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Krisis Eropa: Vive la France! (Jayalah Perancis!)

August 24th, 2012 Leave a comment Go to comments

“The trouble with socialism is that, eventually, you run out of other people’s money.”
-Margaret Thatcher

“Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang! –confidence collapses, lenders disappear, and a crisis hits.”

-Carmen Reinhart and Kenneth Rogoff

Perancis sedikit memperoleh keberuntungan dari arus safe-haven, namun nampaknya ada peluang akan melemah kedepannya. Semakin banyak orang yang mulai bertanya tentang Perancis, serta menanyakan apakah pasar obligasinya akan bernasib sama dengan Spanyol dan Italia.

Dengan kata lain, apakah obligasi Perancis akan menjadi yang berikut yang harus diwaspadai? Jika kita percaya kepada John Mauldin, penulis newsletter mingguan tak berbayar untuk investasi dan ekonomi, Thoughts from the FRONTLINE, maka hal berikut akan terjadi di masa mendatang:

“We know about Spanish and Italian problems. What European leaders have not recognized (and indeed most of the world hasn’t, from what I see) is that France is the real problem. France is careening toward a dénouement of biblical proportions. Within a few years it will be just as problematic as Spain is today. France is in deep, deep foie gras.

Germany thinks it has an AAA debt partner for its guarantees of European debt in the EFSF, ESM, etc. It does today, but France will soon lose that AAA rating, absent significant changes that are not going to be forthcoming under Hollande and the Socialists. It could happen as early as September, although I doubt Moody’s or S&P will move before the German Constitutional Court ruling on the 12th – unless of course they really want to demonstrate their independence of thought from the political considerations of the moment!

And that ratings cut will just be the first of many. France is in the process of raising taxes on “les riches,” or those making over €1 million, to a nose-bleed 75%. Why stay in France when you can move, pay lower taxes, and visit when you want to? The new law will end up lowering, not raising tax collections, as has been shown by recent state tax hikes on the rich in the US. People vote with their feet.

In France it is not just the tax on the rich that is leading to trouble but so many other actions, like lowering the retirement age to 60, even though people are living longer and there are fewer people paying into the system as the nation ages. France has a near-term entitlements problem at least as severe as the US’s, but government spending is already at 55% of GDP.

By the time France becomes the clear problem, European voters will have committed so much to the process that to walk away will be far more costly than it would be today. Unless Merkel can somehow convince Hollande to really cut social spending dramatically in the coming years, the day of reckoning will arrive.”

Selain itu pasar menganggap Hollande kurang memiliki komitmen kuat untuk penghematan. Sampai dia menunjukkan sebaliknya, Perancis rentan terhadap repatriation spiral dan akhir yang tak terelakan di mana permintaan domestik untuk obligasi menjadi unsustainable.

Pada akhir Juni, Maurice Pomery dari Strategic Alpha memberikan keterangan yang menggugah pikiran mengenai langkah Hollande yang counter-intuitive dan mengapa itu menakutkan bagi pasar:

Is it really Germany that is the problem at this summit or France? I expect more fiddling whilst Rome burns.

I am not convinced that Germany should be deemed the stubborn aggressor in all of this as they have the morals and responsibility on their side and there is no way Germany should pay for all the problems in Europe without massive changes to laws and some union in common standards. Plus if we look at the numbers, they can’t afford it.  In fact it is France now that I see as the problem as Hollande is making things worse by raising minimum wages, reducing retirement age and taxing the hell out of everyone. He is forcing the split in Europe to become a massive fault line. Surely nothing can be done unless we have a common level playing field in Europe. Do the politicians not get that? It is crying out for centralization and whilst I am not keen on such a thing, a Union simply cannot exist without it. On this basis I see little more than some short term plaster again being put on this problem at the summit.

Banking unions and any other union will take a very long time indeed and I am not sure what can be done in the meantime unless they agree to change the mandate of the ECB or the structure of the ESM. Possibly a vehicle thy may be able to restructure quickly is the EIB but this is not clear but you cannot have a banking union without a viable fiscal AND political union. As the leaders enter this summit it is clear that there are massive rifts and both sides have laid their stores out quite publically which means a loss of face for someone or no agreement. On the macro issues I see no agreement at all but they look likely to discuss the role of the ECB and the ESM. But the ECB has already said that they cannot fix the crisis and must be left independent. Merkel is NOT going to be bullied into any wealth transfer; forget it. To me we are close to the point of no return as this game of chicken is coming to a conclusion and Merkel does not look like she is going to blink first.

Hollande cannot make sweeping socialist changes and expect Germany to pay for it, especially without structural reform and we hear nothing on this from this populist politician. He is yet to be tested but his true colors are very red indeed. . This is madness. The political rifts in Europe have never been wider since the EUR was born at a time when they need to be as close as ever. The problem is as this fight continues capital flight may force the issue into a fully blown bank run. The idea that it’s merely a question of Germany paying is not only naïve, but also impossible. To me the only real way forward is to fully restructure the whole thing as the cost of keeping this dying patient alive is huge and could remain in this coma for years. The costs will be too great to bear soon.

