http://www.zerohedge.com/news/complete-eurocrisis-summary
Submitted by Tyler Durden on 06/03/2012 16:38 -0400
http://www.telegraph.co.uk/finance/financialcrisis/9309588/Spanish-rescue-draws-closer-as-Cyprus-buckles.html
and.....
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9309669/The-week-that-Europe-stopped-pretending.html
http://globaleconomicanalysis.blogspot.com/2012/06/another-meaningless-nannycrat-rumor.html
One look at the nannycrat participants led by Van Rompuy and Jean-Claude "lie when it's serious" Juncker, is all you need to do to know the plan has far more holes than Swiss Lorraine cheese.
I would have thought that no one could possibly take this seriously, even if such a meeting were agreed to.
Note that the Financial Times, New York Times, and Wall Street Journaldid not bite on this story, but Libre Mercado came out with its version: The German 'Die Welt' reveals a "Secret Plan for a New Europe".
El Economista says EU, ECB and Eurogroup working on a comprehensive plan for a new Europe.Rumor Spreads
To show you how rumors spread, Reuters has picked up on this silly story in Europe mulls major step towards "fiscal union"
The "meat on the bones will come in the second half of 2012". The plan is "so secret" that no one has any details now other than an alleged proposal to agree to agree sometime down the road.This is what it boils down to: The secret plan is to develop a secret plan at the already scheduled June summit. Yeah right.
and.....
http://www.welt.de/wirtschaft/article106408462/Der-Geheimplan-fuer-ein-neues-Europa.html
© Stock HuberBerlin Reichstag of projected EU flag. Europe's governments must move away from small-scale crisis management
http://www.guardian.co.uk/business/2012/jun/03/spain-bankia-bailout-imf-eurozone
Complete Eurocrisis Summary
- Barack Obama
- Borrowing Costs
- European Central Bank
- Eurozone
- France
- Germany
- Greece
- headlines
- Italy
- Newspaper
- Recession
- Reuters
- United Kingdom
Confused by the latest developments, headlines, stories, counterstories, denials, counterdenials and rumors, but mostly prayers out of Europe? Here is your one stop shop of everything that has transpired in the Eurocrisis most recently.
Mostly via Citi:
- According to Bloomberg, Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis: “under no circumstances” would she agree to Germany-backed euro bonds. Some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,”Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday. Instead, what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe, she said.
- Dow Jones reports Spanish PM Mariano Rajoy saying that solutions for the Eurozone crisis will start to be found soon. “Spain is a factor in this situation, but one of many... I have good reasons to say that these problems of the monetary union are going to start to be solved in not very much time,” he said in a televised speech.
- Perhaps Rajoy’s confidence is the result of a report in German newspaper Die Welt picked up by Dow Jones that, “the chiefs of four European institutions are in the process of creating a master plan for the Eurozone, the daily Die Welt reports Saturday, in an advance release of an article to be published Sunday.” It adds: “Suggestions targeting a fiscal, banking, and political union, as well as structural reforms, are being worked out by EU Council President Herman van Rompuy, EU Commission chief Jose Manuel Barroso, Eurogroup Chairman Jean-Claude Juncker and European Central Bank President Mario Draghi, according to the article.”
- Reuters is among the news services reporting that the "Big Four" accounting firms KPMG, PwC, Deloitte and Ernst & Young will carry a full, individual audit of Spanish banks. First results are expected around mid-June.
- Spain announced it will auction some 2- 4- and 10y Bonds on June 7. The FT describes the move as ‘defiant’.
- The FT reports that Syriza aims to renegotiate the Greek bailout should it be in a position to form a government on June 17. “The left-wing party that came a surprising second in last month’s Greek elections has pledged to halt interest payments due on the country’s debt and revoke the terms of its bailout agreement if it comes to power in a re-run vote on June 17. Alexis Tsipras, leader of the far-left Syriza party, said he would also cancel EUR11bn of cuts due to be implemented this month, reverse promised labor reforms and raise taxes on the wealthy.” The article is here.
- German tabloid Bild says in an editorial that Greece is fast reaching the end game. “Greeks are plundering their bank accounts, imports to the country are no longer guaranteed, rumors abound of drachma being printed and energy suppliers are no longer paid, Nikolaus Blome, Bild’s chief political columnist, said in an editorial in Saturday’s edition,” is how Bloomberg reports it.
