One week to go until G20 and IMF meetings. It is assumed they try to do something, or at least play the announcement game. There is some speculation on QE3 and even LTRO3, though ECB is at the moment very reluctant. The SMP threat is still there, and if the Spanish yields trade above 6%, expect a further statement and then at least a minor SMP action. What are they trying to accomplish?I think the eurocrats hope to wait until ESM/EFSF is in place to broaden their options. There is still some voting to be done in the national parliaments, and an angry resolution from the German Constitutional Court could end the fun prematurely. But why do they need to have the stability mech / Death Star operational? Someone must be hoping that the sight of the big bazooka would stop the rot and make everyone friendly toward each others and especially positive on Spain. Obviously that is not going to happen, so Portuguese & Spanish dual haircut and bank recap is the most probable plan A. This would explain why Brussels and Frankfurt am Main didn't kick Madrid like it has kicked Athens.
They are playing good cops to Spain in order to mask what the ESM is really for - socializing European banking losses. Now that's a plan even Merkel and Sarkozy can agree with!
News – Between The Hedges
Markets – Between The Hedges
Recap – Global Macro Trading
The Closer – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
FX Options Analytics – Saxo Bank
EURO CRISIS
Sovereign debt: It isn't a debt crisis – Free exchange / The Economist
"euro-zone country with a large current-account deficit" is a vastly better predictor of crisis than "large debt load". An economy with its own currency can sustain very large debt loads without prompting a crisis. And an economy with its own currency and a persistent current-account surplus can flout every last bit of conventional debt wisdom and still avoid crisis. So long as it's called Japan, anyway.
Uncrossing The Rubicon Toward A Euro Federal State: Germans Challenge ESM, Fiscal Pact In Constitutional Court – ZH
…jurists and 2 political parties in Germany are going to appeal to the Constitutional Court, and demand an end of the Merkel Fiscal pact and the ESM
…jurists and 2 political parties in Germany are going to appeal to the Constitutional Court, and demand an end of the Merkel Fiscal pact and the ESM
The decline of the euro as a reserve currency – Sober Look
Barclays Capital: The attractiveness of the EUR as a reserve currency has decreased as there are increasing doubts over the stability of the monetary union.
The European Growth Outlook and Its Risks – N.Y. FED
EURO CRISIS: ECBThe ECB’s Lethal Inhibition – Project Syndicate
Barry Eichengreen: The ECB is preoccupied by moral-hazard risk – the idea that supporting spending will relieve the pressure on governments to act. But it should also worry about meltdown risk – about the danger that its own failure to act, by leading to a deep recession, will undermine political leaders’ ability to take the steps needed to put their economies on a sound footing.
The Euromess is back! But it never really went away in the first place – Wonkblog / WP
ECB might have trouble staging another intervention, even a temporary one… “The Germans swallowed a lot when it created the ECB, and if Germans signal profound unhappiness with the ECB could fundamentally break the political bargain that holds the ECB together,” Farrell says.
ECB might have trouble staging another intervention, even a temporary one… “The Germans swallowed a lot when it created the ECB, and if Germans signal profound unhappiness with the ECB could fundamentally break the political bargain that holds the ECB together,” Farrell says.
policymakers are reticent to embark on further unconventional monetary easing, fearing both internal criticism and political blowback. They are being forced to rely more on verbal guidance than actual stimulus to prevent markets from pricing in higher rates.
EURO CRISIS: SPAIN
LTRO operation is pushing Spanish banking system closer to collapse – Credit Writedowns
Looking at what’s happening now with Spain, you can see extend and pretend is going down the same route it has done in Greece , Portugal and Ireland. But, of course, Spain is too big for any of the EU’s bail out funds. It will all boil down to whether the ECB writes the check.
You Can’t Spell Spain Without ‘Pain’ – MarketBeat / WSJ
It is possible, BCA says, for Spain to avoid Greece’s fate, but it comes with lots of caveats… Even with the LTRO, BCA sees struggles ahead for Spanish banks, which, it can be argued, are much more entangled in the country’s woes than Greek banks were.
It is possible, BCA says, for Spain to avoid Greece’s fate, but it comes with lots of caveats… Even with the LTRO, BCA sees struggles ahead for Spanish banks, which, it can be argued, are much more entangled in the country’s woes than Greek banks were.
Return of the euro crisis: After the sugar rush – The Economist
Spanish bond yields have risen as the effect of cheap ECB cash wears off
Very nice seven-pager.
EURO CRISIS: OTHER PIIGS
The Irish case from an ECB perspective – ECB
Speech by Jörg Asmussen, Member of the Executive Board of the ECB, at the Institute of International and European Affairs, Dublin, 12 April 2012
Goldman On The Greek Elections – ZH
The success of any coalition formation and the long-term political stability of Greece will heavily depend on the capacity of the Greek government to efficiently apply these budgetary and structural reforms going forward. Thus, even if a pro-Euro coalition emerges, the support of participant parties towards the reform process will need to be resolute.
The success of any coalition formation and the long-term political stability of Greece will heavily depend on the capacity of the Greek government to efficiently apply these budgetary and structural reforms going forward. Thus, even if a pro-Euro coalition emerges, the support of participant parties towards the reform process will need to be resolute.
EMERGING
There is also good reason to believe that China's statistical apparatus understates domestic consumption, of services especially, leading to overestimates of the share of investment in the economy. This does not imply, it should be noted, that there is no malinvestment.
WSJ: At around 11 a.m. local time Thursday, China’s Internet suddenly began behaving very strangely. Hint: Google for Bo Xilai
EMEA Weekly, Week 16 – Danske Bank (pdf)
OTHERWhen it Rains, It Pours – Sovereign Debt Defaults Cluster – HistorySquared
Inevitable Panics, Ray Dalio on Correlation, Hidden Sovereign Debt – HistorySquared
Quickie charts and commentary. Definitely worth the time to see these.
The Swiss boson – alphaville / FT
HSBC’s research: The inflows to Switzerland should translate into rising reserves, but they have not. Where is the money going to? Capital outflows, but where?
HSBC’s research: The inflows to Switzerland should translate into rising reserves, but they have not. Where is the money going to? Capital outflows, but where?
[CVA] How much is that swap in the window? – alphaville / FT
Credit value adjustments make comparing OTC deals difficult for end-users.
Credit value adjustments make comparing OTC deals difficult for end-users.
OFF-TOPIC
No Pilot, No Problem – reason
The future of military aviation is unmanned. The sooner it comes, the better.
Apollo Astronaut Assignments – Chart Porn
Not the most aesthetically pleasing figure I’ve ever seen – but there’s a ton of information crammed in.