A very special post, for a very special day. Spanish 10-y bond yields at 6.22%, CDS at all-time-high. The total direct losses from Greece are estimated to be around €500bn, and the contagion will easily double or triple that amount. We can now forget about the stability pacts, six packs, austerity pacts and masonry sects. We can also forget the fiscal union, transfer union and the Kalmar union. The only possibility now is for the ECB to print - and print massively, to the tune of trillions. See also 12th
Feb – Greek Exit Collection and follow ‘MoreLiver’ on Twitter or Facebook.
EURO CRISIS: GENERAL
Americans call it a Rube Goldberg machine,
Britons a Heath Robinson contraption and the Danes a Storm P machine.
As European Austerity Ends, So Could the Euro – View
/ BB
Peter Boone & Simon Johnson: For European politicians, the most important task now is to cover their tracks and blame others. Inflation is confusing. It also is an unfair tax on savers and a transfer of wealth to borrowers (assuming that interest rates can be held down or otherwise controlled, probably through nonmarket means). The ECB will now be under great pressure to take actions that create inflation. This may bring the end of the euro.
Peter Boone & Simon Johnson: For European politicians, the most important task now is to cover their tracks and blame others. Inflation is confusing. It also is an unfair tax on savers and a transfer of wealth to borrowers (assuming that interest rates can be held down or otherwise controlled, probably through nonmarket means). The ECB will now be under great pressure to take actions that create inflation. This may bring the end of the euro.
The final death throes of the euro – The
Telegraph
The euro crisis is entering its final stages.
Economic pain is now interacting with political resistance to produce intense
financial pressure. I expect Greece to leave the euro –
and perhaps very soon.
Europe is heading for a showdown and in a number of places…Europe has, in fact, bet the farm and the
decision now rests entirely with the Greek electorate.
Eurodämmerung –
Krugman / NYT
Greek euro
exit, very possibly next month. Germany guarantees the other PIIGS or euro
ends. Months, not years.
The Germans have accepted the notion that the
only institution with the wherewithal to save the eurozone is the European
Central Bank, and the only way possible for the ECB to do it is by printing
euros. Trillions and trillions of euros.
A change in EZ policies is coming – Kiron
Sarkar / The Big Picture
As a first step, EZ banks (including German)
need to be sorted out… The ECB is really the only credible player around… a
framework to introduce Euro bonds… The EZ only moves at times of crisis and boy
is one coming unless they move pretty soon.
Greece will get some concessions from the Troika. It is in no one’s interest to rush their
exit. Depending on how big the
concessions are this could buy Greece anywhere from a few
months to a year or more of time to make a final decision on the Euro.
Brussels Raises Red Flag on French Deficit, Hollande Blames Hidden Taxes of
Sarkozy; France in Deep Trouble Already – Mish’s
I am willing to bet France will not grow at all.
If so, expect still more austerity measures or tax hikes, with protests
spreading to France as they did in Greece, Spain, and Italy. The result will be
as happened in Greece. Voters will start backing any candidate willing to tell Brussels and the Troika to go
to hell.
It’s Time to Stop Using Chewing Gum And
Chicken Wire In Spain
– EconoMonitor
Edward
Hugh: According to reports now widely
circulating the Spanish press (in Spanish only), the EU is pushing Spain hard
to accept EU aid on completion of an independent external evaluation of the
problems in the banking sector that is to be conduced by Blackrock Solutions
and Oliver Wyman.
Mr. Goodhart and the EMU (2000) – Alea
"…the move toward monetary union amounts
to hobbling state power at the national level without increasing it anywhere
else in the system, and the dependable result is likely to be increased
instability."
EURO CRISIS: GERMANY
Chancellor Angela Merkel's conservatives have
suffered heavy losses in an election in Germany's most populous state, exit polls suggest.
Merkel's party routed in big German state – Reuters
Chancellor Angela Merkel's conservatives
suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result which could embolden the left
opposition to step up its criticism of her European austerity policies.