- The UK’s Telegraph has been a critic of the EUR since before its inception and it now smells blood. “Spain is in 'total emergency’, the EU in total denial,” is the title of an article published this weekend. “I’ve never actually heard the term ‘total emergency’ before, at least not in the context of global economics. It sounds like the title of a disaster movie. When it is uttered in sober tones by the elder statesman of an advanced democracy to describe his country’s financial condition, the effect is rather startling,” the piece begins. It says if Spain did leave the EUR, there would be nothing left for any other country to exit. The article is here.
- Speculation of an ECB rate cut is starting to build. “The European Central Bank may cut interest rates again soon as the Eurozone debt crisis deepens, but it will continue to insist that it is up to governments to find a lasting solution, analysts say,” reports AFP. It adds though: “ECB watchers predict the central bank -- which will hold its regular policy-setting meeting next week on Wednesday instead of Thursday owing to a public holiday -- will not alter borrowing costs just yet this month. But it could act in July as deepening fears about Greece and possible contagion to other countries push the 17 countries that share the euro back into recession, the analysts predicted.”
- France: French yield levels have gone mental, at some stage the 10y yield rallied by 22bps. And it looked like around 100bps stops got triggered. As we write the colour the spread is back up to 105bps vs. Germany. Apart from the wage cut action for himself and for the CEO’s for state owned companies (a bike ride away from communism,) I could not notice any substantial reform so far for France. Most likely we will not see any until the June election is out of its way. Surely France needs to do its homework, and if Mr. Hollande does not want to listen to the markets, at least he should go through the European Commission report, where France is asked to address risky imbalances in its economy.
- Italy: Berlusconi comments that Italy should say “Ciao, EURO” even if it was a “crazy idea”. How colourful… either way some positive, yes we mean positive development. The GC short dates have re-traced from its 40bps lvls to now average 37bps in T/N, ending the day 36-35 on a good 5bn volume. One week term traded at 35bps and 1-3M quoted around 38-33bps. Specials space we are not seeing exceptionally expensive bonds. The most in demand is the March 22s, trading close to 1bn in volume on S/N day to day and followed closely by Aug 23s, both averaging around 8bps. Sept 22s that use to hold value is now a jump GC since the tap, but if you are to look for term trades especially for futures trade then you won’t get much liquidity.
And that, as they say, is that. At least for the next 2-3 hours when everything changes diametrically.
- Speculation of an ECB rate cut is starting to build. “The European Central Bank may cut interest rates again soon as the Eurozone debt crisis deepens, but it will continue to insist that it is up to governments to find a lasting solution, analysts say,” reports AFP. It adds though: “ECB watchers predict the central bank -- which will hold its regular policy-setting meeting next week on Wednesday instead of Thursday owing to a public holiday -- will not alter borrowing costs just yet this month. But it could act in July as deepening fears about Greece and possible contagion to other countries push the 17 countries that share the euro back into recession, the analysts predicted.”
- German tabloid Bild says in an editorial that Greece is fast reaching the end game. “Greeks are plundering their bank accounts, imports to the country are no longer guaranteed, rumors abound of drachma being printed and energy suppliers are no longer paid, Nikolaus Blome, Bild’s chief political columnist, said in an editorial in Saturday’s edition,” is how Bloomberg reports it.
- Reuters is among the news services reporting that the "Big Four" accounting firms KPMG, PwC, Deloitte and Ernst & Young will carry a full, individual audit of Spanish banks. First results are expected around mid-June.
- Dow Jones reports Spanish PM Mariano Rajoy saying that solutions for the Eurozone crisis will start to be found soon. “Spain is a factor in this situation, but one of many... I have good reasons to say that these problems of the monetary union are going to start to be solved in not very much time,” he said in a televised speech.
http://www.telegraph.co.uk/finance/financialcrisis/9309588/Spanish-rescue-draws-closer-as-Cyprus-buckles.html
7:39PM BST 03 Jun 2012
47 Comments
"A bail-out would not be the apocalypse," said José María Beneyto, foreign affairs spokesman in Spain's parliament. "You have to live with it. We have got to escape this or we'll go mad worrying about bonds spreads."
Mr Benyeto accepted that it would mean cuts in salaries and pensions dictated by a Troika from the EU, the European Central Bank and the International Monetary Fund. "Portugal is living with it relatively passively, and Ireland, too," he said.
