Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
Martin Wolf at #7 is today's must read. And our Spanish speaking readers will enjoy the video from Don Quixote Airport.
1. Watch China - New Zealand's future is with China in the Chinese century.
So we need to watch closely the connections and trade flows between China and those parts of the world in trouble (ie it's main trading partners Europe and America).
About a third of China's exports go to the Eurozone and one of the problems seen in the last trade slump in 2008 was a lack of trade finance, in particular for shipping.
Now there are fresh signs the European financial turmoil is beginning to affect trade flows and the shipping sector. The Baltic Dry Index of prices for bulk shipping has fallen 60% in the last two years.
Shipping companies are struggling to get finance and in some cases are behind on their payments.
Bloomberg reports Grand China Logistic Holdings, a state-owned shipping logistics company, has failed to make payments recently.
“We are actively talking to every shipowner and are actively raising funds to make payments,” President Li Zhong said yesterday in an interview in Shanghai. “Give us some time and we will definitely pay the money back.” He said the amounts owed are “not very big.”
Closely held Grand China has also lowered charter rates through re-negotiations, cut container-shipping services and drawn up plans to return all leased-in vessels, Li said, as tumbling freight rates cause industrywide losses. China Cosco Holdings Co., the nation’s biggest shipping line, has said it will lose money this year even after reaching agreements on at least 18 ships following payment disputes.
“The shipping industry isn’t in good shape because of the global trade slowdown,” Li said. The Baltic Dry Index, a benchmark for commodity-shipping rates, has tumbled 60 percent in the past two years as expansion in the global fleet outpaces Chinese demand for iron ore, coal and other raw materials.
2. Hungary seeks IMF aid - The ugliness rolls on through Europe and central Europe with Hungary, which has been hovering near bankruptcy for a while, formally asking for assistance from the IMF and Europe.
Hungary's economy ministry said last week that it will start talks with the IMF and the EU on securing some form of backing to reassure investors. It stressed it is looking for a precautionary, insurance-type contract as a means to reassure investors and spur economic growth.
"This was a move necessary to assure risk-free growth for the country," Economy Minister Gyorgy Matolcsy said in Parliament on Monday, confirming that Hungary manages to successfully finance itself via markets, indicating that the country doesn't need IMF support to finance government debt.
"Hungary is a warning sign," said Neil Shearing from Capital Economics. "It is the country where the risks are most acute in the region, so this is where you would expect to trouble to start. We fear this may spread to Ukraine and the Balkans. Eastern Europe has enormous external financing needs for the banking system. They won't be able to roll over debts if there is a credit freeze in Western Europe." Mr Shearing said Hungary has to raise external finance equal to 18pc of GDP over the next year. The figures are 14pc for Croatia, and 13pc for Bulgaria.
Eastern Europe is dependent on eurozone lenders and their subsidiaries for about 80pc of its banking system. This leaves the region vulnerable to a credit crunch as foreign groups slash loan books – by €2 trillion over 18 months, according to a Deutsche Bank study – to meet the EU's requirement for 9pc core tier 1 capital.
4. Austrian banks stop lending in Eastern Europe - Bloomberg reports Austrian banks have been told to stop lending into Eastern Europe to ensure Austria keeps its AAA credit rating.
The great deleveraging across Europe is gathering pace, starting at the fringes.
Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA's Bank Austria AG will be prevented from loaning significantly more than they raise in local deposits in countries such as Hungary, Romania and the Ukraine starting next year, the Austrian central bank said in a statement today. That would limit their ability to fund credit growth with loans from the parent company.
“This is certainly going to affect the availability of credit,” said Christian Keller, head of emerging EMEA research at Barclays Capital in London. “There's also going to be more differentiation, which will put pressure on countries like Hungary, Romania, Ukraine or Bulgaria.”
Austrian banks have lent $266 billion to borrowers in the formerly communist parts of Europe, the most of all countries reporting to the Bank for International Settlements and equivalent to about 70 percent of Austria's gross domestic product. Those numbers don't include the investments of Vienna- based Bank Austria, which are attributed to Italy.
5. Don Quixote Airport - Regular readers may remember a promotional video I included at #9 in Saturday's Top 10 of Spain's 1.1 billion euro Real Ciudad airport in the middle of nowhere with no customers.
Here's a Spanish language news video of the airport. Think Tumbleweed in Spanish with video of a very fast (and expensive) train running through it.
6. Australian property slump - The SMH reports that Australia's housing market is headed for its worst year since the 2008 Global Financial Crisis.
Melbourne may post the gloomiest results for 2011 among the major cities, with the clearance rate at auctions on course to fall to levels not seen since 2004, according to data from the Real Estate Institute of Victoria.
