http://www.zerohedge.com/news/europes-three-ring-circus

Europe's Three Ring Circus

Submitted by Tyler Durden on 06/21/2012 08:14 -0400

From Mark Grant author of Out Of The Box

The Three Ring Circus

The Golden Rule of the Marketplace

“He who has the Gold; Rules.”

This simple little proverb and what it means will help you to understand what is going on in Europe presently. It will also help to keep you out of trouble as various headlines are flashed across your screen and you either scramble to get out of their way or make some valiant effort to grab on to them as they squiggle past. The European Union has become a tripartite system which is divided into the European Parliament which thinks that a United States of Europe has already been established and they are in charge, the troubled and about to be troubled nations that are scheming, planning and writing wishful theses in an effort to wrestle even more money from Germany and the financially sound nations and finally Germany and her allies that, while dispensing some charity, are determined not to have their borrowing costs rise or their standard of living fall. It is three distinct groups now and they should be viewed in this fashion so you can appreciate what is real, what will likely happen, what is important and what are just fanciful notions tossed about to gather more money from those nations that have it.

First and foremost; nothing is happening in the European Union without the agreement of Germany. They have the gold and they will make the rules regardless of the words bandied about proclaiming brotherly love and the solidarity of the European nations. This is all drivel, just politics and a subject that can be ignored as you concentrate on what is really important. When Germany speaks, on a scale of 1-10 with 10 being the most important; Germany is a 10 and the only 10 on the Continent. I would rate the importance of the French statements at an 8 now heading to 7 and then the Netherlands, Austria, Finland at a 7 while the fluff coming from the bailed out nations at 1 or 2 and Spain and Italy at a 3 or 4. The statements from this or that high mucky-mucky in the European Parliament carry a weighting of 3 and their grand plans of an integrated Europe that they can rule has a value of about 1.5; good for flag raising, speeches to 6th graders and the like but of no real importance.

I think it can be said with accuracy that nothing of importance and I mean nothing will be happening in Europe unless Ms. Merkel agrees and that is just that. This is why that each time some grand design is laid on the table and some new summit to end all summits and each new silver bullet play is brought out and waved like a magic potion that can cure all of the ills of Europe that nothing happens. Germany would have to foot most of the bill and Germany will not do it and if the boys want to muck around in the sandbox that is all fine, let them amuse themselves, but Germany will decide what is what and nothing else matters; really. If you understand all of this, if you get the joke here, you will not wander around making stupid bets and supposing that the headlines generated by Barroso or Van Rumpoy have any real significance; they do not. Of even less significance are the calls in the wild made by the Spanish Prime Minister or any personage in Ireland or Portugal; gasps for breath, prayers in the Chapel heard by no one; the asking for alms disguised as dreams of “more Europe” which is little more than “more gruel if you please sir.”

And now; a little game of “Chicken”

So Greece has a new government and they will be trotting off to Berlin soon. To describe this process as “hat in hand” is an understatement. The three members of the Greek coalition have sat in Athens and devised schemes which I am sure include feint and shuffle plays that are all intended to accomplish one purpose and one purpose only; to get more money out of Germany. They will try “good guy and bad guy” and threats of Default and European harmony and brotherhood and whatever else might work. The Greeks have been doing this for the last one hundred years so they have some skills here but, in the end, it will all get down to money.

The Germans, while they are politely waiting for the Greeks to show up have made their own calculations which one hopes are correct and not based upon the Ponzi numbers that Europe distributes to the rest of us. If Germany believes and acts upon its own jargon then the game will turn out badly as Germany will draw the line in the sand too early and not get the consequences of default right. Greece is a little country with a giant debt that totals approximately $1.3 trillion and small nation or not the size of the debt and the consequences of default are considerable. So the Greeks will beg, plead, threaten, become hysterical and do anything else they can think of to get at the cash while the Germans, with that resolute frown of which they are more than capable of placing upon their Teutonic faces, will calculate the costs and then, at some point during the discussion, make a decision based mostly upon economics but partially upon what is politically possible to get re-elected and then it will be checkmate.