The shift came as Cyprus edged closer to a bail-out after President Demetris Christofias said his country had been engulfed by large exposure to Greece. "I don't want to absolutely exclude it," he said.
Russia has effectively shored up Cyprus over the past two years but rising defaults in Greece have proved overwhelming. The Cypriot banking system is nine times the country's GDP, with assets of €157bn (£127bn). It has been called the "Iceland" of the South.
Germany's Spiegel magazine reported that Chancellor Angela Merkel is actively pushing Spain into the arms of the EU bail-out machinery, concluding that Madrid cannot hope to tap the open market for the estimated €50bn to €90bn needed to recapitalise banks.
Spanish officials denied the claim but Mr Benyeto's comments have caused deep confusion. He contradicted a speech on Saturday by premier Mariano Rajoy, who vowed once again that Spain would recover under its "own strength".
Mr Rajoy demanded intervention by the ECB to cap bond yields and warned the EU authorities that they too had to deliver on their side of the bargain as his country swallows austerity.
"One must insure that the euro continues to be the currency of our countries. If it is urgent to solve Spain's situation, it is equally urgent to solve the problems of the whole eurozone. Spain is one factor among many others in this situation. It is not the only one, and it is not the worst," he said, calling for an EU "fiscal authority" and use of the European Stability Mechanism (ESM) to recapitalise banks.
Top EU officials are drafting a "master plan" for a Brussels summit this month but it will focus on the future shape of the EU in 10 years' time. The drafters are powerless in the face of the immediate crisis. Berlin has a de facto veto on all key decisions.
The ECB has so far sat on the sidelines as spreads on 10-year Spanish bonds reached a record 496 basis points over Bunds. The ECB is wary of moral hazard but critics say it is a dangerous game for bureacrats to force democracies to their knees by switching intervention on and off. In this case it is spreading contagion to Italy and risks igniting a tinderbox.
Ms Merkel is herself under massive pressure from Europe's Latin bloc and world leaders. Leaks of a teleconference call on Wednesday reveal that France's François Hollande, Italy's Mario Monti and US president Barack Obama launched a three-pronged attack, pressing Ms Merkel to drop Germany's veto on the use of EU rescue funds for banks.
The trio repeated their demands three times with mounting tension. Each time she answered no, first in English, and then in German for precision, according to details obtained by Italy's La Repubblica.
"Germany does not want the fund to spend billions in exchange for collateral from ruined banks. I don't see why we should end up holding bits of bankrupt lenders," she reportedly told them.
All three warned that if Spain is forced to request a sovereign rescue – as Germany demands – it will be deemed insolvent by markets. The EMU crisis will become much more dangerous.
Critics doubt whether a surgical bail-out of €50bn to €90bn is possible. Alberto Gallo from RBS said Spain will need €370bn to €450bn to tide it through to 2014, pushing its debt to 110pc of GDP.
A key reason is the cancerous precedent of the Greek haircut deal, in which private investors were left with all the losses. Once the ESM starts lending to Spain, others creditors are instantly pushed down the ladder or "subordinated".
Losses will be larger if Spain ultimately needs to restructure. Stuart Thomson from Ignis Asset Management says this may well happen. He predicts haircuts of up to 50pc for Spanish bondholders.
Any rescue must be huge enough to fund Spain's total debt needs for the foreseeable future. Theoretically, the EU bail-out machinery has deep pockets. Whether it can actually raise such sums from global investors – and cope with contagion to Italy at the same time – is untested.
Gary Jenkins from Swordfish said half-measures are no longer enough. "We may be approaching the endgame where either the eurozone or the ECB takes action to stem the bleeding or the whole thing collapses," he said.
Meanwhile, a Greek exit from the eurozone will be on the agenda if Athens fails to impose austerity measures required in its EU-IMF bailout deal, French Finance Minister Pierre Moscovici has said.
"The question would be raised without a doubt.... if the Greeks themselves do not respect their commitments," Mr Moscovici said on French television, adding that he hoped Greece would remain in the eurozone.
and.....
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9309669/The-week-that-Europe-stopped-pretending.html
8:00PM BST 03 Jun 2012
Switzerland is threatening capital controls to repel bank flight from Euroland. The Swiss two-year note has fallen to -0.32pc, not that it seems to make any difference.
Denmark’s central bank said it was battening down the hatches for a "splintering" of EMU. It has cut interest rates twice in a matter or days and pledged to do whatever it takes to stop euros flooding into the country. Contingency plans are on the lips of officials in every capital in Europe, and beyond.
