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Saturday, May 5

5th May - Weekender: Euro Crisis

Here is the weekend’s linkfest on euro crisis.  The usual Trading, Economics, Off-Topic posts are coming up next. Please follow ‘MoreLiver’ on Twitter or Facebook and contact me with any questions or suggestions. Previously on MoreLiver:

A Solution for the Euro-Zone CrisisMarketBeat / WSJ
A real fix to the European economic crisis must encompass an umbrella solution that covers unemployment, a recession, bloated sovereign and private debt and the threat of crisis among Europe’s struggling banks. With that in mind, let me humbly suggest what I’m calling the European Investment and Growth Pact.

A workable solution is a (relatively) cheap solutionThe Economist
Incidentally, Mr Cowen's suggestion that inflation well above 4% would be necessary to fix the euro zone's problems seems dubious to me, or at least in need of supportive evidence. At any rate there is no excuse not to try 4% inflation, given the probable magnitude of the costs of break-up.

The European debate on bank capital is not just about
Europe’s finance ministers are currently deciding on the legislation intended to implement the Basel III international agreement on bank capital, leverage, liquidity, and risk management. This column argues that many officials, within Europe and beyond, severely underestimate the importance of this debate for reaching a global standard for financial regulation.

Why European Bank Stocks May Have At Least 40% More DownsideZH
as Barclays notes, if European banks follow the same trajectory as Japanese banks did from their peak in 1993 (as Europe has been since their peak in 2006), then Europe's banks market cap as a percentage of the total market is likely to drop from the current 11% to around 6% within the next year. Combine that with reality with Deutsche Bank's note that Spanish and Portuguese banks (and less so
Italy for now) appear perilously short of ECB-eligible collateral

Draghi Departs the Solar Systemnaked capitalism
I felt he sounded quite desperate about these points. In fact, his answers to additional questions made it clear he is fighting against a political machine that he may not have too much faith in. He is absolutely correct on this aspect of the matter, but his words sounded more like a plea than a policy statement...With economic delusion at one end and political ineptitude at the other, it is becoming increasingly difficult to be optimistic about the Eurozone’s future, even though I dearly wish it could work.

Germany’s economy: Message to the BundesbankThe Economist
If the euro zone is to survive, Germany must tolerate higher inflation…If the ECB’s monetary policy stays loose for years, Germany will at some point have to worry about bubbles. But that point is a long way off. Central bankers are supposed to take the punchbowl away from the party. But not before the party has even begun.

Draghi: euro countries to lose even more sovereigntyeuobserver
Draghi has urged eurozone leaders to come up with a 10-year target for the common currency, saying they should accept more transfer of powers if they truly want a fiscal union.

Is LTRO QE in disguise?
The ECB has managed a massive expansion of its balance sheet with long-term refinancing operations. This has been called the equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not tight limits on the purchase of government bonds. Rather, it is the absence of a banking and fiscal union and the heterogeneity within the Eurozone that reduces the effectiveness of the ECB instruments.

Visualizing Why LTRO = QEZH
The ECB's more restrictive mandate, however, does not allow them to print money for any other purpose than lending and so direct QE was out of the question and so, as the chart below demonstrates, they ingeniously created the LTRO - delivering an infusion of liquidity (potential profits from carry and hope for capital raises).

Everything You Know About Monetary Policy Is Wrong... And Why This Is Very Bad News For EuropeZH
Aitken Advisors’ presentation: collateral is money, and everyone is out of collateral. Loosening collateral standards only increases eventual pain, and LTRO is counterproductive.

ECB, Behold the Wonders You Have Wrought!CNBC
Rather than engaging in flat denial, which now convinces no one, Spain’s banking community would be far better off doing what the rumors suggest the Bank of Spain (under pressure from the IMF) is now about to do, and bring in some outside experts to make an independent assessment of the situation… As for the ECB, I have one simple piece of advice for Council members as they visit the marvelous city of Barcelona: "look on in wonder and behold"!

Spain’s woes: Those sinking feelingsThe Economist
There seems to be no end to the troubles in Spain

April started bad and got worse, final PMIs showalphaville / FT
On Friday morning, the Markit Eurozone Composite Purchasing Manager Indices were out, signalling further weakness. The manufacturing indices, released on Wednesday, had already set the scene for further deterioration not only in the periphery, but also the core.

Misery builds for the euro zoneReuters
The euro zone economy worsened markedly in April, according to business surveys that clashed with the prospect of a gradual recovery augured by ECB President Mario Draghi this week.

European economy: Down, down, deeper and downButtonwood’s / The Economist
The composite figures for the European economy, released this morning, show that the picture is even worse than first thought.

Going for growth, but how?The Economist
Europe is abuzz with talk of a growth compact, but nobody agrees what it means

Krugman Wishes He Were Wrong Amid EU Austerity BacklashBB
Europe’s shifting emphasis from enforcing austerity to seeking economic growth marks a hollow victory for Nobel laureate Paul Krugman. “I wish I’d been wrong for the sake of the world,” Krugman said in an interview with Bloomberg Television’s Carol Massar. “You can see that there has been a definite shift in opinion.”

Are Europeans Turning Against Austerity?PIIE
By focusing on tight spending rules at the national level, the Fiscal Compact leaves only centralized euro area level stimulus options available for European leaders. But such a development will help strengthen the “European center” and expand the availability of jointly guaranteed European debt.

Millions Left Behind in Boom: The High Cost of Germany's Economic SuccessSpiegel
Countries around the world envy Germany's economic success and look up to it as a role model. But a closer look reveals a much bleaker picture. Only a few are benefiting from the boom, while stagnant wages and precarious employment conditions are making it difficult for millions to make ends meet.