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Monday, May 14

14th May - Euro Special: Everything Must Go!

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.

Analysis: Over-complex Europe keeps making same mistakesReuters
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 EuroView / 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.

The final death throes of the euroThe 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 Has Bet The FarmMark Grant / ZH
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.

EurodämmerungKrugman / NYT
Greek euro exit, very possibly next month. Germany guarantees the other PIIGS or euro ends. Months, not years.

Shades of Weimar? Only the ECB Can Save EuropeJohn Mauldin
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 comingKiron 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.

The Weekly T Report: For Once the Focus Wasn’t on EuropeTF Market Advisors
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 AlreadyMish’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 SpainEconoMonitor
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."

Exit from a Monetary Union through Euroization: Discipline without ChaosAlea

New election blow for Germany's Merkel - exit pollsBBC
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 stateReuters
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 setback as austerity agenda rejected in Germany's biggest stateThe Telegraph
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 rescuesThe 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.

Coalition talks stall, Greece faces "moment of truthReuters
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

What history tells us about a potential Greek exitEconomic 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?

Greece, Catharsis and the ECB MoneylendersThe Psy-Fi Blog
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. 

If Greece Exits, Here Is What HappensZH
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 HonohanReuters

EU central bankers ponder Greece euro exitBBC
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 drachmaSober Look
With its current recession, the Eurozone can hardly afford such a massive hit.

Greece To Get European Aid Even After It Exits, Speculates SpiegelZH

Good News From Greece: Greek Unity Talks Hit Impasse; Math Lesson For New Democracy; Syriza Up to 25.5% in Latest PollsMish’s

China’s monetary policy: where it stands nowASA
Has debt deflation started already in China?ASA
China’s RRR: opening the toolkitbeyondbrics / FT

Mother of All Risks in 2012?Pension Pulse
Greece, China and JPMorgan overview

I'll take grey hair over algorithms any daySaxo 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 TimeHITC

A Curated Linkfest for The Smartest People on The WebSimoleon Sense