The VP Blog

A blog about financial markets and the VP investing framework

Austerity in the Developed World is not working, but it is necessary

Fiscal austerity in the developed world represents a paradox. On one hand, it is necessary as governments had already borrowed too much going into the crisis and can thus no longer continue to lever up to compensate for private deleveraging. On the other hand, the objective of fiscal austerity is to stabilise exploding government debt to GDP ratios, but this is proving difficult as depressing government spending leads to a higher decline in GDP relative to the reduction in the gross debt level.

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Spain will be difficult to contain without help and bank recapitalisation

In our view, the Spanish banking system is in need of wholesale recapitalisation to deal with the sizeable losses in the country’s property market. This will likely include a bad bank provision. Before that happens, the ECB’s open market operations will mainly buy time in the form of liquidity as well as provide banks with money to exchange bad loans for lending to the government.

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Variant Perception shortlisted for Wolfson Prize

We are pleased to announce that Variant Perception has been elected as a top 5 entrant for the Wolfson Economics Prize for our piece A Primer on the Euro.  More details can be found at the Policy Exchange website as well as on the Guardian, the Telegraph, the Wall...

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CNBC – Guest Host Appearance

Variant Perception will have two guest host appearances tomorrow (Wednesday 4th April) on CNBC. Chief Editor Jonathan Tepper will be appearing at 9 am GMT while Head of Research Claus Vistesen will be appearing 12.30 pm GMT.

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Twin Deficits Suggest Turkey and New Zealand at Risk

One of the simplest ways to measure macroeconomic risk is to look at the twin deficit, defined as the sum of current account and budget deficit as a percentage of GDP. Recent blow-ups like Iceland and Greece both scored highest on these fronts. Looking at twin deficits gives a reliable indicator of the individual risk profile for a country in the context of a sudden spike in international funding costs or deleveraging. On the latest reading, New Zealand and Turkey stand out (apart from the usual suspects, ie eurozone periphery and South Africa), with twin deficits well in excess of 10% for both economies.

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