KeNo's Housing and Economic Portal: Sunday May 2 Housing and Economic stories

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French and German Ties Fray Over Debt Crisis in Greece - (www.nytimes.com) France and Germany traditionally have been the “motor” of the European Union, but relations between the two countries are badly strained over the Greek debt crisis, which is just the latest example of a new German willingness to resist the demands of Europe and assert its self-interest under Chancellor Angela Merkel. “There has been a tectonic shift in the way Germany acts in Europe,” said Ulrike Guérot, a senior research fellow with the European Council on Foreign Relations. Germans, she says, are “talking of behaving ‘normally’ now, like the others, and that means nationally.” The European Union is facing a serious crisis over financing and its currency, the euro. But France and Germany also have important disagreements on policy toward Russia, China and Iran, making a coherent European foreign policy increasingly difficult to discern on an array of critical issues.

Trade Deficit in U.S. Rises More Than Anticipated on Imports - (www.bloomberg.com) The trade deficit in the U.S. widened in February more than anticipated as imports climbed, adding to evidence of a rebound in economic growth. The gap increased 7.4 percent to $39.7 billion from a revised $37 billion the prior month, the Commerce Department said today in Washington. Imports climbed 1.7 percent as Americans bought more computers and televisions made abroad, while exports rose to the highest level since October 2008. The need to replenish depleted inventories and gains in consumer spending mean purchases of goods and services from overseas will keep growing in coming months. Exports will probably also advance as global growth accelerates, giving companies from Caterpillar Inc. to Dow Chemical Co. a boost. “We’re at a stage in the business cycle where both imports and exports should be rising,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, who forecast a $39.8 billion deficit. “It tells us that we’re growing moderately. This is not a typical recovery because you have consumer and housing headwinds, but so far it is sustainable and I think it will continue to be so.”

Small-Business Confidence in U.S. Falls to Eight-Month Low - (www.bloomberg.com) Confidence among U.S. small businesses fell in March to the lowest level since July 2009 as executives grew more concerned about earnings and sales, a private survey found. The National Federation of Independent Business’s optimism index dropped to 86.8 last month from 88 in February, the Washington-based group said today. Seven of the index’s 10 components declined last month and two were unchanged from February. “Usually we see the small businesses leading the way out since they’re the first ones to see the consumer come back, but what’s happened this time is the consumer didn’t come back,” William Dunkelberg, the group’s chief economist, said today in a Bloomberg Radio interview. While purchases have increased, “there’s not enough sales to go around to make the whole population of small businesses very healthy,” he said.

Banks Rebel Against Push to Redo Loans - (online.wsj.com) Some big U.S. banks are pushing back against the idea that they should slash mortgage balances for millions of troubled borrowers. In written testimony prepared for a hearing in Washington Tuesday of the House Financial Services Committee, some of the nation's top mortgage lenders warned of the risks of relying heavily on forgiving principal as a means of averting foreclosures and argued for concentrating mainly on other methods, such as reducing interest rates. That may set up a clash with Rep. Barney Frank, chairman of the committee, and other lawmakers eager for more aggressive action to prevent foreclosures. In a letter last month to four big banks, Rep. Frank, a Massachusetts Democrat, argued that "to save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages." The Obama administration recently announced plans to put somewhat more emphasis on reducing principal in its foreclosure-prevention program.

Seeds of Iceland crisis sown years before crash - (www.ft.com) When Sigurjón Árnason, former chief executive of Landsbanki, appeared before Iceland's independent "truth commission" last summer, he recalled the sense of confidence that pervaded the country's banking sector until 2008. It had "not occurred to anyone that there was a remote chance of a collapse like that which [would] later come to pass", he said, according to the long-awaited commission report into the Icelandic bank crash published yesterday. It was a complacency that spread from the bank headquarters to the regulators, central bank, government and, ultimately, the Icelandic public, most of whom were happy to share in the spoils of the financial boom. Yet the commission report - the result of a 15-month investigation by an independent panel app-ointed by Iceland's parliament - says the warning signs should have been clear long before Mr Árnason warned the central bank in March 2008 that Landsbanki was sitting on a "time bomb". The seeds of crisis were laid several years earlier, when, unshackled by government liberalisation of the financial sector, Icelandic banks set out to turn their isolated Atlantic island nation into an international financial centre. In 2005 alone, the three big banks - Landsbanki, Glitnir and Kaupthing - issued about €14bn in foreign debt securities, most of it maturing in three to five years.

Trichet's Voice Is Drowned Out in Rescue Effort - (online.wsj.com) Jean-Claude Trichet, an architect of European monetary union, has found himself in an unfamiliar place as Europe confronts its biggest fiscal crisis in decades: the sidelines. As Europe has struggled to cope with Greece's debt troubles, culminating in Sunday's agreement on a potential aid package, Mr. Trichet's efforts to shape the response largely failed. On key issues, ranging from his opposition to International Monetary Fund involvement in a bailout to his call for governments to speak with a unified voice, Mr. Trichet appeared out of sync with euro-zone capitals, and his advice often went unheeded. "The problem now is he's in charge of an institution which is supposed to be the guardian of the euro, but a lot of the decisions that are going to affect the future of the single currency are out of his hands," says Philip Whyte, senior research fellow at the Centre for European Reform, a pro-European think tank based in London. Mr. Trichet's lack of influence over the response to a crisis central to the stability of the euro and Europe's economic future could weaken the office of ECB president and prompt broader questions about the ECB's ability to effectively respond to future flareups, analysts say.