The outcome of this game will center upon if the Germans are willing to give them more money and enough new money to continue on or whether they will not. Extensions of timelines and somewhat easier terms are totally irrelevant now. The Greeks cannot pay back their debts under any circumstances and it will all get down to new money or no new money which can be translated as a bigger debt and the continuation of the tail wagging the dog. It would have to be debt forgiveness and another round of cash to kick this can down the road any further and if the Germans say “Nein” then Greece will have no choice but to default and head back to the Drachma as the only choice that is left to them whether they like it or not. Perhaps Greece remains as one of the EU-27 and not the EU-17 and gets a handout as part of the package but unless the new money is significant; Greece cannot proceed the way thing are because they are virtually out of cash and they have robbed every Peter for Paul in their country to keep themselves afloat to this point. Who was elected in Greece was but a sideshow; the meeting in Berlin is where the cards will get played!

The world is now looking at Spain and Italy thinking that the election was the matter of importance but they are wrong. That event was really nothing more than whether a more or less friendly group of people would be heading off to the people that control the counting house. Nothing more than that. The big event, the really big show is just about to take place now and very few are paying attention as everyone has sighed and turned away and that is a huge mistake in my opinion. It is down to debt forgiveness and more money or default and this is where the holding of breath should begin; the elections were little more than a side show at the carnival of European politics.

The third ring of the circus having now been observed we are about to enter the main stage where the antics of the clowns will hopefully not release the lions and tigers and bears; oh my.

and.....

http://www.reuters.com/article/2012/06/21/eurozone-germany-court-idUSB4E8G702D20120621

(Reuters) - Germany's constitutional court said on Thursday it will need time to study the euro zone's permanent bailout mechanism after its expected approval in the German parliament next Friday, which could delay its scheduled start date on July 1.

Angela Merkel's government and the centre-left opposition reached a deal on economic growth measures on Thursday which should enable parliament to ratify Merkel's fiscal pact and the European Stability Mechanism (ESM) on June 29.

The ESM cannot come into effect without ratification by Germany, the biggest economy in the euro zone. But a spokeswoman for the top court said the ESM is so complex it expects head of state Joachim Gauck to delay his signature of the text approved by parliament until the court has had time to study it.

and....

http://www.reuters.com/article/2012/06/21/us-spain-crisis-idUSBRE85K0HC20120621

(Reuters) - Spain seems trapped on a conveyor belt carrying it toward a furnace - an international rescue of the euro zone's fourth biggest economy.

Bad commercial loans, economic decline and sliding real estate prices are all aggravating problems at Spain's over-extended banks, which lent too much too freely during a credit fuelled property boom that lasted almost a decade.

Madrid's euro zone partners are making available up to 100 billion euros to clean up the banks and, they hope, shield Spain from a debt crisis that has engulfed Greece, Ireland and Portugal and now threatens the single currency project itself.

But grave risks remain as the economy succumbs to a cycle of budget cuts destroying economic growth, leading to more cuts. Many in the bond market don't believe Spain can save itself - more evidence of that came on Thursday when Madrid's 5-year borrowing costs hit a 15-year high above six percent.

"Spain is getting too close to a point of no return when it comes to public debt," said Alejandro Ruyra financial analyst with Kepler Research in Madrid.

Signs of the spending spree that began when Spain joined the euro on 1999 are everywhere - empty apartment blocks, unused airports, grandiose cultural centers and highways to nowhere. The house of cards collapsed in 2007-2008 leaving banks with 300 billion euros - equivalent to almost one third of annual economic output - of exposure to the property sector.

The banks, and Spain's indebted regions have been economists' main focus in trying to fix the Spanish problem.

The International Monetary Fund's worst-case scenario forecasts Spanish housing prices falling 20 percent this year - they have already fallen as much as 30 percent since 2007. A Reuters poll assuming no worsening in economic conditions - an optimistic scenario - sees prices dropping by 10 percent.

The IMF says Spain's financial system would need at least 40 billion euros to weather a serious economic storm and recommends a figure far in excess of that.

In theory, the bank bailout agreed earlier this month should banish doubts over whether lenders can handle the fallout from economic recession. Added to that the property market is beginning to move finally as sellers start to cut the asking price for homes that on average are taking in excess of a year to sell.

But beyond the property market, the construction firms and other businesses most exposed to the price crash, there are other dangers. A detailed independent audit of the banks by four major global accounting firms - due by September - may show companies from other business sectors have also been pushed to the brink of default. Banks are already seeing rising mortgage defaults and bad loans in non-property sectors.

Time is also of the essence.

One banker who says the audit should find the banking system mostly sound still doubts it will come on time.

"What I'm not sure is whether it will be enough to recover market confidence, that it is not going to make things worse," he said, speaking on condition of anonymity because of the business sensitivity.