On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world.
Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project.
"Europe continues to try to quench the fire with gasoline – German-enforced austerity. In a mere three years, the eurozone’s financial crisis has become an existential crisis for Europe."
"Let’s not delude ourselves: If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced," he said.
Mr Fischer has the matter backwards. The euro itself is the chief cause of the existential crisis he discerns. Yet he is right that three precious year have been squandered, and that Europe‘s policy mix has been atrociously misguided. The pace of fiscal tightening has been too extreme, made much worse by the ECB’s monetary tightening last year. This inflicted a double-barrelled shock on Southern Europe. The whole region was forced back into slump before it had reached "escape velocity".
The window of opportunity offered by US recovery is slamming shut again. America’s dire jobs data for May - and the downward revision for April - confirm the fears of cycle specialists that the US economy has slipped below stall speed. America risks tanking back into recession as the "fiscal cliff" approaches late this year, unless the Fed comes to the rescue again soon.
Brazil wilted in the first quarter. India grew at the slowest pace in nine years. China’s HSBC manufacturing index fell further into contraction in May, with new orders dropping sharply and inventories rising.
We face the grim possibility that all key engines of the global system will sputter together, this time with interest rates already near zero in the West and average public debt in the OECD club already at a record 106pc of GDP.
"The world’s largest emerging economies are no longer in a position to carry the global economy through tough times, as they did during the 'recovery' years of 2009-2011," said China expert Andy Xie.
The warnings from the bond markets could hardly be clearer. German 10-year Bund yields closed at 1.17pc. The two-year notes turned negative. British Gilts closed at 1.53pc, the lowest in 300 years. US Treasuries fell to 1.45pc, lower than at any time during the Great Depression.
The debt markets are pricing in for a global deflationary bust. Europe will have to restore shattered trust in the worst possible circumstances.
If deposit flight from Spain was €66bn in March before the Greek election tore away the pretence that Europe had solved anything, one dreads to think what it will be in April and May when the data come out.
Alberto Gallo from RBS says Spain will need an EU rescue package of €370bn to €450bn to bail out its crippled property lenders and limp through to 2014, pushing public debt to 110pc of GDP.
This would be the biggest loan package in history by a huge margin. Whether the EU bail-out fund could raise the money on the global markets at viable cost is an open question.
Spanish premier Mariano Rajoy vowed in any case last week that there would no such rescue. It is not a vow he can break quickly or easily, whatever dissidents in his party may want.
Mr Rajoy is gambling that Germany will blink first, letting the ECB intervene in the bond markets to cap Spanish yields.
Europe’s officials seem to think Spain can be pushed into a bail-out - as Ireland and Portugal were pushed - but it is far from clear that Mr Rajoy will accept the long agony of debt-deflation, or take lessons from Brussels.
Heretical thoughts are gaining traction. El Confidencial suggested that Spain should engage in "blackmail" against the EU ("chantaje" in Spanish). "Rajoy has a card up his sleeve: leaving the euro. It is not the best option, and fundamentally it is not what most people want. But the time has come to make Brussels a poisonous proposal: "we have already done everything we possibly can, and if you won’t help us, we will leave," it said.
Mr Rajoy has not yet reached such a desperate point, yet his language over the weekend has an ambiguous feel. "We must ensure that the euro remains the currency of our countries," he told Catalan business leaders.
A group of leading professors wrote a joint appeal in Expansion, exhorting the Spanish nation to muffle their ears and resist the "siren song" of those arguing - and gaining ground - that liberation lies at hand with an "Argentine" dash for the peseta and economic sovereignty. It has come to this.
Italy is scarcely more predictable. Ex-premier Silvio Berlusconi offered us his cunningly pitched "mad idea" on Friday. If the ECB refuses to act as a lender of last resort, Italy should take matters into its own hands. "We should use our own mint to print euros," he said. It is a thinly veiled threat.
"People are in shock. Confidence has collapsed. We have never had such a dark future," he said. Indeed, the jobless rate for youth has jumped from 27pc to 35pc in a year. Terrorism has returned. Anarchists knee-capped the head of Ansaldo Nucleare last month. Italy’s tax office chief was nearly blinded by a letter bomb.
"If Europe refuses to listen to our demands, we should say 'bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy," he said.
