EICHENGREEN: Keep The European Union, Scrap The Euro

German Chancellor Angela Merkel Greek Prime Minister Antonis Samaras

Europe’s crisis has entered a quiet phase, which is no accident.

The current period of relative calm coincides with the approach of Germany’s federal election in 2013, in which the incumbent chancellor, Angela Merkel, will be running as the woman who saved the euro.

But the crisis will be back, if not before Germany’s upcoming election, then after. Southern Europe has not done enough to enhance its competitiveness, while northern Europe has not done enough to boost demand.

Debt burdens remain crushing, and Europe’s economy remains unable to grow. Across the continent, political divisions are deepening. For all of these reasons, the specter of a eurozone collapse has not been dispatched.

The consequences of a collapse would not be pretty. Whichever country precipitated it – Germany by threatening to abandon the euro, or Greece or Spain by actually doing so – would trigger economic chaos and incur its neighbors’ wrath.

To protect themselves from the financial fallout, governments would invoke obscure clauses in EU treaties in order to slap temporary controls on capital flows and ring-fence their banking systems. They would close their borders to stem capital flight. It would be each country for itself.

Would the European Union survive? The answer depends on what one means by the EU. If one means its political organs – the European Commission, the European Parliament, and the European Court of Justice, then the answer is yes. These institutions are now a half-century old; they are not going away.

As for the single market, the EU’s landmark achievement, there is no question that a eurozone breakup would severely disrupt its operation in the short run. Trucks would be halted at national borders. Banking and financial systems would be balkanized. Workers would be prevented from moving.

But what would happen then? There has always been a debate about whether it is possible to have a single market without a single currency. Critics of the euro have always asked: Why not?

Under this scenario, the Single European Act, signed in 1986, would remain in place. Member states would be obliged to restore free movement of goods, capital, services, and people – the EU’s “four freedoms” – as quickly as possible. Given the clear benefits that Europe has derived from the single market, they would have every incentive to do so.

Proponents of the single currency object that if Europe has separate national currencies, it will have separate banking systems, each with its own lender of last resort. So much, then, for a single market in financial services, or for harmonizing regulation and removing trade barriers behind the border.

Free trade in goods and free movement of capital and labor would not survive the euro’s collapse, these diehard Europhiles warn. We may yet find out if they are right.

And what about the acquis communautaire, the body of law that enshrines member states’ obligations not just in terms of economic policies, but also in terms of democracy, the rule of law, and fundamental human rights? The intent of the acquis is not simply to make Europe more prosperous, but to make it more civilized.

Spain, Portugal, and Greece had to establish functioning democracies before applying for EU membership. Even now, Hungary and Romania feel peer pressure and face sanctions from their EU partners when they engage in dubious electoral practices, compromise their courts’ independence, or discriminate against minorities.

The cooperation needed to make that peer pressure effective might conceivably survive the euro’s collapse. But finger-pointing about which country was responsible for Europe’s damaging financial disruption would make it difficult for the members to maintain a common front. It seems likely that the acquis would lose much of its force.

A final way of thinking about the EU is as the “ever closer union” referred to in the Treaty of Rome and echoed in the Maastricht Treaty. “Ever closer union” means an EU that moves ineluctably from economic and monetary union to banking union, then to fiscal union, and finally to political union.

This is what European leaders had in mind when they created the euro. They hoped that establishing a monetary union would generate irresistible pressure for the creation of an EU that functioned in all respects as a cohesive economic and political bloc.

Europe’s leaders were right about the pressure. Monetary union without banking union will not work, and a workable banking union requires at least some elements of fiscal and political union. But they were wrong about the irresistible part. There is no inevitability about what comes next.

Europe can either move forward, toward deeper integration, or it can move backward, toward national sovereignty. Its leaders and, this time, its people need to decide. It is on their decision alone that the future of both the euro and the EU depends.


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Michael Corbat

Citigroup is going to cut 11,000 jobs, the bank said in a release. [via Bloomberg News]

The bank expects a fourth-quarter pre-tax charge of $1 billion and  $100 million of related charges in the first half of 2013.

Shares of Citi were last trading up around 2% in the pre-market.

Citigroup has a new CEO, Michael Corbat, who took over the helm back in October after Virkam Pandit resigned suddenly.  This is his first real big move as CEO. 

Here’s the full release:

Citigroup today announced a series of repositioning actions that will further reduce expenses and improve efficiency across the company while maintaining Citi’s unique capabilities to serve clients, especially in the emerging markets. These actions will result in increased business efficiency, streamlined operations and an optimized consumer footprint across geographies.

Michael Corbat, Citi’s Chief Executive Officer, said, “These actions are logical next steps in Citi’s transformation. While we are committed to– and our strategy continues to leverage– our unparalleled global network and footprint, we have identified areas and products where our scale does not provide for meaningful returns. And we will further increase our operating efficiency by reducing excess capacity and expenses, whether they center on technology, real estate or simplifying our operations.”

