NEWS,21.11.2012

Debt deal for Greece fails again

International lenders failed for the second week to reach a deal to release emergency aid for Greece and will try again next week, but Germany signalled that significant divisions remain.Euro zone finance ministers, the International Monetary Fund and the European Central Bank were unable to agree in 12 hours of overnight talks in Brussels on how to make the country's debt sustainable.They want a solution before paying the next loan tranche which is urgently needed to keep Greece afloat.Several European officials played down the delay, saying the disagreements were technical and a deal would be reached when they meet again on November 26.German Finance Minister Wolfgang Schaeuble said he was confident the funding gap could be filled by a mixture of letting Greece buy back its own debt at a discount, tapping ECB profits on Greek bond purchases, and lowering interest rates on government loans to Athens, but not below the cost to lenders."Additional measures are needed and we have spoken about this intensively with the International Monetary Fund. We agree essentially that the gap can and will be filled, that a buyback programme of Greek debt on the market will be carried out," he told reporters.Schaeuble earlier told conservative lawmakers at a closed-door briefing that the lenders were split over how to define debt sustainability and fill a hole in Greek finances."He sees the extension of the debt sustainability goal as one of the main bones of contention. The other is how to cover the Greek financing gap of 14 billion euros through 2014," said one lawmaker who attended the meeting of Chancellor Angela Merkel's centre-right Christian Democrats in parliament.European governments want to give Greece an extra two years, until 2022, to cut its debt to a sustainable level of 120% of GDP but the IMF does not agree.The Europeans, led by Germany, are refusing to write off any loans. Both options would make it easier for Greece to meet the targets in the bailout programme.Merkel told the lawmakers the gap could be plugged by lowering interest rates on loans to Greece, extending their maturity to 30 years from 15, and increasing guarantees provided to the euro zone's temporary EFSF bailout fund, in which Germany would take its share, a participant said."I believe there are chances, one doesn't know for sure, but there are chances to get a solution on Monday," she told the Bundestag lower house of parliament during a debate.Any options that cost the German taxpayer more money come with a heavy political price tag with elections less than a year away and would have to voted through by an increasingly restive Bundestag."If we get the impression we are being cheated, we won't come to the rescue anymore when you need our support," Social Democrat leader Peer Steinbrueck warned in a speech to the chamber just before Merkel took the podium.Until now Merkel has been able to count on the support of parties like the SPD and Greens to help push through controversial bailout votes in the lower house.Greece needs the next 31 billion euro aid tranche to keep servicing its debt and avoid bankruptcy. Its next major repayment is in mid-December.Athens says it has carried out the tough reforms required in the bailout programme but needs more time to reach fiscal targets agreed with lenders because its economy keeps shrinking.French Finance Minister Pierre Moscovici said agreement was close, echoing overnight comments from Eurogroup chairman Jean-Claude Juncker, who said talks were stuck on technicalities."We are a whisker away from a deal. I am very confident we will get there on Monday," Moscovici told Europe 1 radio.GREEK ANGERGreece is increasingly frustrated about the repeated delays in releasing the aid and says it has done what is necessary."Greece did what it had committed it would do. Our partners, together with the IMF, also have to do what they have taken on to do," Prime Minister Antonis Samaras said in a statement."Any technical difficulties in finding a technical solution do not justify any negligence or delays."Samaras will meet Juncker in Brussels on Thursday and has cancelled a trip to Qatar next week to monitor the talks, a government spokesman said.The prime minister is under growing pressure from his own coalition allies and the opposition after pushing through deeply unpopular austerity measures that he said were the only way to get more aid to avert bankruptcy."The euro zone cannot use Greece as an alibi to justify its weakness in dealing effectively and definitively with the crisis," said Evangelos Venizelos, head of the co-ruling PASOK party. Opposition leader Alexis Tsipras, whose party is rising in polls, said Samaras had lost all credibility.Investors were disappointed with the news. Greek banking stocks fell nearly 6% in morning trade. Most of Greece's next aid instalment has been earmarked to shore up the country's tottering banks.The euro, European shares and the prices of higher-yielding euro zone debt lost ground but later recovered some of the losses.NO WRITE DOWNA document prepared for the Brussels meeting and seen by Reuters showed Greece's debt cannot be cut from 170% of GDP to 120%, the level deemed sustainable by the IMF, unless either euro zone member states write off a portion of their loans to Greece or the IMF extends its deadline by two years.Germany and other EU states say writing down their loans would be illegal. The European Central Bank, a major holder of Greek bonds, has refused to take a "haircut" on its holdings.Berlin contends a debt haircut would not tackle the roots of Greece's debt problems and would be unfair to other euro zone countries that have taken tough steps to improve their finances."It would cost money, it would be a fatal signal to Ireland, Portugal and possibly Spain, as they would immediately ask why they should accept difficult conditions and push through difficult measures ... and it would have consequences under budget law," Norbert Barthle, budget spokesman forMerkel's Christian Democrats said.Without corrective measures, the Eurogroup document said, Greek debt would be 144% in 2020 and 133% in 2022.Juncker said after a meeting a week ago that he wanted to extend the target date to reduce Greek debt by two years to 2022, but Lagarde insists the 2020 goal should stand. She is believed to favour euro zone member states taking a writedown.Under a buy-back plan, Greece would offer to purchase bonds from private investors at a sharp discount to their face value. Options are under consideration including using about 10 billion euros of EFSF money to buy back bonds at between 30 and 35 cents on the euro.There are also proposals to reduce the interest rate on loans already extended by euro zone countries to Greece, to allow a long moratorium on interest payments and lengthen the maturities on loans, all of which would cut the debt burden.

