Thursday, June 14, 2012

Evening review of additional items of the day from Spain , Italy and Greece

http://www.keeptalkinggreece.com/2012/06/14/german-source-clear-100-day-plan-for-new-greek-governement/


German Source: Greece’s Last Chance “Clear 100-day plan for New Greek Governement”

Posted by  in Economy, Politics
Under conditions of anonymity German officials increase pressure on Greek voters just 48 hours before the June 17 elections. They warn that the new Greek government would need a clear 100-day plan and that if this problem won’t be implemented full, Germany would open the Euro exit door to Greece.
In a thorough Insight – Germany and Greece: A Tale of Estrangement  story Reuters quotes quite a number of German officials on Greek future in the euro zone and the discrepancies between the German and Greek mentality. Don’t miss the full story.
“After the experiences of the past year, some euro zone watchers believe Germany will be the first to open the exit door and give Greece a nudge. But that analysis may be too simplistic. The German EU official said regardless of who wins the Greek vote, a new government would be given a final chance.
“There will be a very clear 100-day plan for a new government. If it’s not implemented in full, then the game is over,” the official said. “This is a very bitter election for the Greek people. They are being asked to support the old guard that got them into this mess.”
Others believe the hurdles to an exit are higher. A top European central banker said there was no way to force Greece out of the euro zone if it wanted to stay.
“Europeans can decide to turn off the money taps, in which case Greece defaults by September but it would still stay in the euro,” he said.
“There is absolutely no trust in Greek politicians and an awareness that whoever wins, the Greek program will need to be renegotiated after the election. The question is how much Germany is willing to pay to keep Greece in the euro zone. Only Merkel and the politicians can decide that.”
At the same time, horror-randy German diplomats warn of “turmoil in the markets” if Tsipras winds and “trouble in the streets” if he doesn’t.
“A confidential wire by the German embassy in Athens warns of “turmoil in the markets” if Tsipras wins and “trouble in the streets” if he doesn’t, a senior German official said.”
 ’Turmoil in the markets’ is rather clear,  but ‘trouble in the streets’ if Tsipras won’t win???
PS German diplomats in Athens should stop their BILD-subscription.

and....


http://www.zerohedge.com/news/moodys-downgrades-five-dutch-banks-1-2-notches


Moody's Downgrades Five Dutch Banks By 1-2 Notches

Tyler Durden's picture
Submitted by Tyler Durden on 06/14/2012 20:57 -0400



While we await the Moody's downgrade of the Spanish banking system, which we can only attribute to a lack of outsourced Indian talent, since three banks are now rated higher than the sovereign, Moody's decided to give a little present to our Dutch readers by downgrading 5 of their biggest banks: Rabobank Nederland, (2 notches to A2) for ING Bank N.V., (2 notches to A2) for ABN AMRO Bank N.V. (2 notches to A2), and for LeasePlan Corporation N.V. (2 notches to Baa2). The long-term debt and deposit ratings for SNS Bank N.V. were downgraded by one notch to Baa2. And yes, this means that the US banks (looking at your Margin Stanley) are likely next.
Full report:
Moody's downgrades Dutch banking groups; most outlooks now stable
Actions conclude rating reviews announced on 15 February 2012
Frankfurt am Main, June 15, 2012 -- Moody's Investors Service has today downgraded the long-term debt and deposit ratings for five Dutch banking groups.
The long-term debt and deposit ratings for four groups declined by two notches: to Aa2 for Rabobank Nederland, to A2 for ING Bank N.V., to A2 for ABN AMRO Bank N.V., and to Baa2 for LeasePlan Corporation N.V.. The long-term debt and deposit ratings for SNS Bank N.V. were downgraded by one notch to Baa2. The short-term ratings for all aforementioned groups are unchanged.
Concurrently, Moody's has assigned stable outlooks to the ratings for four of the aforementioned groups, while assigning negative outlooks to the ratings for ING Bank N.V. and its related entities.
*  *  * 

