Items of note from the Eurozone - ECB and IMF jibber jabber . Turbulence in various sovereign States. Spain's IBex teetering / Madrid slams regional budgets - Spain's Treasury rejects budgets from Catalonia and Andalusia with intervention imminent . And IFO's Sinn says Greece should have left the eurozone.....

http://hat4uk.wordpress.com/2012/04/23/euroblown-the-evidence-against-lagarde-rounding-up-the-usual-suspects/


EUROBLOWN: The evidence against Lagarde: rounding up the usual suspects
“You know, things are really not that bad in the eurozone,” said Christine Lagarde last night in the US

The debt of the 17 euro nations climbed to 87.2% of GDP in 2011 from 85.3% previously, the highest level since the introduction of the currency.

EU stock markets closed sharply lower as new even weaker economic data emerged, and the debt crisis claimed another government (the Netherlands). Stoxx 50 -2.9%, Germany -3.4%, France -2.8%, Italy -3.7%, Spain -2.7%, U.K. -1.8%.

The euro fell -0.3% to $1.3180.

The European Investment Bank hedged itself against Greek exit from the eurozone, inserting drachma clauses into loans it is granting the country’s businesses. The bank says these clauses will now be included in all contracts with any country applying for a bailout.

The ECB can act in a “very forceful way” if needed, the bank’s Ewald Nowotny told CNBC. But speaking in New York, the ECB’s Jens Weidmann argued against ECB bond purchases which “obscure market interest rates, such rates being an important signal for governments … markets don’t always get it right, but their signal is still the most powerful data we have.”

This was a coded attempt at asking Mario Draghi to stop manipulating markets.

It wasn’t a good day for confidence indices. The Italian consumer confidence index plunged to 89 from 96.3. It’s the lowest figure since the measure began in 1996. French purchasing manufacturers indices fell to 46.8 – a 6-month low – led by a big decline in Services.

Dutch PM Mark Rutte and his cabinet have resigned after budget talks broke down over the weekend. Elections may not come until later in the year, but in the meantime the Far Right in Holland look set to make further gains given the EU’s growing unpopularity.

Spain’s central bank esimated that the economy contracted 0.4% in Q1 2012 from the previous quarter in a setting of “high financial tension.” The economy was 0.5% down from the year earlier.

Banco Santander is expected to offer up a chunk of its Mexican unit in an IPO within a year. The deal would give the bank billions to continue its aggressive acquisition policy as well as liquidity to deal with massive losses in its home base of Southern Europe.

Ireland’s 2011 underlying budget deficit for 2011 hit 9.4%. While well within theEU target of 10.6%, left out out of numbers were “one-off” capital injections into the nation’s banks, without which the deficit would’ve been over 13%. Despite slowing growth, the government remains confident about hitting its 8.6% target for 2012.

All quiet on the Western Front, then.

and.....

http://globaleconomicanalysis.blogspot.com/2012/04/eight-of-ten-largest-stocks-in-spanish.html

Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value; Madrid Rejects Regional Budgets Representing 32.5% of GDP; Treasury Warns of "Immediate" Intervention

The Spanish hit parade keep right on rolling. Courtesy of Google Translate, please consider a trio of articles forwarded by my friend Bran who lives in Spain.

Madrid Rejects Regional Budgets Representing 32.5% of GDP

El Economista reports Treasury Rejects Budgets Submitted by Catalonia and Andalusia

The Ministry of Finance and Public Administration has returned the draft budget to the regions of Andalusia and Catalonia because it considers its budget rebalancing plan does not fit within the deficit target regions set for this year, 1.5% of GDP.

The newspaper El Pais said today that two of those affected are Catalonia and Andalusia, two of the larger communities, who number between 32.5% of Spanish GDP.

Treasury Warns of "Immediate" Intervention

Going one step further, Treasury warns that Any Autonomy may be Subjected to an "Immediate" Intervention"

Forced Austerity in the regional governments is coming right up.

Spanish IBEX Index



The Spanish stock market has now given back nearly all of its gains since March 2009.

Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation ValuePlease consider Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value

The article states it is "ludicrous" that eight of the ten heavyweights trade below their book value.

I suggest book values are inflated and the Spanish banking system is insolvent. Certainly credit default swaps on sovereign debt are not encouraging.

Check out this nonsense by JP Morgan. 

"The banking problem is not liquidity, but mainly of confidence," says JPMorgan Pellón mentioning that pointed in recent days that Spanish banks retain about 90,000 million from the program LTRO European Central Bank. Enough money to meet all funding requirements for the remainder of the year.

The balance of mid-cap banks is less oprtimista yet. For example, trades at 0.29 times Bankia the value of its assets and the rest is between 0.4 and 0.5 times.

The banking sector is the one that is suffering the deterioration of its balance sheet, but some utilities and Repsol also find it impossible to trade above its liquidation price. Among the utility companies with greater capitalization is Iberdrola which has a lower book value after the sale of 3.7 percent of its stake ACS take her to make minimum contributions since 2003 this week.

Inflated Book Values, Insolvent Banks

Banks may have LTRO funding but it would be nice if the clowns at JPMorgan would advise exactly how Spanish banks are going to pay back those loans.

The problem is not confidence nor liquidity, but rather solvency. In the absence of further bailouts, many European banks have negative value.

What About the Euro?

Moreover, JP Morgan missed another crucial point, best expressed by the question: What happens in a eurozone breakup when Spain exits the Euro?

