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Ok, Berlusconi has resigned conditionally, whatever that means. I can't seem to find a blog not believing the only solution to the euro crisis that is left is turning the ECB into a real central bank - with quantitative easing. Links are really good today. Enjoy the show, follow me on Twitter, Facebook or email me.
- MoreLiver
Quote of the year: The euro is not an end in itself. The single currency is just an instrument, aimed at promoting economic prosperity and political harmony across Europe. As the evidence mounts that it is doing the precise opposite, it is time to think not about how to save the euro - but about how to scrap it, or at least allow the weakest members to leave. For reasons of pride, fear, ideology and personal survival, it is extremely hard for European leaders to accept that the euro is a large part of the problem. Instead they search for other explanations for the economic crisis. Countries have failed to stick to the rules. They have lied. Europe needs new political structures. The bazooka is not big enough. The markets are irrational. The people are revolting. – Gideon Rachman / FT
News (Tue evening) – BTH
News (Wed morning) – BTH
Danske Daily – Danske Bank
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Ignore Egan-Jones at your own peril – Pragmatic Capitalism
More and more analysts conclude that the ECB will ultimately be forced to monetise debt in the eurozone to give it a fair chance of survival. The problem with this line of thinking is that Merkel only secured the support of the Bundestag for the Greek rescue package on the strict condition that the ECB will never be permitted to pursue such a policy and herein lies the challenge for the ECB. Does it adhere to German demands which will almost certainly engineer at least a decade of abysmal economic growth in Europe? Or does it risk the wrath of Germany with everything that entails, including a possible German exit from the eurozone?
The eurozone crisis as balance of payment problem – alphaville / FT
a consensus is emerging that the eurozone crisis is also at its root a pure balance-of-payment crisis. Hidden behind an opaque monetary wall that requires inflation in Germany and deflation elsewhere to stem the rot. In short, without the freedom to adjust nominal exchange rates, relative price changes within the EMU — i.e inflation in Germany — is needed.
What’s the hard limit to ECB hard money? – alphaville / FT
Rabobank title their report “When does the ECB go nuclear?” though it’s maybe more “When’s the last moment for the ECB to decide whether to go nuclear?”. To many market participants, the question can be changed again to “When does the ECB do the inevitable?”.
Rabobank title their report “When does the ECB go nuclear?” though it’s maybe more “When’s the last moment for the ECB to decide whether to go nuclear?”. To many market participants, the question can be changed again to “When does the ECB do the inevitable?”.
The euro crisis: Catching a falling knife – Free exchange / The Economist
(on SMP): The expectations game only works if you can make a credible promise. But the ECB’s limited bond buying has already generated tremendous dissent, and a more aggressive backstop would face even greater internal resistance, political opposition and legal challenges. Given these obvious constraints, why would investors believe that the ECB could sustain a more ambitious commitment?
Merkel and Sarkozy need to make the case that if the euro is to become a normal currency, Europe needs a normal central bank – one that does not merely target inflation like an automaton, but that also understands its responsibilities as a lender of last resort.
ECB's Weidmann Spoils The Party: Says Leveraging EFSF Violation Of EU Treaty, Warns Of Hyperinflation – ZH
…and euro treaty forbids monetary financing, so no debt monetization.
Where Does The Greek Bailout Money Go? – Peter Tchir / ZH
The bulk of the money that Greece is "getting" comes right back to the rest of the EU. Whatever posturing is going on, Greece will get away without meeting any of its stated goals, or at least it will until the EU decides it has written down enough principal and that the ECB can handle the shock.
'Run For Your Lives': Euro Zone Considers Solution of Last Resort – Spiegel
With investors now increasingly wary of Italy, the consensus is growing that the European Central Bank -- and the IMF -- will have to play an even greater role. But will it be enough?
ITALY
From the Archives – Jan. 28, ’06: Italy’s Tremonti’s Temper Tantrums on EMU in Davos…a Sad Embarrassing Episode for Italy… – Nouriel Roubini / EconoMonitor
As much as the ECB resists it now, they have limited choices: monetise or face a global economic collapse. The longer they wait, the worse it will get.
Not to go all Zero Hedge on you, but Italy is the end of the road. There is no more delaying, no more bluffing. This is it. If Italy goes down — and it is getting perilously close — the sovereign-debt crisis will boil over. Why the markets don’t fear this more is a mystery.
Most likely: A centre-right executive backed by a broader coalition and committed to implementing the ‘troika’s' economic platform could eventually stabilize markets.
Italy's Bond Rollover Problem Dramatically Worsens; Yield Curve Inverts; 3-Year and 5-Year Bonds Yield Exceed 10-Year Yield – Mish’s
If Italy makes a credible plan or short-term swaps Berlusconi for a technocrat government, they can buy some more time to put their house in order. So don’t expect this week to be the final chapter in neither Italy or Greece. Don’t worry, there are plenty more chapters to come.
The Germans (and Dutch) either allow the backstop or face Depression. It's as simple as that.
Slicing Italian debt, at the margin – alphaville / FT
If the markets close on Italy, financial repression follows, but does not solve debt ratios, fiscal balancing and low projected growth. But at least short-term financing could be arranged.
Chinese Bubble Bursting: A Probable Non-Event – EconoMonitor
If the property bubble collapses, the Chinese government can simply extend and expand the already existing government construction projects.
EFSF
EFSF: a circular, counterproductive, and creative cannibal – alphaville / FT
Nomura on EFSF’s SPIV and credit insurance option. Part two here
EFSF CDS, not your standard credit derivative – alphaville / FT
EFSF documentation on how to leverage the capacity of the fund.
EFSF documentation on how to leverage the capacity of the fund.
EFSF – transaction highlights – alphaville / FT
The €3bn bond issue: co-lead banks on the deal bought about 12 per cent of the bonds, insisting that this was normal in every bond offering.
The €3bn bond issue: co-lead banks on the deal bought about 12 per cent of the bonds, insisting that this was normal in every bond offering.
OTHER
Equity Focus: Known Unknowns – Neel Kashkari / PIMCO
The King of Human Error – Michael Lewis / Vanity Fair
On behavioral finance with Kahneman