Mish's Global Economic Trend Analysis

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German Finance Minister Throws Cold Water on Single Bank Resolution Agency; For How Long? Posted: 12 May 2013 08:19 PM PDT Germany's Finance minister, Wolfgang Schäuble, has an uncanny ability to tread a very narrow line on formation of an EU banking union. He frequently crosses over the line in both directions but never very far, and never for long. Every time he gives an inch to solidarity, he quickly takes it back, and vice versa. And here we go again. Weeks before the European Commission is due to present its plan for a single bank resolution agency and rescue fund, Schäuble threw the plans in doubt with a warning EU bank rescue agency needs treaty changes. Germany's finance minister has warned that a single EU bailout agency and rescue fund for ailing banks is legally untenable until the bloc's treaties have been overhauled. In today's Financial Times, Wolfgang Schäuble calls for a "two-step approach" that would leave bank rescues in the hands of "a network of" national authorities until treaty changes can take place. Mr Schäuble's declaration comes just weeks before the European Commission is due to present its plan for a single bank resolution agency and rescue fund – widely touted as the second pillar in the eurozone's much-vaunted "banking union" – throwing the proposal into doubt even before it is unveiled. "The EU does not have coercive means to enforce decisions. Its historical roots are young. Its democratic legitimacy could be improved upon," Mr Schäuble writes. "What it has are responsibilities and powers defined by its treaties. To take them lightly, as is sometimes suggested, is to tamper with the rule of law." Lawyers for the European Commission and the European Central Bank, which has joined Brussels in pushing for quick adoption of a resolution authority after last month's creation of a common EU bank supervisor in Frankfurt, have argued that existing treaties allow for centralising powers to shut down or restructure weak banks. But Mr Schäuble writes that the treaties "do not suffice to anchor beyond doubt a new and strong central resolution authority". He added that promises to create an authority quickly would cost the EU credibility, saying: "We should not make promises we cannot keep." Even limited changes to EU treaties can take months if not years. While he acknowledges his "two-step" plan would lead to "a timber-framed, not a steel-framed, banking union", Mr Schäuble said it would be adequate until treaties were changed. However, the ECB has expressed concern about keeping resolution at a national level after centralising bank supervision, saying it would undermine Frankfurt's ability to make independent judgments about a bank's health. It's crystal clear the banking union proposal is in violation of both the eurozone treaty and the German Constitution, but such things only seem to matter on an on again off again basis. Most likely this is just another election ploy attempting to hoodwink potential AfD party members into thinking CDU/CSU will not let a full-fledged banking union happen without treaty changes. Given past wishy-washy politics from both Chancellor Angela Merkel and Schäuble, I would not trust this stance one bit if I was a potential AfD voter. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

German Export Machine Hits Skids; Imbalances Intensify: Exports Drop 4.2% YoY, Imports Drop 6.9% YoY Posted: 12 May 2013 09:59 AM PDT Eurozone imbalances continue to grow even as German exports slump. Why? German imports slumped even more, and the German current account surplus grew. Via Mish-Modified Google Translate from Les Echos, please consider Germany's Export Machine Slumps in March. The German trade surplus grew in March for the third consecutive month in raw data (to € 18.8 billion after € 16.8 billion in February) detailed figures released Friday, yet the report shows much weakness. First, calculated seasonally adjusted data, the trade surplus fell slightly on a month to € 17.6 billion after € 17.7 billion in February. Then, based on gross figures published by the Federal Statistics Office, both imports (€ 75.8 billion) and exports (€ 94.6 billion) increased compared with February, annual rate the situation is quite different. In one year, exports fell 4.2% after a decline of 2.8% yoy in February. As for imports, their decline is stronger and reached 6.9% compared to March 2012.  In one year, German exports to the euro area fell by 7%, while their decline was limited to 2.2% to European countries outside the euro area and 2.6% to non-European countries. All of the alleged eurozone austerity (there really isn't much austerity as it's mostly tax hikes instead of spending cuts), has not fixed any imbalances. Germany's trade surplus managed to grow even with a collapse in German exports. Yet, Germany is slowing rapidly along with the rest of Europe. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com    Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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