Yes, the Spain receives a bailout of 100bn, but it will eventually need 200-300bn and current
rescue vehicles are not enough to fully backstop Spain and Italy. Yes, the bank jogs must be
stopped, but without a full banking union it will be difficult to convince the
payers (=Germany) it will be worth it. To end the
crisis, the June meeting would have to agree on bank deposit guarantees, bank
transparency and continent-wide banking regulation, full backstops of Italy and Spain, ECB's debt monetization and
several other things as well. Of the ten or so items, leaving even one task
undone would let the crisis to continue.
Of course,
the above "ending the crisis" does nothing to address the current
account imbalances arising from the differences in competitiveness between
member countries. Transfer payments or introduction of national currencies are
needed to do that.
I just
don't believe there is any reasonable chance that the crisis could be solved -
there are too many tasks, and too many vectors of interest, all pulling to
different directions. Thus, we will see incremental work on the full task list,
just enough to allow for more muddling through, while the underlying crisis
keeps getting worse. This slowly but surely eats away the voters’ support to
the politicians in deficit- and surplus countries, and makes an eventual
solution even more improbable.
The muddle through
will end at some point, but it will not be a happy ending.
EURO CRISIS: GENERAL
Euro Breakup Precedent Seen When 15 State-Ruble
Zone Fell Apart – BB
It was a currency union of 15 states in 1992.
Two years later, as budget deficits spiraled out of control, hyperinflation
reigned and economies shriveled, just two members of the Soviet Union’s ruble zone were left.
A Dysfunctional Nation – John
Mauldin / The Big Picture
European leaders launched the euro project in
the last century as an experiment to see whether political hope could become
economic reality. What they have done is create one of the most dysfunctional
economic systems in history.
"Material Banknote Order Reinstated" – ZH
…a material banknote order reinstated. This
order was unexpectedly suspended in the fourth quarter of 2011 which negatively
impacted the financial results of Landqart's operations in the first half of
2012.
The Euro Zone Crisis: Political and Economic
Perspectives – Econbrowser
The euro zone was not, and still is not, an
optimal currency zone. This was known as early as the early 1990's, as
highlighted by this table from a 1994 paper
Remaining in the single currency is no longer a
rational choice for many countries – but will its creators listen?
Ireland wants to renegotiate its rescue plan to
benefit from the same treatment as Spain, which looks set to win a bailout for
its banks without any broader economic reforms in return, European sources said
on Saturday.
UniCredit’s Rosen Says Fiscal Integration
Needed – BB (mp3)
DOWNGRADES
Moody’s tries to ruin our weekend – alphaville
/ FT
warning that “recent developments in Spain and Greece could lead to rating
reviews and actions on many of the euro area countries” — and offering a
generally downbeat if less-than-original assessment of the euro zone’s future
in general.
Moody's Warns Of Spanish Downgrade, Threatens
AAA-Countries In Case Of Grexit – ZH
FRANCE
First Round French Elections: Preliminary
Thoughts – Marc
to Market
There are 577 seats at stake, meaning 289 seats
are needed to secure a majority. If Hollande's Socialists do not achieve this
by themselves, their first call for an ally will likely be the Greens.
Hollande About to Wreck France With Economically
Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not
Worth It" – Mish’s
Over the long haul, this will kill France's economic
competitiveness while increasing unemployment.
GERMANY
Two years, three sovereign bailouts, more than
a trillion euros in cheap ECB loans, and dozens of summits later, the latest
developments in Germany suggest that Berlin is moving to solve the continent's crisis. But the country’s idea of a
solution remains a system in which Berlin gets de facto and de
jure veto power over national budgets in return for eurobonds. That misses the
point: the crisis is not fiscal, but financial. It began, and it will end, with
the banks.
Niall
Ferguson and Nouriel Roubini: But before Europe gets anywhere near taking this
historical step, it must first of all show it has learnt the lessons of the
past. The EU was created to avoid repeating the disasters of the 1930s. It is
time Europe’s leaders – and especially Germany’s – understood how perilously close they are to doing just that.
Bundesbank: the eurozone's secret dictator – The
Telegraph
German Chancellor Angela Merkel may be the
dominant force in the eurozone but the Bundesbank, Germany’s powerful central
bank, is the power behind the throne.
Wolkenkuckucksheim – Krugman
/ NYT
This is scary stuff. If top officials in Germany are this disconnected from reality at this late date, what chance does Europe have?