Mr Berlusconi is no longer prime minister. But he still controls the biggest bloc of seats in the Italian parliament and can bring the technocrat government of Mario Monti to its knees at any time.
His point is entirely valid in any case. The ECB’s failure to ensure financial stability - the primary task of any central bank - is shockingly irresponsible. It is this that has driven his country into a liquidity crisis. What did Italy do wrong to justify a surge in bond spreads to a record 464 basis points last week? It is close to primary budget surplus, and has been for five years.
Germany can break the logjam at any time by agreeing to fiscal union, debt-pooling and full mobilization of the ECB, with all that this implies for its democracy. The answer from Chancellor Angela Merkel over the weekend was "under no circumstances". In that case, prepare for the consequences.
and.....
http://globaleconomicanalysis.blogspot.com/2012/06/another-meaningless-nannycrat-rumor.html
Sunday, June 03, 2012 1:45 PM
Another Meaningless Nannycrat Rumor: Europe Mulls "Secret Plan for New Europe"
A story is making the rounds that suggests leaders are going to get together and hammer out a "fiscal union".
The story appears to have originated on the Welt Online, a German tabloid. The article mentions a Secret Plan for a New Europe.
The story appears to have originated on the Welt Online, a German tabloid. The article mentions a Secret Plan for a New Europe.
EU institutions should design the master plan
At their informal meeting on 23 May had given the leaders a work order to the EU Council President Herman Van Rompuy, Commission President Jose Manuel Barroso, on the Euro Group President Jean-Claude Juncker and the head of the European Central Bank (ECB), Mario Draghi.
The four are to design a roadmap "for the EU to a new level" can be lifted. "Three or four conversations," President of the round was planned in the coming weeks, there will be conference calls, the institutions were in close contact.More Holes Than Swiss Cheese
Van Rompuy will present key elements of the plan at the summit in late June. They should be included in the final declaration. By the end of the year, the Heads of State and Government of the "roadmap" and decide then officially in black and white. It could be a revolutionary document.
One look at the nannycrat participants led by Van Rompuy and Jean-Claude "lie when it's serious" Juncker, is all you need to do to know the plan has far more holes than Swiss Lorraine cheese.
I would have thought that no one could possibly take this seriously, even if such a meeting were agreed to.
Note that the Financial Times, New York Times, and Wall Street Journaldid not bite on this story, but Libre Mercado came out with its version: The German 'Die Welt' reveals a "Secret Plan for a New Europe".
El Economista says EU, ECB and Eurogroup working on a comprehensive plan for a new Europe.Rumor Spreads
To show you how rumors spread, Reuters has picked up on this silly story in Europe mulls major step towards "fiscal union"
After falling short with her "fiscal compact" on budget discipline, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice.Nothing But Hot Air
The goal is for EU leaders to agree to develop a road map to "fiscal union" at a June 28-29 EU summit, where top European officials including European Council President Herman Van Rompuy will present a set of initial proposals.
European countries would then put the meat on the bones of the plan in the second half of 2012, several European sources have told Reuters, including a timetable for overhauling EU treaties, a step Berlin sees as vital for setting closer integration in stone.
The "meat on the bones will come in the second half of 2012". The plan is "so secret" that no one has any details now other than an alleged proposal to agree to agree sometime down the road.This is what it boils down to: The secret plan is to develop a secret plan at the already scheduled June summit. Yeah right.
and.....
http://www.welt.de/wirtschaft/article106408462/Der-Geheimplan-fuer-ein-neues-Europa.html
The Secret Plan for a New Europe
On behalf of the Government of the tips of the European institutions to develop a plan behind the scenes for a new, more stable Europe. The price could be the splitting of the EU.
By F. Eder, A. Ettel, J. Hildebrand and S. Jost
A "business as usual" can not exist in the euro rescue. Now, should follow a clear reaction. After researching the "Welt am Sonntag", the Government will consult you on the EU summit in late June with a master plan for Europe. It's not about acute crisis management.
A vision for the continent, it should be, especially for the battered euro-zone. "All over the world, America or Asia, we will ask: Where are you going?" Says a senior EU official. "We have to deliver after two years of crisis, finally an answer."
He expects the meeting in four weeks, "a big throw." It also provides for a representative of the monetary union as follows: "The euro-zone is unanimity about the fact that there must be further integrative steps."And a central banker is supportive attitude: "We have to push open the window to the question of what the citizens of Europe want."
