Friday, June 8, 2012

Spain will be the focus this weekend - follow the bouncing bailout ball !

http://www.guardian.co.uk/world/2012/jun/08/spain-bailout-agreed-week


Spain bailout terms 'to be agreed within a week'





The first planks in a dramatic bailout for Spain will be bolted together this weekend, with a final figure on the size of the rescue package to be ready within a week, according to sources in Brussels and Madrid.
The moves towards bailing out the finance sector of the eurozone's fourth biggest economy reflect a growing consensus that a Spanish collapse must be averted to prevent a devastating chain reaction that could bring down Italy and destroy the single currency. There were fears that this would spark a global downturn extending to the US and China, and both countries urged Europe to move swiftly to fix its long-running debt crisis.
President Barack Obama called on European leaders on Friday to strengthen their banks and urged Greece to remain in the eurozone. "There is a path out of this challenge," Obama told reporters at the White House. "These decisions are in the hands of Europe's leaders; they understand the urgent need to act. There are specific steps they can take right now to prevent the situation from getting worse. One of those steps is taking clear action as soon as possible to inject capital into weak banks."
With fears that Greek voters may add further fuel to the fire by electing a government that will lead them out of the euro on 17 June, Spain hopes to have a final figure ready by next Friday, sources in Madrid said.
Senior finance officials from around Europe are due to start drawing up detailed plans this weekend on how to shore up Spain's banks in a so-called "bailout lite" that would be smaller and less onerous than those of Portugal, Greece or Ireland. Spain must formally request help and last night Vitor Constancio, vice-president of the European Central Bank, told Portuguese radio that Spain was expected to do so "soon", according to Reuters.
Prime minister Mariano Rajoy's conservative government insists that a full and final figure on its needs can only follow independent valuations of the country's banking assets. The deadline for delivery of those estimates is 21 June, when eurozone finance ministers are due to meet, but the Spanish government is pressing auditors to provide them by the end of the week.
"No decisions have been made," Spain's deputy prime minister, Soraya Sáenz de Santamaría, said . "The government will declare its position once it knows the estimates."
A first indication would come by Monday, she said, with an International Monetary Fund report on Spain. That is expected to say that Spanish banks need a capital injection of €40bn (£32bn) and may be considered sufficient for a preliminary bailout request over the weekend, especially as the government has already seen the figures.
It remained unclear, however, when an announcement would come and how detailed it would be.
A Spanish bailout will almost certainly be targeted directly at its banks, avoiding a wider crisis that could prevent Spain borrowing on the markets to fund government spending.
Payment would probably be made by the European Financial Stability Facility to Spain's bank restructuring fund, known as the Frob. Speculation about the amount needed varies wildly. Three former savings banks, including the recently nationalised Bankia, have already asked for €28bn.
Spain's senior banker, Santander boss Emilio Botin, has said €40bn would be enough, but a second recession in three years will inflict further damage on a banking system already struggling to digest vast amounts of toxic real estate left over from a burst housing bubble.
The ratings agency Fitch estimates Spain's banks need additional capital of between €50bn and €100bn, though part of this could be covered by the banks themselves, with stronger banks such as Santander and BBVA avoiding state aid. Neighbouring Portugal, which has a much smaller economy, accepted a €78bn euro bailout.
It would be the first time that a mechanism aimed directly at a national bank restructuring fund has been used and it was unclear what European officials would demand in return.
Experts said Rajoy's attempts to wriggle out of external control of Spain's economy were doomed to failure. "The terms and conditions are going to want to see a clear path to restore growth and structural budget balance. That will include structural reforms and fiscal measures," said Luis Garicano, of the London School of Economics. "But I guess they will try to find a face-saving way of doing this."
"There will have to be conditions, otherwise what will the Germans say to their voters?" said Santiago Carbó, of Granada University. "They won't be as detailed as for Greece or Portugal, but they won't just be about restructuring the financial sector."
Pension reforms, increases in sales tax, a pruning of Spain's three million-strong civil service and further pressure on the government to slash its deficit with austerity measures could be on the list of demands. Concerns about the people running Spain's former savings banks, whose loans to property developers and speculators have poisoned the whole financial system, may also see demands that political appointees be removed from boards.
Spaniards are deeply pro-European and were not thought likely to turn their rage against the EU despite the prospect of even more suffering. A recent poll said 62% per cent already expected a bailout.
Spain has repeatedly warned that its economy is too big to fail without bringing down the euro.
Ministers have said the euro's fate will be played out in Spain and Italy over the coming weeks, while challenging European colleagues to agree a plan for greater banking and fiscal union in order to calm market pressure.
With European institutions and other countries now increasingly in favour of such a union, pressure on Spain's borrowing costs has relaxed over the past week despite a sudden downgrade by the Fitch ratings agency on Thursday.
Unemployment in Spain is already at 24% and a douple-dip recession looks likely to last until well into next year, bringing more misery.
The European commission said Spain had made no request for aid, but a spokesman added that if it did, the eurozone was ready to help.
"If such a request were to be made, the instruments are there, ready to be used, in agreement with the guidelines agreed in the past," spokesman Amadeu Altafaj said. "We are not at that point."
Germany's chancellor, Angela Merkel, denied pressing Spain and said it was up to Rajoy to request a bailout. "It's down to the individual countries to turn to us," she said. "That has not happened so far."
Unnamed German officials told Reuters, however, that an agreement needed to be hammered out before the Greek election next weekend.



