http://www.telegraph.co.uk/finance/financialcrisis/9340175/Debt-crisis-Spain-on-brink-of-a-global-bail-out.html
Submitted by Tyler Durden on 06/18/2012 13:43 -0400
9:53PM BST 18 Jun 2012
77 Comments
The uncertainty after the rerun of the Greek elections was met by an increase in the cost of Spanish borrowing on financial markets amid fears that contagion will escalate.
World leaders meeting for the G20 summit in Los Cabos, Mexico, expressed growing alarm at the failure of European leaders to get a grip on the single currency crisis. The White House made it clear that it would not join in talks for a eurozone rescue package. It urged European leaders to agree on a deal in Brussels next week.
On Monday night, Barack Obama was due to meet European leaders, including Mr Cameron, to put pressure on Angela Merkel, the German chancellor, to provide more support to struggling European economies.
Mario Monti, the Italian prime minister, said: “We can see that the markets are not convinced. We must draw up a definitive and clear road map with concrete actions that make the euro more credible.”
Mrs Merkel indicated that she was not prepared to “loosen” the terms of a bail-out for Greece. Despite her unyielding stance, an official of the New Democracy party said a coalition government would be announced today. Fears were also mounting about the health of the Spanish economy. A full-scale bail-out now appears increasingly likely.
The cost of its debts rose well above seven per cent on Monday, a level widely regarded as unsustainable.
Mr Cameron said it appeared that the eurozone crisis would “continue for some time”. Britain would do all it could “to put its own house in order and link up with the fastest growing parts of the world”. The Prime Minister said the European leaders favoured doing just enough economic and political action “to keep the show on the road but without solving the fundamental problems”.
Þ Mr Cameron recorded television interviews in Mexico in front of a screen to hide the spectacular beach views.
The Prime Minister’s aides ensured that Mr Cameron faced the cameras without a view of the palm trees and sandy beaches of Los Cabos behind him.
Aides to the Prime Minister denied the backdrop was an attempt to hide the beach. A No 10 spokesman declined to comment on Monday night.
and......
http://www.telegraph.co.uk/finance/financialcrisis/9340073/Spain-pleads-for-ECB-rescue-as-bond-markets-slam-shut.html
8:35PM BST 18 Jun 2012
Yields on 10-year Spanish bonds surged to a record high of almost 7.3pc as investors ignored the victory of pro-bailout parties in Greece's elections.
The closely-watched two-year yield rocketed by 65 basis points in a matter of hours, signalling a near-total collapse of confidence in Spain's €100bn (£80.3bn) rescue from the EU last week to shore up its banking system.
Cristobal Montoro, the economy minister, warned that Spain is now in a "critical" condition and pleaded with the European Central Bank to act with "full force" to defeat markets hostile to the euro project.
Bank of America said Spain may need a second rescue to tide it through the next three years, pushing the total loan package towards €450bn – a sum that would test the EU bail-out machinery and cause serious knock-on effects for Italy. A draft communique from the summit of G20 leaders in Mexico said Europe will take "all necessary measures" to hold the eurozone together and break the "feedback loop" between sovereign states and banks.
A separate text for next week's EU summit vowed to "mobilise all levers and instruments", though details were thin. Italy said it would push for a "semi-automatic mechanism" – probably involving the ECB – to cap the bond yields of states in trouble.
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http://www.telegraph.co.uk/finance/financialcrisis/9339904/Debt-crisis-Greek-government-will-be-forced-to-seek-third-bail-out.html
7:26PM BST 18 Jun 2012
While Antonis Samaras, leader of Greece's New Democracy party, scrambled to forge a coalition with Pasok, his officials admitted their first task would be to renegotiate the €130bn (£104.4bn) bail-out agreed in May.
Dimitrios Tsmocos, a senior economic adviser, said Mr Samaras intends to "honour Greece's contractual obligations but will actively and aggressively renegotiate the memorandum". Another senior aide warned of a "social explosion" in Greece if the bail-outs terms were not relaxed.
