28th Jun - Weekender: Best of the Week

The best articles from the ending week. Last week’s ‘best’ here.

The week that was: better-than expected monthly macro data from Europe and U.S., but the U.S. Q1 GDP was revised down. Fed officials spent the week soft-talking after the previous week’s FOMC.

In Europe, a scandal in Ireland: Banksters knew what they were doing, and fooled the government and the central bank. In Italy, losses originating from derivatives deal that were made during Draghi’s term as the head of the Bank of Italy have become public. European leaders have discussed the banking union from Wednesday, and the Cyprus-template seems to be the choice.

China’s credit crunch is easing: the central bank turned the liquidity taps off, to kick the shadow banking sector – and hopefully the lesson has been learnt.

The Bank for International Settlements pushed a strong message against central banks’ balance sheet expansion. So what are the countries to do next, go to deflation? Debt haircuts to enable a new start?

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EUROPE

Charlemagne: Blaming the referee – The Economist

Europe’s leaders are turning against the European Commission

Five reasons the euro-optimists are wrong – Wonkblog / WP

Myth 1) The European economy is about to recover 2) Markets are regaining confidence in Europe 3) The ECB provides a safety net for the euro 4) Europe’s economic recession will not undermine its politics 5) Everything will change after the German elections

Mistrust stops euro zone banks lending to peers across bloc – Reuters

Euro zone banks are refusing to lend to peers in other countries in the common currency bloc, signaling a worrying fall in confidence that appears to have worsened since the Cyprus bailout earlier this year, data analyzed by Reuters showed.

Dutch government: "Time of ‘ever closer union’ in every possible area is behind us” – Open Europe

Decline in euro area's excess reserves not an indication of improved lending – Sober Look

The decline in euro area banks' excess reserves has been quite spectacular. Excess reserve levels are back to 2011 levels. Some are attributing this to banks "no longer hoarding cash" and therefore lending. That's nonsense.

  BANKING UNION

Flash Comment: Euro area: Direct bank recapitalization – Danske Bank (pdf)

The Eurogroup took an important step towards breaking the vicious link between sovereigns and banks yesterday when it agreed on ESM direct bank recapitalisation

Eurozone compromise – Open Europe

Compromise on using ESM to directly recapitalise banks a stopgap at best?

Europe unable to break impasse on who pays when banks fail – Reuters

Europe failed to agree on how to share the cost of bank collapses on Saturday, as Germany resisted attempts by France to water down rules designed to spare taxpayers in future crises.

Another shameful day for Europe as EMU creditor states betray South – The Telegraph

Ambrose Evans-Pritchard: So much for the denials. The Cyprus "template" for banking crises is to be eurozone policy for other countries after all.

EU bank bailout rules: leaked Noonan compromise – Brussels blog / FT

The main issue in dispute can be summed up in one word: flexibility. How much of it should national authorities be allowed under the EU’s new banking union regime when a bank fails? Should losses be nearly automatic on bank owners and bond holders – and, potentially, some deposit holders – or should national authorities be given discretion in the distribution of losses?

Europe Make Cyprus "Bail-In" Regime Continental Template – ZH

Bank Bailout Deal Struck in EU Talks Decrees Writedowns – BB

EU finance chiefs struck an agreement on how to handle failing banks, a step they said would bolster investor confidence and help overcome the euro- area financial crisis.

Europe strikes deal to push cost of bank failure on investors – Reuters

The EU agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.

Q&A: haircuts, shaky lenders and banking union – Brussels Blog / FT

Bail-Ins: EU Deal Protects Taxpayers in Bank Bailouts – Spiegel

Under an agreement reached early Thursday, European banks, their investors and depositors will be required to cover at least 8 percent of potential losses before governments step in with aid. It is a major step forward for the planned European banking union.

  PIIGS

Inside Anglo: the secret recordings – Irish Independent

Exclusive: Tapes reveal the lies and deception that led to the bank bailout

Irish blood is boiling: the second installment – alphaville / FT

It’s round-two of the Irish Independent’s release of the Anglo tapes — the recorded gigglings of Anglo Irish boss David Drumm and a colleague or two during the bailout of Ireland’s most borked bank. It follows Monday’s recordings of Anglo luring the state into pumping €7bn into Anglo.

Corruption, EuroStyle: ECB Chief Draghi Fudged Italy’s Books to Secure Eurozone Entry, Italy Stuck With Derivative Losses – naked capitalism

Italy could need EU rescue within six months, warns Mediobanca – The Telegraph

Italy is likely to need an EU rescue within six months as the country slides into deeper economic crisis and a credit crunch spreads to large companies, a top Italian bank has warned privately.

  MACRO NUMBERS

European Economic Confidence Improves More Than Forecast – BB

Confidence in economy reaches 13-month high in euro area – TradingFloor

Press release: Monetary developments in the euro area – ECB (pdf)

Euro zone loan contraction turns up heat on ECB – Reuters

German Unemployment Unexpectedly Drops in Recovery Sign – BB

German jobless falls underscoring strong domestic economy – Reuters

UNITED STATES

The Last Mystery of the Financial Crisis – The Rolling Stone

Matt Taibbi: It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it

Mortgage rates spike to two-year high  – Sober Look

The refinancing gravy train has ended.

"Bad News Is No Longer Good News" – ZH

Morgan Stanley: we think the Hall Pass is over and that this regime changed last week. The big outcome from the earlier-than-expected start of tapering is that going forward, bad economic news will be bad for markets. The market knows and most Fed governors know there are diminishing returns to QE’s efficacy. So, something new and massive would be required in order for poor economic news – should it surface – to be rewarded the way it has been for much of the past year.

