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Tuesday, June 19

19th Jun - US Close: Announcement Games...

Another huge post for a headline-driven day. We had the G20 meeting, where Barroso is showing all the classic signs of denial and panic: Like the European mess would be the fault of the Americans. He is not speaking to the European electorate. His bullshit will not work on heads of states. Still no admission from anyone that the euro is flawed.

Another test balloon as part of the announcement games, now stating that Germany would be willing to allow the ESM to buy bonds directly. The blogs already announced the idea idiotic and counterproductive (subordination etc.) even before it was officially denied. This is just like before last Christmas, before the ECB stepped in with their first long-term LTRO. (see my earlier posts here, here and here on 'announcement games').

Meanwhile, the European Parliament is acting delusional by their recent proposal to end the reign of credit raters. Could someone please point out to them that they are idiots and should not try to act like they understand anything, or that what they think has any importance whatsover? 
3 scenarios for Spain & Italy: 1. current Muddle Through works; 2. Full Troika Bailout; 3. Full Monty of fiscal/banking/political union *** Muddle Through is failing as Spain & Italy are on verge of losing market access. Thus 2 other options are Full Troika Bailout or Full Monty *** Full Monty is fiscal union with E-bonds, banking union w EZ-wide deposit insurance, growth compact, less fiscal austerity, political union *** Full Monty unacceptable to Germany. Thus if Muddle Through likely fails with Spain/Italy losing mkt access Full Troika Bailout only option - Source: Nouriel Roubini's Twitter feed

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News – Between The Hedges
Markets – Between The Hedges
The Closer – alphaville / FT
Market Commentary – A View From My Screens
Tyler’s European Summary – ZH
Tyler’s US Summary – ZH

  Hope Of Bernanke Ex Machina Drives Low Volume Equity Surge As Gold Defies QE Dream

Debt crisis: live – The Telegraph
The Euro Crisis Blog – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank
European 10yr Yields and Spreads – MTS indices

Subordination Vs Moral HazardZH
Goldman discusses these two sides of the same coin as it notes subordination is explicit when the ESM intervenes (and also with the ECB's SMP) but a little less obvious in the ERF (though still as painful) which is, we note, perhaps more appealing to keep the masses unaware.

Euro zone whack-a-moleWonkbook / WP
I have to be honest: I'm really looking forward to the day when Wonkbook's top story can routinely be something other than "Europe: Still a huge mess."

Greece and the Rest of the Eurozone Remain on the Road to HellNew Economic Perspectives
It seems clear that the German Constitutional Court ruling on the Greek bailout in 2010 was quite explicit in terms of its meaning: According to this court ruling Target 2 and various other forms of the ECBs lender of last resort programs are unconstitutional

Humpty Van Rompuy Has Fallen Off The WallMark Grant / ZH
When you see the next, new, new fanciful plan floating around in the wind don’t be alarmed and don’t be taken in by the pretty colors. Unless Germany agrees to something it will not be happening and Germany will not, cannot without severe political consequences, agree to the demands of their needy neighbors.

The tactless Mr Cameron & the eurozone blame gameThe World / FT
David Cameron is taking a break from irritating the Germans. Instead, he has decided to piss off the French.

MEPs challenge code of conduct loopholeeuobserver
A loophole in the European Parliament's code of conduct enables lobbyists to continue to fund MEP non-business-class flights and pay for hotel accommodation of up to €300 a day without disclosure.

Europe Launches Ban On All Policy Criticism By Scrapping Use Of Rating AgenciesZH
The EU has just voted to scrap the use of ratings agencies in the next step on the road to a ban of all policy criticism.

No rating outlooks please, we’re Europeanalphaville / FT
Something voted on by Members of European Parliament, or MEPs, still must go to the Council for approval and, quite often, amendment.

I Come Not to Praise Rating Agencies, but to Bury ThemTF Market Advisors
There is only one reason that ratings are market moving – because the regulators have made it so. If it wasn’t for regulations based on ratings, the power and influence of the rating agencies would drop immediately.

Exclusive to all newspapers, EFSF/ESM bond-buyingalphaville / FT

ECB SMP didn’t work, so now the ESM wants to try?The Big Picture

The newest German plan likely won’t work. If it even exists.Wonkblog / WP

It's Just ImpossibleMish’s

And For Today's Market Ramp Rumor Du Jour We Have...ZH
In other words, the ESM will take place of the ECB's SMP. With the only difference that the ECB can print money, while the unfunded ESM will at best rely on the murky details of repo lending. Same subordination either way, of course. Also, the whole no-bailout-clause thing embedded in the Lisbon Treaty... they were just kidding about that. 85 million Germans will understand

Grauniad Rejected - Germany Denies All RumorsZH

ECB lending by countrySober Look

The risks of dysfunctional money marketsalphaville / FT
If that’s the case, then lower (unsecured) interest rates might not be passed through to the periphery, making the repo rate that much more important as a target of central bank intervention.

ICAP’s Smith Says ECB May Prop Up Spain’s Bond MarketBB (mp3)

Why 100 bln euros for Spain Won't be EnoughMarc to Market
Do not be misled by the 2.6% rally in Spanish equities today or the 11 bp decline in 10-year bond yields.  Spain's problems are still growing, not diminishing.   

Spain Sells 1 Year Bills At Record Post-Euro Yield, ING Says Spain To Need €250 Billion More; German ZEW ImplodesZH

The political price of not saying the word "bailout"El Pais
Mariano Rajoy's version of Spain aid package draws mockery and mistrust

Here's Why Spanish Bonds Are RallyingZH
the marginal bid on Spanish bonds is in fact once again the CDS-bond arbitrage trading community.

LCH Raises Margins Costs For Most Spanish Bonds ZH
Effective from close 21-June

Getting to a Grenegotiationalphaville / FT
There’s excitement in Greece today. It may be the day Greece finally gets a government!

Jakobsen Says Greek Exit Will Force ResolutionBB (mp3)

Russia: oil price down, capitalism up?alphaville / FT
Russia move ahead from being a resource producer?

China Facing First Deficit Since 1992Forbes
First balance of payments deficit quarter expected, first since 1992.

EMs to the IMF: it’s timebeyondbrics / FT
with China and others stumping up this week for the IMF’s warchest, are the major emerging markets finally about to get a bigger say in the Fund’s management? 

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