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Monday, February 13

13th Feb - Merkelian Menopause

After Greece is "solved", talk is now back to LTRO and the other usual suspects. The Greek tragedy is not over, it is only having a Merkelian menopause - and the next surprise opportunity will be Wednesday's Eurogroup meeting. There will be plenty more of scares on this ride.
French presidential elections are not getting the attention they should - either because Mr. Market is in LTRO-induced la-la-land, or because no real policy change is expected. Sarkozy will probably try to act more presidential and pick up the favorite policy items from Le Pen (it's the foreigner's fault!) or Hollande (banks are bad, FTT to save the world) in an attempt to catch up in the polls. Whatever they announce, they will probably fall back in line after learning how rotten the French banking system is. There is nothing like the truth to stop the spurs of idealism.

News –  BTH
Markets – BTH
  -Grexit likely, as firewall in place - therefore the forced austerity

TV: Bloomberg, CNBC, BBC
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

Democracy and transparency remain the biggest victims of the euro crisis openeurope blog
The demand for a written assurance to stick to the austerity plan in Greece is only one in a series of direct assaults on democracy, accountability and transparency that have followed in the wake of the eurozone crisis.

French Elections Potentially More Momentous Then Greek Vote Credit Writedowns
Polls suggest that in the first round of balloting in late April, Sarkozy is trailing his Socialist challenger Hollande 31%-24.5%...There are two things that appear to be scaring investors about the prospects of a Hollande victory: what he is saying and the implications for the Paris-Bonn axis.

Daily Press Summary openeurope blog
Euro crisis in European newspapers

How and why Greece will leave the euro zone Credit Writedowns
My suspicion is that the 120% debt target for Greece is largely a function of not wanting to suggest that Italy’s debt levels are too high…Greece is simply not competitive as part of a currency union with Germany – and it never will be. That means almost permanent fiscal transfers and a loss of Greek fiscal sovereignty. The political will necessary to support this solution does not exist. And so Greece will exit the euro zone

Has Schäuble given up on Greece? openeurope blog
It seems that some in the German government may finally be beginning to realise that they are flogging a dead horse.

Don't forget to add Bank of Greece TARGET2 liabilities to the overall government debt Sober Look
…around EUR 105bn in December. Normally these liabilities wouldn't be an issue because they are part of the overall payment system and would be consolidated by the ECB. The problem comes in if Greece were to exit the euro…If the ECB had trouble taking a loss on EUR 40bn of government debt they bought at a discount, it would be interesting to see how they deal with the Bank of Greece on a much larger amount.

Flash Comment: Greece votes package through Danske Bank (pdf)
The Eurogroup finance ministers are expected to give the final approval of the second rescue package on Wednesday. Details on the debt swap and PSI are expected to be revealed shortly after the second rescue package is endorsed.

Europe’s Debt Crisis: Back from the Brink? TIME
Greece still in debt trap, other countries in trouble, low or negative growth everywhere, bank recaps still undone, elections coming, Greek bailout has to be approved by 17 EZ countries: The point here is that there are still countless way in which Europe could slip back towards the brink. Let’s not get too excited.

Peace In Our Time TF Market Advisors
Greece’s alternatives to bailouts have not been discussed properly. LTRO size probably smaller than anticipated, much of it has been priced in and collateral bought in secondary markets.

BofA’s Woo Says Private Sector Is Key to GreeceBB (mp3)
Credit Ag’s Chatwell Greek Haircut Deal No Sure Thing (Audio) – BB (mp3)

The ECB’s trillion euro betCharles Wyplosz /
Spreads on public debts in the Eurozone – with the exception of Greece – are falling hard and fast. This column argues that this is in large part because the ECB is now effectively guaranteeing Eurozone government debts. But it cautions that in doing so, the central bank is taking enormous risks.

LTRO Stigma Becomes Acute Days Ahead Of Second Operation ZH
there is a clear stigma being priced into LTRO-encumbered European banks relative to non-LTRO-encumbered (due to many aspects but most notably the implicit subordination of senior unsecured debt via collateralized loans to the ECB).

LTRO credit claims, not so carry trade alphaville / FT
JPMorgan: unlikely that there would be enough free collateral to support a €1tr repo, RBC: estimate revised from 1trn to 409bn

Are We Already Planting the Seeds of the Next Financial Crisis? TIME
Central banks are trying to revive weak economies by injecting large amounts of money. That policy helps in the short run, but easy money can also create the conditions for future booms and busts.

The Global Minotaur: An Interview with Yanis Varoufakis naked capitalism
The Minotaur is, of course, a metaphor for the strange Global Surplus Recycling Mechanism (GSRM) that emerged in the 1970s from the ashes of Bretton Woods and succeeded in keeping global capitalism in a rapturous élan; until it broke down in 2008, under the weight of its (and especially Wall Street’s) hubris. Post-2008, the world economy is stumbling around, rudderless, in the absence of a GSRM to replace the Minotaur. The Crisis that began in 2008 mutates and migrates from one sector to another, from one continent to the next. Its legacy is generalised uncertainty, a dearth of aggregate demand, an inability to shift savings into productive investment, a failure of coordination at all levels of socio-economic life.

OECD Labour Markets in the Great Recession (1h 14min) LSE (mp3)
Labour markets across the OECD reacted differently to the financial crisis of 2008 and the debt crisis that followed. Professor Pissarides will review these different responses, seek explanations for them, and draw conclusions about labour market policy in recession. The focus will be on unemployment and how to contain its rise in light of the negative shocks to economic activity.

My Application: Head of Public Relations, Goldman Sachs The Big Picture

A secretive hedge fund legend prepares to surface Fortune
On the heels of weak performance in 2011, Louis Bacon has to reveal information about $15 billion Moore Capital to the SEC—and he's not happy about it.