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Friday, February 10

10th Feb - Best of The Week

Here are the ending week's best reads collected to one post, in case you missed some of them. Coming up next: Press Digest and tomorrow the Weekly Support and Weekender. I'm on Twitter, Facebook, and 
How Euro Brinkmanship Is Beginning To Succeed PIIE

A more valid criticism of the fiscal treaty is that it fails to address the biggest current obstacle to a lasting stabilization of euro area crisis—the construction of a large and credible financial “firewall” to prevent contagion from the periphery to the core of Europe. The new ESM treaty holds the key to this issue, though inexplicably the text is not yet available. EU leaders are reserving judgment on the central issue of the ESM—its size—until the next EU Summit in March.

Global Manufacturing Steadies As She Goes, Or Does She? A Fistful of Euros
Euro Area results were divided between the core countries which moved timidly back towards expansion, and those on the periphery where conditions were simply less recessionary than they had been at the end of last year.

As Falls Sarkozy, So Falls Europe: The Full Story Behind The Upcoming French Election ZH
UBS: The key point is that any sort of rift between France and Germany, or inconclusive negotiations or weakening of resolve on the current fiscal compact in general, would immediately go down like a lead balloon at the ECB, which would doubtless feel more constrained.

The Elephant in the Room Is Spain, Not ItalyNew Economic Perspectives
The decision for Europe’s bosses is this: they must ultimately confront the consequences of their policy choices. They can destroy the eurozone by continuing with the same failed mix of policies or by salvaging it by adding what has been missing from the outset: a mechanism for shifting surpluses to the deficit regions in the form of productive investments(as opposed to handouts or loans).

TARGET2 balance of the Bundesbank – Increased risks for Germany?Natixis
Instead of focusing on TARGET balances, one should evaluate the risks for Germany by directly referring to the risks involved by the liquidity supply of the Eurosystem (SMP, CBPP, ELA). Losses are borne by the Eurosystem as a whole, according to the capital share of each country. Hence, the size of individual TARGET2 balances is irrelevant for country specific risks.

European Economics: Greece, the euro and the ECB (3-Nov)Credit Suisse (pdf)
Notice the bank run on private sector deposits in PIIGS vs. the rush of money to core.

Goldman Explains Why The Market Has Gotten Ahead Of Itself In Its European Optimism Again ZH
Reasons for managing our recommendations more cautiously, linked to Euro area sovereign uncertainties and the likely balance of risks around the ECB’s policy stance vs. market expectations.

Europe’s Tobin Tax Distraction Barry Eichengreen / Project Syndicate
Forgive my naiveté, but I have begun to think that politics rather than economics explains European leaders’ enthusiasm for a Tobin tax. Sarkozy can preempt a long-standing proposal of the Socialists in the run-up to this spring’s presidential election. By supporting Sarkozy, Merkel can get in return what she really wants: French support for stronger fiscal rules.

Crisis Desperation Drives Merkel to Campaign for SarkozyDer Spiegel
Chancellor Angela Merkel's move to help President Nicolas Sarkozy in his bid for re-election is unprecedented. But so too is the European debt crisis. Berlin is driven by the fear that a Socialist president in Paris may overturn its strategy to rescue the euro. But Merkel's campaign assistance poses risks

LTRO reduxSober Look
LTRO will spike the ECB deposit facility, reduce private repo financing and M3, esp. in periphery, weigh on bank balance sheets and making unsecured bank paper even less recoverable.

European Nash Equilibrium Collapses - Bank Bailout Stigmata Is Back At The Worst Possible Time ZH
If everyone uses LTRO, fine. If only some do, those banks will be shunned by other banks, as they are “bad”.

Full Scenario Analysis Of LTRO 2.0 Size Implications ZH
Credit Suisse believes LTRO 2.0 will see a gross uptake of EUR500-650bn, notably above current consensus around EUR325bn.

UBS On LTRO: 'One More Is Not Enough' ZH
UBS: next LTRO will not be the last…The LTRO is likely to be different things to different banks in different countries at different times.