http://www.zerohedge.com/news/and-promptly-coming-right-after-market-close


http://www.zerohedge.com/news/friday-dump-complete-moodys-warns-spanish-downgrade-threatens-aaa-countries-case-grexit



Friday Dump Complete: Moody's Warns Of Spanish Downgrade, Threatens AAA-Countries In Case Of Grexit

Tyler Durden's picture
Submitted by Tyler Durden on 06/08/2012 18:17 -0400




First we got Spain miraculously announcing late at night local time, but certainly after close of market US time, that the bailout so many algorithms had taken for granted in ramping stocks into the close may not be coming, because, picture this, Germany may have conditions when bailing the broke country's banks out, and Spain is just not cool with that, and now, after the close of FX and futures trading, we get Moody's giving us the warning the after Egan-Jones, S&P, and Fitch, it is now its turn to cut the Spanish A3 rating."As Spain moves closer to the need for direct external support from its European partners, the increased risk to the country's creditors may prompt further rating actions. The official estimates of recapitalising Spain's banking system have risen significantly and the country's indirect reliance on European Central Bank (ECB) funding via its banks has been growing.Moody's is assessing the implications of these increased pressures and will take any rating actions necessary to reflect the risk to Spanish government creditors. Moody's rating on Spain is currently A3 with a negative outlook." Moody's also warns, what everyone has known for about 2 years now, that Italy could be next: "However, Spain's banking problem is largely specific to the country and is not likely to be a major source of contagion to other euro area countries, except for Italy, which likewise has a growing funding reliance on the ECB through its banks." Of course none of this is unexpected. What will be, however, to the market, is when all 3 rating agencies have Spain at BBB+ or below, which as ZH first pointed out at the end of April will result in a 5% increase in repo haircuts on Spanish Government Bonds, resulting in yet another epic collateral squeeze for the country which already is forced to pledge Spiderman towels to the central bank. 

From Moody's
Moody's: Developments in Spain, Greece may prompt euro area sovereign rating downgrades
New York, June 08, 2012 -- Recent developments in Spain and Greece could lead to rating reviews and actions on many of the euro area countries, says Moody's Investors Service in the report "Rating Euro Area Governments Through Extraordinary Times -- Implications of Spain's bank recapitalisation needs and the rising risk of a Greek Exit".
As Spain moves closer to the need for direct external support from its European partners, the increased risk to the country's creditors may prompt further rating actions. The official estimates of recapitalising Spain's banking system have risen significantly and the country's indirect reliance on European Central Bank (ECB) funding via its banks has been growing. Moody's is assessing the implications of these increased pressures and will take any rating actions necessary to reflect the risk to Spanish government creditors. Moody's rating on Spain is currently A3 with a negative outlook.

However, Spain's banking problem is largely specific to the country and is not likely to be a major source of contagion to other euro area countries, except for Italy, which likewise has a growing funding reliance on the ECB through its banks.
In contrast, Moody's says that if the risk of a Greek exit from the euro were to rise further, it could lead to additional rating pressures throughout the region. Greece's exit from the euro would lead to substantial losses for investors in Greek securities, both directly as a result of the redenomination and indirectly as a result of the severe macroeconomic dislocation that would likely follow. It could also pose a threat to the euro's continued existence.
The risk of a Greek exit particularly affects the credit standing of Cyprus (Ba1, Negative), Portugal (Ba3, Negative), Ireland (Ba1, Negative), Italy (A3, Negative) and Spain. However, should Greece leave the euro, posing a threat to the euro's continued existence, Moody's would review all euro area sovereign ratings, including those of the Aaa nations.

