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Wednesday, July 25

25th Jul - US Close: Licence to Kill?

Will the ESM get the banking  license? Or maybe the ECB will get a license to directly monetize sovereign debt? All that the ECB has now is a licence to kill the euro zone.

Please see today's earlier posts, as the material has been of exceptional quality. The crisis is clearly at a turning point, but the direction is undecided at the moment. For better or worse, we shall see.

Previously on MoreLiver’s:

Markets – Between The Hedges
The Closer – alphaville / FT
Tyler’s US Summary – ZH
  Gold Roars, Treasury Bores, Equity Floors, US Scores

TV: Bloomberg, BBC
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

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David Einhorn on the Europe SitchThe Reformed Broker
Essentially, the bank runs also shift the credit risk of peripheral banks from the local depositors to the Germans. While the Germans kick and scream about not wanting to take on credit risk through Eurobonds, they are already taking on similar risk through the banking system

EMU Gets OstrichizedKrugman / NYT
Or maybe head in the sand isn’t the right metaphor — maybe it’s deer in the headlights, with policy makers paralyzed as it all goes wrong.

How the euro was savedFree exchange / The Economist
In June, Peter Berezin of the Bank Credit Analyst adopted the viewpoint of someone looking back on the crisis from the year 2021, and described what today must seem like a hopelessly idyllic outcome:

ESM Banking License? Rumors of Non-Solution Send Sovereign Yields Lower; Purposeful Non-ElaborationMish’s
Note that the ECB has already rejected this idea, so has the German central bank and numerous German politicians. Moreover, no one really wants to discuss this issue now anyway, fearing it might impact a German constitutional court ruling coming up in September.

Will the ESM to be granted a banking licence?Kiron Sarkar / The Big Picture
Generic market summary included.

What Nowotny Did Not Say Marc to Market
There are good reasons not to expect the ESM to get a banking license any time soon… Second, there are profound arguments against granting the ESM a banking license… Thirdly, it is not clear what kind of controls could be put into place.

Barclay’s Callow Says ESM Bank Charter `A Good Idea’ (Audio 12 min)BB (mp3)

Downgrades Could Force €66 Billion in Spanish SellingMarketBeat / WSJ
The interest-rate strategy team at Morgan Stanley has crunched the numbers, and they figure it could be as much as €66 billion. That's a lot. Spain has around €500 billion in outstanding bonds.

Credit Suisse: Greece – the return of the drachma is becoming more likelyZH
The probability that some form of local currency is reintroduced has increased in our view, and is now greater than 50% on a 1-year horizon. This doesn’t necessarily mean Greece imminently needs to leave the EU/euro area – the new currency and the euro could be run in parallel – although that too has become more likely in our view.

RBS Says To Expect A Spanish Sovereign Bailout Request "Within Days"ZH

An early FOMC preview: the menu of optionsalphaville / FT
As usual we won’t play the percentages; instead we’ll just run through the possibilities and list a few of the potential complicating factors involved with each of them.

Housing Data “Surprises” to DownsideThe Big Picture
Good collection of long-term charts

The true reasons why China “may refrain from more easing”ASA

Goldman's bullish call on China may be prematureSober Look