In Greek restructuring some institutions are more equal than others Sober Look
The pressure on the ECB to participate in the restructuring is now coming from both sides of the negotiations as well as from the IMF.

Another Experiment? Tim Duy’s Fed Watch
Truth be told, I honestly believe that Greece is beyond saving without a significant transfer, not loan, that buys real time for the Greek economy to adjust.  That is the only way to compensate for the lack of currency adjustment and is the conclusion I wish the Troika would ultimately reach.

Euro Adds To Gains As ECB Willing To Exchange Greek Debt MarketBeat / WSJ
The ECB will forgo gains on any Greek bonds it bought in the secondary market at a discount, instead sending them to the EFSF.

Rumors That ECB Will Transfer Greek Bonds To EFSFPeter Tchir / ZH
The ECB could have taken the loss directly and just printed money for that loss.  So this demonstrates an unwillingness to print money.  The ECB could take the loss and get capital from the member states.  By using the EFSF rather than new capital calls, it is a sign that countries are at the limit of what they will contribute.

What’s The Latest On Greece? MarketBeat / WSJ
Nice roundup, with what's ahead-calendar.

The ECB's Scary Carry Trade, Or How The ECB Will Forego Greek Bond... PROFITS?Peter Tchir / ZH
ECB has no “profits”, they are not giving up anything.

Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote Mish’s
Germany seeks to absolve itself of any guilt for what happens to Greece. It wants Greece to make the exit choice, while placing as many roadblocks as possible to force Greece to do just that.

Is A Greek Uncontrollable Default Inevitable? ZH
Credit Suisse: the environment we currently observe, namely a low stress environment, is exactly the type where one would expect “aggressive” behaviour by any player. Therefore, we would not be surprised if a hard default by
Greece (i.e., a default where relations with the core break down, endangering the ECB’s considerable additional exposure) is being contemplated a lot more than it was just a few months ago.

The State of the World Economy in 2012LSE, mp3
Two economic experts discuss the state of the world economy after the eurozone financial crisis. Jean Michel Severino is inspector general at the French Ministry of Finance.
Martin Wolf is a journalist at the Financial Times.

Things That Make You Go Hmmm report Grant Williams / ZH

Against Risk Parity, Redux The Aleph Blog
Trading asset prices to parity given historical risk is a fool’s game.

Global Investment Returns Yearbook 2012 Credit Suisse (pdf)
64 pages of country analysis and a jungle of charts.

Guide To Markets - Market Insights 1Q 2012 J.P. Morgan (pdf)
60 pages of analysis goodies.

On BanknotesBruce Krasting
Bruce notices that there is a shortage of deposit boxes in Switzerland’s banks. What and who are filling them?

Steen's Chronicle: Lands of opportunity Saxo
The heavy dependence on foreign demand needs to be replaced by a more balanced economy and one where competition is increased among the stale, complacent domestic sectors. More intense competition would reduce the biggest tax in all three regions: Corruption.

ETF Guide to Investors Morningstar (pdf)
Registration required

The Wall Street GeneWSJ
What makes a top trader? Researchers point to dopamine

How many zombies do you know? Using indirect survey methods to measure alien attacks and outbreaks of the undeadAndrew Gelman & George A Romero (pdf)
Zombification is a serious public-health and public-safety concern (Romero, 1968, 1978) but is difficult to study using traditional survey methods. Zombies are believed to have very low rates of telephone usage and in any case may be reluctant to identify themselves as such to a researcher. Face-to-face surveying involves too much risk.

Lunch with the FT: Kenneth Rogoff
Improbably, for a future Harvard professor, he was also a high school dropout. “A lot of my last years of high school, I essentially missed,” he says. “I just played chess, I did nothing else.”

Cronenberg Interview Los Angeles Review of Books
It’s dangerous to be an artist. That’s what we talk about in Naked Lunch — and it’s dangerous on many different levels. Politically it can be dangerous, but psychologically it can be quite dangerous too. You make yourself very vulnerable.