by Calculated Risk on 11/28/2011 08:47:00 AM

The OECD's track record hasn't been great lately, but it does seem likely that the euro zone is already in a recession ...

From Reuters: Euro Zone in Mild Recession, US May Follow: OECD

The global economic recovery is running out of steam, leaving the euro zone stuck in a mild recession ... In the absence of decisive action from euro zone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the Paris-based [Organization for Economic Cooperation and Development] said.
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Its twice-yearly Economic Outlook forecast world growth would slow to 3.4 percent in 2012 from 3.8 percent this year.

And here is the report from the OECD: OECD calls for urgent action to boost ailing global economy

Yesterday:
• Summary for Week Ending Nov 25th
• Schedule for Week of Nov 27th

by Calculated Risk on 11/28/2011 12:07:00 AM

From MarketWatch: Europe agrees on EFSF; IMF may aid Italy: reports

Finance ministers from the euro zone are slated to meet Tuesday and expected to sign off on rules for borrowing against the European Financial Stability Facility (EFSF), as well as guidelines for intervening in the euro-zone bond markets and providing credit lines to governments, according to a Reuters report Sunday.
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The reports on the EFSF deal came amid reports that the IMF may offer €400 billion to €600 billion in aid to Italy, Dow Jones Newswires reported Sunday, citing an unsourced account in Italy’s La Stampa.

And the denial from Dow Jones:

A report that the International Monetary Fund could offer Italy between EUR400 billion and EUR600 billion in financial support is not credible, people familiar with ongoing international discussions on the European debt crisis said Monday.

The report is "not credible," one of the people told Dow Jones Newswires

The Asian markets are mostly green tonight. The Nikkei is up about 1.8%, the Hang Seng is up 1.9%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are up about 20 and Dow futures are up 160.

Oil: WTI futures are up to $98.29 and Brent is up to $107.64 per barrel.

Yesterday:
• Summary for Week Ending Nov 25th
• Schedule for Week of Nov 27th

by Calculated Risk on 11/27/2011 08:12:00 PM

From Wolfgang Münchau at the Financial Times: The eurozone really has only days to avoid collapse

First, the European Central Bank must agree a backstop of some kind ... The second measure is a firm timetable for a eurozone bond. ... The third decision is a fiscal union. ...

If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse.

See Brad DeLong's post for more excerpts.

From the WSJ: Europe's Leaders Pursue New Pact

The proposal ... would make budget discipline legally binding and enforceable by European authorities. ... A majority of euro-zone governments hope that the pact would be an unstated quid pro quo for massive intervention in bond markets by the ECB. Many policy makers, investors and economists believe that only decisive ECB action can stop the unraveling of euro-zone debt markets ...

From the WSJ: Inner Workings of Market Readied for Euro Breakup

Companies that provide the plumbing for the $4 trillion-a-day foreign-exchange market are testing systems that could handle trading of previously shelved European currencies. ... Banks, analysts and investors are preparing for what many of them say is an increasing likelihood of a euro-zone breakup, either completely or in parts, leading to the potential return of currencies such as the drachma, German mark or Italian lira.

Interesting times.

Earlier:
• Summary for Week Ending Nov 25th
• Schedule for Week of Nov 27th

by Calculated Risk on 11/27/2011 05:57:00 PM

The two key downside risks to the U.S. economy are contagion from the European financial crisis and more rapid fiscal tightening. On fiscal tightening, there have been several recent reports suggesting that some sort of deal will be reached an the extension of the payroll tax cut.

From the LA Times: Parties look to payroll tax deal after collapse of deficit talks

The Obama administration has asked Congress to extend payroll tax cuts set to expire at the end of the year, and also to renew unemployment benefits. The tax-cut extension could cost the Treasury an estimated $112 billion, but if it lapses American workers will see an immediate tax increase on Jan. 1 that would cost a typical family $1,000 per year.
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Economists warn that a failure to extend the payroll tax cut and unemployment benefits could cut the economy’s weak growth almost in half next year.

It seems likely that some sort of deal will be reached to extend both the payroll tax cut and emergency unemployment benefits, but there will be some politics first.

Earlier:
• Summary for Week Ending Nov 25th
• Schedule for Week of Nov 27th

by Calculated Risk on 11/27/2011 02:14:00 PM

From Tim Duy at Fed Watch: Europe Scrambles for Solutions. Some excerpts:

Monday morning is fast approaching, and European leaders are scrambling to come up with something credible to float ahead of the market opening. Recall that we ended last week with the S&P downgrade of Belgium, and policymakers would like to have something on the table in response. Most significant is that policymakers now realize that changing the Lisbon Treaty to enshrine fiscal discipline is a far too lengthy process to serve as an effective counterweight to emerging the sovereign debt crisis.
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The risk here is that market participants read the bilateral agreements as they emerge as an invitation to attack those nations not yet signed up to the plan.
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Note also that although these ideas are bandied about in terms of "greater fiscal integration," I don't think we are seeing much mention of fiscal transfers, just mechanisms to enforce budget discipline. This is certainly a framework for a two-speed Europe.

In other news, someone is floating rumors that the IMF is preparing a massive lending program for Italy. From Bloomberg:

The International Monetary Fund is preparing a 600-billion euro ($794 billion) loan for Italy in case the country’s debt crisis worsens, La Stampa said.

The money would give Italy’s Prime Minister Mario Monti 12 to 18 months to implement his reforms without having to refinance the country’s existing debt, the Italian daily reported, without saying where it got the information. Monti could draw on the money if his planned austerity measures fail to stop speculation on Italian debt, La Stampa said.

Details are unclear. Ed Harrison at Credit Writedowns has a translation of a German version of the story that mentions the possibility of ECB funding of the bailout, with an IMF guarantee.