With IBEX down close to -10 percent in two days, the Euro crisis is definitely back. Only now, it is not only SPain dominating the news. The Greek drama revived over the weekend. For all those who thought the Greek mess was sorted out; sorry. The composition of the Greek situation is quite different to the Spanish reverse inquisition. Ekathimerini describes the situation in a splendid way. Look forward to a very hot August in the Med area.
Greece retakes its position at the heart of the European debt crisis this week as its creditors assess how far off course the country is from bailout targets, raising again the specter of its exit from the euro.
Greece’s troika of international creditors — the European Commission, the European Central Bank and the International Monetary Fund — will arrive in Athens tomorrow amid doubts the country will meet its commitments and reluctance among euro-area states to put up more funds should it fail.
“If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told broadcaster ARD yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.”
Another must read hmmmm report, courtesy Grant Williams.
Now we reach the part where the truth finally dawns that the words spoken long ago by JP Get- ty are actually not just an amusing motif fit for the front of a t-shirt or a fridge magnet:
“If you owe the bank $100 that’s your prob- lem. If you owe the bank $100 million, that’s the bank’s problem”
The sum total of bailouts offered to Europe’s prodigal offspring is mounting daily, but the Achilles Heel of the entire construct continues to be the Target2 payment system which has been so assiduously ignored by most observers yet followed so closely by my friends at Zerohedge for many months now.
This problem remains below the radar of most observers but, I suspect, will turn out to be the straw that breaks the camel’s back
With Europe in even bigger confusion after the summit, investors seem clueless of what the next step is in Europe. Is Greece fixed, how about that Spanish bank bail out, is Slovenia joining the party and how is this supposed to be paid for? Some color on the subject, by Edward Hugh.
Yet no matter how positively or cynically we perceive what just happened, the fact of the matter is that this latest summit did produce results which, while possibly not being complete game changers, would in fact constitute a significant advance in the debt crisis if they were implemented, in particular since they do constitute steps towards that long promised banking and fiscal union. And basically, as I say at the start, even if it takes a bit of kicking and screaming first I do think they will be implemented.
Far and away the most important of these decisions was allowing the ESM to in principle fund Spain’s bank recapitalisation. If followed through the decision will possibly come to be seen as a landmark one. My feeling is that the nervy events of the last week will not be the end of the matter, and that eventually a plan and timescale for setting up a banking union will be agreed on, since the costs of not doing so would obviously be far higher than those involved in so doing.
“Spain is not Greece”
– ELENA SALGADO, SPANISH FINANCE MINISTER, FEBRUARY, 2010
“Spain is neither Ireland nor Portugal”
– Elena Salgado, Spanish FInance Minister, 16 November, 2010
“Greece is not Ireland”
– George Papandreou, Greek Finance Minister, 22 November, 2010
“This threatens to turn the June (28) summit into a fiasco which may well prove fatal because it will leave the rest of the euro zone without a strong enough firewall to protect it against the possibility of a Greek exit,” Soros wrote.
“Even if a fatal accident can be avoided, the division between creditor and debtor countries will be reinforced and the “periphery” countries will have no chance to regain competitiveness because the playing field is tilted against them.” (CNBC)
Remember capital controls? Sovereign debt guru and Greece’s lawyer, Lee Buchheit, stopped by to chat about the eurozone debt crisis. We spent a lot of time talking about capital controls; whether we’ll see them in Europe (probably) and what can be done to avoid them (a lot of hard work).
Lee also talked about which countries would need a restructuing in the EU next and the prospects for the eurozone making it through this crisis intact.
Greece’s Lawyer: EU Bailout Will Cost Trillion Euros & Cyprus Is Next.
Must watch video by Bloomberg’s Anthony Lee Pacchia continue below.