Athens has to reduce its budget deficit to below 3pc of GDP by 2014 and find a further €11bn in public spending cuts from 2014 to 2016. But spiralling economic woes have already driven Greece off course.
However, experts warned Greece will need another cash injection if the terms are relaxed. Joerg Asmussen, executive board member of the European Central Bank, said: "If one is pressing to shift fiscal targets, one should be so honest to also say that as long as a country is running a primary deficit, extending the fiscal targets will automatically mean that there will be an additional external financing need."
Fitch, the rating agency, said: "It will be challenging to significantly ease the austerity programme without receiving additional funds, although there is some room for manoeuvre on the financing profile of the existing programme."
The German Chancellor Angela Merkel insisted Greece will have to meet commitments made to international lenders. But Germany's foreign minister Guido Westerwelle said he could "well imagine talking again about timelines."
In Athens shares fell back from an early surge of more than 6pc to close up 3.6pc on the day.
According to Mr Tsmocos, a former economist at the Bank of England, New Democracy will push for an extension to the timeframe and also for an increase in the lowest state pension and a reduction in the VAT rate of 23pc.
He added: "We want to supplement the current policy mix with growth enhancement. As far as I am concerned, it is all about growth, growth, growth."
http://www.zerohedge.com/news/italy-hints-subordination-did-rome-just-request-semi-bailout
As Italy Hints Of Subordination, Did Rome Just Request A "Semi" Bailout?
That Italy is now at most days away from technical insolvency is not news: after all we reported on just this a week ago, citing not some fringe lunatics but Bloomberg economist David Powell who said that "Italy would probably be forced into receiving a bailout if it were to face another two weeks like the last seven days." Specifically, "The country would violate the IMF’s definition of solvency if its average cost of debt were to surpass 680 basis points. The fund defines debt as sustainable if the debt-to-GDP ratio starts to decline before the end of the forecast horizon. A rise to that level would push the ratio up to about 131 percent in 2016 and marginally higher the following year, according to Bloomberg Brief estimates." This was a week ago... so one more week left, and things have not only not gotten better, they have gotten much worse.
Which is why we were not too surprised to read the following news from Reuters: "Italy will push this week at a meeting of euro zone finance ministers for a semi-automatic mechanism involving the European Central Bank or the permanent bailout fund ESM to reduce spreads of euro zone bonds over Germany, Italy's European Affairs Minister Enzo Moavero said on Monday."
Having done this for a while, we can tell Italy what the bond market, having perused the above sentence, just read: "semi-bailout." Because if Italy is implicitly demanding assistance from the ECB, and the Spanish bailout vehicle, the ESM, then things are about to hit the country with the €1.25 trillion in debt. It is all downhill from there. Oh, and here is what the bond market reads when they see ESM: "not so semi-subordination." For Reference: see theaftermath of the Spanish bailout. Because if in Europe the idiotic plan to avoid a bank run is to announce preparations for one, followed by furious back pedaling, it is only logical (and we use the term loosely) that an attempt to avert a bailout will be pursued by requesting a semi version. Instead, that action always and only leads to one thing: waving the sellers right in.
From Reuters:
Speaking about the automatic mechanism proposal, Moavero said: "The ECB may do it, but in a framework which would respect its autonomy. The mechanisms would make automatic something that the ECB has so far done autonomously. The European Stability Mechanism (ESM) may also do that, although it cannot act as a bank."Asked if the ECB should re-start its Securities Market Programme (SMP) of buying bonds on the market, which was originally justified as needed to ensure that markets reflected its monetary policy decisions, Moavero said:"We do not ask them, because we respect the autonomy of the ECB, but obviously any move to reduce spreads is welcome."
Moavero also said that he doubted if the euro zone's permanent bailout fund, the ESM, would be operational by early July as planned because of the ratification schedule in euro zone countries.And count your lucky stars that is the case, because the second a class priming, bondholder subordinating mechanism comes into play, forget about comparisons to Uganda - Italy will be Spain right there and then.
