Central Perk: 31 aug. 2014

duminică, 31 august 2014

Mish's Global Economic Trend Analysis

Putin Calls for Eastern Ukraine Statehood

Posted: 31 Aug 2014 04:20 PM PDT

Putin threw fat into the Ukrainian fire today by calling for Talks on Eastern Ukraine Statehood.

The question at hand is" What precisely does Putin mean by "statehood" ?

Russian President Vladimir Putin called on Sunday for immediate talks on the "statehood" of southern and eastern Ukraine, although his spokesman said this did not mean Moscow now endorsed rebel calls for independence for territory they have seized.

The Kremlin leader's remarks, two days after a public appearance in which he compared the Kiev government with Nazis and warned the West not to "mess with us", came as Europe and the United States prepared possible further sanctions to halt what they say is direct Russian military involvement in the war in Ukraine.

Germany aired suspicions that Moscow might be trying to create a land corridor to supply Crimea, which it annexed from Ukraine in March, while the four-month conflict moved onto the sea for the first time on Sunday. The separatists said they had fired on a Ukrainian vessel in the Azov Sea using land-based artillery, and a military spokesman in Kiev said a rescue operation was under way.

Ukrainian troops and local residents were reinforcing the port of Mariupol on Sunday, the next big city in the path of pro-Russian fighters who pushed back government forces along the Azov Sea this past week in an offensive on a new front.

Talks should be held immediately "and not just on technical issues but on the political organization of society and statehood in southeastern Ukraine", Putin said in an interview with Channel 1 state television, his hair tousled by wind on the shore of a lake.

Moscow, for its part, he said, could not stand aside while people were being shot "almost at point blank".

Putin's spokesman Dmitry Peskov said there was no new endorsement from Moscow for rebel independence. Asked if "New Russia", a term pro-Moscow rebels use for their territory, should still be part of Ukraine, Peskov said: "Of course."

"Only Ukraine can reach an agreement with New Russia, taking into account the interests of New Russia, and this is the only way to reach a political settlement."

Federation or Totally Independent Eastern State?

If one takes the statements from Russia at face value, it appears Putin is calling for a loose federation of some sort, with far more autonomy for the regions. Regardless, previous statements from Kiev shows Ukraine will not go for that.

Perhaps the threat of outright victory by the rebels will change their mind.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comhttp://globaleconomicanalysis.blogspot.com

Eurozone Currency Dispute Intensifies: France Wants More ECB Action to Correct Overvalued Euro, Germany Doesn't

Posted: 31 Aug 2014 09:06 AM PDT

The currency and fiscal battleground front lines in Europe remains the same. France wants QE, fiscal stimulus, and more leeway on meeting fiscal deficit targets. Germany doesn't. And the fighting has strengthened.

The idea that ECB can produce nirvana by devaluing the euro is ridiculous. Yet, that's the battle cry of the day.

Bloomberg reports France Asks for More Action From ECB to Correct Overvalued Euro.

French Prime Minister Manuel Valls called for more action from the European Central Bank to lower the value of the euro, amid concerns the 18-nation region might be headed toward deflation.

"The monetary policy has started to change," Valls said today in a speech made at the Socialist Party's summer school in La Rochelle, France. While he called the ECB's package of measures taken in June a "strong signal," he also said that "one will have to go even further."

Valls's comments come after ECB President Mario Draghi, who'll meet French President Francois Hollande tomorrow in Paris, signaled that declining inflation expectations are pushing the central bank toward introducing quantitative easing. Policy makers will gather in Frankfurt on Sept. 4 for their monetary-policy meeting.

Inflation in the currency bloc slowed to 0.3 percent in August from a year earlier, the lowest since 2009, compared with an ECB target for price growth of just under 2 percent. Draghi has said that the ECB stands ready to embark on unconventional measures such as broad-based asset purchases to avoid a deflationary spiral of falling prices and households postponing their spending plans.

In his speech, Draghi also called for complementary action on a European level and "a large public investment program." German Chancellor Angela Merkel was disgruntled with the comments and called Draghi to ask if the ECB had changed course on austerity, Der Spiegel reported, without saying where it got the information.

The magazine's assertion that Merkel "demanded answers" from Draghi "in no way corresponds to the facts," Merkel spokesman Steffen Seibert said in a text message.

Inflation Won't Cure France

Contrary to popular belief, inflation will not spur consumer spending. Nor will inflation create any jobs or cause wage inflation.

Nonetheless, France demands the ECB wizards fix something that cannot be fixed by monetary policy.

Problem number one is the eurozone itself. The euro is fatally flawed. In addition, France's problem is that it is not competitive with Germany and arguably even Spain, not that the Euro is too high.

France desperately needs structural reforms.

It is nearly impossible to fire someone in France, so businesses are reluctant to hire.
Government and union rules on everything are sheer madness.
France seeks to save local bookstores by taxing online retailers and elimination of free shipping.
Agricultural subsidies to save inefficient French farms (at great expense to the rest of Europe) are inane.
Pension rules need fixes, and the retirement age needs to increase.
The "French way of life" is incompatible with rising productivity, especially on a relative basis, so France is increasingly left behind.

How is QE supposed to fix all that? It can't and it won't, but it increasingly looks as if the ECB may give it a try.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com