Today's actions reflect Moody's view that Dutch banks will face difficult operating conditions throughout 2012 and possibly beyond. Furthermore, the Dutch banks affected by today's actions have structural features which, while not new, heighten risks for creditors amidst elevated uncertainty and downside risks to the economic outlook and fragile investor confidence in Europe. With today's rating actions, Moody's is giving greater weight to these features in assessing the overall risk profile of these institutions, consistent with its previously-announced analytic approach (see "European Banks -- How Moody's Analytic Approach Reflects Evolving Challenges", 19 January 2012,http://www.moodys.com/research/European-Banks-How-Moodys-Analytic-Approa...).
Specifically, the main drivers underlying today's rating actions on Dutch banks are as follows:
(i) Adverse operating conditions, including the current recession and declining house prices in the Netherlands, will likely persist at least through 2012. Moreover, the Netherlands, as a euro area member deeply integrated within the EU, is affected by the ongoing euro area debt crisis and regional economic weakness. Economic weakness limits household incomes and business earnings, which will likely adversely affect credit costs and profitability for banks.
(ii) The Dutch banks affected by today's rating actions have characteristics that render them more vulnerable in the current environment, including structural reliance on wholesale funds and large mortgage books. Wholesale funding is susceptible to changes in investor confidence, while high real estate exposures leave banks sensitive to potential deterioration in loan performance given declining real estate collateral values. Moody's recognises, however, that Dutch banks have generally retained good access to market funding, and asset quality remains sound to date.
In addition, Moody's assumptions about the availability of government support for ABN AMRO have declined slightly, reducing the support-driven uplift factored into the long-term debt and deposit ratings for the bank to three notches (previously four). Support-driven ratings uplift for ABN AMRO is now more in line with other systemically-important European banks. Support-driven ratings uplift for the other four Dutch groups downgraded today is unchanged.
More detail on bank-specific rating drivers is discussed below.
The revised rating levels also take into account several mitigating factors, including (i) the large Dutch banks' strong, sustainable domestic franchises; (ii) improved regulatory capitalisation; and (iii) relatively stable pre-provision earnings. Moody's also recognises that the domestic environment for Dutch banks has weakened less compared with more stressed euro area countries, given the strong credit profile of the Dutch government (rated Aaa, with a stable outlook).
Following today's downgrades, the average asset-weighted deposit rating for Dutch banks is between A1 and A2 (closer to A1), but still ranks in the upper range among European banking systems. The average asset-weighted standalone credit assessments is between a3 and baa1 (closer to baa1), also in the upper peer range.
Moody's has published a Special Comment today entitled "Key Drivers of Dutch Bank Rating Actions," (http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_143143) which provides more detail on the rationales for these rating actions.
MOST RATING OUTLOOKS ARE STABLE
The stable rating outlooks for four of the five Dutch banking groups downgraded today express Moody's view that currently foreseen risks to creditors are now reflected in these ratings. Nevertheless, negative rating momentum could develop if conditions deteriorate beyond current expectations. Specifically, Moody's has factored into the ratings an increased risk of an exit of Greece from the euro area, but this is currently not the central scenario. If a Greek exit became Moody's central scenario, further rating actions on European banks could well be needed.
The negative rating outlooks for ING Bank and its related entities take into account the bank's specific funding structure, which substantially relies on wholesale funds and which has a significant proportion of non-domestic deposits. Under a stressed scenario, some of these non-domestic deposits could, in Moody's view, become less fungible as national regulators focus on safeguarding local liquidity.
RATINGS RATIONALE -- STANDALONE CREDIT STRENGTH
- FIRST DRIVER: ADVERSE OPERATING CONDITIONS WILL LIKELY PERSIST
The Dutch economy is currently in recession and Moody's expects Dutch real GDP to contract by 0.6% in 2012 overall (see Sovereign Country Credit Statistical Handbook, 31 May 2012,http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_141528). As an open economy deeply integrated within the EU, the Netherlands is affected by regional economic weakness and by the increased risk of additional shocks emanating from the ongoing euro area debt crisis.
In addition, housing prices in the Netherlands have declined since 2009 after more than a decade of steady growth (source: Dutch Central Bank). As a result, the value of real estate collateral backing domestic housing loans is declining. Amidst the current recession, bankruptcies have also risen to the highest level since 1993 (source: Central statistical office of the Netherlands), posing a risk for banks' lending to small and mid-sized enterprises.
Furthermore, Dutch households have some of the highest debt levels among western European countries, at 127% of GDP and almost 250% of gross income at year-end 2010 (source: Eurostat). Moody's recognises that Dutch household loans, including banks' large residential mortgage books, have shown resilient performance to date; however, highly indebted Dutch consumers are vulnerable to the possibility of a prolonged recession.