Centre-right Prime Minister Mariano Rajoy, who pledged to restore investor confidence in Spain only to see the crisis deepen during six months in office, is pressing for outside help rather than enacting convincing new measures at home.

Investors have steadily lost trust in Spain.

Moody's credit rating agency downgraded Spanish sovereign bonds to just one notch above junk level, which means only investors with a high tolerance for risk will touch them. Tracking the bond market has become a national obsession.

Public outrage is growing that every euro cut from spending on schools and hospital is going to pay higher financing costs on the national debt or to rescue banks.

Unemployment is the highest in the European Union - 24.4 percent. Banks have gone from lending too much to not lending at all, and families and companies nervous about the future have stopped buying. Economic activity risks grinding to a halt.

NEW LEADER DISAPPOINTS

After taking office in December Rajoy thought he would forge an alliance with Germany's Angela Merkel, a fellow conservative, and quickly win back the confidence of financial markets with belt-tightening measures.

With his People's Party's enjoying an absolute majority in parliament he easily passed an austere budget that slashed spending on international aid and job training schemes, and introduced laws to make the economy more competitive, by reducing labor unions' pay bargaining power, for example.

He also cracked down on Spain's 17 autonomous regions, which were meeting bond payments by delaying paychecks for health workers and street sweepers.

But Rajoy was undermined by his own limited experience on the international stage. He tried too fast to win more leeway on deficit cutting from European partners and soon got frustrated with Merkel's perceived inflexibility. His European strategy has now become a major risk for Spain.

Rajoy has clung to the argument that he has done enough and it is now up to the European Central Bank or the European bailout mechanisms to step in with emergency action to bolster Spanish debt prices while his reforms take effect.

"How far does Europe have to go to the edge before the ECB steps in," asked one high-level Spanish official.

This game of chicken - basically a Spanish threat to take the euro currency to the brink of disaster unless it gets aid with minimal strings attached - will be hard to sustain. European leaders are pushing Rajoy to raise sales tax, further cut public sector wages and speed up plans to raise the retirement age.

"Rajoy has lost too much credibility over the last few months to just appeal for the ECB to intervene and for Europe to continue to support him. He's unrealistic if he thinks Europe is going to help him without getting something in exchange and they've been unimpressed recently by what he's done here," said David Bach, political analyst at IE business school in Madrid.

and.....

http://www.zerohedge.com/news/uk-banks-downgrade-moodys-imminent

Big Bank Downgrade By Moody's Imminent

Submitted by Tyler Durden on 06/21/2012 07:45 -0400

ratings

United Kingdom

Even as Moody is now about a week late on its Spanish bank downgrade where the banks are rated higher than the sovereign (which obviously is kept in check to prevent yields on bonds from soaring even more), here comes the next wholesale bank downgrade:

Moody's expected to announce ratings downgrade for UK banks this evening - Sky Sources
Exclusive: Big news - I'm told Moody's will announce downgrades of some of world's biggest banks, incl in UK, after US mkts close tonight. - Sky's Mark Kleinman

Looks like that fabricated 2 notch Margin Stanley downgrade (because 3 notches just won't do) is about to strike. The real question is: What Would Egan Do?

and.....

http://www.zerohedge.com/news/greece-puts-bilderbergs-favorite-resort-sale

Greece Puts Bilderbergs' Favorite Resort For Sale

Submitted by Tyler Durden on 06/21/2012 07:57 -0400

Looks like the long-anticipated E-bay auction for Santorini may be closer than expected: in the aftermath of Greece's now absolutely bankrupt status, whereby the comatose patient is kept alive only thanks to a Made in Germany ventilator, it was only a matter of time before the country started with the Blue light special firesales. Sure enough from Bloomberg: "National Bank of Greece SA is preparing to sell an Athenian Riviera resort, visited by world leaders and movie stars for more than half a century, in a test of the country’s ability to sell assets amid concern that it will leave the euro. The 3.3 million-square-foot Astir Palace complex has already drawn investors’ interest, according to Aristotelis Karytinos, general manager of real estate at the lender. The Athens-based bank and Greece’s privatization fund, which owns part of the property, will put out a public tender in coming months, he said." Why is the Astir Palace unique? "Since its opening in 1960, the resort’s guests have included Jackie Onassis, Nelson Mandela, Tony Blair, Jane Fonda and Frank Sinatra, according to the resort’s website. Astir Palace in 1993 and 2009 hosted the Bilderberg conference." Something tells us we know just where the winning bid for the last remaining Greek assets may come from.