Shares climb amid hope for Greece

World shares advanced as policymakers in Europe reassured markets that a deal on releasing emergency aid to Greece was close, although the failure of lenders to come to an agreement on their own kept investors cautious.Euro zone finance ministers, the International Monetary Fund and the European Central Bank will gather again next week, after nearly 12 hours of talks overnight in Brussels failed to produce a consensus on how to shrink Greece's debts.After the meeting ended, French Finance Minister Pierre Moscovici said a deal was just "a whisker away," while European paymaster Germany said a plan was being developed to provide Greece with funding until 2016.Shares in Europe rebounded from early losses. The FTSEurofirst 300 index of top shares closed 0.3% higher, while the Euro STOXX 50 recouped from an earlier drop to add 0.5%."European exchanges themselves are doing okay, so investors are saying 'we didn't really expect a resolution (on Greece),' just kind of learning to live with it," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.US stocks gained in trading thinned by a national holiday Thursday for Thanksgiving. The Dow Jones industrial average was up 53.21 points, or 0.42%, at 12,841.72.The Standard & Poor's 500 Index was up 3.27 points, or 0.24%, at 1,391.08. The Nasdaq Composite Index was up 9.56 points, or 0.33%, at 2,926.24.Investors in the US digested the latest data, including weekly jobless claims that met expectations and a final read on November consumer sentiment that was below forecasts.Market participants remained anxious about tax and spending changes - known as the fiscal cliff poised to come into effect in the new year, though policymakers are not expected to get back to negotiations until after Thanksgiving.The benchmark 10-year US Treasury note was down 6/32, with the yield at 1.6882%.The euro rose 0.1% to $1.28, also rebounding from earlier weakness of as much as 0.5%.Prices for German debt, the safest in the euro zone, had eased slightly, sending 10-year yields down modestly to 1.431%.However, a sale of 3.25 billion euros ($4.2 billion) of new German 10-year debt, which paid an interest rate of 1.5%, drew solid demand from investors worried about the outlook.Before the Greek impasse, world equity markets had come under pressure after Federal Reserve Chairman Ben Bernanke warned that the central bank lacked the tools to cushion the impact of a potential US fiscal crisis.Bernanke said worries over fiscal negotiations, aimed at preventing a series of mandatory tax increases and spending cuts early next year, had already damaged growth in the world's largest economy.His comments snapped a two-day rally on Wall Street Tuesday, but the MSCI world equity index later rose 0.3%.Asian shares had initially fallen Wednesday in reaction to the Greek aid payment delay, but closed modestly higher, buoyed by gains in mainland Chinese markets and in Tokyo.MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2%, while Japan's Nikkei stock average closed up 0.9% at a two month-high.The Nikkei's gains came as shares of exporters rose, after the yen hit a seven-month low against the dollar, on expectations a new government will aggressively push the Bank of Japan to expand monetary stimulus.Japan's opposition Liberal Democratic Party, tipped to win next month's general election, also promised to boost spending as it emerged that exports had fallen in annual terms for a fifth straight month in October.The yen rose 0.9% to the dollar, rebounding from its weakest level since early April. The US dollar was off 0.1 against a basket of currencies, while Brent crude erased earlier losses to trade flat at $109.91 per barrel.Oil was flat, after earlier having been supported by mounting tensions in the Middle East amid days of fighting between Israel and Hamas, which many feared could disrupt oil flows.Concerns about Greece and the impact that could have on international growth, however, weighed on crude prices."There are opposing forces where the uncertainty in Europe and the United States meets with the bullish uncertainty in the Middle East ... so I think we're going to see a volatile market," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