- SECOND DRIVER: BANKS HAVE STRUCTURAL FEATURES THAT LEAVE THEM VULNERABLE TO PREVAILING ELEVATED RISKS AND UNCERTAINTY
As stated, the Dutch banks affected by today's actions have structural features that, while not new, exacerbate risks for bank creditors in the current difficult environment. Specifically, the large mortgage books of Dutch banks have historically contributed to low and relatively stable loan losses; however, amidst the current recession and declining housing values, this large sector exposure may lead to elevated losses if the so-far modest deterioration of housing loans accelerates. Besides their large household mortgage portfolios, several Dutch banks are also active in commercial real estate (CRE) lending. Collateral values for these loans have declined in recent years together with commercial property prices (source: DNB/International Monetary Fund).
Another key vulnerability of Dutch banks is their structural reliance on wholesale and non-domestic funding sources to finance a portion of their core domestic lending. This reliance renders banks vulnerable to potentially sudden changes in market confidence amidst the adverse and highly uncertain European operating environment. Indicating a gap in retail funding, the loan-to-deposit ratio of ING Bank, Rabobank, ABN AMRO and SNS Bank ranged between 122% and 162% at year-end 2011 (source: Moody's computation based on company reports), above the levels of many international peers. In addition, under a stressed scenario, non-domestic deposits of Dutch banks could, in Moody's view, become less fungible, because national regulators increasingly focus on safeguarding local liquidity.
These concerns are partly mitigated by the success of Dutch banks in accessing capital markets on reasonable terms recently, and by their ability to maintain or increase average debt maturities and grow deposits.
- MITIGATING FACTORS: SOLID DOMESTIC FRANCHISES AND IMPROVED REGULATORY CAPITALISATION SUPPORT STANDALONE CREDIT PROFILES
Dutch banks' strong and sustainable domestic franchises are a source of steady pre-provision earnings. These earnings provide a buffer to absorb losses and underpin the continued high ratings for the leading Dutch banks relative to many of their European peers. Dutch banks also recorded solid net profits in 2010 and 2011, bolstered by low loan-loss provisions, although credit costs may increase going forward.
Another mitigating factor is the improved regulatory capitalisation of most banks, which have increased significantly in recent years. However, Moody's notes that banks face only small capital charges against their large residential mortgage books, which carry low regulatory risk weights. If the historically strong performance of these loans deteriorated significantly, banks would have only limited equity cushions and reserves to absorb any losses exceeding their earnings.
RATINGS RATIONALE -- LONG AND SHORT-TERM DEBT AND DEPOSIT RATINGS
The long-term debt and deposit ratings for four of the five Dutch banking groups downgraded today continue to be positioned above their standalone credit assessments, reflecting Moody's assumption of a high likelihood of systemic support, if needed.
The debt and deposit ratings of ABN AMRO now benefit from three notches of government support-driven ratings uplift (vs. four notches previously). The revised ratings uplift is more in line with other European banks and reflects the clear intent of the Dutch government to sell its ownership stake.
The debt and deposit ratings for Rabobank, ING Bank and SNS Bank continue to benefit from two notches of support uplift. The debt and deposit ratings for LeasePlan do not incorporate any uplift, as its smaller size and international business model make it less systemically important.
RATINGS RATIONALE -- SUBORDINATED DEBT AND HYBRID RATINGS
In addition to the above-described rating actions, Moody's has today downgraded the subordinated debt ratings of four Dutch banking groups by up to five notches, following the removal of systemic support for these securities and the respective reductions of the banks' standalone credit assessments. The removal of support for this debt class reflects Moody's view that, in the Netherlands, systemic support for subordinated debt is no longer sufficiently predictable and reliable to warrant incorporating uplift into Moody's ratings. (For more detail, see 29 November 2011 announcement "Moody's reviews European banks' subordinated, junior and Tier 3 debt for downgrade" -http://www.moodys.com/research/Moodys-reviews-European-banks-subordinate....)
Furthermore, Moody's downgraded today the junior subordinated debt ratings of Rabobank by two notches to Baa1(hyb), reflecting the securities' junior ranking compared with subordinated debt and the lowering of the bank's standalone credit assessment.
WHAT COULD MOVE THE RATINGS UP/DOWN
The current rating levels and outlooks incorporate a degree of expected further deterioration. However, the ratings may decline further (i) if operating conditions worsen beyond current expectations, notably if the economic environment encountered material negative pressure, leading to asset-quality deterioration exceeding current expectations; or (ii) if Dutch banks' market funding access experiences a significant decline; or (iii) if earnings or asset quality deteriorate sharply.
Rating upgrades are unlikely in the near future for banks affected by today's actions, for the reasons cited above. A limited amount of upward rating momentum could develop for some banks if the relevant bank substantially improves its credit profile and resilience to the prevailing conditions. This may occur through increased standalone strength, e.g. bolstered capital and liquidity buffers, work-out of asset-quality challenges or improved earnings. Improved credit strength could also result from external support, such as a change in ownership or an improved likelihood of systemic support.





