90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: EU leaders agree 'fiscal compact' without UK and funds via IMF; Chinese export growth slumps; Credit Agricole downgraded on 'liquidity concerns'; New Kyoto deal

12th Dec 11, 8:51am by Bernard Hickey

Bernard Hickey details the key news over the weekend in 90 seconds at 9 am in association with Bank of New Zealand, including news from Europe's crisis summit of an agreement by 26 of the European Union's 27 countries to form a 'fiscal compact' with rules on deficits and debt.

The deal did not include Britain, which rejected the plan on the grounds it did not include the safeguards Prime Minister David Cameron wanted for the City of London financial district. This meant the agreement could only be a 'compact' rather than the full EU treaty changes wanted by France and Germany.

The 26 nations also agreed that their central banks would lendup €200 billion to the International Monetary Fund to help out with any bailouts of Southern European nations.

Markets rallied on Friday night on the deal, but critics argued the deal has not done enough to end the European Debt crisis, which threatens to send the developed world back into recession and slow growth in the developing world. See more here at Reuters from Felix Salmon.

Meanwhile, The Telegraph reported on Friday night the Eurozone banking system was "on the edge of collapse". It cited an unnamed banking executive saying a major European bank could fail within weeks.

Also on Friday nigh,t Moody's downgraded the credit ratings of France's three largest banks, Societe Generale, Credit Agricole and BNP Paribas, citing liquidity and funding constraints. See more here at BBC.

Credit Agricole issued NZ$250 million of perpetual callable junior subordinated bonds to retail investors in 2007. The bonds are the lowest in the 'pecking order' of creditors and just above shareholders. See the bond profile page for these bonds here.

The bonds are now trading on the secondary market at a yield of 51%.

Meanwhile, Chinese export growth fell in November to its weakest pace since 2009 as exports to Germany fell 1.6% from a year ago and exports to Italy fell 23% from a year ago. See more here at Bloomberg.

Elsewhere, a extension of the Kyoto treaty on climate change to 2017 was agreed after marathon talks in Durban in South Africa. The meeting agreed to negotiate a new treaty by 2015 that would start operating from 2020.

See more here at Reuters.

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24 Comments

by Wolly | 12th Dec 11, 9:23am 1323634994

I am reminded of some polly waving a bit of paper claiming "peace in our time"....watch and listen as the liars begin to blame the messengers for the debt holes across Europe...in the banks...down to the very houses in the all the streets...

Now....back to Noddyland where cheaper for longer has been the play...the "game" as Spencer at the RB once said...."Play the Game"

Your move...roll anything but thirteen and you end up on bankrupt square!

by Colin Riden | 12th Dec 11, 9:33am 1323635631

I notice that Key has already felt the need to assure us that his government is rock solid - suggesting to me that he is concerned it is anything but.

by Vanderlei Luxemburgo | 12th Dec 11, 9:46am 1323636360

Can a govt that relies on a maniac like Banksie be considered rock solid?

by Gummy Bear Hero | 12th Dec 11, 9:53am 1323636836

Yes ...... Helen Clark proved that it is possible , in her arrangement of mutual benefit with Mr No Baubles himself , Winston ! ..... solid as a rock , and equally as charismatic ..

by meh | 12th Dec 11, 9:29am 1323635364

This article in Saturday's NZ Herald.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10772166

What impact is this likely to have?

What protection (if any) is in place for those who have their savings deposited in the bank? Shouldn't savers be secured ahead of everybody else?

by steven | 12th Dec 11, 12:35pm 1323646501

Its not just that that will hammer depositors, this and the "living wills" will.

Dr Bollard wants a "livings wills", that means there is no un-said backing by the Govn/tax payer....aka ireland...this makes the investor "nervious"....and may not lend....so the voter instaed of picking up the bill via tax will pick it up as a saver, as depositors are now not first in line AND there is no guarantee from the Govn.

This means bank runs are more likely....I know Im going to open several bank accounts so I can transfer money via Internet banking.....just in case.

regards

by Colin Riden | 12th Dec 11, 9:33am 1323635591

by Basel Brush III | 12th Dec 11, 9:33am 1323635589

Back with Commander-in-Chief Noddy Key what is the logical value for $NZ in a month or three?

No need to keep the $NZ up now that we are back in charge so Bill can open the gate and let the lemmings out.

by Stephen Hulme | 12th Dec 11, 10:04am 1323637449

@meh - What impact is this likely to have?

Highly negative for unsecured creditors (depositors) - what other reason exists to fund through this route.

The mortgage pool management mechanism always throws out the non-performing assets to be replaced with the good. The depositors are loaded up with the junk by default and the 10% cap will soon be broken.

The assumption is that catastrophe is just around the corner and these assets are the ones the RBNZ will accept as collateral in return for emergency liquidity injections and forsake the sovereign citizen depositors.

We have the same in Europe with banks continuosly selling CDS contracts against their local sovereign debt to create liquidity today and bugger the consequences - if it all blows up nobody gets repaid.

All unelected technocrats are traitors, I say. We endure a morality absent society.

by meh | 12th Dec 11, 10:35am 1323639323

Thanks Stephen, just what I thought. Why would the RBNZ even consider implementing this unless they thought funding is going to be an issue?