NEWS,11.08.2012

Globalization and the Lessons of History

 

As the U.S. economy struggles to recover from the worst recession in 70 years, we face a new, much more challenging world. Economic globalization means that more countries are exporting their goods, generating first-rate research, and attracting investments: besides China, we compete with Brazil, India, South Korea, and Turkey. Although terrorism, elections, and natural disasters dominate headlines, globalization has been the most powerful trend over the last thirty years. Despite the recession, it shows no sign of abating. Dealing with globalization may tempt us to see other countries as simply our competitors or worse, as our enemies. If we are to deal with globalization more wisely, the lessons of history are crucial to understand.Globalization is not completely new. A century ago, the world economy went through a similar dramatic expansion. "For economic purposes all mankind is fast becoming one people," wrote James Bryce in 1903. For the first time, a world wide web of telegraph lines, centered on London, sent news and prices around the globe. The United States became an industrialized country because of millions of immigrants and a mountain of European investment. Tragically, the first era of globalization ended badly in two world wars, Communism, fascism, the Great Depression, and the Cold War. Why? Those who suffered from rapid economic change were often recruits for violent solutions; war could undo decades of economic progress. In short, those who gained from economic globalization became complacent about the need to maintain it and cavalier about the costs it generated. Old industries declining, migration, social problems in rapidly expanding cities all of these occur almost inevitably with economic growth. If social policies do not cushion the costs and help people adjust to the changes set off by economic growth, the entire system supporting economic growth can be undermined. At the same time, international peace and cooperation have been crucial to economic globalization. Prosperity in the long run depends on peace. The first era of globalization occurred in the late nineteenth century because Europe experienced the longest period of peace in its history. Only one, brief war the Crimean War occurred among more than two of the Great Powers. World War One broke out in part because leaders in Germany thought they could use violence to strengthen their country's position in the world economy. Instead, they nearly destroyed the entire world economy, and brought on more war. By the time Europe stabilized again, after a second, more awful war, the world economy was no bigger than it had been 35 years earlier, with a much larger population to feed.History also teaches us that we can do better. Nothing illustrates that nations can learn from the past as much as the difference between what the United States did in 1919, at the end of the First World War, and what we did in 1945-48, after the Second. In 1919, we turned our back on Europe and its problems. The world economy limped along and eventually collapsed into the Depression, while the unsolved problems of the War led to dictatorships and more war. After 1945, we did better. The United States created a range of international institutions in the late 1940s the UN, IMF, World Bank, NATO, the alliance with Japan, and the GATT, the forerunner of today's World Trade Organization. We also helped Europe set up what eventually became the European Union. With all their imperfections, these institutions and the cooperative agreements they support still provide a framework for worldwide economic growth. Because of them, we can travel, send money, buy and sell goods, and communicate among the nations of the world in a way that would have been unimaginable just a few decades ago.In tough times, it may be tempting to turn our backs on the rest of the world or to think that economic growth, once begun, runs on its own. But we depend on our global economic ties for future growth. By investing in our greatest resource  people  and improving our transportation and communications infrastructure, we can compete much more effectively than by tariffs or trade disputes. The history of the last century teaches us that dealing with the inevitable costs of globalization and working to maintain a peaceful world order are essential to all of us. Our generation has an opportunity to make great gains from a return to worldwide economic growth  but we must distribute the gains more fairly and work to build a cooperative international order. Our competitors are also our customers and our potential partners in a better world.

Federal Investigators Punt On Goldman Sachs Prosecutions

 

