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Saturday, June 9

9th Jun - Best of The Week

The better articles from the ending week's posts.

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.

Why the Euro Zone Could Unravel Shockingly FastTIME
 I asked why Europe today needed anything more than a free trade zone, easy terms for people traveling and working in other countries, a European military entity within NATO and some multinational bodies to co-ordinate foreign and economic policy. No one had an answer.

Deleveraging and the creation of the Eurozone KeiretsuBetting the Business
A few large corporations are going beyond that and creating their own banks to make up for the vacuum created by the banks disappearing from the funding scene. Having a bank allows these corporations direct access to funds from the ECB, and enables them to store their excess liquidity in-house, instead of in deposits at outside banks that may be vulnerable to runs.

ECB and euro governments play chickenHugo Dixon / Reuters
The euro zone crisis is a multi-dimensional game of chicken. There isn’t just a standoff between the zone’s core and its periphery; there is also one between the ECB and the euro zone governments over who should rescue the single currency. In such games somebody usually blinks. But if nobody does, the consequences will be terrible.

CLSA gives Europe 10 lessons from AsiaASA
They looked back to 1997 and the subsequent years when
Asia was suffering the the crisis and the aftermath of it.

When strategy is mistaken for stupidity, the curious case of eurozone politicians alphaville / FT
Richard Barwell of RBS wishes to point out that policymakers aren’t idiots. They are rational actors acting on the basis of their particular ‘loss functions’. The behaviour dictated by those functions will determine the outcome of the crisis.

Let’s all play a game of “Soros says”alphaville / FT
He doesn’t like modern economics all that much and thinks the eurozone is going down a road towards German empire, necessitated by Target2 imbalances, unless something extraordinary happens soon.

Panic has become all too rational Martin Wolf / FT
Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.

Europe: Get Ready for a Surprise Endgame!A Dash of Insight
Most people are watching for some big, comprehensive plan.  They will not see a solution until they have missed the whole move.  If you follow the items on this list, you can track progress in real time.

Living Europe’s Nightmare Project Syndicate
former Vice Chairman of Moody’s: The entire planet seems to be in denial about what is about to occur in the eurozone. Pundits keep expecting Germany to pull a rabbit out of the hat and flood the continent with Eurobonds, or that Mario Draghi will mount a coup at the ECB and buy up every deadbeat country’s bonds. Either could happen, but both are extremely unlikely.

The Accidental Empire / George SorosProject Syndicate
It is now clear that the main cause of the euro crisis is the member states’ surrender of their right to print money to the European Central Bank. They did not understand just what that surrender entailed – and neither did the European authorities.

Slouching towards a banking unionThe Economist
The prospects of big bank bail-outs are intensifying calls for a central fund

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.

Spain and Banking UnionMarc to Market
Some proponents have argued that the deposit guarantee programs should insure the euro value of savings. Because of the potentially incredible cost, this component will likely prove highly controversial. Yet without it, weak sovereigns may find it difficult to stem the shift of depositors.

Target loans, current account balances and capital flows: the ECB’s rescue facilitySpringerlink
The seminal paper by Hans-Werner Sinn and TimoWollmershäuser has been updated recently.

Mario Draghi: The banker holding Europe hostageWonkblog / WP
He can print money. He can lower interest rates. He can fund banks. He can comfort investors. He is perhaps the only person on the planet who, with a few words, could mostly end the euro zone's crisis. But he refuses to say those words. And that's because he doesn't want to end the crisis.

Spike in ECB's MRO facilitySober Look
Did ECB loan out 68bn to Spanish banks in the past couple of days, thus guaranteeing the success of today’s bond auction?

