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Wednesday, May 2

2nd May - The Worst Idea

Quite an interesting paper from JP Morgan on how the Euro Zone is, as an Optimal Currency Area, even a worse choice than we have thought. Otherwise, mostly economics and few words on the talks on how, when and why the bank capital requirements are increased. The Milken Institute's video is hard on Europe and recommended.

Here are the US closing regulars and some article links. You can get update notifications by following ‘MoreLiver’ on Twitter or Facebook. Contact me with any questions or suggestions.

Markets – Between The Hedges
The Closer – alphaville / FT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank

Making eurozonians, or not alphaville / FT
All the chart does is track how ‘different’ countries are from each other in a range of monetary unions which never existed, or are long dead, compared to the eurozone. ‘Different’ means scores on a hundred or so factors taken from the World Economic Forum’s Global Competitiveness Index, from
GDP per capita to judicial independence to available airline seat kilometres. The result speaks for itself.
Also: Just about anything makes more sense than the euro zoneEzra Klein / WP
Original research note here (pdf)

Is it Time to Invest in Europe?Youtube
Milken Institute 1h 13min video, for those on a busy schedule read this summary:
Hugh Hendry On Europe "You Can't Make Up How Bad It Is" ZH

Bonjour Two Tier Euro?Global Macro Monitor
We’ve always held the end game in Europe will be the stronger northern countries eventually pulling out of the Euro.   The path to the end game we do not know. Sunday’s election in France, may, or may not, be the event that pulls the curtain and reveals the true nature of the Wizard of Oz.   The Germans and their austere northern brethren will likely become increasingly isolated with an Hollande victory, in our opinion.   This could trigger a political crisis in the north.

Why the World Should Care about the European Debate on Bank Capital RequirementsPIIE
The European Union’s finance ministers are furiously debating a piece of legislation known as
CRD4/CRR (the acronyms stand for the fourth Capital Requirements Directive and the Capital Requirements Regulation). The measure is intended to implement the Basel III accord on bank capital, leverage, liquidity and risk management, which was adopted at the global level by the Basel Committee on Banking Supervision in late 2010.

Madness in Spain Lingers as Ireland Chase RecoveryBB
Have the US and European economies parted company? The signals are increasingly
According to official statistics, the UK and Europe are heading for recession, while the US is recovering. This has led some to suggest that European economies are moving in the opposite direction to the US. This column, written by the co-founders of Now-Casting, presents new now-casting estimates that put Europe and the US even further apart.

How should we divide AD in Europe? Some responses.Kantoos Economics
But is stimulus in Germany really more feasible?... I am going to make an optimistic claim here: Hollande’s win in France will make Merkel re-evaluate her policy options. Merkel in general does come around to what is the right thing to do if the pressure is high enough – especially if she can thereby steal the left parties’ thunder.

The euro-zone crisis: Call it a depressionFree exchange / The Economist
Most everyone seems to have convinced themselves that this sort of thing isn't so bad, so long as a Lehman-like financial collapse is avoided. It isn't. Nothing good will come of a euro-zone depression. If, when all of this is said and done, the euro zone descends into a chaotic, costly break-up, many people will write that such a thing was inevitable, unavoidable. They'll be wrong. We are watching causation this very moment: institutions that know how and why to prevent things from falling apart and which nonetheless sit back and do nothing.

On Spain and Europe’s existential crisisCredit Writedowns
All the while, the root problem has been the same: the common currency without ECB support for sovereign debt has meant that European governments lack the fiscal space afforded by sovereign currencies to run countercyclical fiscal that partially offsets the private sector deleveraging.

Self defeating European austerityMacro Matters
If peripheral nations are to reduce their deficits in the longer-term, then there needs to be a much more balanced approach to deficit reduction in the shorter-term that focuses more on jobs and growth, otherwise the goal posts will be constantly moving.

Playing the CDS-bomb basisalphaville / FT
Nomura: The probability of a unilateral strike from
Israel on Iran over the coming months has now fallen, while global concerns are shifting back towards Europe. We think this presents an opportunity to buy Israel credit against low-beta Europe.

An AUD tale of correlation lostalphaville / FT
 The Aussie dollar has fallen over 5 per cent against its
US equivalent since the start of the year and suffered its biggest dive in six weeks on Tuesday when the Reserve Bank of Australia cut rates by 50bps. (Markets had only priced in a 33 per cent chance of the RBA cutting that aggressively.) That overall kick downhill since mid-February has broken the pair’s usual relationship with S&P 500 fairly dramatically

Are Currency Rates Fixed or Just Broken?MarketBeat / WSJ
Trading foreign-exchange markets from a buy-side point of view poses a different set of challenges from those faced by traders on banks’ dealing desks, but both sides have come to a similar conclusion: The FX market appears to be broken. They also agree the real culprits are meddling central banks.

As Europe Re-Opens Spanish Stocks Close Near 9 Year LowsZH
EU bank stocks at the crisis lows, around same levels last seen in 1988…

Japan's growing fiscal burden is in an "unstable equilibrium"Sober Look
Japan's public sector has been the beneficiary of extremely low rates for quite some time. With the central bank financing new debt issuance by "printing" more yen, rates are expected to stay low in the near term. The public sector however has become complacent about its ability to borrow at these low rates (with the 10-year JGB now yielding less than 0.9%) going forward.