EU institutions should design the master plan
At their informal meeting on 23 May had given the leaders a work order to the EU Council President Herman Van Rompuy, Commission President Jose Manuel Barroso, on the Euro Group President Jean-Claude Juncker and the head of the European Central Bank (ECB), Mario Draghi.
The four are to design a roadmap "for the EU to a new level" can be lifted. "Three or four conversations," President of the round was planned in the coming weeks, there will be conference calls, the institutions were in close contact.
Van Rompuy will present key elements of the plan at the summit in late June. They should be included in the final declaration. By the end of the year, the Heads of State and Government of the "roadmap" and decide then officially in black and white. It could be a revolutionary document.
Is working on four main areas
According to the newspaper "Welt am Sonntag" work van Rompuy, Barroso and Juncker Draghi on proposals for four areas: structural reforms, the banking union, a fiscal union and political union. So far, the work of the master plan is almost unnoticed by the public. These are the proposals that are brought together in the back rooms of the EU institutions, in itself. In the end, would create an entirely new Europe - where some of the 27 EU countries can.
Because it is difficult to predict, the parties still operate in secret: They have little interest in ensuring that their work is known, "because the process is very difficult." Initially, the four institutions to agree on a joint report, then the acceptance by the Government must find.
Berlin is trying to dampen expectations
Even warns. One should "not raise unrealistic expectations," says Berlin. It is emphasized that the summit in late June, first to a roadmap for the next steps go, would have to be then processed in the following months. Finally, it is going to very far-reaching changes that they could not advise on a single peak, and finally decide. Therefore, it is also possible that many proposals will be mitigated during the process again.
So far, however, the four EU arms are hell-bent on a really extensive work on "roadmap". At the most benign nor is the point of structural reform: The social systems are reformed, the internal market to be further strengthened. Both are in principle largely undisputed.
Growth must be encouraged
It will depend primarily on selling these actions as a growth-friendly rather than austerity. The second part of the plan, the banking union is tricky. The ECB calls them offensive as a consequence of the crisis: "The doctrine is a further centralization of bank supervision," Draghi said publicly this week, and calls for a joint financial supervision in the euro-zone.
In addition, the ECB argues for a European bank rescue fund that could be filled by a tax of financial institutions. When the federal government to reject such considerations came a long, ultimately, German banks were joint liability for southern European competitors.On the other hand, is in Berlin today, many realize that a monetary union without an integrated banking market does not make sense. "I think the banks' Union, the Germans will agree to end," says someone who formulator of the timetable.
Fiscal Union is tricky for Berlin
A fiscal union is for the federal government is by far the most delicate suggestion. In Berlin, one of which would like to know more stringent budget oversight understood, a further development of the Fiscal Pact.But unlike the federal government, the four parties involved EU institutions mean by a fiscal union and a collective responsibility for government debt, ie € bonds that Germany refuses vehemently.
http://www.guardian.co.uk/business/2012/jun/03/spain-bankia-bailout-imf-eurozone
How could Spain's 'secure' banks descend into crisis?
It avoided toxic derivatives and helped to rescue Britain's lenders. But the Spanish banking sector was so laden with property debt that the eurozone's fourth largest economy is near collapse
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The rescue of Spain's Bankia bank could cost four times as much as the markets had expected. Photograph: Sergio Perez/Reuters
A team of International Monetary Fund (IMF) experts will fly to Madrid this week. They are meant to be there for the routine annual check-up the fund carries out on all members, but it looks increasingly likely that before they leave, they will have had to draw up plans for an emergency bailout of the eurozone's fourth largest economy. This would catapult the debt crisis into a new and dangerous phase.
Until last week, it was the prospect of make-or-break Greek elections in a fortnight's time that was giving Europe's politicians sleepless nights, butSpain's bungled bailout of its fourth largest bank last weekend has forced its shaky finances to the top of the agenda.
Bankia, which has already been rescued once by the Spanish government, announced last weekend that it needed an alarming €19bn (£15bn) to patch up its finances, battered by the Spanish property crash. This was four times what had been estimated only a fortnight earlier.
With its bank bailout fund running dangerously low, the government initially proposed filling the hole with its own bonds, which Bankia could exchange with the European Central Bank (ECB) for cash. That smacked of desperation – and strayed too close to a direct bailout of the Spanish government to be acceptable to Germany and other eurozone governments, or to the ECB itself.
