But we are at an inflection point. The Greek crisis is liable to come to a climax in the fall, even if the election produces a government that is willing to abide by Greece’s current agreement with its creditors. By that time, the German economy will also be weakening, so that Chancellor Angela Merkel will find it even more difficult than today to persuade the German public to accept additional European responsibilities.
Barring an accident like the Lehman Brothers bankruptcy, Germany is likely to do enough to hold the euro together, but the EU will become something very different from the open society that once fired people’s imagination. The division between debtor and creditor countries will become permanent, with Germany dominating and the periphery becoming a depressed hinterland.
This will inevitably arouse suspicion about Germany’s role in Europe – but any comparison with Germany’s past is quite inappropriate. The current situation is due not to a deliberate plan, but to the lack of one. It is a tragedy of policy errors. Germany is a well-functioning democracy with an overwhelming majority for an open society. When the German people become aware of the consequences – one hopes not too late – they will want to correct the defects in the euro’s design.
It is clear what is needed: a European fiscal authority that is able and willing to reduce the debt burden of the periphery, as well as a banking union. Debt relief could take various forms other than Eurobonds, and would be conditional on debtors abiding by the fiscal compact. Withdrawing all or part of the relief in case of nonperformance would be a powerful protection against moral hazard. It is up to Germany to live up to the leadership responsibilities thrust upon it by its own success. (Full reading here.)
Classical conditioning (also Pavlovian conditioning or respondent con- ditioning) is a form of learning in which one stimulus, the conditioned stimulus or CS, comes to signal the occurrence of a second stimulus, the unconditioned stimulus or US. The US is usually a biologically significant stimulus such as food or pain that elicits a response from the start; this is called the un- conditioned response or UR. The CS usually produces no particular response at first, but after conditioning it elicits the conditioned response or CR. Classical conditioning differs from operant or instrumental conditioning, in which behavior emitted by the organism is strengthened or weakened by its conse- quences (e.g. reward or punishment).
Conditioning is usually done by pairing the two stimuli, as in Pavlov’s classic experi- ments. Pavlov presented dogs with a ringing bell (CS) followed by food (US). The food (US) elicited salivation (UR), and after repeated bell-food pairings the bell also caused the dogs to salivate (CR).
In short, by associating the sound of a ringing bell with the appearance of food, Pavlov condi- tioned dogs to salivate merely at the sound of the bell.
Peter Tchir of TF Market Advisors on the Spanish bail out.
Change of Attitude or One More Last Minute Plea Bargain?
On a standalone basis, the deal announced yesterday does relatively little for Europe. It once again looks like a last ditch attempt to cobble together something to appease the markets. It relies on ESM which hasn’t yet been set up. It lends to the FROB rather than to Spain or capitalizing banks directly, creating some potential confusion. The plan, under the most positive interpretations, is reasonably meaningful to Spain, and under the worst execution, may do virtually nothing even in Spain.
The key is whether there has been a shift in attitude in Europe. Is this different than prior plans and is this only the first of many steps? The ECB was extremely dovish in words if not action last week. This plan does seem to bend over backwards to fit within the existing treaties and yet offer the most flexibility possible. If this is all we get, the rally, if there is one, will be short lived. If this is just the beginning of a series of actions such as
- Renegotiating Greek Austerity Package
- Working with Ireland, Portugal, and Greece to restructure existing programs
- Project and/or Redemption Bonds
- New LTRO, Renewed SMP, or Rate Cuts
- Global Policy Intervention with the PBOC and Fed leading the way
then we may yet be at the early stages of a liquidity and money printing and “growth” rally. It too will likely fail, but that will take time.
No, no, no, but eventually after years of denial it was a YES. Spain is slowly realizing the banks need more capital. The problem is though, Spain will most probably be coming back for much more. With the “fantasy” valuations of unsold properties, the balance sheets will be needing more boosting later. Let’s see what happens to Spain’s, 92 billion Euros, part of the mighty EFSF. From El Pais.
Economy Minister Luis de Guindos announced Saturday evening that the government intends to ask for a European bailout to recapitalize Spain’s banking sector. The package will total 100 billion euros.
He added that the amount of the rescue package would be “sufficient” to meet the needs of the banking sector as identified by the audits being carried out by two independent appraisers and the estimates of the IMF, plus “a significant margin.”
As the financial assistance as defined by De Guindos will be to attend to the needs of the banking sector, the conditions that will be imposed for its disbursement will be linked exclusively to the specific loan to the financial sector.
The loan will be received under “very favourable conditions.”