SPAIN
Bailout Lite? There's Really No Such Thing; €30
Billion Needed? It's Now €100 Billion; Contagion of Economic Idiocy – Mish’s
Then within six months, possibly as soon as the
money is handed over, more problems will surface, more meetings will take
place, and still more money will be stolen from Spanish taxpayers and handed
over to the banks and bondholders.
Pressure Mounts on Spain to Request a Bailout – WSJ
Good background article written before the bailout news
Good background article written before the bailout news
Bank of Spain inspectors question the viability
of BMN Bank Group –
Mish’s
The BMN group is bankrupt and it is
"virtually impossible" to pay back money to the Fund for Orderly Bank
Restructuring (FROB). Clearly the alleged orderly restructuring process is not
so orderly.
The Spanish Cross Of Forbearance – Mark Grant / ZH
The real number, if you look at the Regional
debt, the needed aid for the banks, the contagion at the already infected two
major banks is somewhere around $400 billion which is not present in the EFSF;
there is not enough “promises to pay” left in this fund.
Once again, this is the wrong approach.
Bondholders should have been wiped out. Instead, Spanish taxpayers will be put
on the hook for another hundred billion euros. If another hundred billion euros
is all it takes, I will be amazed.
Spanish bank bailout unlikely to succeed – economistmeg
Unfortunately, it is very unlikely to succeed
in drawing a line under concerns about Spain’s solvency. In the
absence of economic growth, a bailout for Spain’s banks will be
followed by a bailout for the sovereign as well.
Here Are
The Main Outstanding Items Following The Spanish Bailout – ZH
Where will the money come from? - Where will
the money go? - What happens to Spanish sovereign debt? – Precedent - Market
reaction
In the end, Europe is ultimately just going t
have to print a lot of money, forgive a lot of debt, or find more ways to lend
cheaply to the weak countries, but that might not bother the market for a
period of time.
JP Morgan: our banking analysts have suggested
recapitalization needs may ultimately run to €150bn…The request for support has
at least three negative consequences: It implies some degree of subordination
of other holders of Spanish sovereign debt. It provides a clear demonstration
of the limits of the ability of the sovereign to raise funds on its behalf. And
it crystallizes banking losses accruing to the State which it had hoped to
avoid.
‘The Eurogroup supports the efforts of the
Spanish authorities…’
– alphaville
/ FT
Just the
Eurogroup statement
…it’s unclear how much of the money is going to
come from the ESM rather than the EFSF. That might seem like a niggardly
distinction, but it’s an important one: the ESM has preferred-creditor status,
which means that it’s senior to anybody buying Spanish sovereign bonds.
Spanish Bank Rescue: Will the Treatment Make
the Patient Worse? –
naked
capitalism
The endless stopgap measures have kept the
Eurozone limping through its sovereign debt/banking crisis far longer than I
thought possible. But the seeming success of bare minimum moves may well have
conditioned the authorities to continue on that path. If so, it will prove to
be their undoing.
This is a positive first step, but there are
far more (serious) hurdles to deal with eg EZ wide deposit insurance, EZ
banking union, far too small EFSF/ESM (will need more funds from EZ countries,
which is unlikely – the other alternative is to grant the ESM a banking licence
which, in my humble opinion, is more likely) etc, etc. Finally, will this be it
for Spain – unfortunately, I very much doubt it. Spanish banks will require more
funding and, most likely, Spain itself;
GREECE
Citi Matrix Outcomes: If "Disorderly
Grexit" Then "VIX At 80" – ZH
Three
scenarios discussed: 1) Managed Grexit with firewall in place but insufficient
to remove EMU break up risk or risk aversion 2) Managed Grexit with firewall
implemented in response to Grexit 3) Disorderly Grexit with excessive
volatility in other markets
On the (marginal) advantages of the Greek bank
jog – alphaville
/ FT
Perversely, as Greece reaches a “nothing to
lose” point, the bank jog also exerts a positive influence on its prospects, as
it implies a shift of wealth from Europe to Greece if and when the drachma is introduced and depreciates sharply.
SWISS FRANC
$7 Million a Minute – Bruce
Krasting
The question of the hour is, “Can the SNB continue to intervene at this
pace?” My answer to this is, “Absolutely not”…The only option left for the
Swiss is exchange controls. They will make it very expensive to own Swiss
Francs.
This confirms that not only do we have a run on
periphery banks, with cash moving to Germany, but deposits are rapidly moving abroad as well. And Switzerland has become the main beneficiary