawmakers in Brussels on Sept. 3.
The ECB will sterilize its purchases to soothe concerns about printing money, two officials said yesterday. The ECB won’t have seniority on any bonds it buys, and no yield-spread targets or bands will be set publicly, they said.
Draghi will stress the conditionality of the program, with the ECB likely to stop buying the bonds of any government that fails to meet the terms it agrees to when it signs up for aid from Europe’s rescue fund, the people said.
Prime Minister Mariano Rajoy and German Chancellor Angela Merkel meet in Madrid today to discuss the euro crisis and are due to hold a joint news conference at about 2:30 p.m. in Madrid, the same time Draghi speaks.
Tightrope
French President Francois Hollande also meets with U.K. Prime Minister David Cameron in London and Italian Premier Mario Monti hosts European Commission President Jose Manuel Barroso in Florence.
Draghi is walking a tightrope, said Ken Wattret, chief euro-area economist at BNP Paribas in London.
Because Italian and Spanish bond yields have dropped in anticipation of ECB action, there’s a risk that the two countries won’t see the need to ask for help, Wattret said. On the other hand, disappointment with Draghi’s plan today may trigger a market selloff that “could be the circuit breaker that forces Spain at least to ask for aid,” he said.
Spain’s two-year yields dropped to as low as 3.04 percent yesterday from a euro-era high of 7.15 percent on July 25. Italy’s two-year yields have dropped almost three percentage points over the same period.
Spain plans to sell as much as 3.5 billion euros ($4.4 billion) of short-dated bonds at an auction at about 10:40 a.m. in Madrid today.
German Opposition
The ECB has been at the forefront of fighting the debt crisis, which has so far pushed five countries into bailouts and driven the 17-nation euro economy to the brink of recession.
In addition to governments dragging their heels, Draghi’s bond-purchase plan faces opposition from German policy makers, politicians and executives.
“An unlimited and far-reaching intervention by the central bank by buying sovereign debt is beyond the mandate of the ECB,” Commerbank AG Chief Executive Officer Martin Blessing said at a banking conference in Frankfurt yesterday. “I cannot image how one can build trust and a strong currency union by violating the law. There is the danger that we keep on buying time while the pressure to reform is declining.”
Germany’s Constitutional Court could also throw a spanner in the works when it rules on the legality of Europe’s permanent bailout fund, the European Stability Mechanism, on Sept. 12.
“The ECB is taking a leap of faith that governments will pursue and implement the reform agenda,” Bosomworth said. Still, unlike in the past, “there is more of an awareness among governments about how important this is,” he said.
Draghi’s bond-purchase plan won’t solve Europe’s debt crisis, said Erik Nielsen, global chief economist at UniCredit Bank AG in London. “But he’s fed up with markets pricing in euro-area breakups, and I wouldn’t mess with him if I were a trader.”
To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net "
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