I am long EUR/CHF, on the basis that the SNB’s policy of placing a floor on EUR/CHF at 1.20 provides excellent downside protection. A piece on Bloomberg today asserts that the Greek crisis is the reason for the recent falls in EUR/CHF, and that the falls present an important test for the SNB. The FT, in contrast, has an interview with the acting SNB chairman, Thomas Jordan, who says, “We will enforce this minimum rate with the utmost determination and we are willing to buy foreign currency in unlimited quantities if necessary.” It is true that the market is having jitters about the independence of the SNB, but this is a pretty strong statement, and follows similarly strong statements from the SNB’s previous chairman. I think that the floor looks solid for now, and that EUR/CHF could rebound once the Greek restructuring is agreed. Bloomberg wonders why the SNB has not already intervened well above 1.20; but I think that, if I was in control of the SNB, I might either attempt to maintain a rigid floor at 1.20, or attempt to spike the rate from time to time — as the Japanese finance ministry does in USD/JPY — in order to take out stops and thereby take out speculators who are betting against it. Either of these approaches is consistent with the SNB’s relative inaction so far.

Spanish Bank Mergers

While austerity continues to grab the headlines and the lack of reforms in Greece exercises the German commentariat, it is easy to forget that other countries are at least working on their domestic problems. The latest example of this is a Spanish plan for banks to take EUR 50bn of provisions against their real-estate losses in the coming year, with a year’s extension for banks that merge (the idea being to clear up Spain’s fragmented network of ropey banks). Merging banks will also be able to issue coco’s to the country’s bailout fund, whose equity the government is increasing for the purpose. I believe — though I would be happy to be corrected — that Spain has followed the general European model of protecting mortgage-holders and letting its banks turn into zombies (as contrasted with the US, where foreclosures have been higher, despite various delays). Perhaps this programme should be seen as a welcome attempt to deal with banks’ bad debts.

Of course, it would be easier if banks could simply be ordered to take provisions and to merge. So much crisis-fighting around the world has involved incentivising banks to do this or that — I think that, in a future financial crisis, it would make most sense for each country to nationalise its banking system and place a panel of experts (probably with a micro remit to clear up balance sheets rather than a macro remit to force credit into the economy) in control of the banks.

Danish Austerity Counterexample

David Blanchflower points out in the New Statesman ( that Denmark is moving towards fiscal stimulus and the bond vigilantes are yet to appear. Indeed, no developed country outside the Eurozone has seen hide nor hair of this fabled group. Bond yields remain extremely low in Denmark, Canada, Sweden, Switzerland, the US — and the UK. It is almost as if there is no debt crisis, merely a euro crisis. Crikey, whoever would have thought it.


  • Initial claims 367k b.e. and fell.
  • Prelim. nonfarm productivity 0.7% Q4, lower than expected and fell. Lower-than-expected productivity growth is, other things being equal, good for employment.
  • Prelim unit labour costs 1.2% Q4 b.e. Rising unit labour costs are the result of lower productivity growth and good for household income.
  • Australia AIG services index 51.9. Rose above 50.
  • Eurozone final services PMI 50.4 a.e. A small downward revision from the flash estimate, which showed a significant rise.
  • UK services PMI 56, b.e. and rose. The UK appears to be strengthening.
  • Eurozone retail sales -0.4% d.e. Dec.

Friday and the Weekend

  • Non-farm payrolls
  • ISM non-manufacturing PMI
  • Factory orders