What is surprising is that Greece has only now figured out that real estate is the only legalized form of money laundering: why look at the US, where the NAR is the only organization exempt from conducting anti-money laundering checks for foreign buyers. After all, those $100 million New York duplex penthouses won't sell themselves to Russian oligarchs by themselves.

As for Greece:

“Astir is a trophy asset and we want to get the best from it,” Karytinos said in an interview in Athens.

Foreign funds with holdings in stronger currencies such as the dollar or the Swiss franc have positioned themselves for Greece’s return to the drachma, according to Ioannis Kaligiannakis, a senior appraiser at real estate consulting firm Colliers International in Athens. “They are already here,” Kaligiannakis said before the election results.

Astir Palace Hotel SA (ASTIR), the public company that owns the resort, has a market value of 166 million euros. By including the underlying land, partly owned by the Greek state, the sale may fetch multiples of that, according to Andreas Taprantzis, head of real estate for the state fund.

National Bank of Greece (TELL), the country’s biggest lender, reported a first-quarter loss of 537 million euros and a core tier one capital ratio of 6.4, below a 10 percent target required by September. It holds 85 percent of Astir Palace Hotel.

The bank also owns a 188,000 square-meter plot where two hotels and 58 bungalows are located. It leases another 112,000 square-meter parcel, site of the shuttered Aphrodite hotel, owned by the Greek state.

Selling the Astir Palace land may be a departure from Greece’s policy of not selling state-owned property outright, and so-called freehold sales could generate interest in Greek assets that had been passed over because they were only offered for lease, according to Perrotis of CBRE Atria.

The firesales are just beginning:

“It seems that so far offering long-term leases hasn’t been effective and that the market has given its message to the Greek Republic’s fund,” Perrotis said in a June 6 interview in Athens. “Now the state is seeing that the interest expressed is for outright sales and the fund may have to adjust.”

Taprantzis said the sale of Astir Palace is an exception because the bank is in a position to force the fund to sell.

“We are in a prisoner’s dilemma,” Taprantzis said in a June 6 interview. “Only cooperation will drive the best outcome and if we don’t follow the banks’ lead, our property will be valueless.”

Starwood Hotels & Resorts Worldwide Inc. (HOT) operates the Westin Athens Astir Palace Beach Resort and the Arion Resort & Spa Astir Palace, which includes the bungalows. Among the resort’s restaurant is Matsuhisa Athens, a sushi eatery owned by Nobu Matsuhisa that overlooks the Aegean Sea.

As for the Bilderbergs favorite hang out, the market is obviously wrong:

Astir Palace Hotel has reported losses each year since 2003, according to company filings. It has net debt of 20.7 million euros,

“The focus is not on the historical performance of the listed company,” Karytinos said, declining to disclose the asking price for Astir Palace. “The true value is in the real estate and the traded company’s market capital is in no way reflective of the resort’s worth.”

Taprantzis also declined to give an estimate of the resort’s value.

Ironically, the "value" is rather meaningless. When it all comes crashing down, Greece will have collected pieces of paper for land that try hard as they might, foreigners simply can't pick up and take home with them. Same goes for $100 million New York penthouses.

http://www.zerohedge.com/news/global-recession-accelerates-spain-continues-fund-itself-record-unsustainable-yields

Global Recession Accelerates As Spain Continues To Fund Itself At Record Unsustainable Yields

Submitted by Tyler Durden on 06/21/2012 07:01 -0400

Gross Domestic Product

Hours before Spain is expected to present the bank "assessment" from Roland Berger and Oliver Wyman on its comprehensive bank insolvency status, the country sold €2.22 billion of two-, three- and five-year government bonds, in a sale which saw solid demand but yields that are simply laughable and are completely unsustainable, culminating with a record yield on 5 year paper. Per Reuters, the Treasury sold 700 million euros worth of a 2-year bond, 918 million euros worth of a 3-year bond and 602 million euros of a 5-year bond, beating a target to issue up to 2 billion euros of the debt. Demand was high, with bid-to-cover ratios rising on all three maturities from the last time each of the bonds was sold in a primary auction. The Treasury sold the April 2014 bond at an average yield of 4.706%, more than double that paid at the last primary auction of the paper in March of 2.069%. The bond due in July 2015 had a yield of 5.457% compared to 4.876% in May,while the longer dated July 2017 bond sold for 6.072%, compared to 4.960% last month. This was a record high yield. In a nutshell: big demand for paper that will leave Spain pennyless. Not very surprising, and as Elisabeth Afseth from Investec summarized, "They got it away, it's about the most positive thing you can say about it."