Bernanke Was Clear, Fed’s Crystal Ball Is Cloudy – View / BB

Grow up, people. It’s time to stop blaming Bernanke for your losses. Either you weren’t listening or you heard only what you wanted to hear.

  MACRO NUMBERS

Orders for U.S. Durable Goods Rose More Than Forecast – BB

Durable goods orders, business spending plans rise – Reuters

Consumer Confidence in U.S. Increases More Than Forecast – BB

Consumer confidence highest in over five years in June – Reuters

Home prices see biggest annual gain in seven years in April: S&P – Reuters

Why Was GDP Revised Down so Much? – WSJ

Consumer spending rebounds, jobless claims fall – Reuters

Consumer Spending in U.S. Rebounds as Incomes Increase – BB

ASIA

China credit crunch: Q&A – beyondbrics / FT

Money rates falling after the People’s Bank of China, the central bank, reportedly dribbled funds into the banking system. But, with the central bank keeping quiet about its intentions, analysts expect the authorities to retain a firm grip on the market. So what is going on?

PBoC cash crunch statement: relief for some and pain for others – beyondbrics / FT

The People’s Bank of China on Monday finally went public over the country’s liquidity squeeze… the authorities don’t want a banking crisis. But they appear to be serious about putting the brakes on credit growth, even at the cost of slowing the economy.

China’s liquidity crunch, and what it means for everyone – alphaville / FT

It’s hard to know exactly what degree of control the PBoC has over the events unfolding in China’s interbank markets. On the one hand, making the smaller banks and shadow finance entities sweat fits with the central bank’s new high-priority goal, introduced late last year, of containing ‘financial risks’, and also with a broader government theme of clamping down on excess.

Good explanation for tight interbank liquidity conditions in China – Sober Look

Someone sent us a quote from JPMorgan that finally explains the origins of the tight interbank liquidity conditions in China. It's roughly what analysts have been suggesting.

Australia: A Fading Star? – BCA

Here’s the Real Crisis in Australia – View / BB

Australia is about to pay the price for growing so addicted to a developing nation. Exporting natural resources led to the neglect and atrophying of other critical sectors. It’s created a two-speed economy: The commodities-rich western states and Queensland raced ahead on China’s once insatiable demand for metals, while the rest of the country lagged behind.

BIS ANNUAL REPORT

83rd BIS Annual Report 2012/2013 – BIS

Since 2007, actions by central banks have prevented financial collapse. Further accommodation is borrowing time for others to act.  But the time must be used wisely. The focus of action must be on balance sheet repair, fiscal sustainability and, most of all, the economic and financial reforms needed to return economies to the real growth paths authorities and the public both want and expect.

Five years in the tower – BIS (pdf)

Mr Stephen G Cecchetti, Economic Adviser and Head of Monetary and Economic Department of the BIS: 1) Quantities matter more than we thought 2) Moral hazard is worse than we thought.

Central banks told to head for exit – FT

BIS tells central banks not to fear markets when withdrawing crisis cash – Reuters

I'm a central banker, get me out of here – Free exchange / The Economist

The BIS Loses Its Mind – naked capitalism

Central bankers have found a new mouthpiece, listen carefully – TradingFloor

Dead-enders in Dark Suits – Krugman / NYT

BIS fears fresh bank crisis from the global bond spike – The Telegraph

The intellectual bankruptcy of the austerians – mainly macro

Okay, we get it, BIS: fiscal policy is not your thing – alphaville / FT

Why is this bank not like other banks? – A Fistful of Euros

OTHER

The most important charts in the world – BI

We asked our favorite analysts, traders, economists, and strategists across the Street for the charts that they deem the most important right now, and this is what they sent us.

How Austerity Has Failed – The New York Review of Books

Martin Wolf: The right approach to a crisis of this kind is to use everything: policies that strengthen the banking system; policies that increase private sector incentives to invest; expansionary monetary policies; and, last but not least, the government’s capacity to borrow and spend. Failing to do this, in the UK, or failing to make this possible, in the eurozone, has helped cause a lamentably weak recovery that is very likely to leave long-lasting scars. It was a huge mistake. It is not too late to change course.

FINNISH

Suomen vienti sukeltaa – tyhmyri

Kannattaa varautua sisäiseen devalvaatioon eli tuntuvaan köyhtymiseen

Suomi sukeltaa sisäiseen devalvaatioon – Petri Rautiainen / US Puheenvuoro

Irlannin kalsarinvaihtotarve – Juhani Huopainen / US Puheenvuoro

Ilman euroa Suomen asema olisi paljon huonompi – HS

Alexander Stubb: Euro on tuonut Suomen talouteen ennennäkemätöntä vakautta. Uudistusten ansiosta euroalueella on tulevaisuudessa entistäkin paremmat valmiudet kohdata kriisejä.

Poliittiset tosiasiat ja tulevaisuuden ennustamisen vaikeus – euron pysyvyys ja ikuisuus – tyhmyri

Stubb, euro ja kilpailukyky –Valtteri Aaltonen / US Puheenvuoro

Pankki: Asuntojen hinnat luultavasti laskevat Suomessa – TalSa

Euroopan keskuspankin pitkään jatkunut liian löysä rahapolitiikka on ajamassa pohjoiset euromaat vaikeuksiin, saksalaispankki Commerzbank arvioi. Ongelmat pyörivät periferiasta keskukseen.

Mitä se EU:sta eroaminen maksaa? – Mauri Nygård / US Puheenvuoro

Kysytään, mitä se eroaminen EU:sta ja eurosta maksaisi, ja jotkut vastaavat rintaäänellä, että kalliiksi tulisi. Kuitenkin koko kysymys on väärä. Pitää kysyä, mitä Suomi erossa voittaa? Oikeat kysymykset ovatkin tärkeämpiä kuin oikeat vastaukset.