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.
The 5 possible parts of a “master plan” to save the euro – Wonkblog / WP
1) A banking union, 2) Eurobonds, 3) More stimulus, 4) But also… more oversight, 4) But also… more oversight
Credit Suisse Explains "The Real Issue", And Why There Is Two Months Tops Until France Is In The Bulls Eye – ZH
Given the market’s adaptive learning behaviour, we suspect that this finesse might last two. The eventual denouement should be flagged by symptoms of the failure of the credit of EFSF/ESM and/or France.
The G20 should rise to the challenge (but probably won’t) – bruegel
1) review Europe’s financial reform plans 2) express readiness to provide support and 3) examine the need of coordinating macroeconomic policies.
– alphaville / FT
Two simple charts. The crisis is very, very simple.
Two simple charts. The crisis is very, very simple.
Steen Jakobsen: We spent considerable time today discussing the "banking union" which seems to be the economists' and policy makers' favorite panacea for the EU debt crisis. Our conclusion is that we can't see why or how this will be the eventual solution.
Generic news/market wrap-up: Spain, ECB, France
In the crazy world of sovereign bailouts, we may find Cyprus in a unique position. There may be competition for who provides the bailout cash. If one was a Cypriot, and faced with the need to go hat in hand for help, which way would they go?
ECB’s latest report talks about why banks have difficulties loaning money because of lack of capital and subordination. But the same logic should be applied to sovereigns as well!
32-page research report from 5-June.
Full JPM note “Starting to think about the EU summit on June 28/29”
Commentary: The crisis could go from ‘Spanic’ to ‘Quitaly’ to ‘Fixit’
The European Banking Union? – Project Syndicate
Hans-Werner Sinn: In blatant violation of the Maastricht Treaty, the European Commission has come forward with one bailout plan after another for Europe’s distressed economies. Now it wants to socialize not only government debt by introducing Eurobonds, but also banking debt by proclaiming a “banking union.”
Goldman contemplates what could turn the jog to a run.
Credit Suisse: Europe 40% through the resolution of the European crisis but we suspect that the next 60% is highly convex and binary and given our previous note on the divergences of opinion, also unlikely.
EURO CRISIS: ECB / TARGET2
But what if the entire eurosystem fell apart, and every country reverted to its own national currency? In that case, it’s still hard to see how there would be much of a hit to Germany.
A default on TARGET2 is a loss to the creditor nation even if the legal creditor is a central bank. And when one nation defaults to another, the pain is spread to the citizens, whether the default is on bonds, loans, or TARGET2 liabilities.
EURO CRISIS: GERMANY
The World Waits For Germany – Foreign Affairs
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.
Berlin is ignoring the lessons of the 1930s – FT
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.
German sovereign CDS widening is a troubling sign – Sober Look
To an economist this raises all sorts of questions such as what is the "risk-free rate" for the euro. And how can German paper be viewed as risk-free when German sovereign CDS is wider than Verizon, IBM, Pfizer, Microsoft, etc. CDS? What this tells us is that investors are becoming concerned about Germany's growing liabilities associated with the Eurozone.
Europe’s Optional Catastrophe – Foreign Affairs
The Fate of the Monetary Union Lies in Germany’s Hands
The German government has begun opening the door to shared debts for the first time in a profound change of policy, agreeing to explore proposals for a €2.3 trillion (£1.9 trillion) stabilization fund in order to stop the eurozone’s crisis escalating out of control.
EURO CRISIS: SPAIN
Spanish Bailout: The Collection – MoreLiver’s Daily
EURO CRISIS: ITALY
Begins with Spain (too small bailout), but the talk on Italy is the beef.
Italy, one of the founders of the European Union, is now in the most critical of situations. If many different things do not go well for the bel paese in the next year, it may attract the use of the word “founder” in its other, more sinister meaning: to sink.
EURO CRISIS: 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
Barclays’ overview of the various scenarios in the upcoming Greek elections. This also shows that the situation in Spain can not be divorced from the Greek outcome.
Goldman’s complete Greek decision tree that is set to unfold once again starting Sunday night. The one thing we can definitively say: this is one tree that money definitely not grow on.
I think you can tell a story that the most recent data is not sufficient to move Fed forecasts, in which case it remains possible that the Fed does not implement any changes next week. I have to admit to being a little nervous that we get a Fed "leak" over the next few days in an effort to reset expectations ahead of the meeting.
Credit Suisse notes, among others
$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.
Eurozone citizens moving billions to Switzerland – Sober Look
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
CHF: Systemic risk and the EU debt crisis – Saxo Bank
Steen Jakobsen: The chances of the peg at 1.2000 breaking have increased from less than 10 percent to more than 25 percent. Assuming the downside risk is parity (1.0000), the risk of 20 CHF big figures gives a weighted risk of peg-breaking of: 5% (20 percent move x 25% chance = 5%).
Meanwhile In Switzerland... – ZH
The entire bond curve through the 5 year point is now negative
The Eurozone, Swiss National Bank, Market Strategy – David Kotok / The Big Picture
We conclude that the massive expansion of the SNB balance sheet and the commitment to the peg now combine to make the Swiss 10-yr bond the European benchmark. Switzerland is considered the highest-quality, most truly AAA-rated credit in Europe.
Things That Make You Go Hmmm-newsletter
The New Normal called for long-term deleveraging that would lead to lower growth than society had been accustomed to. It called for more modest investment returns across asset classes, as the leveraging of the economy reversed course. It called for increased regulation and reduced globalization. Most importantly, it said there would be no V-shaped recovery that is typically seen after a recession. It would be a long, hard adjustment period with sustained high unemployment. It also called for a transition of stress from private balance sheets to sovereign balance sheets.
Back in February 1994, amid the turmoil of the country's transition to a market economy, the mathematician organized a Ponzi scheme called MMM.
When the stakes increase, you become more conscious of your actions – and start making mistakes
When mathematician and blackjack expert Jonathan Adler saw my post about hedge fund manager Michael Geismar’s antics at the Vegas blackjack tables, he offered to explain just how silly Geismar was being.