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Sunday, May 27

27th May - Weekender: Euro Crisis

Here are the weekend’s article links on the ever-lasting euro crisis.
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Europe Fighting the Wrong Battles Again with Dangerous ConsequencesTF Market Advisors
Everywhere you turn, you will see exposure that was never accounted for and is getting worse. Some Bundesbank official will blabber on about not printing money and the market will become dizzy with fear. The ECB’s bond portfolio turns into losses for the EU. The EFSF turns into losses for the EU. Spain and Italy will need money from the EU for their own problems. The EU is just Germany and France. They don’t have the money. Pandemonium ensues. Maybe it won’t be that bad.

What is the long-term euro vision?Hugo Dixon / Reuters
The crisis has demonstrated that the current system doesn’t work. But a headlong dive into a United States of Europe would be bad politics and bad economics. An alternative, more attractive vision is to maintain the maximum degree of national sovereignty consistent with a single currency. This is possible provided there are liquidity backstops for solvent governments and banks; debt restructuring for insolvent ones; and flexibility for all.

The nationalisation of markets: The rise of the financial-political complexThe Economist
Each step taken by the authorities over the past five years has been designed to prop up the economy and save the financial system. But the cumulative effect has been the creeping nationalisation of markets.

Seeking Redemption in EuropeMarc to Market
Last November, the Germany's economic advisor council, known as the Wisemen, recommended a redemption fund in the euro zone as an alternative to joint bond proposals and as a strategy to put the region's debt on a sustainable path. At the time, proposal seemed to die an ignoble death, but it has been resurrected this week. Reports suggest that just yesterday Merkel conceded she would re-examine the proposal.

The future of the European Union: The choiceThe Economist
A limited version of federalism is a less miserable solution than the break-up of the euro

France’s Broken Dream Project Syndicate
Martin Feldstein:  The European project has clearly failed to achieve what French political leaders have wanted from the beginning: instead of a sense of amity and unity in Europe, there is conflict. And, with German Chancellor Angela Merkel setting conditions for the eurozone, France’s ambition to dominate European policy has been thwarted.

An ever-deeper democratic deficitThe Economist
The level of further integration necessary to deal with the euro crisis will be hard to square with the increasing cantankerousness of Europe’s voters

The feeling’s mutualThe Economist
Mr Hollande and Mrs Merkel are clashing over Eurobonds, and more

Europe in limbo: Home and dryThe Economist
Europe’s weaker economies are in the grip of a worsening credit crunch

Christine Lagarde: can the head of the IMF save the euro?The Guardian
Her charm is legendary, but Christine Lagarde, head of the IMF, is far from a pushover. She talks about sexism, swimming and saving the European economy

Bail-in provisions will exacerbate run on banks, drive German asset inflationSober Look
Unsecured bank bonds have basically become equity with no up-side. The provisions will essentially put an end to most EU banks' ability to issue anything but covered bonds.

Merkel's 6-Point Plan to Save Europe; Merkel Backed Into Tight Corner: Social Democrats Threaten to Not Ratify Merkozy Treaty Without Growth Measures; Merkel Coalition at RiskMish’s
It would be quite ironic and rather fitting if Germany and France fail to ratify the Merkozy treaty. 25 Nations have ratified the treaty but France and Germany still have not.

The inverted Eurepo curve spells troubleSober Look
A month ago the Eurepo curve was upward sloping, as hopes of some sort of stabilization in the Eurozone later this year still existed. These hopes have now been dashed, with the curve becoming inverted in the short-end and flat at around 11bp out to one year.

ING’s Van Vliet Says Euro Bonds Are `No Silver Bullet’BB (mp3)

ECB Weidmann: ECB Has Reached The Limit Of Its MandateeFX

About That European Stress Test, 2011 Edition... And Where The Pain In Spain Is Raining NextZH
Research excerpts: there are plenty of banks that are low on capital: BNP, SocGen, Credit Agricole and Deutsche Bank.

Moody's downgrades three big Nordic banksReuters
Three of the Nordic region's biggest banks had their credit ratings cut by Moody's Investor Service on Friday due partly to the euro zone crisis, but the downgrades were relatively mild and showed the banks remain some of the strongest in Europe.

Greek euro exit flowchart: what happens nextThe Guardian
Lombard Street Research has provided a handy flowchart of the options ahead for the eurozone. After the election on 17 June, all the possible outcomes are considered, including austerity, referendum, euro exit and contagion

Germany Walks Away From GreeceTestosterone Pit
While everyone at the very top still hues to the line that Greece should stay in the Eurozone, out of the other side of the mouth comes but—especially since the focus is on Spain, the real problem, the one problem that the Eurozone will have trouble digesting.

Four Euro Divorces But No Funeral (Yet)ZH
JPMorgan’s excellent charts together with asset class views for 4 scenarios

The costs of a Greek exit: Cutting up roughThe Economist
All in all, the Greek government owes the governments and institutions of the euro area over €290 billion, about 3% of euro-wide GDP, say economists at Barclays Capital. After an exit most of this would probably never be repaid…. But could a Greek exit really be contained at its borders?

Greek Crisis Map: The three phases of a crisisSaxo Bank
Greek Crisis Map: Three moving parts of the investment universeSaxo Bank
Greek Crisis Map: The consequences of a Greek exitSaxo Bank
Greek Crisis Map: How to trade the crisisSaxo Bank
  (the full doc in one pdf)

Deutsche Bank’s Fitschen Says Failed Greece Lacks LeadersBB

Europe’s depressing prospectsMichael Pettis / Credit Writedowns
only three ways Spain can regain competitiveness sufficiently to raise savings and reverse the current account: The core countries increase spending, Spanish austerity or Spain leaves euro.

Spain Pours Billions Into BankWSJ
Bankia Bailout Costs Rise Again, Now At €19 Billion, €4 Billion Increase OvernightZH
Spanish Lender Seeks 19 Billion Euros; Ratings Cut on 5 BanksNYT
Spain to inject up to €19bn into BankiaFT
The capital monster strikesalphaville / FT

Spanish banks: The corralito riskThe Economist
Spain is home to some of Europe’s most vulnerable banks

Note on Spain: Regions and Banks Compete for AttentionMarc to Market
News that Spain's Catalonia region is seeking support from Madrid provided the headline trigger to the euro's slide and risk-off in North America after a quiet European morning.

Spain's Catalonia says needs government helpReuters
Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government as it is running out of options for refinancing debt this year, Catalan President Artur Mas said on Friday.

S&P Junks Nationalized Bankia, Downgrades Various Other BanksZH