Plenty of articles for the weekend. Political unrest and a good chance of a credit rating cut in Holland. Germany is having domestic political issues due to its support to periphery - as one article here puts it, perhaps austerity in periphery is the price that has to be paid to keep the German purse strings loose. The papers presented in the Pricenton seminar show that the eurocrats know the banks will have to be recapitalized, just as the IMF has recommended.
Meanwhile, the peripherial loops between the domestic banks and their sovereigns are strengthening. In essence, large part of the monetary (and thus fiscal) policy is in the hands of the national central banks, not the ECB.
For more of my views and articles on the French elections and what has happened over the weekend in the G20 and IMF meetings, see my earlier Weekender: France & IMF. You can get update notifications by following MoreLiver on Twitter or Facebook. Contact me with any questions or
suggestions!
The firewall should be helping Spanish and Italian bond yields the most, yet Spanish yields were higher across the board today, and Italian bonds 5 years and out were all weaker. If the firewall doesn't help those bonds, why should it help the market so much? We saw in Greece, that switching who a country owes money to doesn't solve a problem, and in fact makes it far worse for any private sector holder silly enough to think things get better. – TF Market Advisors
EURO CRISIS: GENERAL
April showers on the euro – The Economist
Markets are
shifting their concern from deficits to growth. EU cannot ignore Spain missing targets. Elections in Greece and France. Weak banks should be recapitalized
and monetary policy eased, but these will not happen soon.
Pushing The Euro To The Brink – Testosterone
Pit
Spain may require an emergency bailout of such proportions that the IMF is
already collecting hundreds of billions of dollars from around the world…the
conflicts between the ECB and the Bundesbank, and now the German government,
can no longer be bridged with soothing words.
This is where the euro area’s new and numerous
fiscal rules become important. For Germans to backstop other people’s debts,
every benefitting country must first prove able to sustain their social models
and finances within agreed upon fiscal rules… Like it
or not, fiscal austerity has to precede fiscal solidarity.
Robert
Brusca: In the end to fix the problem you
must break up the union. Period. It’s not because of costs or because it is
better for country X.Y or Z. It’s because if EMU does not do this things just
continue to get worse.
The austerity debate: Festina lente! – voxeu.org
Carlo Cottarelli: As with austerity itself, the austerity debate shows no sign of
disappearing any time soon. This column argues that the last thing that the
world economy needs at this uncertain moment is a knee-jerk reaction from
fiscal policy. While the column agrees that governments need to make cuts, it
stresses they should not lose sight of the bigger picture.
Is the euro rescue succeeding? An update – voxeu.org
The current gyrations of sentiment over
government-bond spreads in the Eurozone are generating much commentary. Yet
this column argues they are diverting attention from the real issue – the
Eurozone periphery needs a big realignment towards the tradable sector to
reignite growth sustainably. It adds that EU policies have made little
progress, casting doubt on whether the adjustment can succeed.
IMF allows eurozone to stay in its fantasy
world – The
Telegraph
Under Christine Lagarde’s stewardship the IMF
is continuing to indulge the eurozone’s banks while the fund’s donor countries
see the reality.
Euro zone hopes for funds from the Fund – MacroScope
/ Reuters
It is not obvious why a stronger firewall
should encourage anyone to enter a burning house… Concerns about Spain in
particular are well justified but it is not yet close to the precipice…Spain’s
banks have their funding needs covered for this year, and maybe next too. Add
to that the fact that Spain has shifted half its
government debt issuance for 2012 in the first third of the year and it is
clear it has some time to turn around market sentiment
Joined-up thinking – The Economist
Can a limited version of Eurobonds help solve
the euro crisis?...Any feasible plan for Eurobonds will therefore have to be on
a partial basis. That means limiting the scope of joint guarantees to specific
portions of member states’ sovereign debt, or setting a defined lifespan to the
guarantees. One idea is to confine the maturity of Eurobonds to short-term
debt.
Rabobank: This
evidence of the ECB funding a switch of peripheral debt from foreigners to
domestics, in turn, supports our earlier view that rather than promoting some
form of fiscal unity (the solution to the crisis in our view), the LTROs have
encouraged financial disunity or de-euroisation.
Reshaping banking: The retreat from everywhere – The Economist
Led by European banks, the world’s lenders are
pulling back to their home markets
Making Goldilocks Happy – iMFdirect
Bringing debt and deficits down to more
moderate levels is important to easing risks. From one perspective, the sooner
this happens, the better. But, slashing budgets too abruptly can impede the
overall economic recovery. And if the recovery stalls, debt and deficits will
rise, and so will unemployment. According to our analysis, what is needed is a
steady but gradual adjustment.
