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Tuesday, May 8

8th May - US Close: It's All Greek To Me

Here are the US close regulars and the usual links to select articles. Greece dominates the headlines, but was anything else really expected? That they could and would pay their debts, and the socialized bank positions sitting at the EFSF and TARGET2 balances would not be realized? Greece is not the end, but it could be the beginning of something else.

For even more links to read, see today's earlier posts US Open and European Open, and remember to follow ‘MoreLiver’ on Twitter or Facebook.

Markets – Between The Hedges
The Closer – alphaville / FT
Negative Creep – A View From My Screens (new!)
Tyler’s European Summary – ZH  (new!)
Tyler’s US Summary – ZH (new!)

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

EURO CRISIS: GENERAL
Hope lies on the far side of a European Summer of DiscontentSaxo Bank
Steen Jakobsen: Denial, Protest, Mandate for change. Austerity was the denial that led to protests.

Europe edges closer to the endgame Credit Writedowns
Probably the most clear-headed article of the week: My belief all along has been that each nation in the euro zone is committed to its success. The European body politic has grown to support it as indispensible. Moreover, unravelling the euro is a very difficult task. And so, I believe political inertia alone will help see the euro through for most countries unless we see a catastrophic banking system collapse…Greece can’t make it. Greece will exit the euro zone. France has a mandate to redesign the institutional framework to include growth.

Doubling DownKrugman / NYT
I guess we knew this was coming, but in the face of last Sunday’s election results and the broader evidence that Europe’s economic strategy is an utter failure, the usual suspects are, you guessed it, doubling down.

The Take-Away From The European ElectionsThe Big Picture
What is the take-away from the French, German and Greek elections? Simply, austerity is no longer guaranteed. Those elected will attempt to stop the cuts to government spending, benefits and pensions. Instead they will try to retain or expand the European welfare state.

Weekend elections: Democracy and the fiscal compactvoxeu.org
Francesco Daveri: Voters in France, Greece, Italy, and Germany rewarded politicians who opposed austerity. This column argues that attempts to fulfil campaign promises will run up against a hard constraint. The countries whose voters are calling for looser fiscal policies are those where public spending rose fastest since the birth of the euro. The only way out of today’s difficulties is to use the flexibility already in the Fiscal Compact and continue with bold implementation of the economic reforms that are under way.

Yes, there’s been austerity in Europe Wonkblog / WP
The latest salvo in the debate over austerity in
Europe is to… imply there hasn’t been much austerity at all. At National Review, Veronique de Rugy posts a chart suggesting that if you don’t adjust for inflation and don’t count tax increases, there’s only been a bit of budget-cutting. But this seems to misunderstand what austerity is. It’s not all about spending cuts.

The euro crisis: Yes, there is austerity Free exchange / The Economist
The supposed absence of austerity in Ms de Rugy's figures is mostly a product of poor graph scaling and a reliance on nominal, absolute figures. If we instead turn to data from the International Monetary Fund's WEO database we see, first and foremost, that budget balances are in the process of improving dramatically.

Europe's morning after Foreign Policy
Europe has maneuvered itself into a difficult spot. The Keynesian prescriptions for government spending to counteract slumps presume that governments saved in the good times. Many of Europe's troubled governments did not. That leaves them with few good options now. So, in a twist on the old cry accompanying changes in European leadership: Austerity is dead! Long live austerity!

RBS's Gallo Says European Banks Face `Catch 22 Issue'BB (mp3)

EURO CRISIS: GREECE
Art Cashin On "Greece In A Capsule"ZH
Short, sweet, and cutting right to the chase.

Oh, Greek moratoria alphaville / FT
But let’s run with this moratorium idea anyway. It’s first far from inconceivable, given the way Greece’s political stasis is going. Thinking it through also tells you a few things about both how the debt works now post-PSI – and where the red lines lie for a Greek exit from the euro. Here’s a short list of the debt repayments Greece could opt to miss, we think:

What the TF? Greek Debt, Then and Now TF Market Advisors
The IMF and their loans are tough to touch. Want to watch how quickly a firewall disappears? Let the IMF renegotiate one cent of their loans and see how quickly countries back out of their firewall commitments. So the only way to get any serious debt forgiveness is from the ECB, and from demanding more from the banks for their recapitalization.

Greece, AgainTim Duy’s Fed Watch
The Greek political system appears rudderless, which is calling into question the nation's resolve to complete the conditions of the last bailout package.  Moreover, there are open calls for Greece to renege on the deal.

Greece: New Elections Likely, Odds increase for Eurozone ExitCalculated Risk
It appears no party will be able to form a coalition government, so there will be another election in June. A record large number of registered voters didn't vote in the recent election, and the outcome next month probably depends on if these people participate in June. The odds of Greece exiting the euro zone in the near term (and the euro) have clearly increased.

Greece is Worrisome, but Don't Forget about SpainMarc to Market
The Troika is set to visit Athens next week for the periodic progress report. Another 11.5 bln euro in savings in needed to be identified by the end of June, otherwise is may not receive the next tranche of aid… One proposal was that Spanish banks should be allowed to borrow from the EFSF/ESM. However, this seems to be a non-starter at this juncture. Borrowing from such facilities, including the IMF, comes with all sorts of conditionality which would not apply to the private sector. If Spain were to borrow just for its banks, it would have to be as part of a traditional package with the traditional strings.

The Greek SolutionEconoMix / NYT
The Greeks appear to have come up with an interesting way to deal with the fact that any Greek government will face intense pressure from Germany and some other European countries to accept more and more austerity that will be rejected by most Greeks. Don’t have a government.

OTHER
A further election in Greece likely Kiron Sarkar / The Big Picture
Global market commentary

What the TF? Wrong vs Bad Data and is 2012 the same as 2011 & 2010?TF Market Advisors
All three years had big directional moves in the first quarter, followed by big reversals starting in the second quarter. If you think about it that way, 2009 was the same as 2010 and 2011. Why would this be the case? I do think hedge fund trading patterns and bank trading patterns encourage this activity.

The "Merde" rally? Humble Student of the Markets
We may be seeing that short-term trading bottom now. My inner trader wants to buy risk in anticipation of an oversold rally. My inner investor tells me to watch the market action in likely ensuing rally to gauge the strength of the bulls as this is just another phase in the choppy up-and-down market action that we have been witnessing in the past few weeks.

Heeeeere's Goldman... With Renewed Calls For A June QE AnnouncementZH
we have stuck with our forecast of some additional monetary easing at the June 19-20 FOMC meeting for now, despite the less-than-encouraging noises from Fed officials in recent weeks. However, it is a close call, and we worry about a re-run of the 2010 and 2011 experience—the last two times Fed officials decided to let a purchase program lapse without having put a successor program in place.

UBS's Matus Says Optimism for U.S. Economy Is WarrantedBB (mp3)