Club Austerity: Germany is the latest member to reveal demand- and growth-sapping cuts €80 billion  and 15,000 public sector jobs over the next four years. New taxes will also be imposed on air travel and the nuclear power industry, and some form of financial transactions tax is planned, in addition to a banking levy already agreed by the government. Chancellor Angela Merkel said Germany would push for some sort of Europe-wide financial transaction tax, but admitted that will have little chance of being introduced worldwide (so its chances in Europe are also low).

Club Austerity 2: the problem in Germany is that written into its constitution is the requirement to keep a balanced Budget (it was only done a couple of years ago). This requires a maximum structural deficit of just 0.35% of GDP by 2016, little more than 10% of the 3% maximum level set by the EU rules. The cuts start at €11.2 billion for 2011, €19.1 billion in 2012, €24.7 billion in 2013 and €26.6 billion in 2014.

Euro export: the cuts sound wonderful for Germany, which will go on exporting while suppressing its domestic demand and causing greater strains on the eurozone and the euro. German factory orders jumped 2.8% in April from March (which was revised up to a 5.1% increase) and were nearly 30% above the depressed levels of a year ago. The driver is the weakening euro, which is making German exports more competitive on world markets. In short, when it comes to its own behaviour, Germany doesn’t care about the global imbalances it complains about in others, such as China. Japan does care about the impact of the weaker yen on its exports as a business leader made clear yesterday. There is a double irony here: Japan and Germany are very alike in that they depend more heavily on exports for growth than they do on domestic consumption. No wonder there’s doubt about the strength of the global recovery. The euro it touched $US1.1876 overnight, its weakest level since March 2006.

Bank watch: the fall in the euro is unnerving European banks, who in turn are unnerving each other. So these same banks had €350.9 billion on deposit with the European Central Bank last Friday, up from €299.4 billion a week earlier and €30 billion more than the Tuesday figure. The ECB is buying billions of euros of sovereign bonds from the same banks every week to help support the eurozone. But half a trillion euros of one-year loans are due to start being repaid from the  start of July, a decision that this week’s ECB meeting is expected to endorse. That will represent a tightening of monetary policy.

Bank watch2: in the US, auctions of three- and six-year Treasury notes were swamped by buyers wanting some of the action. The three-month notes attracted a record bid to cover ratio of 4.8 (that’s the number of bids made compared with the number accepted), up from the previous high of 2.69 in April. The six-month notes had a bid-to-cover ratio of 4.53, the highest since 2000 and the previous US recession. Nervy times means high demand for US government debt.

China watch: China Vanke, the country’s largest property developer by market value, says its sales revenue last month fell 20.2% from a year earlier thanks to the moves by the government to control the property sector. In a statement to the Shenzhen Stock Exchange, the company said its combined sales nationwide topped 5.11 billion yuan ($US748 million)  in May on the back of the 470,000 square metres of floor space sold,: that was down 32.6% from May last year, another sign of how deeply the government’s tightening is hurting. Another report, from Shenzhen World Union Properties Consultancy, said sales of new homes fell 71.5% in Beijing and 67.7% in Shanghai from April 19 to May 30.

China watch 2: and its not going to get any easier for developers. While the national local governments have introduced a string of measures to cool the housing market in recent months, there was a significant ratcheting up of one particular policy over the weekend. The Chinese government announced that it had changed its definition of what constitutes a second home. From now on it will be based on the number of homes owned for each family, rather than by each individual, thereby banning home ownership splitting. For the typical three-person Chinese family, it could mean six homes owned becomes just two, or if there’s a bigger family unit, the cut is greater.

China watch 3: the policy ends the differing definitions of second homes that various banks had been using when granting mortgages. But there will still be loopholes, such as families using different names (original family names, for example). According to a statement released jointly by the Ministry of Housing and Urban-Rural Development, the People’s Bank of China and the China Banking Regulatory Commission, a family’s actual total property holdings will be calculated by including the home ownership of the loan applicant and the applicant’s spouse and minor children, The announcement also said banks should ask for higher down payments and mortgage rates if one of the home buyer’s family already owns a property with an active loan.

BP watch: the cost of the Gulf of Mexico oil well leak is mounting for BP. The oil major said overnight that the cost is now $US1.25 billion ($A1.52 billion), up over a quarter of a billion dollars in five days. BP said the figure does not include $US360 million ($A438.49 million) for a project to build six sand berms meant to protect Louisiana’s wetlands from spreading oil. The news comes as the government’s spokesman on the spill warned that the battle to contain the oil is likely to stretch into the second half of the year.

Health watch: Tenet, the controversial US hospitals operator has been forced to withdraw its offer for Australian hospitals group Healthscope after share holders revolted, according to a statement from the group this morning, our time. Tenet said it had dropped its bid due to “the sequence of events associated with the acquisition process” and the “premature disclosure” of its non-binding offer. But the real reason was the 17% fall in the Tenet share price when the approach was revealed on June 1. That drew criticism from a major shareholder. Tellingly, Tenet shares rose 4% overnight after the withdrawal was revealed. the overall market was down more than 1%.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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