http://globaleconomicanalysis.blogspot.com/2012/06/spain-holds-emergency-cabinet-meeting.html


Thursday, June 14, 2012 3:49 PM


"It's Not the Situation Room" Says Spain After holding Emergency Cabinet Meeting


We now have an official denial of an amusing kind.

With clear reference to CNN's Situation Room with Wolf Blitzer, Spain calls for calm following an emergency cabinet meeting while declaring the meeting was "Not the Situation Room".

I pieced together the following synopsis with help from Google Translate:

Situation Room Synopsis 

Following a regular cabinet meeting, Spain's prime minister Mariano Rajoy held an emergency meeting with deputy prime minister Soraya Saenz de Santamaria, Economy minister Luis de Guindos, and Treasury Minister Cristobal Montoro.The Government says the meeting was not the "Situation Room".

Economy minister Luis de Guindos admits the situation of "tension" while stating "government is not in a cabinet crisis".  De Guindos requested calm.

Recall that on June 1, de Guindos insisted Spanish banks were sound, not needing a rescue while begging the international community for a rescue.

Please see Edge of a Precipice; Doublethink Extraordinaire; Spain in Discussions With US Regarding Bank Aid; Gold Soars; Geithner to the Rescue? for an Orwellian discussion of conflicting statements from Spain.

Here is an unedited snip as translated by Google ...
 The four members of the executive who held the unusual meeting refused to answer questions from journalists in the corridors of the House. "President, a message of calm about the situation in the markets?" Was the repeated question. There was no response.

Alarms jumped at the escalation of the Spanish bond, placing the country in a dramatic situation. After two hours and meeting room, which was also attended by director of the Economic Office of Moncloa, Alvaro Nadal, appeared Economy Minister Luis de Guindos, before the media in a speech where the word most often repeated -up on three occasions was the quiet.
"The bottom line is quiet. We have a route that the measures to be taken and we know that indeed there are circumstances that are affecting international volatility and market situation." The owner of the field argued that "the government is on top of issues and topics, is taking action and will continue to take action ... and it will do, not only by the state of today's risk premium, but according to the interests of Spain and the euro zone. "
Quick Translation

  • Spain held an emergency cabinet meeting of four top members in the "Situation Room". 
  • The Bottom line is decidedly not quiet. 
  • Government is not on top of the issues.

Word Cloud

I pasted the entire translated text into the Wordle Word Cloud Generatorand came up with this.


and.......
http://www.acting-man.com/?p=17606

Euro Area – A Well-Choreographed Circling of the Drain


June 14, 2012 | Author 
Italy Back In Focus
Italy had a 12 month bill auction on Wednesday to be followed by a €4.5 billion  long term bond auction on Thursday and an even bigger €9.5 billion auction on Friday for a total of nearly €20 billion in debt sales this week. The timing of these auctions seems rather unfortunate. 

„Italian yields on 12-month bonds skyrocketed to near December levels, wiping out the benefits of Premier Mario Monti's nearly seven-month government as Spanish contagion spreads.
Italy paid 3.972 percent interest rates — up from 2.34 percent last month — to sell (EURO)6.5 billion ($8.12 billion) in 12-month paper. The bond auction enjoyed strong demand.“

Below is the action in 2 year and 10 year yields over the first three trading days of this week (i.e., the 'post Spain banking bailout announcement period') as well as their longer term performance. Directionally, Spanish and Italian yields remain strongly correlated, but obviously the market currently views Italian debt as the slightly safer bet, as yields remain well below their November 2011 panic highs.  Still, it was a wild and woolly week, with the yield curve once again flattening, as it usually does during panic phases:
Italy's 2 year yield, Monday – Wednesday. Almost a 100 basis points move from low to high in three trading days is rather remarkable - click chart for better resolution.