Schadenfreude Is a German WordTF Market Advisors
Is the German Pot Calling the PIIGS Kettle Black? – Debt is either Repaid or It Isn't – How much is Germany on the Hook For at the ECB? – How much is Germany on the Hook For via the EFSF and EU and IMF? – How bad will German Bank Losses Be? – How bad is the Target2 hit? – Countries in Glass Houses Shouldn’t Throw Stones

Nein! Nein! Nein! AgainThe Telegraph
Almost everything Angela Merkel is talking about already exists. She has dressed up an old arrangement as if it were new. The Commission knows this perfectly well. Everybody is pretending there was a ground-breaking deal this week to maintain appearances. This is the usual EU smoke and mirrors.

Germany Grapples With Role in RescueWSJ
As Europe careens deeper into political and economic crisis, the immediate survival of the euro turns more than ever on a single question: Will Germany act?(very nice interactives)

Angela Merkel, swimming instructorThe Economist
When it comes to the euro, the German chancellor prefers self-help to help—but she can be more flexible than she seems

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.

Spain says markets are closing to it as G7 confersReuters
Spain said on Tuesday that credit markets were closing to the euro zone's fourth biggest economy as finance chiefs of the Group of Seven major economies were to hold emergency talks on the currency bloc's worsening debt crisis.

More on EU plans for a Spanish bank bailoutBrussels Blog / FT

Spain BlinksThe Telegraph
There will be a sovereign bail-out for Spain from the EFSF rescue fund. This is disguised (very slightly) by paying the money into Spain's state restructuring fund for banks FROB rather than the treasury, but that changes little.

More Thoughts on Spain-LiteMarc to Market
Spain has also hired private auditors to examine the banks' books.  Their report is due before the end of the month.   Fitch estimated Spain's banks need 60-100 bln euros.  S&P's estimate is 80-112 bln euros for 2012-2013.  The Center for European Policy Studies says Spanish banks need 270 bln euros to cover what it projects to be as much as 380 bln euro in losses.  Moody's estimate bank losses at 306 bln euros. 

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

How to think about… reprofiling Italian debtalphaville / FT
How and when would the Italian debt be restructured.

Another Bear AwakensBruce Krasting
Swiss banker: money coming in from everywhere outside the US, but especially Russia

The SNB against everybody elseLighthouse
Central banks have tried to “manage” currencies in the past. Sooner or later, market forces win. As all other major central banks keep printing additional Euros, Dollars, Yen etc., the SNB looks prone to lose this game.

The Swiss hill that may become a mountainalphaville / FT
such a mantle is expensive to wear… and getting more expensive. According to the Swiss National Bank their foreign exchange reserves increased from SFr238bn in April to a record high of SFr304bn in May:

Thoughts on Japanese and Swiss Reserve FiguresMarc to Market

How Long Until EURCHF Is Re-Pegged To 1.10?ZH
Tyler calculates with very unscientific methods the “equilibrium price”.

Things That Make You Go HmmmGrant Williams / ZH
27 pages of news, markets and one of the best commentary out there. Full pdf download

BIS Quarterly Review BIS
Returning doubts drive up financial market volatility (download page)

Global Manufacturing Growth Shudders Towards A HaltA Fistful of Euros
Following a brief brief period of stabilisation, which lasted roughly from November last year to this January, conditions have been steadily deteriorating in manufacturing sectors across the planet, with the deterioration being lead by an ongoing decline in new export orders.

Stress IndicatorsSaxo Bank
Steen Jakobsen: We continue to see a lack of REAL credit dollars - the world has never printed more money, but the US dollars available for credit have decreased by USD 600 bln since last year.

The Big Picture (Updated)The Short Side of The Long
Very long-term stock market charts and discussion

How Ray Dalio of Bridgewater Associates Uses Correlations in Risk AnalysisMinyanville

Arms races and the real encumbrance problemalphaville / FT
Since the start of the US crisis of 2007, the race for safety has replaced one of the other two races that Haldane discussed: the race for returns, a catchy way to describe individual firms trying to maximise profits while setting the stage for the collective market failure that followed. (The other race, for speed, continues.)

Killing Vampires, Werewolves, and Zombie BanksTF Market Advisors
Good talk on how insolvent banks can go on for a long time, and a view on the latest central bank (in)action.