The REIV predicts Melbourne's auction clearance rate to average about 57 per cent for 2011, once the final weekends of the year are included. That's down from a 71 per cent rate last year.
Advertisement: Story continues belowIn Sydney, the clearance rates were 52.4 per cent last weekend, down from 55.1 per cent the previous weekend, Fairfax-owned Australian Property Monitors data show. Barring a surge in buying in the first part of December, clearance rates for 2011 are on track to average 54 per cent, the weakest since 2008, APM data show.
7. The lessons from Iceland - Martin Wolf writes in a publicly available at FT.com on how Iceland is faring three years after its crisis. Well worth a click.
Here's his final thoughts, which sound like someone on the front lines of an Occupy Wall St encampment. Quite something from someone who is the most respected commentator of the bible of the financial capital of the world.
The most unacceptable consequence of the crisis, across the globe, is that those whose irresponsibility caused the havoc have largely escaped accountability, while the innocent have been severely punished. In the case of Iceland, those responsible got off largely free. But some effort has been made to cushion the plight of the innocent. Yet the sense of injustice remains palpable.
The market economy will not endure if it is seen to be a racket run by a relatively small number of insiders against the interests of a vast number of outsiders. That happened to Iceland. But, as Simon Johnson of the Massachusetts Institute of Technology and the Peterson Institute of International Economics pointed out, in a rousing speech, the threat is not to Iceland alone. It could happen anywhere.
8. Bye bye Eurozone - BBC Business Editor Robert Peston writes well about the problems faced by Europe.
Here's his conclusion
Which is why you might say that it's either bye-bye eurozone, because the costs for borrowing of an unreformed eurozone remain prohibitively high, or it's bye-bye eurozone, because it turns into something that looks more like a giant single country.
9. What Europe's bank runs look like - They're very quiet now, but here's Michael Pettis talking about them here at BusinessInsider.
As soon as any depositor realizes that bank deposits are likely to be redenominated into drachma, he will pull his deposits out of the banks so as to protect the value of his savings. But obviously only a few depositors will be able to do this before forcing the bank into closing. In order to prevent the resulting collapse in the banking system, the only thing Athens can do is to freeze bank deposits long before most depositors have had a chance to cash out. But depositors know this. As the probability of Greece’s leaving the euro rises – and clearly it rose dramatically this past week – anxious depositors eager to prevent their deposits from being frozen and redenominated in a weaker currency know that they will have to speed up their withdrawal of deposits from banks. And of course as anxious depositors withdraw their deposits, the likelihood of a banking crisis rises, and with it the likelihood of Greece’s being forced to freeze deposits and leave the euro.
We are caught, it seems, in one of those self-reinforcing loops that almost always presage a collapse. Rational behavior by individual agents leads towards a catastrophic event the threat of which reinforces the behavior. I don’t see any way to get out of this loop except with a Bagehot-style intervention – a very unlikely but immediately credible announcement by Germany and France that they are prepared to guarantee all deposits in the Greek banking system. I call it a “Bagehot intervention”, but of course Walter Bagehot would never have recommended bailing out an insolvent borrower. Without a credible intervention this process almost always ends the same way.
There is in my opinion a very high probability that within weeks, or months at most, Greece will be forced to freeze bank deposits as a prelude to leaving the euro.
As households from Italy, Spain, Ireland, Portuguese, and other vulnerable countries read every day about hardships faced by Greek families (and those, it will be noted, who trusted the authorities were the worst hit), what will they do? I know what many of my wealthy Spanish friends are already doing. They are moving their deposits to safer havens.
He then makes the excellent point about decisions about who eventually pays.
Deposit withdrawals, after all, are one of the kinds of actions that different sectors of the economy will take to protect their interests in the face of a crisis, even though this behavior increases the likelihood of the crisis. This is simply part of the logic of sovereign financial distress – declining credibility causes stakeholders to act in ways that reduce credibility further. What’s more, deterioration in the political process is part of financial distress at the sovereign level. Remember, as Keynes pointed out back in 1922, that resolving these kinds of crises is always political – it is about which sector of the economy (or class) ends up paying for the adjustment.
Workers can pay in the form of high unemployment and declining wages, the middle class can pay by having its savings inflated away, private businesses can pay in the form of confiscatory taxes and expropriation, creditors can pay through forced debt forgiveness, and so on, but ultimately someone must pay. Politics becomes about deciding which groups will be forced to foot the bill. Historical precedents suggest that political fault lines are likely to develop as different groups organizes politically to protect themselves.
10. Totally Stephen Colbert on Washington's lobbyists.
"They're the one that pick up the lunch bill and write the legislative bill."
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