Since that is a significant possibility (I believe likelihood), anyone in Spain with any money and any common sense should get their money out of Spain right now.

Capital flight is indeed underway and that flight will continue to pressure Spanish equities until it stops.

Capital controls may be just around the corner.

and....

http://www.telegraph.co.uk/finance/financialcrisis/9222111/Greece-worse-off-staying-in-euro-says-Ifo.html

"I personally believe there's no chance for Greece to become competitive [while] in the eurozone," Hans-Werner Sinn, president of Ifo, said in a luncheon speech in New York on Monday.

"If Greece is kept in the eurozone, there will be ongoing mass unemployment. But if they exit, they will see a very sudden recovery," he said, as lower prices boost competitiveness.

He also cited risks of other indebted eurozone countries facing severe spending cuts and tax hikes.

"Cutting wages and prices to the extent necessary in some southern European countries is impossible, whatever the politicians say," Sinn said. "Policy is unable to overcome the laws of economics."

Greece has received more than €100bn in aid since its debt crisis began, and last month creditors agreed to trade their Greek bonds for lower-valued securities.

Sinn said it would have been better to use that money to help Greece manage its exit from the eurozone.

Complicating matters are the various European Central Bank lending operations that Sinn said amount to "unlimited credit" for troubled countries.

The ECB has extended more than €1 trillion in low-cost, low-collateral, three-year loans to eurozone banks. Some of that money has in turn been loaned to eurozone governments to help bring down rising borrowing costs.

Sinn said these operations circumvent parliaments and will eventually lead to a common European government bond that removes interest rate risk and allows countries to borrow at below-market rates rather than pay down their debt and reform their economies.

"Uniform interest rates will lead to another mis-allocation of capital in Europe," Sinn said.

He said Ireland has been successful in cutting its prices and trimming debt, relative to other troubled eurozone countries, because its housing bubble began to deflate before the ECB and the European Union rolled out cheap loans and rescue programs.

"Ireland had to help itself," he said.

and......

http://www.guardian.co.uk/commentisfree/2012/apr/23/europes-austerity-pact-editorial

Europe's austerity pact: running out of road

As Merkel races to lock austerity measures into EU law the politics of key member states are moving in the opposite direction

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• Editorial
• guardian.co.uk, Monday 23 April 2012 17.22 EDT
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Europe is on the move. The Merk in the Merkozy "austerity" pact is about to lose its back wheels. Other conservative or technocratic cheerleaders of austerity are all fighting to keep this hybrid on the road. Poor handling is making the passengers in the back – Spain, Italy, Portugal Greece – car-sick. Even co-drivers like the Dutch, who railed against a short haircut for Greece's private financiers, are finding it hard to steer in the Netherlands, where the roads should be smoother. On Monday their government collapsed.

The extreme right is on the rise again in France, where the Front National, whose image has been detoxified by the daughter of its founder, got its highest score. The Front National's score has steadily been rising and what made 2007 different was Mr Sarkozy's ability to capture much of its vote. This he has now lost and if he is to win it back in two weeks, he will have to turn ugly again. Either way, the French incumbent becomes steadily less attractive as a partner for Ms Merkel.

As Angela Merkel is racing against time to lock the austerity measures into EU law, institutions, and its executive, the politics of key member states are moving in the opposite direction. Whether it is from the extremes or the centre, from left or right, the popular message is similar: German-led austerity diminishes our sovereignty, wrecks the prospects for our youth, and – if anyone from the centre to the left is talking – fuels the rise of the neo-fascist right.

Merkollande, if it emerges, is a concept for a silent, less flashy, electric family car. But there is no design, let alone something ready for the test track, and batteries could still be a problem. Nicolas Sarkozy did not take up Angela Merkel's offer to campaign on his behalf and one senses now a certain amount of relief on the German chancellor's behalf that she was not asked. If Mr Sarkozy, who is known in Germany as a divider and a polariser, has every interest in dramatising the choice before the French electorate in the next two weeks before the second round, Ms Merkel, who is facing important elections of her own, may have different political goals. Her coalition partners in the Free Democrats are dead men walking. Germany's most populous state , North Rhine-Westphalia, is facing a regional election after a minority-led government led by the SPD and the Greens failed to get its budget through. The opposition FDP could be ousted from the regional assembly and, if it is, that would have federal implications leading to a grand coalition between the CDU and the SPD. Opinion in the SPD on Hollande's 60-point programme of reform is divided. Some leading voices, like the former finance minister, Peer Steinbrück, have called Hollande's demand for a renegotiation of the austerity pact naive. While others, like the SPD leader Sigma Gabriel, are in lockstep with Hollande's attempt to exit the eurozone debt crisis by encouraging growth. Together, they said in a joint interview, they can "move things".

That will almost certainly include Ms Merkel herself, who is nothing if not a pragmatist. Time and again the argument is made why Germans should throw their good, hard-earned money after southern Europe's bad. The counter argument – that if the single market fails, its single biggest provider of goods will fail with it – has yet to be made with sufficient force. But when it does, Ms Merkel will move with the prevailing wind. The only real question in Ms Merkel's mind is whether she has a majority. This most cautious of political animals will move where her majority takes her.

Anyone serious about the European project should take the message of the first round to heart. Persist with an economic programme that diminishes sovereignty, consigns youth to high levels of unemployment, and steers Europe towards a decade of stagnation, and you will destroy trust in social solidarity, the bedrock on which the EU lies. Economically the case for stimulus at the risk of stoking inflation has still to be won. Politically, it's becoming a no-brainer.