Due to this repositioning, Citi expects to record pre-tax charges of approximately $1 billion in the fourth quarter of 2012 and approximately $100 million of related charges in the first half of 2013. Citi currently expects that the repositioning will generate $900 million of expense savings benefitting 2013 results and that the annual expense savings will exceed $1.1 billion annually beginning in 2014. Citi also expects the repositioning actions to have a negative impact on annual revenues of less than $300 million. These actions will result in a reduction of more than 11,000 positions.

Citi expects the repositioning activity to affect the following businesses and functions:

Institutional Clients Group (ICG): Approximately 25% of the announced fourth quarter repositioning charges are expected in Securities & Banking with another 10% in Transaction Services. The repositioning actions are expected to result in a reduction of approximately 1,900 positions, of which more than half are in the Operations & Technology functions that support the business. The actions are designed to streamline our client coverage model in Banking and improve overall productivity in our Markets business, especially in areas experiencing continued low profitability such as cash equities.

Global Consumer Banking (GCB): Approximately 35% of the fourth quarter repositioning charges are expected to be incurred in Global Consumer Banking, resulting in a reduction of approximately 6,200 positions, of which approximately 40% are in the Operations & Technology functions that support the business. As a result of the repositioning actions, Citi expects to either sell or significantly scale back consumer operations in Pakistan, Paraguay, Romania, Turkey and Uruguay.

Consistent with Citi’s strategy of focusing on the 150 cities that have the highest growth potential in consumer banking, Citi will optimize its branch footprint and further concentrate its presence in major metropolitan areas. The markets affected by the reductions include Brazil (14 branches), Hong Kong (7), Hungary (4), Korea (15), and the United States (44).

Citi will continue to invest in its franchises in these countries to serve its targeted consumer segments. After this repositioning, Citi will have more than 4,000 retail branches around the world and all of the aforementioned countries will continue to be served by our institutional businesses.

Citi Holdings: Citi Holdings is expected to eliminate approximately 350 positions and incur approximately 5% of the repositioning charges. Most of the repositioning charges are related to branch rationalization in Greece and Spain.

Corporate/Other: About 25% of the announced repositioning charges are expected to be incurred in Corporate/Other.

  • Operations & Technology: Citi’s Operations & Technology function is expected to achieve greater efficiency through increasing standardization and the use of automated processes; streamlining the organizational structure; and consolidating functions and moving certain positions to lower-cost locations. In addition, there will be a consolidation of certain locations in Citi’s real estate portfolio. In addition to the reductions in Operations & Technology positions that support the ICG and GCB businesses, these actions will result in the reduction of approximately 2,300 positions that support corporate services, real estate, and Citi Holdings.
  • Global Functions: Roughly 300 Global Functions positions will be eliminated as a result of efficiency savings.

“Citi has come a long way over the past several years. We have been consistently profitable; our capital strength is among the highest in the industry; and we have shed hundreds of billions in assets and businesses that are not core to our strategy. We will continue to seek ways to optimize the execution of our strategy to better serve our clients and deliver results for all of our stakeholders,” concluded Mr. Corbat.

Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Certain statements in this document and certain statements by Citi’s management made orally to analysts, investors, representatives of the media and others, including those regarding various planned repositioning actions, estimated repositioning charges, expected annual expense savings and the expected benefits to Citi’s operating efficiency, among others, are “forward-looking statements” within the meaning of the rules and regulations of the U.S. Securities and Exchange Commission. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those expressed in or implied by these statements due to a variety of factors, including but not limited to the precautionary statements included in this document as well as Citi’s inability to fully complete the repositioning actions and realize the annual expense savings at all or in the anticipated timeframes referenced. More information about these and other factors is contained in Citi’s filings with the U.S. Securities and Exchange Commission, including without limitation the “Risk Factors” section of Citi’s 2011 Annual Report on Form 10-K. Precautionary statements included in such filings should be read in conjunction with this document. Any forward-looking statements made by or on behalf of Citi speak only as to the date they are made, and Citi does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

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S&P downgrades maverick Hungary on weak growth

BUDAPEST (Reuters) – Standard & Poor’s on Friday cut Hungary’s long-term credit rating, already in junk territory, by one notch to BB, saying its government’s unpredictable policies could hurt medium-term growth. The move came almost a year after S&P slashed Hungary to below investment grade on similar grounds and could hit the forint currency and Hungarian bonds when markets reopen on Monday, analysts said. …
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Soccer-Collated international friendly results

Nov 14 (Reuters) – Collated international friendly results on Wednesday South Korea 1 Australia 2 China 1 New Zealand 1 Russia 2 United States 2 Armenia 4 Lithuania 2 Bulgaria 0 Ukraine 1 Czech Republic 3 Slovakia 0 Andorra 0 Iceland 2 Saudi Arabia 0 Argentina 0 Cyprus 0 Finland 3 United Arab Emirates 2 Estonia 1 Algeria 0 Bosnia 1 Macedonia 3 Slovenia 2 Tunisia 1 Switzerland 2 Turkey 1 Denmark 1 Liechtenstein 0 Malta 1 Georgia 0 Egypt 0 Israel 1 Belarus 2 Romania 2 Belgium 1 Chile 1 Serbia 3 Luxembourg 1 Scotland 2 Gabon 2 Portugal 2 Sweden 4 England 2 Netherlands 0 Germany 0 Hungary 0 Norway …
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