And Promptly Coming Right After The Market Close...

Tyler Durden's picture
Submitted by Tyler Durden on 06/08/2012 16:38 -0400




... is the news (which is not news, because as we had explicitly stated first thing this morning, Spain admitting it needs a bailout absent a new bailout plan in place, launches the country's bond yields into hyperspace) that had it hit 30 minute ago would have sent everything red for the day:
  • Spain Resisting Conditions On Bank Bailout - EU Official, BBG
But why would this news, coming at nearly 11pm Spanish tim, have to come before the market close, when all of the day's gains would have been undone. Why indeed.
And adding some spice to the after hours twist, is S&P which just said that the US will likely be downgraded again by the end of 2012:


    • S&P Affirms U.S. ‘AA+/A-1+’ Unsolicited Rtgs; Otlk Still Neg
    • S&P SCENARIO SEES 2001, 2003 TAX CUTS IN PLACE INDEFINITELY
    Which they won't.


    and.....

    http://www.zerohedge.com/news/game-euro-chicken-german-perspective-playing-until-germans-lose-their-nerve


    A Game Of Euro Chicken From The German Perspective: "Playing Until the Germans Lose Their Nerve"

    Tyler Durden's picture
    Submitted by Tyler Durden on 06/08/2012 12:23 -0400




    The following editorial from Spiegel has to be reposted in its entirety because it really captures the current situation, from a German perspective, clearly, concisely and completely. It also frames quite closely what we said 11 months ago in "The Fatal Flaw In Europe's "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP"
    Playing Until the Germans Lose Their Nerve

    A commentary by Jan Fleischhauer 

    For Germany, being part of the European Union has always included an element of blackmail. France has been playing this card from the beginning, but now the Spanish and the Greeks have mastered the game. They're banking on Berlin losing its nerve.
    France's newly elected Socialist government has just decided to lower the retirement age to 60. From now on, no Frenchman will be forced to work any longer just because it might help kick-start the country's flagging economy. And there's no way the French are going to work as long as their poor fellow Europeans in Germany, whose government is obliging them to labor and toil until age 67.

    Blessed France, where the ruthless laws of the economy lose their ability to frighten people bathing in the eternal sunlight of socialism. Granted, this grand nation doesn't produce enough children to guarantee the prosperity of its inhabitants into old age. But in France, something that would elsewhere be viewed as a serious demographic problem demanding tough attention is seen as a mere misunderstanding that the strong arm of the president can simply dispel with the stoke of a pen, should he so desire.

    OK, things aren't quite that easy, even for François Hollande, the freshly minted sun king of France's Fifth Republic, and his fellow brothers-in-arms. At least they understand enough to know that economic problems can't be solved by merely kicking them down the road. But, luckily enough, those in the Elysée Palace can also still rely on the willingness of the Germans to work hard. And it's there that we come full circle.
    Splitting the Bill
    We've now reached a phase in the euro crisis when everyone is trying to feather their own nest at someone else's expense. Hollande is campaigning to have the European Union help the Spanish rehabilitate their banks without involving itself in their business dealings. But, in doing so, he's much less focused on Spain's well-being than on France's. Once the principle stating that countries can only receive financial assistance in return for allowing external oversight has been contravened, one is left with nothing more than a pretty piece of paper to insure against the vicissitudes of economic life. And, of course, the next banks that will then be able to (and presumably also will) get a fresh injection of cash straight from Brussels are the ones in Paris.

    Sigmar Gabriel, the head of Germany's center-left Social Democratic Party (SPD), has already called Hollande a friend. But Franz Müntefering, the wise party elder, has just warned his party colleagues not to sing the French president's praises too loudly. The old fox knows when he's standing face to face with someone who only has his own interests in mind. Indeed, despite all his calls for European solidarity, most of Hollande's proposals are ones that others will have to pay for. Someone is obviously going to have to be responsible for all the social programs the French government is concocting. And why not the nation whose people are viewed as particularly hardworking and dependable by an overwhelming majority of the people surveyed in a recent poll?

