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Back to bickering (Euro-style)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • With central bank excitement now out of the way, for the most part, attention can return to the ongoing German crisis in Europe. The EU summit continue, with requests for reform being made of Greece, but as yet few demands for reform being made of Germany.
  • The liquidity of the Greek banking system is the more critical issue than whether there is a sovereign default. Monetary union survival is, historically speaking, dependent on the banking system - and contagion of a monetary union failure is transmitted via the banking system.
  • The Bank of England Chief Economist made a statement of the obvious yesterday, to the effect that if deflation occurred and was seen as enduring, the Bank would ease. The UK does not have a general price decline, nor is it likely to any time soon, so the issue is somewhat moot.
  • Minutes from the Bank of Japan did not give much indication of future policy action. The BoJ is waiting for the wage settlements from large companies to see if the deflation mentality (focused on wage deflation not CPI deflation) is able to be broken.