27th Apr - Fight or Flight?

I think the real question to be asked now is will there be capital flight first, followed by capital controls - or the other way around. Anyways, here are the regular links for the US open and select readings from the web. The usual weekend posts coming up later. You can get update notifications by following MoreLiver on Twitter or Facebook. Contact me with any questions or suggestions.

Quote of The Day:

Mortgages get paid in good times and in bad.  Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid. – Banco Santander CEO responding to JP Morgan’s note that mortgage arrears will surge as unemployment rises

News And Market Re-Cap – RanSquawk / ZH

Frontrunning: April 27 – ZH

Overnight Sentiment: – Bank of America / ZH

The Lunch Wrap – alphaville / FT

EM New York headlines – beyondbrics / FT

Morning MarketBeat: – MarketBeat / WSJ

Morning Take-Out – DealBook / NYT

AM Dear Dairy – Macro and Cheese

Morning Preview Collection – Between The Hedges

Daily Press Summary – Open Europe

Merkel: Fiscal treaty is not open for re-negotiation; Die Welt: If it continues like this, that’s the end of the eurozone

EURO CRISIS: GENERAL

Blogs review: new facts and arguments in the austerity debate – bruegel

The euro zone strategy to cut deficits has come under increasing strain from slowing economies, gyrating financial markets and electoral setbacks. Last year, we wrote a review on expansionary fiscal contraction that underscored the differing views between European policymakers and the vast majority of academics; especially after an IMF study deconstructed earlier studies on the growth impact of fiscal contractions. We come back to this issue, not only because it is again the hot topic of the day, but also to take stock of some of the new arguments that have been put forward in this debate.

Euro zone: Steps forward, steps back – MacroScope / Reuters

With French and Greek elections looming, the ECB apparently sitting on its hands, the euro zone slipping back into recession and Spanish and French debt to be sold next week, it doesn’t look like there’s going to be any let-up.

European banking – A perfect storm? – re-define

…the biggest challenges for Euro area banks still lie ahead. In particular, the combination of largely unreformed banking models, large scale regulatory changes and uncertainties around their final shape as well as the worsening Eurocrisis mean that Euro area banks face very large, potentially insurmountable challenges.

BizDaily: Hindsight is a wonderful thing 27 Apr 12 – BBC (mp3)

The former head of the mighty German Bundesbank tells Justin Rowlatt why Greece should never have been allowed into the euro. Plus why do some countries do so much better than other? According to Daron Acemoglu, a professor of economics at the MIT, one factor outweighs all others - the degree to which the average person shares in the overall wealth of its economy. And Jenny Rogers, one of Britain's leading executive coaches, takes a closer look at whistleblowing.

Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008; German Retail Sales Plunge Into Contraction; French Retail Sales Plunge at Record Pace; Record Job Losses, Record Retail Plunge in Italy – Mish’s

For months I have been reading the apologists at Markit (and elsewhere) predict a short, shallow Eurozone recession…This was extremely easy to predict, yet most blew it. 

Fiscal consolidation: Too much of a good thing? – voxeu.org

John Van Reenen: Many policymakers in Europe seem to stick to the idea that fiscal consolidation might inspire confidence and help the economy to grow. This column argues these sentiments may be understandable but are basically wrong. For countries like the UK where borrowing is relatively cheap and sovereign default unlikely, slowing down the pace of fiscal consolidation would be a rational response. The obsession over the fiscal stance is a distraction from sustainable long-run growth.

Opposition parties rescue Dutch budget plan – euobserver.com

The 11th-hour deal comes ahead of a European Commission deadline for EU capitals to submit economic "convergence plans" to Brussels by Monday. It also comes after ratings agency Fitch said The Hague could lose its top-notch grade.

EU auditor used public funds to hamper anti-fraud inquiry – euobserver

The secretary general of the European Court of Auditors used public funds to hire lawyers and to sue the EU's anti-fraud office (Olaf) over an inquiry into how he hired security guards. He lost the case, but no action was taken against him.

EURO CRISIS: PIIGS

Greece to Seize Money From Suspected Tax Evaders' Accounts, with Charges and Trials Later; More Capital Flight Coming Up – Mish’s

Expect to see a further plunge in money kept at Greek banks. Also expect capital flight of another kind: human capital. With this kind of crackdown, anyone capable of leaving would be wise to leave Greece immediately.

Italy Sells Bonds: Yields Jump, Bids to Cover Slump: Market Commentary – ZH

Spain Long-Term Debt Lowered to BBB+ from A, With Negative Outlook; 100% Certain Conditions in Spain Worsen – Mish’s

I propose the worst case scenario is likely to soon become the best case scenario. Spain is imploding and nothing can stop it but free money from Germany (not going to happen voluntarily), or a Spanish exit from the Eurozone. The latter is likely, but may not occur until Spain becomes the next Greece.

Downgrading a eurozone sovereign: you know the drill – alphaville / FT
SocGen comments the Spain’s downgrade by S&P: automatic, forced selling coming.

Spain downgraded over spiralling recession – euobserver

OTHER

Shadow banking:  thoughts for a possible policy agenda – Bank of England (pdf)

10-point policy plan to address the risks to financial stability posed by shadow banking. Speech given by Paul Tucker, Deputy Governor Financial Stability, Member of the Monetary Policy

Committee and Member of the Financial Policy Committee 

Three European equities trends to watch – alphaville / FT

Fund managers have been shunning European bank and retail stocks for quite some time now, but there are signs that things are beginning to change.

Death of a Fairy Tale – Krugman / NYT
This was the month the confidence fairy died. For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine.

The Art of Shifting Gear – iMFdirect

The findings in this new report, just released in the Malaysian capital, Kuala Lumpur, illustrate how Asia’s economic fate remains heavily dependent on events far beyond its immediate borders.