Italy's 2 year note yield over the past three years. Currently yields remain well beneath their panic highs of last year, but obviously the current level is disturbingly high nonetheless - click chart for better resolution.


Italy's 10 year yield, Monday – Wednesday: a comparatively much smaller move, i.e. The yield curve is flattening again. At 6.25% the 10 year yield is uncomfortably high as well - click chart for better resolution.


Italy's 10 year yield over the past three years - click chart for better resolution.

As German news magazine Der Spiegel reports, prime minister Monti has spent most of this week denying that Italy will require a bailout as well:


“Italian Prime Minister Mario Monti has denied that his country will ask for an EU-led bailout. He told the German broadcaster Deutschlandradio Kultur on Wednesday that he realized Italy had a reputation as a "cheerful and undisciplined" country, but that it was "more disciplined" than many other European countries — adding that it was "also not so cheerful.”

Unfortunately the Italian economy is in a downward spiral – for instance, industrial production has declined by nearly 25% since 2008. Unemployment is at 10%, youth unemployment at 36%. To be sure, these data still look a great deal better than comparable data in the other stricken members of the 'PIIGS' club.
Meanwhile, support for Mario Monti – who started out with an approval rating of 71%, no doubt because Italians had had enough of Silvio Berlusconi's antics – is dwindling quite a bit lately. The harshness of the austerity program, and especially the tactics employed by the revenue service to battle tax evasion have made him few friends.
The WSJ reports that he 'faces a crucial test' now:

“Prime Minister Mario Monti's honeymoon is over.
Italy's return to the cross hairs of the euro-zone debt crisis has ratcheted up pressure on Mr. Monti to accelerate his turnaround of the country's moribund economy. But the effort is running up against a rising tide of discontent at home.
Mr. Monti has passed austerity measures including tax increases and an overhaul of Italy's pension system since taking office in November, garnering widespread praise from investors and world leaders.
In recent days, however, the aura surrounding Mr. Monti has faded as investors and lawmakers at home take a hard look at unfinished items on the agenda—an overhaul of the labor market, cuts to government spending and plans to modernize the justice system.
"The Monti effect has waned considerably," said Nicholas Spiro, who heads a London-based consultancy on sovereign debt.
Whether Mr. Monti regains his previous momentum is one of the most important questions facing Europe. Because of the size of its economy and debt—€1.9 trillion ($2.39 trillion), equivalent to 120% of its gross domestic product—Italy would be too big for Europe to bail out.
In a bid to shore up support for his government, Mr. Monti summoned the heads of Italy's biggest political parties to a meeting late Tuesday, reminding party leaders that their backing was crucial for Italy to "overcome the critical nature of the current situation and project an image of cohesion abroad," according to a statement from the government.
Investor fear that Italy could require outside help—compounded by anxiety over Spain and continuing uncertainty over Greece—is driving Italy's borrowing costs back to the levels that preceded Mr. Monti's appointment. On Tuesday, the yield on Italy's 10-year bond reached 6.14%, compared with a 1.42% yield on ultrasafe German bunds. Rome still needs to sell about half of the €450 billion in debt that Italy needs to roll over this year, said a Treasury official.
At the same time, Mr. Monti's tax-heavy austerity measures have choked economic growth, causing Italy's economy to contract 0.8% in the first four months of the year.”

(emphasis added)
We have strongly criticized Monti's reliance on raising taxes as opposed to cutting spending when his austerity package was first announced. The man is a typical bureaucrat – it is against his instinct to cut the size of government and he has no idea what struggles businessmen are facing daily.  
In spite of his timidity with regards to making government smaller, it seems the bureaucracy is actually arrayed against him now – and with it, increasingly the political establishment as well. His labor market reform bill is floundering:

