Alex's Top 10: Blame ze Germans; Draghi cuts; Highest property taxes in the world; Will England have a navy in two years' time? Catch up

Today's Top 10 is a guest post from Alex Tarrant who is now based in London. More on what he is doing below (#10).

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

And if you're interested in contributing the occasional Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

Hello again, from the streets of London! I hope all is well with you all. Here's a wee review of today's excitement, plus a few choice extra bits from this side of the world. I've put a brief 'catch up' down the bottom.

1. Forget the spying argument between Germany and the US right now.
Much more exciting is the to-and-fro over Germany's trade surplus.

The US Treasury took a swipe at Germany's surplus, saying it's deflationary for Europe and the global economy.

While everyone else are cutting their deficits and restructuring, the Germans should be helping on the demand side by reducing their surpluses, Paul Krugman explains:

First, the facts. Remember the China syndrome, in which Asia’s largest economy kept running enormous trade surpluses thanks to an undervalued currency? Well, China is still running surpluses, but they have declined. Meanwhile, Germany has taken China’s place: last year Germany, not China, ran the world’s biggest current account surplus. And measured as a share of GDP, Germany’s surplus was more than twice as large as China’s.

Now, it’s true that Germany has been running big surpluses for almost a decade. At first, however, these surpluses were matched by large deficits in southern Europe, financed by large inflows of German capital. Europe as a whole continued to have roughly balanced trade. Then came the crisis, and flows of capital to Europe’s periphery collapsed.

The debtor nations were forced – in part at Germany’s insistence – into harsh austerity, which eliminated their trade deficits. Trade imbalances But something went wrong. The narrowing of trade imbalances should have been symmetric, with Germany’s surpluses shrinking along with the debtors’ deficits.

Instead, however, Germany failed to make any adjustment at all; deficits in Spain, Greece, and elsewhere shrank, but Germany’s surplus didn’t. This was a very bad thing for Europe because Germany’s failure to adjust magnified the cost of austerity 

2. And all at the time this is about to happen:
It's hard to argue against bank stress tests, given what the financial system has just been through. But uncertainties about the upcoming review in Europe has banks scrambling to deleverage.

This was raised by a chief economist at one of the world's biggest banks during a conference I attended the other week. Just as European credit growth was starting to creep up, the banks are starting to hold back. Perhaps that puts the onus back on government's to stimulate demand ... but the one in the best position to do so gets shirty when asked to. Lorenzo Bini Smaghi explains on the FT's A-List.

As a result, the comprehensive assessment exercise is generating strong undesired headwinds to a fragile eurozone recovery, which is also weakened by an overly appreciated euro and high real interest rates resulting from the very low inflation that makes deleveraging even more costly. Given these constraints, the pain can be reduced only through more accommodative monetary conditions.

3. Accommodative monetary conditions coming right up!
Here comes Draghi. Bloomberg reports:

The ECB now has just one more quarter-point cut left before reaching zero, increasing the likelihood of unconventional tools such as quantitative easing or a negative deposit rate if prices slow further or the economic recovery stalls. Euro-area inflation is less than half the ECB’s 2 percent target and unemployment is at the highest level since the currency bloc was formed in 1999.

The ECB kept its deposit rate at zero and trimmed the marginal lending rate to 0.75 percent.

Pledging to keep borrowing costs low for an “extended period,” Draghi said weakening price pressures justified the ECB’s surprise decision to cut its main interest rate.

“We may experience a prolonged period of low inflation,” Draghi told reporters after the central-bank decision.

4. All good right? Not everyone's happy. Economist Danny Blanchflower has been on fire today on Twitter:

Eurozone now in big trouble as monetary & fiscal policy too tight & now headed to deflation plus they have no mechanisms to respond quickly.

5. Channel4's Faisal Islam had a hunch of what's coming next:

So the decision to cut ECB rates to new record lows was not unanimous ... can anticipate a Bundesbank speech soon to clarify dissenting view

6. And lo-and-behold ... Bild gets some reaction.
Please excuse the Google translate function. It was in German):

The response of the scientific community on the decisions fell from shared. GCIC chief economist Alexander Schumann said there was no reason for a rate cut passed: "What the Euro-zone is a continuation of structural reforms. The measures taken slowly take effect. Cover up problems with more and more central banks, only increases the risk that the reform zeal waned "KfW Chief Economist Jörg Zeuner disagreed:".. This is the correct response to low inflation in the euro area "

7. Let's change the subject. Are you all still keen on property taxes?
It's big in London too. And property stories. The Evening Standard survives from front pages on London house price rises.

Who pays the most tax? The Brits do of course. Gives them lots to whine about. All we need is a queue, and we've got a great British cultural experience. This from the Guardian:

British people pay the highest levels of property taxes in the developed world and more than twice the average for the 34 rich countries in the Organisation of Economic Co-operation and Development (OECD), according to a think tank report.

The right-of-centre Policy Exchange said politicians should reject new levies on property – such as the "mansion tax" on residences worth over £2m favoured by the Liberal Democrats and Labour – and instead pledge to bring down housing costs by building 1.5m new homes by the end of the decade.

The report called for at least one new "garden city" and changes to planning rules to deliver 300,000 new houses a year.

Councils that fail to hit their own housing targets should be forced to release land to local people who want to design and build their own homes, said the think tank.

8. Sky's Ed Conway reckons he's found the chart:

9. Another big story over here is the Scottish Independence referendum.
I couldn't believe this was still around - they were banging on about it seven years ago when I was over last. Back then there was a survey on it that I remember seeing (pre-GFC of course).

A majority of English respondents wanted the Scots to have independence, while only a minority of Scots were keen.

Now it's getting political. And warships are involved. Imagine if the Scots did break away. The English wouldn't have a navy. Again, the Guardian:

The coalition has been accused of sacrificing Portsmouth's 500-year-old shipbuilding tradition to save the industry in Glasgow before Scotland's independence referendum, as it unveiled plans for almost 1,800 job losses in the two cities.

Philip Hammond, the Conservative defence secretary, said it was "regrettable but inevitable" that BAE Systems' Portsmouth site would have to close, as there would no longer be enough orders to sustain two major military shipyards in the UK.

The closure in Portsmouth removes the immediate threat of closure from Glasgow's Scotstoun and Govan yards, although 835 jobs will be lost at those sites as well as at two other locations, in Fife and Bristol. These will be kept open to build three patrol boats while they wait to begin construction on millions of pounds' worth of type 26 warships in 2015.

However, ministers faced claims that they were playing politics with UK jobs as Alistair Carmichael, the Scottish secretary, said it would be difficult to award the type 26 work to Scotland if the country voted to leave the UK in 2014. 

10. A bit of an update, for those interested.
We're having a great time in London - arrived in February, spent a couple of months looking for jobs from an East London apartment while it snowed until Easter. Found jobs. Moved towards the North-west (Willesden Green, Jubilee line). 

I'm working for an outfit called Dealreporter, which is part of the Financial Times Group. Behind a pay wall unfortunately. Choice office right on The Strand. I'm covering Mergers & Acquisitions news in Europe regarding some of the largest companies in the world. It is eye-opening. There is so much going on in this place, it really is the centre of the financial world. Having a great time.

I'll try and do this every so often. Is great to touch base with everyone again,

All the best,

Alex