European Highlights: October 29

Good morning Zerohedgers

The two year long saga concerning the nationalized UK bank, Northern Rock, has finally ended. The main economic body of the European Union gave its consent for the bank to be broken into two smaller parts and sold off to the interested parties. This gave new incentive to the ailing British financial sector, and plans are being made, by Gordon Browns cabinet, to restructure the other two nationalized banks; Royal Bank of Scotland and Lloyds. Cabinet members stand united in their hope that by selling the nationalized banks, in a much milder economic climate, it will be possible to miss the losses which would have been generated, if the banks were sold months earlier. 

Amid the rumors of Lat devaluation (yet again), Valdis Dombrovskis, the prime minister of Latvia, said that his country is in a grave economic situation, but that the plans for currency devaluation are not being taken into regards by his government. Just to remind you; Latvian government was instructed, and was given guidelines, by the IMF, on how to meet the necessary requirements of the 11 billion dollar bailout loan which the IMF is ready to provide. The symbolic currency peg between the Lat and the Euro is being taken into question by the recent measures which where underdone by the Latvian government. Latvian government proposes a regulation which would allow the Latvian banks to collect only the current value of the property, and not the original one, and will thus wipe out almost 70% of the losses which the citizens would endure, if the old regulations would be kept in place. A number of analyst are, among them Neil Sharing, an emerging market analyst at London based Capital Economics, taking a contrarian view, and think that the currency devaluation is due to happen for several reasons. One of the reasons is that the devaluation will impact the Latvian economy severely on the short run; but with a weaker currency Latvia's exporting potential could be fully materialized and the country could start building its economy on a much sounder foundations. The economic situation in Latvia is a direct consequence of the lending standards and practices the European banks impose on the countries which emerged from Communism in the beginning of the 90s. A complete " silent moratorium " on business loans, and a full concentration on consumer loans, with the advocation on a " strong currency " policy, is hurting many emerging European nations. The situation is pretty much the same in all the countries that came from behind the Iron Curtain. A situation which divides Europe into those who have, and those who have not, into those who rule, and those who are being ruled. The underlying line of thought among the Brussels bureaucratic machine, is the complete economic sub-ordinance of the smaller, second tier, European nations. Observing the situation in the Balkans, and Central Europe, one could easily conclude that, while the core nations of the European Union are slowly emerging from the recession, the recession is just starting for those nation on the outskirts of Europe. I will write about this more in my upcoming posts, since i believe that some advocacy for those nations is in order, given their position and their shackled hands.

The indexes are trading slightly lower, with FTSE being down 6.82 pts. I don't expect much movement in the European equities, until the US GDP numbers come out today. The general consensus among analyst is that the US GDP rose by, as much as, 4%. Given that the number is true, a new wave of business optimism will, once again, be felt among the exporting European economies. The Italian daily newspaper Corriere della Serra reported yesterday that the Italian economy is afraid of the 1.6$ Euro value and that the monetary policy of the US Central Bank has the potential to wreck the ailing Italian economy. No further action are being expected from the European Central Bank regarding the Euro. The Banks chairman, Jean Claude Trichet, has shown indecisiveness and it is believed he will continue to do so.

As was reported by Zerohedge yesterday, Norway is the first European country which has decided to raise its interest rates. The former rate of 1.25% has been raised to 1.5%, signaling the future economic growth, for the oil oriented, Nordic country.The same is not expected for other European countries, which are still in the recessionary limbo, and are unable to come out of it. The monetary polices advocated and conducted by the ECB chairman Trichet are signaling a prolonged recessionary spiral, within a potential deflationary environment. On that note, the consumer prices in Germany have remained flat signaling a possibility of a 0.1%-0.3% future fall. 

In other news.The Russian Central Bank lowered the interest rates yet again, slashing the key interest rate from 10% to 9.5% in order to spur lending, and subsequently jump start the ailing Russian economy which was severely damaged by oligarchs borrowing against the 147$ bbl. 