EURO CRISIS: CENTRAL BANKING
“European Crisis: Historical Parallels and
Economic Lessons" – Princeton
JRC Inaugural Conference 19-20 April. Plenty of stuff, from Krugman to ECB
board members.
German tempers boil over back-door euro rescues – The
Telegraph
Controversy is raging in Germany over soaring "payments" by the Bundesbank to shore up Europe's monetary system and cope with a
tidal wave of capital flight from southern Europe.
The dangers of a bloated ECB balance sheet – MacroScope
/ Reuters
Market participants say that it would take a
long time for these dangers to filter through to financial markets – if they
ever do. They say the central bank has unlimited scope to provide liquidity and
print money… But others have begun raising concerns. And if the extreme
scenario does materialize, things in Europe could quickly deteriorate.
EURO CRISIS: POLITICS
The German newspaper Süddeutsche Zeitung has
published a joint letter from the French and German interior ministers calling
for "the possibility of re-establishing internal border controls."
The matter could be raised at the next meeting of European politicians on April
26.
Ministers ponder creation of EU super-president – euobserver
Ideas kicking around in a reflection group of
select EU foreign ministers include merging the roles of the EU Council and
European Commission presidents.
Fiscal austerity and policy credibility – voxeu.org
Most economists agree that European economies
share the need to reduce public deficits and debts. This column stresses that
while gradual consolidations are in general more likely to succeed than cold-shower
ones, the superiority of a gradual strategy tends to evaporate for high levels
of debt and is also less pronounced for consolidation episodes following a
financial crisis.
EURO CRISIS: NETHERLANDS
Fitch doubts Dutch AAA as property slump
reaches 'coma' – The
Telegraph
(18-Apr) Fitch Ratings has issued the clearest
warning to date that Holland faces losing its AAA rating if it fails to deliver austerity cuts or
lets political conflict intrude on economic management.
Dutch PM sees elections as budget talks fail – Reuters
Dutch Government on Verge of Collapse After
Anti-EU Lawmaker Torpedoed Seven Weeks of Austerity Talks; Caretaker Government
and New Elections Coming Up – Mish’s
The Netherlands can kiss its AAA rating goodbye
within a week or so…Pencil in May 6 for
the date. That's when Greece holds new elections
and also when French president Nicolas Sarkozy is ousted in the second round of
French elections. The ouster of Sarkozy will end any chance that France signs off on the
agreement "as is". Since the Netherlands won't abide by the agreement either, just how much of an agreement is
there?
What happens next remains uncertain, but (prime
minister) is widely expected to hand in his resignation after the weekend. "New
elections are the logical next step," he noted. The earliest possible
timing would be late September or early October.
EURO CRISIS: PIIGS
The
problems and the possible solutions (SMP, LTRO, debt for equity swaps) discussed
"Not ECB's Job to Tackle Spain's
Problems" Says German Central Bank President; Sparks Will Fly as
France-Germany Rift Widens – Mish’s
Spain finds itself uncomfortably exposed at the centre of a renewed euro
crisis
Spanish PM: 'We have no money for health or
education' – euobserver
Daiwa’s Blattner Calls Spanish Bond Auction
First Test – BB (mp3)
Normalising subordination, in Portugal – alphaville
/ FT
put yourself in the shoes of a international civil servant who tries to sell a new bailout to northern eurozone creditors when things still do look on track. (Or who tries to sell PSI, asking the creditors to turn Greece from an exception to precedent.)… Morgan Stanley: a second bailout package is likely. It will have to be decided by September 2012
put yourself in the shoes of a international civil servant who tries to sell a new bailout to northern eurozone creditors when things still do look on track. (Or who tries to sell PSI, asking the creditors to turn Greece from an exception to precedent.)… Morgan Stanley: a second bailout package is likely. It will have to be decided by September 2012
Planning for Greece’s exit from the
Eurozone has now seeped down into the language of contracts. Thus, the drumbeat
of Greece’s economic horror show continues in its own manner and to its bitter
end.
EIB Inserts Drachma Clauses in Loans to Greek
Firms; Troika-Backed Coalition has One-Seat Majority in Poll for May 6 Election – Mish’s
Moreover, the proper course of action is for
every Greek citizen to pull all of their money out of Greek banks immediately. Greece
is going down, and going down soon. It makes no sense to pretend otherwise.
Argentina’s confiscation of a 51% stake in the country’s YPF oil company from Spain’s Repsol is a lesson
to European investors: countries that struggle to raise finance in the
international credit markets will eventually steal it. This is especially relevant
now, amid the economic struggles of the euro-zone periphery.