    Hollande's policies depend on foreign creditors being willing to lend him the necessary funding, but their read on things differs from that of the domestic electorate. Since they're worried about whether they'll ever see their money again, they're demanding higher risk premiums. However, another path to fresh capital with cheap conditions leads to the savings of Germans -- which also explains why the French government has been so badger-like in its championing of euro bonds and, more recently, a banking union.

    Then again, there's always another option: having the French work harder. But Hollande would prefer not to ask that much of his countrymen.

    Fears of German Hegemony
    French foreign policy has always been plagued by an obsessive fear of German hegemony over Europe -- and the euro was supposed to be the way to prevent it. It's well-known that French President François Mitterrand made his approval of German reunification contingent on German Chancellor Helmut Kohl's acceptance of the common currency.
    Seen in this light, the process of communalizing the debt of the EU's members states brings to full circle a project that the French have always viewed as something directed more against Germany than at uniting the Continent. Nicolas Sarkozy, Hollande's predecessor, believed that the best way to pursue this traditional goal was by using the novel approach of fostering a sense of solidarity with German Chancellor Angela Merkel. But Hollande is returning to the tried-and-true method of weakening the Germans by undermining their economic strength.

    The next stage in the crisis will be blatant blackmail. With their refusal to accept money from the bailout fund to recapitalize their banks, the Spanish are not far from causing the entire system to explode. They clearly figure that the Germans will lose their nerve and agree to rehabilitate their banks for them without demanding any guarantee in return that things will take a lasting turn for the better.

    Playing Hardball Among Supposed Friends

    The next test of the resolution of Europe's donor nations will come from the Greeks. As chance would have it, I was recently standing next to the foreign minister of a country that is inclined to be friendly with Germany. If I understood him correctly, he said he firmly expects that, after the election on June 17, the Greeks will bargain with the other EU countries to see what it's worth to them to see Greece abandon the euro. The Greeks no longer have much to lose; but their EU neighbors -- and particularly the Germans -- still do. This discrepancy will determine the price to be paid.

    Germans have always expected that being part of a united Europe meant that national interests would recede into the background until they eventually lost all significance. One recognizes in this hope the legacy of political romanticism. Indeed, only political simpletons assume that when people in Madrid, Rome or Paris talk about Europe, they really mean the European Union.
    But, as one can see, it's hard to liberate Germans from this particular form of herd mentality -- even when they're the leaders of the SPD.



    and.....

    http://www.zerohedge.com/news/jpm-tries-explain-why-bailout-train-spain-will-lead-much-more-pain


    JPM Tries To Explain Why The Bailout Train In Spain Will Lead To Much More Pain

    Tyler Durden's picture
    Submitted by Tyler Durden on 06/08/2012 12:46 -0400




    Reports citing European sources state that Eurozone finance ministry officials, followed by finance ministers themselves, will hold conference calls on Saturday. A formal request for Spanish EFSF/ESM/IMF support, solely for the purposes of bank recapitalization, could be announced after these calls, and appears to be the motivation for them. As JPMorgan notes, while the timing of such a request would come as something of a surprise, the substance does not.

    JPMorgan goes on to note that:

    Yesterday, Spanish PM Rajoy said that the authorities were awaiting reports from independent audits of the banks before assessing the overall recapitalization need, and then deciding how to proceed. One obvious possibility is that the region will agree to a Spanish request in principle, leaving the exact amount to be specified at a later date. To provide some guide posts, our banking analysts have suggested recapitalization needs may ultimately run to €150bn if Irish experience is a template for the losses that may ultimately accrue on the mortgage book. However, reports suggest that the IMF's assessment of recap needs is much lower at near €40bn.

    Given that there have been no reports of Germany dropping its resistance to the EFSF/ESM investing directly in the banks, it appears very likely that support will be channelled through the sovereign. The conditionality alongside that support looks set to be relatively light – focused on the banks themselves, rather than requiring more monitoring of broader aspects of policy. But given that the Rajoy administration has already internalised objectives of fiscal consolidation and structural reform - and is seeking to bring its deficit to GDP ratio down by nearly 6 percentage points over two years - this sort of package should not come as a surprise.

    A key question is whether this request for external support will serve to improve conditions in the Spanish bond market and raise Spain's chances of avoiding a broader support package. Our best guess is that it will not.