“A poll last week found that only half of Italians supported political parties that form Mr. Monti's parliamentary majority, down from 63% two months ago. Confidence in Mr. Monti among those surveyed fell to 34%, compared with 71% when Mr. Monti took office.
The steady erosion of public support for Mr. Monti's government is also prompting some politicians to question whether Mr. Monti can still push through the tough changes demanded by EU leaders.
Last week, Stefano Fassina—head of economic affairs for the left-leaning Democratic Party—said Mr. Monti lacked "the force to forge ahead with other reforms" and questioned whether Italy should hold elections in the fall instead of spring 2013 as planned.
Meanwhile, the country's sprawling bureaucracy of civil servants and functionaries are publicly butting heads with ministers who are supposed to rein in their budgets. The longer political parties maintain their backing for Mr. Monti, the more votes they risk losing when Italians eventually go the polls, said Alessandro Campi, a professor of politics at the University of Perugia. "We're in a situation of pure chaos," Mr. Campi said. "No party wants to get blamed for supporting a government that didn't get big results."
Mr. Monti's drive to overhaul the labor system has made progress. A bill that aims to make it easier for Italian firms to hire and fire workers has passed the Senate, the upper house of the Italian Parliament. However, Mr. Monti had to water down the measure, removing a provision that would have allowed companies to cut workers without having to go before a judge. The bill still faces weeks of scrutiny and possible modification in the Camera, the lower house of Parliament, before it faces a final vote.”
(emphasis added)
One can not 'fire workers without facing a judge'? This is like a surreal dream. Although as we have pointed out previously, Italy is in far better condition overall than many other debtor countries in the euro area due to its high private sector savings, there is still a good chance that the crisis won't stop short of engulfing it. Obviously that is a threshold that must not be crossed – as the WSJ wrote, it really is 'too big to bail'.


Monti's program is in trouble and so is he.
(Photo via metronet.it)

Meanwhile, the sour social mood is reflected in Italy's stock market, which keeps going lower:


The MIB is not far off its recent lows - click chart for better resolution.


The biggest culprits are once again bank stocks, with Unicredito only a smidgen above its all time low made last year:


Unicredito keeps falling after a brief recovery earlier this year - click chart for better resolution.


As Italian banks have loaded up on Italian government bonds following the ECB's LTRO, the recent bond market rout has been rather bad news for them. If Italy's sovereign debt crisis deepens, a concomitant banking crisis will be unavoidable.

Spain Hit by More Downgrades

Late on Wednesday afternoon, Moody's issued another downgrade of Spain in light of the bank bailout. As Moody's notes, Spain's government is liable for the bailout, which in turn means its sovereign credit rating deserves to be cut further. Of course all of this should already have been crystal clear well before the recently announced bank bailout, but as we often point out, these downgrades do have an effect even though they are usually behind the curve. 
As the rating has been slashed by three notches, Spain is now only a single step above 'junk'. Moreover, the rating may be cut again in three months time, depending on developments until then. Among the factors Moody's intends to weigh: the outcome of the Greek election. 

“Credit ratings agency Moody's Investors Service cut its rating on Spanish government debt on Wednesday by three notches to Baa3 from A3, saying the newly approved euro zone plan to help Spain's banks will increase the country's debt burden.
Moody's, which also said it could lower Spain's rating further, cited the Spanish government's "very limited" access to international debt markets and the weakness of the national economy.
The rating is on review for possible further downgrades, which could come within the next three months, Moody's said.
"We will of course also take into account whatever the details are that come out on the size and the terms of the (bank) support package, and also take into account what's going on in the wider euro zone" in weighing further downgrades, said Kathrin Muehlbronner, a Moody's analyst in London.
That includes both Sunday's election in Greece and an upcoming European summit at the end of the month, she said.”
Moody's now puts Spain's rating one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook. Fitch Ratings cut Spain's rating by three notches on June 7 to BBB – one notch above Moody's – and put a negative outlook on the credit

(emphasis added)
We will see how Spain's bond market reacts to this on Thursday morning – in Wednesday's trading it barely budged, remaining stuck near the recent high in yields. Incidentally, Moody's also downgraded Cyprus in the same breath and reportedly plans to further downgrade up to 75 Spanish banks.
Independent rating agency Egan-Jones meanwhile predicted that both Spain and Italy will 'require full scale bailouts within six months'.
Spain's economy is of course also extremely weak, so the probability that the mooted bank bailout of €100 billion will prove not to be enough is quite high. In fact, such bailouts always tend to grow beyond the initially mooted amount.
Spain's retail sales: down sharply from their peak - click chart for better resolution.


Spain's 10-year yield consolidated near its recent high on Wednesday – this was prior to the latest slew of downgrades – click chart for better resolution.