These are some of the headlines which would be good to take a look at

• Collapse in Eastern Europe ( RGEmonitor )
• In Germany, unemployment declines, giving hopes that the recovery is real ( Bloomberg )
• Germany consumer prices remain flat ( WSJ )
• Investors behaving unexpectedly rational( Bloomberg )
• VW net profit stumbles 86%, blame put on Audi ( WSJ )
• Deutsche Bank; business as usual ( Bloomberg )
• Friendship, trading and death in ..... Canada ( Reuters )
• Amid lower demand, and not-147$-bbl prices Shell profits slide 72% ( Guardian )
• " Tough luck "; the bankers say and laugh all the way to their jets ( Guardian )
• Moodys cuts Portugal, puts Greece on the view ( WSJ )
• Nomura vindicated over LEH ( The Telegraph )
• Business tax rises to cost 57 000 jobs ( The Telegraph )

Those were the most important headlines concerning Europe. Now, if you would allow me, i would like to go a little bit off topic. I have conceived this daily update as some kind of a European corner in the vast ZH universe. And, as many of you now, I am not a man of only one interest. so i would like to, once a week, to give to you readers a book on some topic i currently find interesting, and which may or may not be directly linked to the matter of the economy or the markets. For this week I have chosen to introduce you to a book written by a French philosopher Michel Foucault. The book is called Madness and civilization and it deals with the historical impact of madness, and how madness was perceived, on civilization flows. It will, in it own unique way, demonstrate the dogmatic beliefs on rationality nurtured in many historical civilizations. It will also, in it own, unique way, present you with the methods which were devised in order to cure madness or eradicate it. I hope you will enjoy it and find it useful. The link is provided below. Also I will link the most recent articles written by Martin Armstrong.

Michel Foucault; Madness and civilization 

Martin Armstrong; Is America on the verge of another bank war ? Should we end the FED or Goldman Sachs ?

Thank you for reading.

Comments

[Anonymous]

Thank you, Cheeky. I really appreciate your contributions here.

You have built a great place, ZH crew!

[D.O.D.]

http://news.yahoo.com/s/ap/20091029/ap_on_re_as/as_pakistan_afghan_earth...

"Hey man, did you see what gawwwd just did?!?"

"God didn't do it ASSHOLE, YOU did!"

-Fear and Loathing...

They're rollin' out the HARRP...

[Anonymous]

Thanks CB! I was elated to read your assessment of EE countries and Latvia in particular. You describe the consequences of the strong currency strategy bang on. But not everything is THAT bad as written in the ECB report. The economy of Latvia is kept alive by a huge pile of cash circulating in the grey economy, like 10 billion USD to date. Our economy is grey and kicking!

[trx]

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aguaEWxbQky0

[Anonymous]

Don't know where to put this, so my apologies, but it looks like the market just bounced off the upward-trending support line again. The (medium-term) bull market continues.

[huubs]

Re your first link:
"Collapse in Eastern Europe" by RGE monitor:

the date is March 1, 2009 !!!
and the title has a question mark by RGE.

That question mark was on March 1, now many, many months later. What is the status today?

[Cheeky Bastard]

Actually worse ... i have just finished reading the ECB, and some other reports, on the region, and things have, actually, gotten worse than they were at the time the article you are referring to was published. Will give a comprehensive and detailed analysis of the situation tomorrow. The article you mention, was only linked to give some intro perspective on the whole matter ..... nothing else ..... As I said, i have already started to write a detailed analysis of the present condition. 

[Miles Kendig]

I am looking forward to it .  There are many interesting aspects to the developing situation that I will appreciate you lending your consideration to.

ATB

[Anonymous]

Thanks Cheeky,
Can you confirm that you are European? There is nothing worse than an americanised slant on European affairs! Things can get so distorted!

[deadhead]

Cheeky...I thoroughly enjoy the Europe updates and am most grateful to you for the efforts you are undertaking.  This adds much to the collective wisdom of ZH.

If people are trading the us markets, they really need to be aware of the issues that Cheeky is discussing.

Please keep up the good work CB. Thank you!

[Anonymous]

Thanks for these updates, nice to read some more about what's going on in Europe as most sites primarily focus on the US.

[Anonymous]

Hey Cheeky.....I think the Euro needs to come down
10% relative to the dollar give the Eurozone any
shot at keeping trade with us alive....any thoughts?

[Cheeky Bastard]

hi Anon

yes fully agree ... 1.2xxx-1.3xxx EUR/USD rate of exchange would do a lot of good for the European exporters. But, unless the $ rises i don't think we will see those levels anytime soon, given the ECBs monetary policy.

[Anonymous]

At http://www.martinarmstrong.org his articles can be downloaded without registering.
I can not help it, but I do not want to register at scribd to download. They collect a lot of user data.

[Lux Fiat]

You can try Armstrong's website - www.martinarmstrong.org - you'll find many of his articles there in pdf format. 

[AN0NYM0US]

Some background noise while perusing CB's post

Geithner Live House Testimony
Geithner Live

[heatbarrier]

Thanks CB. Looking forward to the books recommendations too.

[heatbarrier]

"Maddest of all is to see life as it is and not as it should be".

http://www.youtube.com/watch?v=ttTDDa5r_vo

[Careless Whisper]

Thanks Cheeks. Printed them all for the train this morning.