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Monday, August 15

15th Aug EARLY - All eyes on Germany

LIBOR-OIS spreads: stress in European interbank market

Summary: All eyes on Germany now, and tomorrow’s talks between Sarkozy and Merkel. Ratification of EFSF expansion, possibility of euro bonds are in the headlines. Therefore, some press clippings, adapted from Between The Hedges.

Welt am Sonntag: ECB buying Italian and Spanish bonds with a maximum maturity of 10 years to minimize risk, from “sources”

Expect global corporate earnings to drop
Tagesspiegel: Rainer Bruederle, floor leader of Merkel's coalition partner, said backing for the expanded EFSF depends on clear debt-limit rules in the euro zone. Euro-bonds would be "dangerous" because they wouldn't motivate individual countries to manage their economies responsibly

FAS: Bundestag President Norbert Lammert: Lower house of parliament needs more than "a few days" to debate any measures regarding a euro-zone rescue fund. Sep 23rd is almost impossible. Lars Fed (member of Merkel’s council of economic advisers) said France's AAA rating at risk of a downgrade. France's debt/GDP ratio too high. EFSF would have to be restructured if France's rating cut, resulting in higher costs for Germany.

Handelsblatt: Economy Minister Philipp Roesler firmly opposed to euro bonds. Countries that use the euro should take individual responsibility. Euro bonds would mean higher interest rates in Germany.EU Energy Commissioner Guenther Oettinger: Italian default would probably break the euro zone because the country would stop contributing to the rescue fund. Also against increasing the 440 billion-euro EFSF fund.

IMF’s future participation improbable, political risks in EFSF, “voluntary” private sector participation unknown, Greece meeting EU/IMF conditions unknown. All of these depend on each other. Solution: debt burden reduction and limiting contagion.

Very good roundup, with some original points
Your move, Jean-Claude – Humble Student of The Markets

Quick summary, no new points

German finance minister on Der Spiegel: no collectivization of debt, no euro bonds

Three bad choices: 1) fiscal fusion and an EMU debt union, 2) ECB to go nuclear with €2 trillion of `unsterilized' bond purchases 3) muddle through

George Soros interview: Berlin must dictate to Europe the solution to the currency crisis.

Includes Citi’s recent Global Economics View doc

Two choices: move towards fiscal union or start breaking the union apart.  The only true fix to the monetary union is to create a fully autonomous state or states.  That means several autonomous states (as we had before the EMU, ie, dissolution of the Euro) or full speed ahead into a fiscal union.  There is simply no other sustainable fix.

CHF peg probably a bluff, but: “However, once bureaucrats start marching down a certain path it is hard to get them to stop, no matter how futile the march.”

Warren Buffet: “Our leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.”