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Tuesday, May 22

22nd May - US Close: Combing

It looked like a rally day, but soured towards the end of the day. As the eurocrats are again drinking too much coffee (together with the famous "comb" pictured to the right) so that they would have the energy not to agree on anything , the world holds its breath. If you feel a bit intimidated by the photo, you should - the "comb" has crushed the spirits of numerous companies worldwide and made politicians what they are today.

News – Between The Hedges
Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View from My Screens
Market Commentary – Marc to Market
Asian Morning Briefing – BNY Mellon
Attack of the Killer E’s, Ease, and eezeTF Market Advisors
  The EFSF may or may not get a banking license, but the ESM definitely will.
Tyler’s US Summary – ZH
  EUR crushes commodities, slams Stocks

Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices

The Other Euro FlawZH
UBS: The first was the absence of a fiscal transfer union… The second flaw of the Euro as a monetary union, which has received less media attention, is the absence of an integrated banking system backed by a credible lender of last resort (with the power of seignorage)

Implementing Basel III in the European Union: A Deeply Flawed Compromise PIIE
1) EU banks are under-capitalized 2) Cross-country differences in the size of too-big-to-fail banks call for cross-country differences in minimum capital standards 3) The minimal capital ratios in Basel III are way too low 4) The quality of bank capital matters, along with the quantity 5) Unpersuasive arguments about the effect of higher bank capital requirements on economic growth and the single market

BlueCrest Capital's Michael Platt on European Crisis & How He's Tradingmarket folly
The problem is you can make a pretty sensible argument for almost any outcome in Europe. It could be a run on the banks very quickly. The Greeks could end up staying in for a little bit longer. They could vote to take themselves out. There could be a eurobond. The whole situation could be overtaken by events. We could have bank runs in Spain. We could have LTRO. We could have a concerted bond-buying action from the ECB.

What austerity looks like around the worldWonkblog / WP
Some countries, like Italy, are relying heavily on tax increases. Others, like Spain and Greece, are relying far more heavily on spending cuts

Eurobonds - Nationalism Meets FederalismMark Grant / ZH
In fact, Eurobonds are the crux where Federalism comes head to head with Nationalism and where the rhetoric gives way to actualization.

Feint and Parry and the Three No'sMarc to Market
Germany cannot agree on a jointly guaranteed bond now. It is the fruit of fiscal integration not a means to that end. Putting the cart before the horse would jeopardize Germany's strategic interests.

Germany Rules Out Eurobonds for 104th TimeMish’s
Europe is scrambling madly for a solution acceptable to everyone, but the only solution that works is the one no one wants to hear: a breakup of the eurozone.

New Push for Eurozone BondsCalculated Risk
Summaries of three recent articles

Credit Ag’s Chatwell Looking for Hints of a Euro BondBB (mp3)

Pimco’s Clarida Says Euro Bond Would Take 5 to 7 YearsBB (mp3)

Austria’s Fekter Opposes Euro Bonds, Won’t Sacrifice RatingBB

Eurozone exposures chartedalphaville / FT
Nomura’s latest risk estimates for other eurozone countries

Depressing eurozone summary du jouralphaville / FT
UBS: The risk is if Target II ceases to function. This, it should be noted, would have to be a deliberate action by central banks. However, there is a (distant) precedent in the USA.

These pdf’s from FT alphaville’s Long Room (free registration required)

Greeks embrace some new myths about life with the euroReuters
In a land of ancient myths, modern Greeks have created some of their own about their near-bankrupt country's future as an integral part of a Europe that will never kick them out.

Greek ELA growth poses increasing risks for the EurosystemSober Look
The ECB is not openly discussing this, but these ELA euros are coming from TARGET2, further raising GoB's liability to the rest of the Eurosystem… In case of a possible re-denomination, the ability to recover ELA collateral with any material value will be quite minimal.

ELA Does not Stand for Exaggeration, Lies and AssumptionsMarc to Market
However, part of what is happening in Greece is that the banks are in the process of being recapitalized under the second aid package. An 18 bln euro payment to them is expected by the end of the week. This will help reduce the ELA borrowings.

Behind closed doors: a Greek tragicomedyThe World / FT
These transcripts (made public by the president’s office) would make you roar with laughter – if you weren’t weeping in despair at the petty-mindedness, stupidity and shamelessness of some of Greece’s politicians.

Greek political poll trackerMacroScope / Reuters
Interactive charter of recent polls

Stocks Slump, Papademos Says Greek Exit Risk is ‘Real’MarketBeat / WSJ

Time to pull the plug?Free exchange / The Economist
It is perfectly fair to acknowledge and worry about moral-hazard concerns now, as it was then. It is nonetheless clear that setting those concerns aside and preventing disaster is the best policy course.

OECD Economic Outlook May 2012OECD
Global economy recovering, but major risks remain. (Euro area flat in 2012, growth elsewhere) Webcast of press conference, handout, presentation, full document (252 pages, only online view)

Japan's downgrade may be the tip of the icebergSober Look
Japan is on an unsustainable path with more downgrades on the way. Given global investors' concerns about sovereign debt, it's only a matter of time before rates begin to rise, tipping the "unstable equilibrium".

Research US: Don't write off the US economyDanske Bank (pdf)
The US economy has so far proven resilient to the European crisis and the main risk does not come from slow euro area growth but from financial spillovers.