Greek Bank Run Makes News Again
We mentioned the intensifying bank run in Greece already a few days ago, but Reuters and the WSJ got into the act on Wednesday as well. It appears that a late day sell-off in the stock market was triggered, or at least helped along by these reports. According to the WSJ, withdrawals are running at about €600 million to €900 million per day of late. These are enormous amounts for a small country like Greece and given the de facto insolvency of its banks this also means that ELA financing will likely continue to grow.

“Withdrawals by customers at Greek banks have been rising before Sunday’s elections, two banking sources said Wednesday.
“There has been a deterioration in the situation in the past few days; I estimate that between 600 million euros [$750 million] and 900 million euros have been leaving the system per day,” said a senior banker at one of Greece’s leading lenders.
“As we approach the last few days before the elections I expect deposit withdrawals to rise further,” he added. “And I wouldn’t be surprised if by Friday we saw outflows of 1 billion to 1.5 billion euros.”
But he added that the sums remains “manageable” since the banks keep large cash buffers on hand to deal with the withdrawals.”

(emphasis added)
We have previously commented on the incongruity of electing SYRIZA and concurrently fearing for one's savings, but it is of course quite likely that the bulk of the voters that cast their vote for the Radical Left have in fact not much to lose at this point. The others probably are not very eager to wait for this to happen:



The Postscheckamt in Berlin 1931,  shortly after the bankruptcy of Austria's Creditanstalt.

(Image credit: Wikimedia Commons)


Meanwhile, our speculation that Francois Hollande would prove a good soldier in the eurocracy's cause – apart from his own spending habits at home of course – has received a first confirmation as he waswheeled out to comment on the upcoming Greek election. He pontificated on 'Greece's commitments' a bit and warned that Greece might be pushed out of the euro if things don't go to the eurocracy's liking (obviously they couldn't task Mrs. Merkel with making such pronouncements at this juncture):

“French President Francois Hollande Wednesday warned Greeks four days before elections that if Athens does not keep its bailout commitments, some of its eurozone partners will want it out of the bloc.
While acknowledging the Greeks' right to determine their own future, Hollande told Greek Mega Channel television that if it appears from the vote that they doesn't want to respect the bailout deal "there will be countries in the eurozone which would prefer to end Greece's presence in the eurozone."
Greece holds its second parliamentary election in six weeks this Sunday, after a May vote failed to produce any workable majority. The leftist Syriza party, which has pledged to tear up the bailout deal, stands a good chance of winning, and even parties which backed the rescue now favour renegotiating its terms.
"I am in favour of Greece remaining in the eurozone, but Greeks should know that this requires there be a relationship of trust," Hollande said in a transcript of the interview provided by his office. Hollande said he had lobbied his EU counterparts for bloc funds be speeded up so Greece, now in its fifth year of recession, can return to growth.
He pledged he would continue to push for their release and warned Greeks "the abandoning pure and simple of the (bailout and austerity) memorandum would be seen by many eurozone members as a break up."
Hollande, who has pushed for the eurozone to shift its focus from austerity to growth, said the situation has now evolved even further.
"The financial situation is such that we must also have guarantees so banks can be preserved and supported," said the French president. "We are already in another stage," of the eurozone crisis. "This is what the Greeks must also understand," he added.

(emphasis added)

Stick, then carrot, then stick again….emphasizing how it's not his fault, he's merely the reluctant bearer of bad news, and then he leaves them with: “you know, you're actually not so high up on the list of priorities anymore”.
The entire spiel can be summarized in a single sentence: “Better don't vote for SYRIZA”. It may also have been addressed to would-be miracle producer Alexis Tsipras himself, who continues to promise his voters that they can have their cake and eat it it too.
Concurrently to this slightly surprising intercession by Hollande, there were carefully placed leaks that the euro-group is considering giving the Greek austerity program a little bit more rope, even if New Democracy should win the election (see also this report in 'Der Spiegel'):

“The euro zone wants to negotiate a loosening of the terms of Greece's fiscal consolidation program, German newspaper Financial Times Deutschland reports Wednesday.
Any new Greek government will demand changes to the country's savings program, regardless of the outcome of Sunday's general elections, the newspaper reports, citing people close to the matter.
If other member states want Greece to remain in the euro zone, they won't be able to refuse such negotiations, FTD reports.
The Troika–comprising the European Commission, European Central Bank and International Monetary Fund–is proceeding on the assumption that Greece has already violated the terms of its reform plan, the newspaper reports, citing people close to the matter. The Troika will confirm at its next visit to Greece that the reform program hasn't been fulfilled, German Finance Minister Wolfgang Schaeuble told politicians at a meeting of his party's parliamentary group, FTD reports.
But the Troika is still officially calling on Greece to meet all its reform pledges. "We expect the Greeks to fulfill all agreed commitments," a spokesman for the European Commission told FTD.”

