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Sunday, June 3

3rd Jun - Weekender: Euro Crisis

Weekend readings on Europe, more to come later in the evening.

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Ciao Ciao EuroBlue Ridge
…we continue to assign much higher odds to a break-up of the monetary union, which is ultimately the most efficient solution, although perhaps we are placing too great an emphasis on policy-makers acting rationally.  The logic is really quite simple...

The Euro: an alternative moral talemainly macro
If the Euro is to survive, the Core has to stop thinking like the aggrieved party, and instead must recognise that it designed the system that, quite simply, created this crisis.

IMF signals nervousness about Eurozone exposuresA Fistful of Euros
the Fund (which technically lends foreign exchange to central banks) is actually lending huge amounts into budgetary systems about which it knows quite little because the recent batch of borrowers has been outside the usual discipline of budget scrutiny for developing countries

In the Balance: An economic super-state?BBC (mp3)
At the end of a week of renewed financial strains in the Eurozone, there was a little political relief for embattled leaders. A referendum in Ireland approved a system of discipline for European government finances. The rules could be a step on the road to a much more integrated Eurozone, perhaps even a United States of Europe. Would that fix the economic problems and is it feasible politically? And Europe's financial engineering - clever tricks, but do they do anything other than hide the reality of who is paying the bills? Andrew Walker hears the views of Huw Pill, Chief European Economist at Goldman Sachs, Michael Mainelli, Executive Chairman of the financial think tank Z/Yen and Carl Astorri, senior economist at the consultancy, Oxford Economics.

Germany on the Verge: “Dispel This Fog,” begs Mario DraghiTestosterone Pit
Instead, politicians would follow the Japanese model, where debt amounts to 230% of GDP, and where utter fiscal gloom is pervading the lives of the young. The US, with its ballooning debt and out-of-control deficits, is already on that track. It may be OK for Greece or Italy. But is it wise for Germany?

One scenario for the eurozoneMarginal Revolution
Germany supports a phased-in backstop of eurozone bank deposits, but with intermediate goals and targets along the way.  They’re not simply going to write a blank check.  Some of the goals and targets are fiscal, while others involve turning over bank supervision to the EU.  Obviously, none of this can be done quickly

EU-wide bank deposit scheme: neither politically feasible nor credibleeconomistmeg
We have seen that national bank deposit guarantee schemes have failed to stem the “bank jog” currently occurring in the weaker EZ countries. A European-wide bank deposit guarantee would be an improvement, but even if it could be agreed by European leaders, it may on its own still fail to stop a bank run.

Ireland votes Yes to fiscal treaty, expects EU solidarityeuobserver
The government conducted a Yes campaign based on fear. It warned that voting down the treaty would block Ireland's access from the permanent eurozone bailout fund, the ESM. The No side had argued the treaty risks locking the country into a downward spiral of austerity.

Democracy versus the EurozoneProject Syndicate
Daniel Gros: The broader message from the Greek and French elections is that the attempt to impose a benevolent creditors’ dictatorship is now being met by a debtors’ revolt. Financial markets have reacted as strongly as they have because investors recognize that the “sovereign” in sovereign debt is an electorate that can simply decide not to pay.

Chart of the day: Net Target2 Balances in Eurosystem show capital flightCredit Writedowns

European money slows to a crawlMacroBusiness
European monetary aggregate data from the ECB came out this week and continues to follow the trends we have seen over the last year.

The dark flip side of European technocracyOpinion / Reuters
What is worrying is that Germany’s leaders are now trying to treat foreign politicians who question German orthodoxy the same way they treat their own populists. When I was last in Berlin, I asked one of Merkel’s aides what he thought her greatest achievements during the crisis were. He replied: “We could teach the neocons a thing or two about regime change.”

Citigroup's Menuet Says Main EU Problem Is `Confidence'BB (mp3)

Stannard Sees Increasing Evidence of Euro Zone Slowdown BB (mp3)

Pimco’s Gross Says Avoid Investing in Europe for NowBB (mp3)

Save us from the savioursLondon Review of Books
Slavoj Žižek on Europe and the Greeks

Bank exposure to European DebtThomson Reuters
Interactive graphic – see who is exposed to Spain, Greece, etc., data end of Dec-2011

Goolsbee Says Europe Will Have to Put Money Into BanksBB (mp3)

Five hundred years of crisisSüddeutsche Zeitung / presseurop
Spain has frittered away its chances for economic development for the second time. The first was after it discovered the Americas in 1492, and the second was after it joined the European Union in 1986. The anti-economic thinking that has dominated Spain is rooted in its history and culture.

On Spain’s banking recap and capital flightalphaville / FT
 J.P.Morgan: The BoP suggest that 60% of the outflow in 1Q12 was driven by foreigners exiting
Spain, with the rest initiated by domestic residents. UBS: Assuming a bank recapitalization worth € 100 bln, the debt would instead pass 90% this year, peak at 94% in 2014 and then decline to 84% by 2020. These numbers suggest that, although putting considerable pressure on the sovereign market, the recapitalization would not push the debt to unsustainable levels.

Snapshot on Spain: And the Money Keeps Rolling OutPIMCO
…the potential for more capital flight in Spain remains significant even after all that has taken place so far. The good news, though, is that when all is said and done, we expect a big share of Spain’s NIIP, possibly up to a third, will end up being owed to the public sector. Because of that, Europe needs to end its policy of “constructive ambiguity.”

Florida Versus SpainKrugman / NYT
both had huge housing bubbles followed by busts. Florida, however, has its retirement and much of its health care paid for from Washington. So how big are the transfers?

Edge of a Precipice; Doublethink Extraordinaire; Spain in Discussions With US Regarding Bank Aid; Gold Soars; Geithner to the Rescue?Mish’s
De Guindos is globe-trotting the world, holding meetings with the EU in Brussels, with French president Hollande in France, with Germany's finance minister in Berlin, with treasury secretary Tim Geithner and the IMF in the US, asking for "assistance with no strings attached" while insisting "Spain does not need a rescue and its banks are not in trouble". This is exactly the kind of Orwellian story that is nearly impossible to make up.

Why a Grexit Would Make Lehman Look Like Childs PlayTF Market Advisors
The ECB, EFSF and IMF will take massive losses – European Trade Will Decrease Dramatically – Other Devaluing Countries have been Resource Rich – Other Devaluing Countries weren’t part of a Fragile Currency Union – Other Devaluing Countries weren’t part of a Fragile Currency Union – Decoupling is a Myth – A Grexit is So Bad That it Won’t Happen

Athens: the end or just the beginning?Saxo Bank
remember the spectacular investment opportunities the last time Russia, Brazil, and Argentina went bankrupt. When the noise is the loudest, the investor needs to walk into the fire not run away from it.

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