The better articles from the ending week's posts.
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 Fast – TIME
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.
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
Keiretsu – Betting
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 chicken – Hugo
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 Asia – ASA
They looked back to 1997 and the subsequent years when Asia was suffering the the crisis and the aftermath of it.
They looked back to 1997 and the subsequent years when Asia was suffering the the crisis and the aftermath of it.
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.
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.
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.
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 Soros – Project
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.
EURO CRISIS: BANKING UNION
Slouching towards a banking union – The Economist
The prospects of big bank bail-outs are
intensifying calls for a central fund
EU-wide bank deposit scheme: neither
politically feasible nor credible – economistmeg
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.
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.
EURO CRISIS: ECB / EUROSYSTEM
Target loans, current account balances and
capital flows: the ECB’s rescue facility – Springerlink
The seminal
paper by Hans-Werner Sinn and TimoWollmershäuser has been updated recently.
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.
Did ECB loan
out 68bn to Spanish banks in the past couple of days, thus guaranteeing the
success of today’s bond auction?
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! Again – The
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.
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 instructor – The Economist
When it comes to the euro, the German
chancellor prefers self-help to help—but she can be more flexible than she seems
EURO CRISIS: SPAIN
On Spain’s banking recap and
capital flight – alphaville
/ 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.
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 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 bailout – Brussels
Blog / FT
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-Lite – Marc
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.
EURO CRISIS: OTHER PIIGS
Why a Grexit Would Make Lehman Look Like Childs Play – TF
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 debt – alphaville
/ FT
How and
when would the Italian debt be restructured.
SWISS FRANC
Another Bear Awakens – Bruce
Krasting
Swiss
banker: money coming in from everywhere outside the US, but especially Russia
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 mountain – alphaville
/ 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 Figures – Marc
to Market
How Long Until EURCHF Is Re-Pegged To 1.10? – ZH
Tyler calculates with very unscientific methods the “equilibrium price”.
OTHER
Things That Make You Go Hmmm – Grant
Williams / ZH
27 pages of
news, markets and one of the best commentary out there. Full pdf
download
Returning doubts drive up financial market
volatility (download
page)
Global Manufacturing Growth Shudders Towards A Halt – A
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 Indicators – Saxo
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
Arms races and the real encumbrance problem – alphaville
/ 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 Banks – TF
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.