A top European Central Bank policy maker has publicly backed the rapid use of the eurozone’s bailout fund to buy distressed sovereign bonds on the open market, saying such action could ease the “very severe strain” being felt by Spain and Italy. Speaking to the Financial Times, Benoît Cœuré, the ECB executive board member who oversees financial market operations, also said a cut in interest rates was likely to be discussed at next month’s ECB rate-setting meeting, to help boost confidence. But he stressed that political agreement on fiscal integration was needed to tackle the eurozone’s underlying problems. http://www.ft.com/intl/cms/s/0/2007154e-baf0-11e1-b445-00144feabdc0.html#axzz1yOqI48tC
The Federal Reserve has extended “Operation Twist” – a plan to sell short-term bonds while purchasing longer-term securities – to support a slowing US economic recovery, but refrained from a more aggressive plan to ease monetary policy. At the end of a two-day meeting, the Federal Open Market Committee, which sets interest rates, offered a bleaker picture on Wednesday of the US economy than it had at its last gathering two months ago. It noted that employment growth had slowed and consumer spending was rising at a weaker pace. The Fed warned that global financial strains continued to pose “significant downside risks” to the economic outlook. Officials cut forecasts for US growth this year to a range of 1.9 to 2.4 per cent, from between 2.4 and 2.9 per cent in their previous projection in April.http://www.ft.com/intl/cms/s/0/5a7bbe52-baee-11e1-b445-00144feabdc0.html#axzz1yOqI6tZF
The government’s new “funding for lending” programme, designed to boost credit for British business, will cut banks’ costs to as little as 1.2 per cent, according to people briefed on the scheme. The supply of such cheap money to the banks is supposed to encourage them to lend to companies and stimulate the sluggish economy. Under current plans, which are still being revised the rate at which banks could borrow government money would start at the baseline Libor rate plus 125 basis points and fall to a minimum possible surcharge of just 25 basis points, according to one senior banker.http://www.ft.com/intl/cms/s/0/c8e3c988-bab8-11e1-83e0-00144feabdc0.html#axzz1yOqI6tZF
Restoring stability, while avoiding the contagion effects is a failed policy. This should be clear to majority of people by now. The bigger question is, what do the politicians need to do going forward? From Voxeu.
The EZ rescue strategy adopted in May 2010 failed to restore debt sustainability, avoid contagion, or reduce moral hazard. This column argues that a volte face is needed. The debt of Greece, Portugal and Italy – and perhaps Ireland, Spain and France as well – must be restructured to restore growth and end the crisis. All EZ nations should pay since their leaders’ decision to violate the Maastricht Treaty’s no-bail out clause is what brought us here.
Chancellor Angela Merkel has sent word that Germany cannot save the euro. She is right.
From the very start of the Eurozone crisis, it was clear that a domino game was under way and that a highly indebted German government should not be seen as the residual saviour. But keeping the euro will be costly and Germany will have to share the burden.
The solution will have to combine debt structuring and ECB lending in last resort to banks and governments. Angela Merkel needs now to lift the German veto.
Eurozone members of the Group of 20 leading economies have committed to driving down borrowing costs across the single currency area, according to the communiqué from the summit in Mexico. On the day that Spain was forced to pay more than 5 per cent to borrow money for one year, the need for action to stem the spiral of rising government bond yields was accepted on Tuesday by Germany, France and Italy, the G20’s three eurozone members. http://www.ft.com/intl/cms/s/0/44c211c0-ba34-11e1-84dc-00144feabdc0.html#axzz1yIzGTwQi
Leading hedge fund managers are betting on a significant sell-off in German government bonds in the coming months after a sharp fall in yields on the debt paper driven by a flight to safety in the eurozone. More than 50 per cent of managers polled at an industry conference in Monaco on Tuesday said they expect Bund yields to double within a year. http://www.ft.com/intl/cms/s/0/fcde12c6-ba35-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Faltering global growth has pushed UK inflation to its lowest since 2009, raising expectations that the Bank of England will restart quantitative easing to stimulate the economy. Falling commodity prices helped to lower the UK’s annual consumer prices index inflation rate from 3 per cent in April to 2.8 per cent in May as food price inflation slowed and fuel prices dropped.http://www.ft.com/intl/cms/s/0/6d0d7e3a-b9ee-11e1-aa8d-00144feabdc0.html#axzz1yIzGTwQi
Blink and you’ll miss it. As this month’s brief rallies in the wake of Spain’s bank bailout news and Sunday’s Greek elections show, wait too long to tap public bond markets and you might miss your opportunity altogether. Six months after the European Central Bank first offered hundreds of banks across the eurozone access to cheap loans, and with the Europe’s debt crisis far from resolved, bank funding markets are dysfunctional. According to Dealogic, European banks have issued just $40bn of senior unsecured debt since the start of April, well below the same period in previous years. Covered bond issuance for the quarter so far stands at just $27bn. http://www.ft.com/intl/cms/s/0/30221076-b921-11e1-9bfd-00144feabdc0.html?ftcamp=published_links%2Frss%2Fmarkets%2Ffeed%2F%2Fproduct#axzz1yIzGTwQi