Elsewhere, in the aftermath of the disappointing China PMI update, there was nothing to smile about the German economy either whichcontinues to deteriorate from carrying the weight of the PIIGS on its shoulders, as the Mfg and Services PMI both missed estimates of 45.2 and 51.5, and printing at 44.7 and 50.3, respectively. This was a 3 year low for German PMI and now all but confirms that the economy will enter a recession at the next GDP update.

The PMI-implied European GDP is a disaster and getting worse.

But all this pales in comparison with the latest update of the Greek comedy where we learn that the three parties forming Greece's new coalition government have agreed to ask lenders for two more years to meet fiscal targets under an international bailout that is keeping the country from bankruptcy, a party official said on Thursday. This came a few hours after a German parliamentary group officially spoke against a time trade-off for Greece. Which means that beggas will not be choosers after all.

Some sell side views on the latest Spanish auction. If you don't read these don't worry. There will be many, many more to come.

ELISABETH AFSETH, FIXED INCOME ANALYST, INVESTEC, LONDON

"They got it away, it's about the most positive thing you can say about it. Also it's above the modest target they have set for themselves, but the yields are not anything to be too pleased about it. These are high levels."

ACHILLEAS GEORGOLOPOULOS, STRATEGIST, LLOYDS, LONDON

"I don't think it's such a surprise. I think the market, especially based on the 2 billion target, thought that it would be easily absorbed but of course there was always some fear.

"The first worry is can they fund from the markets? So they raised 2.2 billion versus a 2 billion target, so they can raise the money. Then the (question is), are the yields threatening for the medium term? And yes, clearly they are much higher than the previous auction, which was widely expected. But still they can continue for a few months to fund at these levels."

MICHAEL LEISTER, STRATEGIST, DZ BANK, FRANKFURT

"The figures look really strong by all means. They overshot the maximum target range but also the pricing looks really strong. All the bonds were issued at more than 20 cents above secondary market levels.

"Although here the negative is the heavy tail on all three lines that indicates quite a dispersion of bids.

"To be fair, this is not really a huge surprise for the market with this latest turn in sentiment and the heavy cheapening we've seen over the last weeks. It was always to be expected that at least today they would print numbers along these lines."

PETER CHATWELL, RATE STRATEGIST, CREDIT AGRICOLE, LONDON

"The auctions have all been well bid, particularly the 2014s which came through the market and was also very well covered. The rally over the past three days will have helped garner this strong bidding, seemingly with the market not wanting to be short given the pending talks regarding the EFSF/ESM."

NEWEDGE STRATEGY, LONDON

"All lines were well received, with a total bid/cover of 3.5 times. Not surprising given the small size on offer...Talks that the EMU governments might use the EFSF/ESM funds to buy periphery bonds on the secondary market might have been a supportive factor at today's action.

"Details of today's auction show rising yields versus the previous taps, due to the massive uptrend in yields that was only partially offset in the past three days. Current yields are - in our view - a sign that the market is still pricing in risks of a euro break-up."

LYN GRAHAM-TAYLOR, RATE STRATEGIST, RABOBANK

"These are a strong set of bid covers although obviously yields are at extremely elevated levels (with the five-year above the psychologically significant 6 percent level). The strong set of bid/covers is likely to have been driven by the hope that some form of secondary market purchase scheme will soon be implemented and that this will see a rapid reduction in yields. All in all a result that was largely expected, albeit with a higher than anticipated set of bid/covers."

NICK STAMENKOVIC, RATE STRATEGIST, RIA CAPITAL MARKETS, EDINBURGH

"Peripheral markets relieved that Spain managed to raise...a tad above the upper end of the target. Demand was decent for all three auctions, probably driven by domestic investors, but yields significantly higher than previously, indicative of the rising risk premium demanded for purchasing Spanish government bonds. Against this backdrop short-dated yields should rally further near-term as shorts are covered amid rising hopes of policy action at next week's key EU summit, steepening the yield curve."

and fresh off of his lectures on geoplitical affairs delivered to the President , Putin appears poised to make his move on Cyprus...

http://hat4uk.wordpress.com/2012/06/21/cyprus-shock-for-brussels-troika-as-putin-

bids-to-create-another-cuba/

CYPRUS: Shock for Brussels & Troika as Putin bids to create another Cuba

Cypriots close to sealing €5bn loan from Moscow

One of the problems of having your head up your backside, examining the internal view of your navel, is that the field of vision is extremely restricted. Frau Merkel having done it again yesterday afternoon (“I never agreed to that, it’s just a theory”), things go from bad to worse as ClubMed picks up the tab for multivariate greed, and the blindness of the eurozone’s founders.