    The request for support has at least three negative consequences:
    1. It implies some degree of subordination of other holders of Spanish sovereign debt.
    2. It provides a clear demonstration of the limits of the ability of the sovereign to raise funds on its behalf.
    3. And it crystallizes banking losses accruing to the State which it had hoped to avoid.
    4. We suggest that a banking support package would be likely to turn out to be a stepping stone to a broader package of support for Spain, with that likely to be in place by the end of August. That remains our central view.
    and....

    http://www.acting-man.com/?p=17433


    The Methodical Approach to Apocalypse

    June 8, 2012 | Author 



    The Time Element Strikes

    We often make fun in these pages over the inability of the eurocrats to get anywhere and the incredible emergency summit inflation they have given birth to, with none of the summits ever producing anything of consequence. We are always amused by their pompous pronouncements, which alternate between blue—eyed naivete (Olli Rehn, mid 2011: 'Europe has effectively contained the crisis') and darkly pessimistic predictions of imminent doom (Olli Rehn, late 2011: 'Europe has ten days to find a solution'). But things may soon take a turn for  the worse and then some of the fun will go out of the situation. 
    Given that the ECB's supranational status keeps it from monetizing government debt directly, there is a kind of dialogue going on between the financial markets and the euro-group governments. The markets are frequently saying: 'You and your banks are bankrupt, or at least, some of you are and most of your banks are. Here and now. Show us why we should believe that you are still solvent.'
    Whenever these questions are forwarded with some vehemence (e.g. when Spain's long term government bond yields approach 7%), an emergency summit ensues, which usually ends with a follow-up summit being announced. The follow-up summit then is supposed to deliver what the emergency summit couldn't.
    As the follow-up summit approaches, rumors begin to circulate about what might get done. Most of the rumors center on Germany and the degree to which it is going to shift its position. In this context, not the following picture, which decorates the Economist magazine's cover this week:


    Apparently the world economy has already sunk – and yet, the Economist magazine still seems to think it is up to Angela Merkel to 'start the engines'.

    (Image credit: Jon Berkeley)


    This image reflects how a great part of the mainstream views the situation, especially in the English-speaking world, but also in parts of the euro area: Mrs. Merkel and her government are held to obstruct the way to recovery by obstinately refusing to guarantee everyone's debt.
    That is an utterly absurd view. Germany can not be expected to simply underwrite the debts of profligate spenders. Moreover, it would not be a solution anyway – it would merely cement an unsustainable situation and make it even worse in the long run (regardless of the fact that financial markets would likely throw a party in the short term). In the end, Germany would crash with everybody else.
    And yet, the whole world is busy trying to second-guess the next German inconsistency – the moment where the markets are held to force Germany to give in on one or another point of principle. Certainly Germany's government has given  ground here and there when occasion seemed to demand it, such as e.g. on the size of the EFSF/ESM 'firewall',  but never on the truly important issues – and rightly so.

    It forced through the PSI as a condition for the second Greek bailout; it remains staunchly opposed to euro-bonds; it remains opposed to 'QE' or anything that smacks of the ECB eschewing its statutory limitations. It also forced through the 'fiscal compact', even though said compact remains a deeply flawed construct.

    Another feature of the 'follow-on' summits is that Germany eventually gets busy with deflating expectations. Whenever a new rumor bursts forth ('Germany agrees to a banking union!') the denials follow within hours, sometimes within minutes, of the rumor surfacing. Then, as the summit comes closer and closer, there comes the moment when someone finally says: 'don't expect anything substantial to emerge'. And they are correct: nothing ever does.  The latest example is provided in this report in the German magazine 'Der Spiegel':