By 2006, Goldman Sachs traders knew that the investments packed with subprime home mortgages they had been selling at big profits for the last few years were more dangerous than they were letting on.Internally, they characterized these offerings as "junk,""dogs,""big old lemons" and "monstrosities." Nevertheless, the bank congratulated itself for successfully offloading the mortgage bonds onto others. The head of the bank's mortgage department extolled its success in reducing its subprime inventory, writing that his team had "‘worked their tails off to make some lemonade from some big old lemons.” These findings, included in the report released by the Financial Crisis Inquiry Commission nearly two years ago, helped inform at least one major regulatory enforcement action against the bank: a $550 million settlement with the Securities and Exchange Commission for misleading investors about the risks of a product known as Abacus. For a while, it seemed that a string of similar enforcement actions involving other mortgage investment products, whose eventual collapse in value brought down the housing market and very nearly the American economy, were imminent. On Thursday, Goldman Sachs announced in a regulatory filing that the SEC had dropped its investigation into a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely. Later in the day, the Department of Justice said it was ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”"The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time," the Justice Department said in a statement late on Thursday. Reuters reported that David Wells, a spokesman for Goldman Sachs, said in an email, "We are pleased that this matter is behind us."The SEC did not immediately respond to a request for comment. For industry critics, the decisions to drop the investigations are the latest indication that the federal government's law enforcement response to the greatest financial catastrophe since the Great Depression will end with a whimper. "I'm shocked but not surprised," said Simon Johnson, a former chief economist at the International Monetary Fund, and a Huffington Post contributor. "It reflects a pattern of failing to hold these large institutions accountable. To not even try sends a double signal, that there are different standards for us and for Wall Street."Johnson said he still holds out some hope for a grand settlement that would provide some financial compensation for the homeowners most damaged by the inflated pricing that came as a result of the bubble built by Wall Street.Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, and a frequent critic of the Obama administration's handling of the financial crisis, said in an email that the announcements are "a stark reminder that no individual or institution has been held meaningfully accountable for their role in the financial crisis." "Without such accountability, the unending parade of megabank scandals will inevitably continue," Barofsky said. Of the two federal agencies, the record of the Department of Justice in pursuing financial crisis cases is the thinnest. So far, the Justice Department has brought just one case, which ended when a federal jury in 2009 acquitted two Bear Stearns hedge fund managers accused of lying to investors about the soundness of the securities they were selling. After that, the Justice Department decided not to pursue cases against two men whose actions most Wall Street observers agree brought on the crisis: Angelo Mozilo, the former head of the defunct mortgage giant Countrywide and Joseph Cassano, who ran the financial products division at AIG.The SEC's track record has been a bit better, at least in terms of dollar recoveries. The regulator won about $2 billion in penalties since 2008 in financial crisis-related cases, including a record $67.5 million from Mozillo. The agency has been dogged, though, by complaints including from federal judge Jed Rakoff that its penalties are too small, doesn't target individuals and doesn't require defendants to admit guilt as part of settlement agreements. In May, the SEC dropped its probe of Lehman Brothers, even though an independent examiner appointed by the bankruptcy court of the defunct bank concluded that there were "actionable claims" against senior Lehman officers for using an accounting tool known as Repo 105 to book billions of dollars in phony sales to disguise the true extent of the bank's financial woes. Financial cases of any stripe, especially those that involve complex transactions involving structured finance products, are difficult to prove, said Arthur Wilmarth, a banking law professor at George Washington University. Even so, he said, he believes the SEC could have brought additional cases against Goldman Sachs that involved conduct similar to the Abacus deal. The agency could prevail in civil penalty actions by showing that Goldman "intentionally or recklessly misled investors," he said. That, in essence, is the argument made by another regulator the Federal Housing Finance Agency which filed a lawsuit against Goldman over the Fremont investment and other offerings last year. Goldman bankers knew that Fremont, a subprime lender, was selling it mortgages certain to fail, the suit alleges.Goldman knew of the originators’ abandonment of applicable underwriting guidelines and of the true nature of the mortgage loans it was securitizing," the lawsuit claims. The decision to drop the Goldman Sachs investigation also comes on the heels of a disappointing loss for the SEC in one of the very few trials involving a Wall Street executive accused of misleading investors about a mortgage product. A few weeks ago, a federal jury acquitted Brian Stoker, a mid-level Citigroup executive, of wrongdoing over his role in selling a $1 billion mortgage bond. In an unusual move, however, the jury included a note with its verdict urging the agency not to give up. “This verdict should not deter the SEC from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” said the statement, which was read aloud by Judge Jed Rakoff.