Hollande has again and again stated: “There can be no transfer of sovereignty if there is no improvement in solidarity”. Well that sounds good but he keeps making the situation worse and as for solidarity; pah. He is deliberately moving in the opposite direction to the wealthy core. Hollande does NOT want to cede sovereignty to Europe, never has and in fact he is becoming more insular the European. So who will win this battle between Hollande and Merkel? Merkel without doubt in my view as the weaker components of Europe cannot have money without strict rules. We have already tried that and look where it got us. No, Merkel is not the problem of Europe, it is Hollande. The trouble is at this summit neither will cede to the other and so nothing concrete can come until the 11th hour when Europe stares into the abyss. However that point is a lot closer than these idiots realize.

Back off Hollande and allow the structural process to take place and align yourself with the stronger nations or this whole thing is going to fail. Extend and pretend is no longer an option and if this is all we get from this summit as I think is the case, then the bond markets will trash Spain and Italy. Watch these yields closely as there is a very real danger that 10yr yields at 7% are the new floor rather than the ceiling. The ECB will likely cut rates but in all honesty it is a gesture at best and will make little difference. More LTRO? Maybe but QE is not what it was. Extend and pretend needs to end but we have more pain to come before the likes of Hollande give up their arrogance. The future of peace, stability and confidence in Europe is at stake and they are playing petty politics. I despair. Again I see France as the problem here not Germany but I guess that doesn’t really matter. They need to sort this out as no one can afford to bail Spain AND Italy.

Maybe Europe needs to be restructured with fewer in it and maybe Germany may test the experiment on Greece. Expect Greece to come back into view soon as to me it must. Germany must stick to its guns as if they cave in we may see a year or so of relief but then the whole thing implodes as the costs kill the very core of Europe. It is NOT an option for Germany and must NOT become one in my view. If they cave in they will see Bund yields explode at a time when global demand will see their economy struggle as the export engine stalls. This is a nightmare and I am pleased the lady is not for turning. It is France and Hollande that scare me the most.”

Kemenangan François Hollande di pemilu presiden Perancis telah dilihat oleh para cyclicalists sebagai tanda bahwa, setidaknya di Eropa, pendulum mungkin akhirnya berayun dari penghematan ke pertumbuhan. Banyak orang lain percaya bahwa masalah intinya adalah struktural, bukan cyclical. Resesi tumbuh dan merupakan wujud dari lemahnya perekonomian yang berkepanjangan, sehingga memperbaiki masalah struktural harus terus dilakukan, dan bukan dengan menambah hutang lebih besar.

Itulah mengapa presiden Perancis yang baru terpilih tersebut banyak dikritik karena akan memperparah krisis hutang di Eropa. Misalnya dari Alexander Green, seorang chief investment strategist dari U Investment, yang mengingatkan pembacanya dalam tulisan yang berjudul “Francois Hollande and the Flight of French Capital” bahwa pasar keuangan sekarang akan menyuarakan pendapat mereka tentangnya dan Hollande hampir pasti tidak akan menyukainya:

“We’ve all heard the nattering between economists about Europe’s choice between austerity and growth.  Stronger countries, like Germany, want southern members of the Euro zone to demonstrate fiscal responsibility and cut out-of-control spending.  But the citizens of these countries – especially Spain with its unemployment rate of 25% – want jobs.  They want growth.

Fortunately, austerity and growth are not incompatible.  Unless you believe it’s achieved through still more reckless spending and painful taxes on risk takers.

Recognize that France already has one of the highest overall tax burdens, yet it continues to bleed red ink.  Debt is 90% of GDP.  Trillions in unfunded pension and retiree health-care obligations loom in the not-too-distant future.

Hollande’s answer to this budget crisis?  Still more spending and a proposed 75% tax rate on job creators.

To be sure, this has populist appeal among some voters, especially those who believe national governments are giant candy stores funded by millionaires and billionaires.

Let’s set aside the obvious folly of piling new debt on top of old in the midst of a fiscal crisis.  Entrepreneurs and other business owners – being rationally self-interested like the rest of us – will take every step imaginable to avoid a punitive 75% tax rate.  Many, in fact, will choose to take their money out of the country – or not invest it at all.

A businessman or businesswoman under a high-tax regime always does a simple back-of-the-envelope calculation.  It goes like this: If I start or expand my business, I will face the risk of substantial losses for which I will be solely responsible.  But if through hard work, enterprise and a bit of luck I beat the odds and succeed, the government will take up to three-quarters of what I make.

Many will choose to punt.  Their businesses will not be expanded.  The unemployed will not be hired.  Tax revenue will not be raised.  Economic growth will not expand.  And neither will corporate profits.  That bodes ill for Europe’s equity markets.”