Without the ECB's help, it is unclear where the cash will come from. Bankia's plight, which is far more serious than the markets had suspected, raised questions about the rest of the country's banking sector, which was once the bedrock of Spain's economy.
Yields on Spanish bonds – a proxy for the rate Madrid must pay to borrow – shot up through 6.6%, well above the level usually thought to signal an imminent budget crisis. And investors have continued to withdraw assets from Spain. Latest ECB figures show that €97bn of capital, equivalent to about 10% of Spain's GDP, was pulled out in the first three months of 2012. The yield on German bonds, however, continued to hit new lows, as nervous investors desperately sought a safe home for their cash.
Charles Wyplosz, professor of international economics at the Graduate Institute in Geneva, said: "I believe that we have reached the point of no return, where the markets have decided this is a hopeless case."
Robert Zoellick, the outgoing president of the World Bank, warned in theFinancial Times on Friday that Europe might be approaching a break-the-glass moment, "when one smashes the pane protecting the emergency fire alarm".
This is a dramatic reversal. At the start of the crisis Spain's banks had been held up as a bastion of strength. In the UK, as the crisis was beginning, Santander salvaged Alliance & Leicester and was used by the Labour government to help rescue Bradford & Bingley after the collapse of Lehman Brothers.
Spanish regulators were hailed for their wisdom in preventing local banks from embarking on off-balance-sheet ventures, such as the "structured investment vehicles" that came to symbolise the 2007 credit crunch. The regulators had also forced banks to amass extra capital in the good times as a cushion against bad times – a policy the UK is now trying to emulate.
But this crisis has gone on longer than any such policy could have prepared for. Analysts at investment bank UBS reckon the Spanish banking system could need as much as €120bn of fresh capital to cope with the damage being caused not by arcane credit-crunched investments but by plain bad property lending. And because they went into the crisis stronger than other banks, when others were raising capital, Spanish banks were not.
Jonathan Loynes, chief European economist at Capital Economics, says: "The Spanish banking system looks pretty hopeless: not just Bankia… It looks as though there may be other institutions hiding losses."
Banking analysts also worry that Spain's banks are still reliant on the wholesale money markets, something UK banks are being weaned off. Their loan-to-deposit ratio – a measure of how much banks need on top of their deposits to support their lending – is 150%.
As in other troubled member states, Spain's banks and its public finances are locked together: banks' balance sheets are stuffed with their own governments' bonds. As foreign investors have avoided Spanish government bonds, the local banking sector has filled the gap.
This is potentially alarming. Loynes says: "Spain are still trying to tell us that they can muddle through on their own, but that looks very unlikely."
A Spanish crisis has always been a far more worrying prospect than the troubles of much tinier Greece, which could still spark a serious crisis. Simon Derrick, currency strategist at BNY Mellon, says: "The problem with Spain is that it's an order of magnitude larger than Greece. You're talking about the eurozone's fourth largest economy; you're talking about a very large amount of money."
A recent report from the Institute of International Finance, which represents the world's banks, suggested that on the basis of the experience of Ireland, which also saw a property bubble fuelled by reckless lending, Spain's banks could suffer losses of up to €260bn, and preventing a full-blown banking crisis could cost €60bn. Other analysts, such as those at UBS, believe the price tag could eventually be double that.
That is money that the Spanish government, already struggling to meet deficit targets set by Brussels, does not have. And the rules of the eurozone's €500bn rescue fund, the European stability mechanism (ESM), which is due to come into full operation next month, do not allow it to lend directly to financial institutions – only to governments.
Madrid is understandably reluctant to accept that it needs a bailout from the ESM. It would probably be made in concert with the IMF and, like the "rescue" of Greece, Portugal and Ireland, would come with painful conditions. A bailout would also exacerbate the already fragile mood in the markets, with investors fretting about each other's potential losses and which European country might be the next domino to fall.
Mariano Rajoy, Spain's prime minister, on Saturday proposed the creation of a new fiscal authority in the eurozone that would control and harmonise member states' national budgets and debts.
For Angela Merkel and her colleagues, seeing Spain accept a loan would be not only damaging to confidence across the eurozone, but politically painful. Unlike Greece – IMF boss Christine Lagarde told the Guardianlast week that that country's plight was "payback time" for years of tax-dodging – Spain has more or less played by the rules. Rajoy is not a reckless spender, but a right-of-centre leader who has largely followed the prescription set down by his European partners for austerity and reform – at least until the grim state of the economy made it impossible to meet the deficit targets.