In Greece now, you could grownold waiting for an ambulance, while the nation’s pharmacies have recieved zero government income for three months, and stand close to collapse. The Medical Association of Athens has appealed to the UN, emphasizing – and I quote directly – ‘thousand of Greek patients are in a dramatic situation, and hospitals are unable to meet pharamaceutical care needs because of a default by one of the biggest insurers”. Each morning, an ever-growing crowd of people stand around at Pedion Areos Park, where a makeshift free distribution of agricultural products has taken off. Afterwards they beg for the smallest change from passers-by. This is a society being brought it its knees, and it simply is untrue to suggest that anything like this amount of blame should be attached to the ordinary citizen.

The idea that the new Coalition will start work immediately to rectify this situation is laughable to the point of obscenity. What they’ll do is rob any fund (the latest was part of the State Pension pot) to keep the Troika happy, get the next tranche of funding – none of which will go to the Greeks – and then reveal their urgent need for Bailout3. Merkel will then appear to shift her ample left buttock, and the next day say no, actually, you got that wrong – I was only farting.Entschuldigen-Sie mir bitte.

But while all this circular egoistic national interest bollocks is continuing, so too does the world of geopolitics. I posted yesterday about some of the realities at the far eastern end of the Mediterranean. Today I bring you news of other Big Players apart from the US trying to muscle in.

Caviar and pelmeni line the supermarket shelves in the seaside Cypriot city of Limassol – so pervasively Russian these days, it’s been dubbed “Limassolgrad” by the locals. As a backlash against austerity spreads across Europe, Cypriot officials say they are determined to avoid the kind of severe budget cuts that sank the Greek economy, and guess what? Smiling Uncle Vlad in the Kremlin has been willing to lend bigtime to help them evade capture by the Terrible Troika of Tosh.
The Russian government last year gave Cyprus a three-year loan of 2.5 billion euros at a below-market rate of 4.5 percent to help it service its debt. Cyprus now needs another 1.8 billion euros by the end of this month to buttress its ailing banking sector. Brussels has said this will be forthcoming, but there is now a question-mark over whether the Cypriots want it. The key, unique element in this situation is that President Demetris Christofias is a communist, and a keen ally of the Russian president, Vladimir Putin. As the only communist leader in the union, there should be some fun and games when Cyprus takes over stewardship of the EU bloc next month. The humour will be soured for the Eurocrats, however, by the reality that a new loan from Moscow should be agreed within the next few days. Analysts say it could be as high as 5 billion euros. And Moscow is the favoured option even for non-communuist cypriots, because it would come with fewer conditions than a European Union bailout – and help ensure that Cyprus’s 10% corporate tax rate carries on attracting the estimated 50,000 Russian-speakers in Cyprus.

Three individuals will be wrestling with the consequences of that anomoly this morning: the head of the CIA, the head of Mossad, and Recep Erdogan. Once again, it’s mainly about energy….but for the Russians, it’s about power-politics as well.

The last thing the Americans want is a Cuba slap bang in the middle of the Mediterranean theatre. And the Israelis feel similarly: they have a pipeline project due to begin with both Greece and Cyprus – plus of course, the Kremlin is very pro-Syria, and happy to stir up as much instability in the Middle East as possible. Interrupted supplies of oil and gas (and gas is rapidly becoming the main game in town) are exactly what Putin needs to keep his prices high, and his bargaining power with the West at full weight.

Turkey’s resident madman Recep Erdogan has been rattling his somewhat rusty sabres at Cyprus for over a year now, and would dearly love the opportunity created by euromeltdown to invent some spurious reason to annex Cyprus. He never had much chance of doing that at the best of times. With a growing Russian influence on the island, he has none whatsoever.