Terakhir Michael Snyder, yang kini menjadi publisher pada The Economic Collapse blog, mengkhawatirkan bahwa hasil pemilu Perancis baru-baru ini akan memicu kegemparan di sistem keuangan global nantinya:

“All of the financial deals that France has made over the past few years may be null and void.  New French President Francois Hollande seems determined to take France on a path away from austerity.  But can France really afford to keep spending money that it does not have?  France has already lost its AAA credit rating and French bond yields have started to move up toward dangerous territory.

Investors are still willing to lend to France at reasonable interest rates, but if France chooses to run up huge amounts of additional debt at some point they will end up just like Greece.

What is even more important in the short-term is the crumbling of the French/German alliance on European fiscal matters.  Angela Merkel and Nicholas Sarkozy were a united front, but now Merkel and Hollande are likely to have conflict after conflict.

Instead of moving in one clear direction, the euro zone is now fractured and tensions are rising.”

What Do the Charts Say?

Euro terdepresiasi ke level terendah dalam hampir 9 tahun ketika diukur dalam trade-weighted terms. Pandangan umumnya adalah mengasumsi bahwa hal tersebut akan memicu upgrade pada estimasi PDB di regional Eropa, namun menurut UBS hal tersebut TIDAK akan terjadi:

UBS: Euro depreciation: Implications for GDP

The euro has depreciated to its lowest level in nearly nine years when measured in trade-weighted terms. Clients have asked if this might trigger a GDP forecast upgrade for the common currency area. The short answer is no; the currency has depreciated on fear and risk aversion – and economic growth tends to suffer rather than flourish in that environment.

The euro has depreciated by 15% since its recent peak in October 2009. The depreciation is, in fact, exactly in line with our forecast, which is for the EURUSD to drop further to 1.15 by the end of this year and to 1.10 by the end of next year.

At first sight, this should boost output, but the exchange rate response is simply part of the bigger, well-known picture of economic stress in the common currency region. Our asset allocation team highlighted this point in their latest piece, with a compelling chart that shows a tight relationship between the value of the euro and the relative size of the ECB’s balance sheet (Chart 2). The ECB’s balance sheet has expanded much faster than the Fed’s and this is simply because the euro zone economy and its banks remain troubled (sounds familiar).

This evaporation of confidence in parts of the European banking sector has a direct impact on the real economy, including through a higher cost of capital for companies and from tougher credit conditions for loans. The Spanish, Italian, Greek and Portuguese economies are in recession, and growth in the euro zone as a whole has ground to a halt.

To establish our point more explicitly, we have run a macro simulation on NiGEM, a large global macro model. We have specifically asked: what is the impact on the economy of the heightened fear that is reflected in wider risk premia? The calibration of the shock can vary depending on one’s judgments and on the time period under consideration, but the bottom line is that fear can drive the exchange rate lower – and economic growth.

What next for the exchange rate? The policy response to the crisis will remain an influence, but, as Chart 2 above shows, in essence it is the fundamentals that will be crucial for the long-term value of the currency.

The two structural measures that help us determine the outlook for the currency – the internal balance (output gap) and the external balance (current account) – point to further weakness. The charts below compare: (1) the euro area output gap with the weighted average output gap of its main trading partners; and (2) the euro area current account balance compared with that of its main trading partners. The charts essentially show that, although the current account is in balance, the euro area output gap is bigger than its trading partners’. If we think of the equilibrium exchange rate as one that restores internal and external balance, these charts suggest that there is scope for further depreciation in the euro.

To summarize, the euro has depreciated in response to broader concerns related to solvency and competitiveness in the single currency region. Although the weaker currency will help the troubled economies rebalance, the weakness is not a trigger for forecast revisions. Looking ahead, fundamentals continue to suggest that there is further scope for euro depreciation. We expect EURUSD at 1.15 by end-2012 and 1.10 by end-2013.

Yang tak kalah penting, The Economist memberikan pandangan yang tidak terlalu dipolitisasi terhadap kondisi Perancis dalam artikelnya yang jenaka yang berjudul A Country In Denial serta mengetengahkan rincian sekitar celah ekonominya yang mengerikan:

“France has not balanced its books since 1974.  Public debt stands at 90% of GDP and rising.  Public spending, at 56% of GDP, gobbles up a bigger chunk of output than in any other euro-zone country – more even than in Sweden.  The banks are undercapitalized.  Unemployment is higher than at any time since the late 1990s and has not fallen below 7% in nearly 30 years, creating chronic joblessness in the crime-ridden banlieues that ring France’s big cities.  Exports are stagnating while they rear ahead in Germany.  France now has the euro zone’s largest current-account deficit in nominal terms.  Perhaps France could live on credit before the financial crisis, when borrowing was easy.  Not any more.  Indeed, a sluggish and unreformed France might even find itself at the centre of the next euro crisis.

It is not unusual for politicians to avoid some ugly truths during elections; but it is unusual, in recent times in Europe, to ignore them as completely as French politicians are doing.”

Dan terakhir di bawah ini adalah gambar kartun yang sangat menyerupai keguncangan yang terjadi anggota-anggota zona euro:

Dibuat Tanggal 23 Agustus 2012

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