NEWS,02.08.2012

 ECB signals bond-buying stint

The European Central Bank indicated today it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.In the latest move to contain the eurozone crisis, ECB President Mario Draghi indicated that any intervention would not come before September - and only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds."The Governing Council ... may undertake outright open market operations of a size adequate to reach its objective," Draghi told a news conference after the central bank's monthly meeting, using the central bank's code for bond-buying.The ECB kept euro zone interest rates at a record low 0.75 percent but Draghi said the council did consider a further rate cut on Thursday amid signs that an economic recession in peripheral European countries is spreading across the continent.A poll of nearly 50 economists after Draghi spoke found t hat most expect the ECB to start buying Italian and Spanish bonds in September and to cut rates t o 0.50 percent. .Draghi was under intense pressure from investors, European leaders and the United States to deliver on a pledge he made last week to do whatever it takes to preserve the euro by bringing high borrowing costs down.But shares and the euro fell after the ECB chief's remarks, and Spanish and Italian bond yields jumped, with Spain's 10-year paper vaulting over the 7 percent danger level."It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," said Ioan Smith, strategist at Knight Capital.Draghi said t hree ECB committees would now work on detailed methods of intervention and a decision on whether to go ahead would be taken at a later stage.If the central bank did step in to buy bonds, it would act to assuage investors' concerns raised when it asserted seniority over private bondholders by refusing to join a writedown on Greek debt this year, Draghi said. He did not say how.The ECB would also consider other "non-standard" measures to rein in the euro zone crisis, he said, hinting it might move to quantitative easing - or printing money - by not withdrawing all the money it creates to buy bonds.Unlike the U.S. Federal Reserve and the Bank of England, which have engaged in QE since 2008 by creating money to buy securities, the ECB has so far "sterilised" all its purchases by taking in an equivalent amount in interest-bearing deposits.The bank has already spent 210 billion euros buying bonds under its now dormant Securities Markets Programme (SMP) since May 2010, with limited effect, but Draghi said the new effort would be different in scope and conditionality.Any new ECB action would be focused on shorter-term debt and was conditional on euro zone governments using their bailout funds first, and on beneficiaries accepting conditions."Governments must stand ready to activate the ESM/EFSF in the bond market when exceptional financial market circumstances and risks to financial stability exist," he said.Italian Prime Minister Mario Monti said after talks with his Spanish counterpart Mariano Rajoy in Madrid that Draghi's statement marked "several steps forward", bu t it was premature to say whether Rome would apply for such help.Rajoy called the ECB decisions positive but repeatedly declined to say whether S pain would request an assistance programme, which he has so far resisted.The Washington-based International Monetary Fund said it welcomed the ECB's willingness to act."As we have also emphasised, monetary policy alone cannot solve the problems facing the euro area. But further monetary easing and unconventional support would ease tensions as other policies are implemented and take effect," an IMF official said.The ECB chief repeated that the euro was "irrevocable" and warned markets it was pointless to bet against the 17-nation single European currency. He also said the central bank was determined to counter any risk of "convertibility" - code for a possible break-up of the euro.But analysts were underwhelmed by his announcement of possible future action subject to conditions.Marchel Alexandrovich, senior vice president at Jefferies, added: "What Draghi has basically indicated is that the problem in the bond markets has to get considerably worse before the ECB steps in to help."The outcome of Thursday's ECB meeting mirrored Wednesday's U.S. Federal Reserve policy-setting meeting, which also dashed expectations of immediate new measures to revive the economy.The Fed stopped short of offering new monetary stimulus, though it signalled more strongly that further bond-buying could be in store to help a U.S. economic recovery that it said had lost momentum this year.ECB action is hamstrung by European treaty rules forbidding it from financing governments. Draghi said an ECB legal opinion had ruled out another possible "big bazooka" - giving the ESM bailout fund the right to tap ECB funds to boost its firepower.The ECB also has to find a way to get any measures past Germany, the euro zone's largest economy and its principal paymaster. The Bundesbank issues regular reminders of inflationary dangers stemming from bond purchases and the limits central banks face.Draghi said all members of the Governing Council endorsed Thursday's statement with one exception and he took the unusual step of mentioning Weidmann by name as the dissenter, suggesting he was prepared to outvote the German if necessary."It's clear and it's known that (Germany's) Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then (we) will take a final decision and the votes will be counted."Council members who have voted with Weidmann in the past, such as the Dutch and Luxembourg central bank chief and the German member of the ECB's executive board, did not side with him this time, suggesting the Bundesbank chief was isolated.But his acquiescence in ECB policy is widely seen as vital to preserve public support for the euro zone in Germany.

 

ECB Responds To Europan Recession, Debt Crisis By... Doing Nothing

Another day, another central bank failure.