In short, while the EU’s circular standstill continues even far away in Mexico, the Mediterranean east and south from Cyprus is turning into a Major Powers’ playground. But some of these diplomatic ploys are playing with fire, on the electric railway lines, with a train coming, in the dark. Somebody needs to get a handle on this and soon – otherwise we’ll be dealing with a military mess that could make the demise of the eurozone look like a Sunday afternoon stroll.

and.......

http://www.telegraph.co.uk/finance/debt-crisis-live/9345813/Debt-crisis-live.html

11.45 Big news from Greece:

The three parties forming the new coalition government have agreed the new terms they will ask their EU and IMF lenders for - they want another two years to meet the fiscal targets set as part of the bailout terms.

The new government also wants to extend unemployment benefits and limit the number of public sector jobs cuts, a source from the Democratic Left, a smaller colaition party, told Reuters.

11.25 As well as the eurozone PMI's (see 09.05 post), a separate survey of German business is out today - and it is not showing a positive picture.

The Purchasing Managers Index for both the service and manufacturing sectors showed a decline for the second month in a row, with manufacturing activity at a three-year low.

Markit's PMI slid to 48.5 this month from 49.3 in May, falling further below the 50 mark which separates contraction from expansion.

10.40 German politicians have reached an agreement that will allow parliament to approve the setting up of a permanent eurozone bailout fund and the fiscal pact which eurozone leaders agreed to last year.

Angela Merkel's government and the opposition Social Democrats said they had agreed on the measures, which will give the Chancellor the two-thirds majority in parliament she needs when it goes to a vote next week.

There's a bit BUT though - Volker Kauder, the parliamentary leader of Mrs Merkel's party said again there would no debt mutualisation in Europe, aka no eurobonds...

09.35 UK retail sales figures are out and not only show a rise, but a better than expected one.

Spending on shoes and clothes sent retail sales up 1.4pc in May, compared to the previous month - that beat economists forecasts for a 1.2pc rise.

09.05 Eurozone manufacturing and services PMI data are out today, and the surveys of business activity show the downturn in the region is no closer to ending.

For the fifth month in a row, the composite manufacturing and services figures show a decline, holding steady at a reading of 46, the same as last month - still the lowest rating since June 2009, in the middle of the last recession.

Any reading below 50 reflects a contraction - and the index compiled by Markit has been below that for all but one of the last 10 months.

07.30 A weak manufacturing survey from China has also hit Asian markets this morning.

Data from HSBC shows Chinese manufacturing activity hit a seven-month low in June, putting presure on the authorities there to do more to stimulate growth.

Preliminary figures from its closely-watched purchasing managers' index (PMI), which gauges the manufacturing sector, fell to 48.1 in June from 48.4 in May on shrinking exports and weak domestic demand.

The June figure also marked the eighth consecutive month that manufacturing has contracted. A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction.

Analysts said the results suggest China will move again to boost its slowing economy, after cutting interest rates earlier this month and encouraging more government investment.

07.20 Here's a bit more detail on what the Federal Reserve had to say last night about the US economy and what stimulus it will offer.

The central bank has cut its growth forecasts for the next three year (see07.13 post) , as the eurozone crisis has put the breaks on recovery.

The Fed also said it would carry with "Operation Twist", a diluted version of quantitative easing designed to keep the country's long-term borrowing costs low, as Philip Aldrick explains:

Responding to the weaker conditions, the Fed said it would extend Operation Twist to the end of the year and hinted at the prospect of a third round of QE, on top of the $2.6 trillion already completed.

It said it was “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labour market conditions”.

Extending Operation Twist will see the Fed switch $267bn (£170bn) of its short-dated government debt into long term treasuries, on top of the $400bn already moved since September.

“This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” it said.

07.07 Just when you thought Europe's bond buying plan could be gaining traction, Germany comes along and pours cold water over it.

Yesterday, German Chancellor Angela Merkel put herself on a collision course with the rest of Europe by insisting an idea to allow bail-out funds to buy Spanish and Italian debt was "purely theoretical".Louise Armitstead reports:

The German Chancellor agreed that the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) had the "possibility of buying bonds" but said no discussions were being held about such a move.

Her comments came as a top European Central Bank policymaker publicly backed the idea. Benoît Cœuré said that the action could ease the “very severe strain” on Spain and Italy.

"Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility," he told the Financial Times in an interview.

François Hollande, the French president, told reporters that the idea had been raised at the G20 meeting in Mexico and would be discussed at tomorrow's summit of Europe's big four nations – Italy, Germany, France and Spain.

Catharsis Ours

Thursday, June 21, 2012