One has to admire the perfect timing and choreography of this eurocratic propaganda exercise on Wednesday.  Tomorrow a big German newspaper is going to report on the need for a 'third aid package for Greece' to boot.


and Europe clearly only intends to offer face-saving adjustments to Greece......

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_24849_14/06/2012_447116




Europeans leave little wiggle room for renegotiation


A European diplomat based in Berlin has told Kathimerini that there is little appetite in the German government or parliament to renegotiate Greece’s fiscal adjustment program and provide Athens with more time to meet its targets and more loans to cover its funding gaps in the meantime.
“Time is money and the German government cannot give more money to Greece, which means that it cannot give more time either,” said the official, who wished to remain anonymous.
The diplomat suggested that Berlin would be willing to hold talks about the bailout terms with the next Greek government if it is committed to the fiscal adjustment. “We can discuss matters with a government that intends to meet the commitments Greece has taken on, even if this is using different methods, as long as it is also reliable.”
The position adopted by the official matches views expressed in other parts of Europe.
“The headline targets cannot be changed,” one senior EU official told Reuters. “There could be some tweaks to the path to get there, but not the goals.”
“If the Greeks do not meet the commitments they have made, do not meet their financial commitments, do not repay loans, Slovakia will demand that Greece leaves the eurozone,” Slovak Prime Minister Robert Fico told his country’s parliament, although he said Europe should strive to keep Greece in.
A German EU official told Reuters regardless of who wins the Greek vote, a new government would be given a final chance. “There will be a very clear 100-day plan for a new government. If it’s not implemented in full, then the game is over,” the official said. “This is a very bitter election for the Greek people. They are being asked to support the old guard that got them into this mess.”
The International Monetary Fund would not be drawn on what might happen after the elections on Sunday.
“I think we need to take this one step at a time,” said IMF spokesman Gerry Rice. “I think we should respect the democratic process in Greece and once there is a new government, the IMF will engage in a new dialogue with the new government.”


http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_14/06/2012_447124







Emporiki lets go of subsidiaries

 Balkan offshoots to go under Credit Agricole, raising suspicions of French bank’s departure from Greece

The governing board of Emporiki Bank decided on Thursday to transfer all its subsidiaries in the Balkans to its parent group, France’s Credit Agricole. The decision fueled rumors of a departure by the French group from Greece and preparation for the worst.
It came one day after a Wall Street Journal report according to which Credit Agricole is examining the prospect of abandoning Emporiki -- a previously state-owned bank -- if Greece drops out of the eurozone.
Emporiki sources said that the transfer of its subsidiaries in no way constitutes a step toward preparing for the worst, and stressed that the move had been planned years ago. They added that the subsidiary transfer will improve Emporiki’s liquidity as the support of the subsidiaries will be passed on to the parent group.
The Emporiki board decided to transfer all of the shares it has in Emporiki Bank Romania, Emporiki Bank Bulgaria and Emporiki Bank Albania. The decision is pending the approval of those countries’ central banks.
The bank announced on Thursday that this was an internal transfer, in the context of the group, that constitutes the final step in a process that started in 2009 aimed at strengthening relations between Credit Agricole and the Emporiki Bank subsidiaries in the Balkans, in line with the French group’s international business growth model.
“As a result of their progressive incorporation in the Credit Agricole Group during the last three years, the subsidiaries of Emporiki Bank have adjusted the procedures of risk management and regulatory compliance, their administrative organization and their IT systems to the standards of the group. They now also have a clear reference to Credit Agricole Group in their corporate identity. This transfer will also maximize capital management in these subsidiary banks,” the statement read.
The Wall Street Journal report suggested that a source close to the Credit Agricole administration had said that if Greece were to leave the eurozone, the French bank would have no obligation to remain in Greece.

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