The European Central Bank on Thursday stared a recession and financial crisis in the face and decided to do absolutely nothing about it. It was a page right out of the Federal Reserve's playbook, which on Wednesday stared a slowing economy and high unemployment in the face and decided to do absolutely nothing about it.Both banks hinted strongly at some sort of action coming after August, when Europeans come back from vacation. But then they have been hinting at action for months now, without taking any, so you can excuse financial markets for being a little disappointed."The lack of action from either the Fed or the ECB this week stands in stark contrast with their dour economic assessments," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note. "The assessment and action will be brought into line, but not as soon as investors want."Just last week, for example, ECB chief Mario Draghi said his central bank would do whatever it took to save the euro. Apparently he just didn't mean they'd do it in a hurry or anything.The ECB kept its target interest rate on hold at 0.75 percent, or about half a percentage point higher than the Federal Reserve's own target rate. At a press conference, Draghi said the bank was preparing a plan to buy more European sovereign bonds to help ease funding pressures on Spain and Italy. But it also said those governments would have to ask for it first, preferably saying pretty please, with sugar on top. Spain and Italy could use the help sooner rather than later. At last check, Spanish 10-year bond yields had jumped back above 7 percent, a sort of Death Zone for government borrowing costs. You can't stay above that level for very long without needing a bailout. Italy's 10-year bond yield jumped above 6 percent, uncomfortably high.Investors fear the enormous economies of Spain and Italy will soon need bailouts, which could put a strain on all of Europe's finances. Such worries have brought manufacturing around the world, including in the U.S., to nearly a screeching halt.The response by policy makers has been noticeably lacking, marked by "Coordinated inaction by the world's leading central banks: The Fed, the ECB, the Bank of England, [Peoples Bank of China]," Wharton economics professor Justin Wolfers tweeted.In the Fed's possible defense, it has already slashed interest rates to nearly zero and launched multiple rounds of bond-buying. Some on the Fed worry the risks of further action outweigh the benefits. The ECB, meanwhile, is handcuffed by a single mandate, to worry endlessly about inflation, even when said inflation is non-existent. And the ECB has Germany, the continent's paymaster, looking over its shoulder and constantly pushing back against aggressive action.Draghi tried to put the ball back in the courts of the European politicians, all of whom are currently on vacation. Maybe while they're on the beach they're thinking hard about a dramatic fix to their problems, but history offers little reason to hope.Similarly, the U.S. Congress could take steps right now to help the U.S. economy, but again, history offers little hope.The only policy makers with free rein to do anything right now are the central banks, and they have taken the rest of the summer off.

Spain debt auction a success

Spain passed a key test on Thursday by easily selling €3.1bn of debt despite investors doubts that the European Central Bank will be in a position to help struggling eurozone economies when it holds its monthly meeting later in the day.Although the Treasury was forced to pay the second highest yield on its 10-year paper since the launch of the euro in 1999, analysts said the auction was solid in the current context. The cost of borrowing was nearly a full percentage point below the peak yield in the secondary market last week.The results lifted market sentiment, with the premium which investors pay to hold Spanish over German debt falling after the auction.Spanish bond yields, which had hit euro-era highs due to the possibility that Madrid would have to be bailed out, fell last week after President Mario Draghi said the ECB would do whatever it takes to save the common currency, within its mandate.But concerns that the ECB will now fail to meet the market's expectations when Draghi announces decisions of the Governing Council's monthly meeting at 12:30 GMT sent them up again in the last two days."The auctions were good, with better demand at the shorter maturities which looks to me like the auctions were driven by more short-covering demand," said Peter Chatwell, rate strategist at Credit Agricole in London."Certainly there is still a lot of doubt whether the ECB has the mandate to do anything which structurally tightens Spanish or Italian spreads."Sources have told Reuters that bold action - such as the ECB resuming controversial purchases of government debt issued by the most troubled eurozone economies to curb their borrowing costs - is at least five weeks away. However, Draghi may offer some clues on what is in the offing. On Thursday, Spain sold €.1bn of bonds, beating its target of €2bn to €3bn, though it paid higher rates than the last time the bonds were sold at a primary auction.The Treasury raised €1bn of the longer-dated, benchmark bond, due January 31, 2022, at an average yield of 6.647% compared to 6.43% when it was last sold in the primary market on July 5. The yield in the secondary market had reached 7.639 on July 24, before Draghi spoke last week.Demand was lower than the previous auction, with the bid-to-cover ratio at 2.4 compared to 3.2 a month earlier.A bond due July 30, 2014 sold €1.1bn at a yield of 4.774% and bid-to-cover ratio of 3.0. The same bond was last sold at a primary auction in March, 2011, at an average yield of 3.592%.A bond maturing October 31, 2016 sold at a yield of 5.971%, after 5.536% July 5. The Treasury sold €1bn of the paper which was 2.7 times subscribed compared to 2.6 times last month.