Here are the "Best of The Week"-links, from Friday to Friday. A longer "Weekender"-post is coming tomorrow. You can follow me on Twitter and Facebook and email me for suggestions and requests. Watch your leg - the eurocrats are cooking.– MoreLiver
EURO CRISIS
Special Report: The maverick behind Merkel – Reuters Here was Europe's most powerful leader being called out in public by one of her ministers. Instead of rebuking Schaeuble, Merkel had deferred to him, admitting he was right. The unusual exchange in early November gives a glimpse into the complex relationship between Merkel and Schaeuble. Once his deputy, Merkel is now Schaeuble's boss. Their bond has survived two decades of slights and reversals -- and it is now central to the euro-zone debt crisis.
The Euro in a Shrinking Zone – Project Syndicate
This means that the eurozone is beyond saving; the euro will survive, but the zone will shrink. The only question is the scale, timing, and manner of its breakup. Greece, and probably other Mediterranean countries, will default and regain the freedom to print money and devalue their exchange rates. This will send shock waves throughout the world. But sometimes shock waves are needed to break the ice and start the water flowing again.
The European Union in disarray: A comedy of euros – The Economist
The EU has suffered plenty of disappointing summits without the sky falling in—a good many of them in the past year. But unlike the marathon dispute over a new constitution, the euro is in a race against time because markets are pushing countries to insolvency. As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.
Sovereign downgrades and the eurozone – alphaville / FT
Who would be hurt most by the downgrade? Sarkozy’s presidency and EFSF, of course, but also banks. RBS: French and German banks would be least sensitive as their ratings are already materially lower than their sovereign.
Who would be hurt most by the downgrade? Sarkozy’s presidency and EFSF, of course, but also banks. RBS: French and German banks would be least sensitive as their ratings are already materially lower than their sovereign.
EU SUMMIT
Open issues: who audits, how to force others to obey, what if someone leaves the euro, the deal adds a new layer lessening integration and increasing tensions, austerity only solves Italy’s and Greece’s credibility – nothing else.
The EU’s Camouflaged Bazooka – Global Macro Monitor
By explicitly stating PSI is over, the EU is implying the big bazooka will be there to fund any shortfalls in rolling over bond maturities…The structural problems are far from solved and the markets will be back to challenge the Eurozone’s resolve, but it does appear the fiscal pact has provided the fig leaf for some short-term relief, and, ironically may have camouflaged the bazooka, if you don’t look carefully.
Rather than creating an inter-regional insurance mechanism involving counter-cyclical transfers, the version on offer would constitutionalize pro-cyclical adjustment in recession-hit countries, with no countervailing measures to boost demand elsewhere in the eurozone. Describing this as a “fiscal union,” as some have done, constitutes a near-Orwellian abuse of language. (also Krugman recommends this.)
Harry Potter, Twilight, And The EU – TF Market Advisors
With the Summit having reached a conclusion, we now wait on a few final scenes to play out. The plot started falling apart on Thursday with Draghi’s testimony, but by forming a circle, holding hands, and chanting IMF and G-20 over and over, the market was placated, at least for a day.
In spite of all evidence to the contrary, she insists that what's good for Germany is good for everybody else, too. It's clearly not… This is a catastrophic mistake, which, politically, vastly expands the EU's centralized authority while robbing it of even the fig leaf of democratic legitimacy it had sported.
Whose PSI is it anyway? – alphaville / FT
There is no magic rulebook because creditors exist in effectively a kind of anarchy with sovereign debtors. Sovereigns will typically enjoy legal immunity unless they specifically sign it away…
There is no magic rulebook because creditors exist in effectively a kind of anarchy with sovereign debtors. Sovereigns will typically enjoy legal immunity unless they specifically sign it away…
A Deep Seated Hostility Towards European Construction? – A Fistful of Euros
The nub of the question is the Euro, and setting up some form of workable common governance for those countries who belong to the monetary union. In this sense an agreement between the 17 countries who share the common currency would have made perfect sense, and in is not clear to me at least why the UK (or countries like Bulgaria and Romania for that matter) would need to be party to this kind of agreement.
ECB
Nomura on Draghi’s failure to address the collateral problem – alphaville / FT
As we’ve noted before, there are many reasons to think that the trend towards ‘quality’ collateralised funding is having as much of an impact on the valuation of bonds in both private and central bank funding markets, as the perception that European sovereigns might be insolvent.
As we’ve noted before, there are many reasons to think that the trend towards ‘quality’ collateralised funding is having as much of an impact on the valuation of bonds in both private and central bank funding markets, as the perception that European sovereigns might be insolvent.
The danger is that the ECB’s monetary policy transmission mechanism might become compromised due to a lack of domestic assets held on the primary balance sheet, which is currently absorbing deposits on the eurozone’s behalf. Without those assets the Bank cannot ease the collateral crunch easily.
BANKS
Where not to buy your sovereign CDS – alphaville / FT
Break out the sorting and look at how much protection Deutsche Bank has written on Italy. Or Societe Generale. What’s going to happen to SocGen’s counterparties if Italy defaults and SocGen can’t pay out?
Founder of BlueCrest in his first-ever tv interview opens up, big time.
FINANCIAL CRISIS
Sovereign debt: The outer limits – Free exchange / The Economist
Early in the new year, auctions of sovereign debt will crank back up. And as a new report from Moody's Economy.com indicates, much of Europe is moving past the point of no return. Check the original document here.
Moody’s did some calculations couple of days back.
It’s the balance of payments, stupid – alphaville / FT
Bank of Canada’s governor thinks the ”Minsky moment” has arrived
RESEARCH & ANALYSIS
Surviving The Rollercoaster – ZH
UBS’s “Fasten Your Seatbelt 2.0 - Cross Asset Class Overview” 75-page chart overview
Main topic euro crisis, also FX strategies, global liquidity, impact of QE, credit risk transfer. Press release, full pdf
Credit Markets Update: The Generous Gambler – Macronomics
Trade Ideas for 2012 – Global Macro Trading
Horizon: Richard Feynman - No Ordinary Genius – Youtube
Full-length (90 minutes) BBC documentary
Worldmapper – worldmapper
A collection of world maps, where territories are re-sized on each map according to the subject of interest. There are now nearly 700 maps.