Merkel last week described Spain as an ally, and said Rajoy had been handed "a difficult inheritance". Optimists hope this natural political sympathy will help to soften Germany's approach to embattled eurozone countries.
The European Commission last week urged leaders to allow the ESM to act directly to rescue banks, and to form a eurozone-wide "banking union" to avoid governments with weak banking sectors being picked off by financial markets. But both these proposals would require a dramatic attitude shift in Berlin.
Mario Draghi, the president of the ECB, was clearly exasperated at German intransigence last week when he told the European parliament that leaders need to show more vision: "Can the ECB fill the vacuum of lack of action by national governments on fiscal growth? The answer is no. Can the ECB fill the vacuum of lack of action by national governments on the structural problem? The answer is no."
The Frankfurt-based bank has, by default, become the first line of defence in tackling the crisis, buying billions of euros of bonds from Italy and Spain to bring down their borrowing costs, and releasing €1tn of cut-price three-year loans to banks in December and again in February to prevent a credit crunch.
With an ECB policy meeting scheduled for Wednesday, Draghi could decide that the severity of the situation requires more emergency action, but his outburst last week suggested that he would now like to see leaders take over the situation, before it spirals out of control.
Derrick at BNY Mellon says: "He staved off a banking crisis; he bought time for the politicians to do something. The problem is, they haven't done anything with the time he bought them."
There is an EU summit planned for this month, but it looks increasingly as though leaders will have to take action before then to secure Spain's finances and demonstrate that the situation can be controlled – before it spreads to Italy, or even France, and threatens
the very survival of the eurozone.
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http://euobserver.com/19/116451
Spain may speed up EU 'banking union'
01.06.12 @ 09:26
BRUSSELS - The US has joined ranks with EU officials exploring ways to pump eurozone money directly into Spain's troubled banks instead of having to further burden the state budget.
"We were talking about the possibility that the banks, not only Spain's but also in other countries who need it, could access funds directly without intervention from the governments and without conditions," said Spanish deputy PM Soraya Saenz de Santamaria after meeting US finance minister Timothy Geithner in Washington on Thursday (31 May).
"The treasury secretary indicated that we are working in the same direction and that we must find a solution for the banks," she added.
Meanwhile, an International Monetary Fund official at a conference in Brussels on Thursday also pressed for "decisive steps" in what is now generically being called a "banking union."
"Such steps would involve providing banking support from a common resource pool independent from national sources, sooner rather than later," IMF deputy chief Nemat Shafik said, a month before an EU summit where leaders are set to discuss the way forward for the eurozone, including the possibility of a banking union.
European Central Bank (ECB) chief Mario Draghi, one of the architects of the eurozone plan, on Thursday told EU parliamentarians in Brussels that the euro set-up in its current form was "unsustainable."
"The next step ... is to clarify what is the vision a certain number of years from now. The sooner this is specified, the better it is."
In Draghi's view, a banking union would need to be supervised centrally, guarantee deposits for the banks' customers and set up a joint bail-out fund banks would contribute to.
Draghi also criticised the handling of Bankia, a major Spanish bank bailed-out by the state, whose total bill is still unclear after having been revised several times.
"There is a first assessment, then a second, a third, a fourth,” Draghi said. "This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost."
A similar sense of urgency in reforming the eurozone architecture was given by Italy's central bank governor, Ignazio Visco, who that same day in Rome said: "There are now growing doubts among international investors about governments' cohesion in guiding the reform of European governance and even their ability to ensure the survival of the single currency."
Italy, as well as Spain, has seen its borrowing costs rise not only due to national economic problems, but also due to market fears that Greece may leave the eurozone.
Italian Prime Minister Mario Monti on Thursday urged Germany to reconsider its opposition to having common defences in order to shield Italy and Spain from contagion, while EU economics commissioner Olli Rehn called for "a much upgraded common capacity to contain common contagion."
Germany's fears of increased inflation were undermined by the latest eurozone statistics, which showed that inflation decreased to 2.4 percent in May from 2.6 percent in April on average in the euro area.
In Germany, inflation fell even more - to 1.9 percent in May compared to 2.1 percent the month before. The ECB's target is to keep inflation around 2 percent.
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