Public spending

A widespread understanding of the 2007-2008 crisis places the origins of the crisis in a capture of global economy by the finance industry. The “occupy Wall Street” group would surely agree, as well as most of those who get their economics from the general media. And President Sarkozy in his recent Toulon’s speech did confirm the thesis. If this understanding is correct then it is natural to call for further regulation of the finance industry. But not everyone agrees, and some economists favor another understanding.

is the amount of exposition of French banks to European countries’ private and public debt. They own for instance $106 billion of Italian public debt (which is six times higher…

Until now, the debt crisis seemed to spare the biggest European economy. But the country everybody is relying on starts to meet difficulties to refund its debt. The sale of German benchmark bonds on Wednesday turned to a disaster and the Bundesbank has been forced to hold on to record amounts (39% of the €6 billion Germany had hoped to sell) to ensure the auction did not fail. However, this is not so surprising if one takes a look on German 10-year real bond yield that turns to be negative:

This is the annual cost of one percentage point increase of the interest rates on French government bonds, according to the credit rating agency Moody’s. France is currently facing 2%…

A must-read piece by Alan Meltzer in The Wall Street Journal explains why the economic response to increased government spending is so different from the response predicted by Keynesian models.…

Germany has raised over a quarter of its total EFSF obligation of €211 billion by way of what is essentially magic. The Telegraph reports that “Germany is €55bn richer than…

For the French government, it is more than ever urgent to convince everyone that the State deficit is moving in the right direction and the public debt is sustainable. In the context of an uncertain future for the French credit rating triple A note, the present debate on the budget of the State for the coming year and the austerity measures it includes became a really hot issue. The initial project of budget for 2012 has been already adopted by the Financial Commission at the French National Assembly and is now being discussed by the deputies.

The eurozone’s third-largest economy is being sucked deeper into the sovereign debt crisis, since one of the major credit rating agencies downgraded yesterday its credit rating. S&P downgraded Italy to “A/A-1” from a “A+/A-1+” grade because of “Italy’s weakening economic growth prospects”, with a negative outlook, meaning further downgrades are possible. The move – S&P’s first downgrade of Italy since 2006 – places S&P’s rating on Italy three notches below that of Moody’s, the rating agency that many had expected to cut first.

The French Minister of Finance, François Baroin, concluded the G7 meeting in Marseille with a statement that an equilibrium had been found between the necessity for fiscal consolidation and the necessity to avoid a recession. What kind of equilibrium is he talking about and is this equilibrium stable?

The discussions in Marseille started on a fairly correct assessment of the situation: one needs to tackle the sovereign debts crisis and the global economy (and in particular western economies) is slowing down.

The French bank BNP Paribas published a disclaimer to this article signed by our Director of development Nicolas Lecaussin and published in the Wall Street Journal. The paper is mentioning the difficulties of some of the French banks, including BNP.