Angela Merkel suffered a major blow last night
after voters in Germany's biggest region decisively rejected her austerity policies in a defeat
that will weaken her on the European stage.
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.
Greek political leaders on Sunday ignored a
final plea from the president to form a coalition government to avert a repeat
election, pushing the debt-stricken nation closer to bankruptcy and a possible
exit from the euro zone.
Merkel is Backed Into a Corner… Commit
Political Suicide or Bail on the Euro? – Gains Pains
EURO CRISIS: GREECE
What history tells us about a potential Greek
exit – Economic
Musings
Roundup of
different schemes floated in research notes.
JPMorgan Estimates Immediate Losses From Greek
Exit Could Reach 400 Billion – ZH
The main direct losses correspond to the €240bn
of Greek debt in official hands (EU/IMF), to €130bn of Eurosystem’s exposure to
Greece via TARGET2 and a potential loss of around €25bn for European banks.
This is the cross-border claims (i.e. not matched by local liabilities) that
European banks (mostly French) have on Greece’s public and non-bank
private sector. These immediate losses add up to €400bn. This is a big amount
but let's assume that, as several people suggested this week, these
immediate/direct losses are manageable. What are the indirect consequences of a
Greek exit for the rest? The wildcard is obviously contagion to Spain or Italy?
Europe’s leaders now appear to paving the way
for Greece to exit the euro and the Eurozone, in what looks like a deliberate
ratcheting up of the pressure on Greek voters.
However, with no alternative, Greeks are likely to reach for catharsis
in the only way they have left. The
people running Europe need to be careful what they wish for, because where Greece leads others may soon
follow.
Buiter: In the case of a confrontation-driven Greek
exit from the euro area, we would therefore expect to see around a 90 percent
NPV cut in its sovereign debt, with 100 percent NPV losses on all debt issued
under Greek law, including the debt held, directly or directly, by the
ECB/Eurosystem. We would also expect 100 percent NPV losses on the loans by the
Greek Loan Facility and the EFSF to the Greek sovereign. (Full report here)
Greek exit not fatal for euro zone - ECB's Honohan – Reuters
EU central bankers ponder Greece euro exit – BBC
European central bankers have been openly expressing views on the possibility of Greece leaving the eurozone as its leaders struggle to form a government.
European central bankers have been openly expressing views on the possibility of Greece leaving the eurozone as its leaders struggle to form a government.
Greek exit would convert over half a trillion
of external euro liabilities into drachma – Sober
Look
With its current recession, the Eurozone can
hardly afford such a massive hit.
Good News From Greece: Greek Unity Talks Hit
Impasse; Math Lesson For New Democracy; Syriza Up to 25.5% in Latest Polls – Mish’s
CHINA
Has debt deflation started already in China? – ASA
China’s RRR: opening the toolkit – beyondbrics / FT
China’s RRR: opening the toolkit – beyondbrics / FT
OTHER
Mother of All Risks in 2012? – Pension
Pulse
Greece, China and JPMorgan overview
I'll take grey hair over algorithms any day – Saxo
Bank
Steen
Jakobsen: During the ERM crisis in 1992 I
was a still a relatively young trader and had the good fortune to witness some
of the best risk takers in the world - the Susquehanna group – who had a joint
venture with my employer, the Chase Manhattan Bank. I learned more during that
ERM crisis in 1992 than I have in the rest of career.
30 Of The Biggest Trading Losses Of All Time – HITC
A Curated Linkfest for The Smartest People on
The Web – Simoleon
Sense
Macro-economic Drivers of Corporate Profits – Can
Turtles Fly?
What you might have missed from the weekend:
13th May - Weekender: Sell-Side Research
11th May - Best of The Week
What you might have missed from the weekend:
13th May - Weekender: Sell-Side Research
11th May - Best of The Week