We constantly get told we're not saving enough (which is what happens if we're repaying oversized mortgages on overpriced houses) and yet the more I look at it there is nowhere safe to put my hard earned savings except under the mattress.

Even elected technocrats are traitors, I say.

by steven | 12th Dec 11, 12:39pm 1323646747

Of course its an issue....but Dr Bollard cannot say "oh god we are stuffed, run for the hills" or it will be self-fullfilling........

Mattress, yes thats about it basically.

However the banks and us wouldnt be in this position if we hadnt borrowed like this.....we dug our own grave, dont blame the technocrats for our own mistakes....

regards

by Wolly | 12th Dec 11, 12:41pm 1323646898

They pointed the way steven...

by steven | 12th Dec 11, 12:45pm 1323647127

No, wolly, they made it easy to borrow, sure.....but like drugs they are the drug pusher....you dont have to take it.....

regards

by Wolly | 12th Dec 11, 12:48pm 1323647294

So all the spin,the cheap credit and 105%LVR policies the advertising, the sprooking, the mass immigration and the nudge nudge from the Clark govt had nout to do with it...

by Elley | 12th Dec 11, 11:14am 1323641642

And then we wonder why people put their money into housing... At least even if the property market crashes, houses still have a practical use. A frozen (or worse) bank account on the other hand...

by steven | 12th Dec 11, 12:40pm 1323646854

Not "technocrats" IMHO......bureaucrats, yes.

Technocracy is a hypothetical form of government in which science would be in control of all decision making. Scientists, engineers and technologists who have knowledge, expertise or skills would compose the governing body, instead of politicians, businessmen and economists.^[1] In a technocracy, decision makers would be selected based upon how knowledgeable and skillful they are in their field.

regards

by skudiv | 12th Dec 11, 4:06pm 1323659179

Remove money from the system and you could have a Technocracy, I doubt any scientist would take on the role of ruling an economy based on an unsolvable mathmatical equation. Which is why we have an economy based on philosophy instead.

by Miss Astrid | 12th Dec 11, 10:54am 1323640460

And why does the City need protecting?

http://www.newstatesman.com/economy/2011/02/london-corporation-city

Oh, that's right.

by Wolly | 12th Dec 11, 11:40am 1323643243

"Anne Tolley, who was previously Education Minister, slips back from No 8 to No 13 and picks up responsibility for corrections and police".herald.

Oops...Tolley getting a D+

by Wolly | 12th Dec 11, 12:17pm 1323645430

Excellent news...with any luck, other councils will see the light...but don't hold your breath.

"Wellington City Council must slash its budget by up to $180 million over the next decade.

A secret workshop held on Friday revealed the dire state of council finances. The organisation cannot afford any new projects and is considering service cuts, rates increases, fee hikes and possible redundancies.

The savings are needed so that $74m of work can be done to ensure the city's infrastructure meets legal requirements. This includes $44m for earthquake risk mitigation on council buildings.

A reorganisation of the council has been suggested, which could lead to job cuts. There are also plans to reduce the level of service provided by the council"

http://www.stuff.co.nz/dominion-post/news/6123371/Cuts-loom-as-council-reaches-for-budget-axe

Freeze the rates and sharpen the axe...chop 10% of all salaries over the average wage for a start...

by James M | 12th Dec 11, 1:05pm 1323648352

I'd say I'm surprised Wolly - but other councils in NZ are in the same boat. My understanding is that the Far North District Council is broke - just voted in a significant pay increase for their CEO (new salary is almost that of Key), Mayor, Councillors - but can't afford to give anything to their staff (0.05% in the last four years), not replacing staff who leave (targetted reduction), downgrading all their performance appraisals so they don't have to pay them anymore.

Ridiculous really.

by Wolly | 12th Dec 11, 1:10pm 1323648616

Now that's what I calls a CRACK

"Germany's Bundesbank has raised serious objections to EU summit plans to shore up Italy and Spain by channelling up to €200bn (£170bn) from central bank reserves through the International Monetary Fund (IMF)."

http://www.telegraph.co.uk/finance/financialcrisis/8949665/Bundesbank-rejects-Europes-IMF-funding-ruse.html

by DGCanuck | 12th Dec 11, 7:52pm 1323672757

I like fankle better

by DGCanuck | 12th Dec 11, 7:36pm 1323671788

Interest - not a philosophy. Interest is the mathematical instability in our economy.

Create money out of thin air, no problem. Money is created by a banker making a journal entry of equal debit and credit when they make a loan. The money disappears again when the debt is paid back and the journal entry is reversed.

But what about interest? The original loan didn't create any extra money to pay the interest, so it has to come from somewhere else. The interest on loan A has to be sourced from loan B, which means there isn't enough money around to pay back loan B. Hence the need for loan C and so on. This can only go on as long as there is enough growth to mask the lack of money to pay back all the loans plus all the interest.

Growth has been the norm for so long we don't know how to run an economy without it. But the world is finite, and the exponential rate of increase of energy consumption will hit a physical limit, sooner or later, and reverse the growth rate. At that point the money system will collapse.

I find it ironic that I learned about this from many great discussions and links posted by the various commentators on a website, the name of which is interest.co.nz.