    „Both Britain and the US want to see Europe move quickly toward a solution to the euro crisis. But Chancellor Merkel prefers a more methodical approach. In comments on Thursday morning, she sought to lower expectations ahead of the European Union summit in late June.“
    […]
    Merkel's day includes talks with British Prime Minister David Cameron as well as a joint afternoon appearance before university students in Berlin together with Cameron and Norwegian Prime Minister Jens Stoltenberg — just two days after Cameron joined US President Barack Obama in demanding immediate action to resolve the euro-zone crisis.
    During a Wednesday evening visit to Oslo, Cameron repeated the message. "Speed is of the essence," he said. "Clearly the euro-zone crisis is the biggest threat to the world economy today." Merkel, for her part, laid out her talking points early on Thursday in an interview on German public television station ARD. Ahead of a crucial European Union summit at the end of the month, Merkel once again emphasized the need for "more Europe," saying "we don't just need a currency union, but we also need a so-called fiscal union — meaning more joint budgetary policies."
    Most of all, though, she said that a political union was necessary. "That means that we must, step by step through the process, give up more powers to Europe as well and allow Europe oversight possibilities," she said.
    […]
    Yet even as Cameron and US President Obama are clamoring for a quick solution, Merkel has already begun trying to lower expectations ahead of the late-June summit. While she has lent her support for the idea of a banking union — which would increase European oversight of systemically important banks as a step on the path toward providing direct EU aid to banks — Merkel said on Thursday morning that expectations of a complete plan to emerge at the late June summit are likely to be disappointed.

    "I don't think that there is a single summit at which the big design will appear," she said on ARD."But what we have been doing for some time and where a working plan will certainly be presented … is that we say we need more Europe."



    (emphasis added)
    Of course Mrs. Merkel is right – it is not possible for this upcoming summit to solve what umpteen summits before it have not been able to solve. However, the more often this happens, the less likely it appears that there will be any solution at all, or that there indeed ever was one.
    Considering the far-reaching changes Germany believes to be necessary, it is clear that it will take a long time to go from the drawing board to negotiations to implementation. After all, 17 different governments must be brought on board. However, the crisis-tinkering has now been going on for more than two years and yet it feels as though the euro area is still where it was at its very beginning, with the main difference that three nations are officially bankrupt and another is on the verge of getting there.
    And therein lies the problem – time for the methodical approach to the crisis is running out. Spain has just been downgraded again by Fitch – to BBB, 'outlook negative'. The markets seemed to ignore this development, but we would advise not to ignore it. The effect may arrive with a slight lag, but it will arrive. Clearly the rating agencies are still behind the curve, as the markets have long ago 'downgraded' Spain on their own – but official downgrades often result in more selling of the downgraded entity's debt, as various fund managers are forced by their mandates and statutes to sell bonds that fall below certain ratings thresholds. The IMF announced that Spain's banks will need €40 billion – more than Spain can afford, but in the opinion of most observers still far off the mark, given that the true size of the losses is not yet known. A bank recapitalization that aims to preemptively head off the need for another round of bank bailouts at a later stage will probably have to be a great deal bigger (always assuming that no bank will be allowed to go under).
    Speaking of European banks, a chart recently published by CLSA shows that their combined assets currently amount to about 350% of the euro area's GDP – right back at the all time high. No wonder there is a banking crisis – it doesn't take much to bring down a banking system that sports such extreme leverage.


    Assets held by euro area banks relative to the region's GDP. The combined market cap of the banks in the Euro-Stoxx bank index meanwhile has fallen to a mere €210 billion – click chart for better resolution.



    The danger is ever greater that the markets won't give the eurocrats the time that is evidently required to make the kind of changes everybody can live with.
    Meanwhile, the fact that the ECB's LTRO exercises have already turned into a damp squib of sorts, while concurrently creating even more problems for Spain's and Italy's banks, makes it unlikely that the ECB can pull yet another comparable rabbit out of its hat (that doesn't mean it won't try – but it may not work this time).
    The risk that the recent gale will turn into a hurricane seems great – and as understandable as Mrs. Merkel's position is, the financial markets and depositors are not likely to wait around to see whether Spain or its banks can be rescued in the nick of time. We don't know how big the capital outflows from Spain have been since the end of March, but presumably they have continued to accelerate. There are also the Greek elections on June 17 and the elections for France's parliament at the same date to look forward to. Both events have the potential to sour market sentiment even further.

    Ben Bernanke and Mario Draghi both seemed unwilling to commit to new easing measures 'unless things get worse', which of course means that they very likely will get worse.

    And these are the conditions under which we are now serenely sailing toward another euro-group summit of which we are already told that it once again won't produce anything of consequence.

    Instead, 'a working plan will certainly be presented'. Oh, and by the way, forget about the ESM being ready at the most recently appointed date – that seems no longer doable. Furthermore, in case SYRIZA wins the Greek election and Greece ends up leaving the euro, Fitch already threatens more downgrades for other euro area member nations.
    We continue to hold that the problem has not been correctly diagnosed and that therefore all the 'solutions' bandied about are doomed to failure in the long run anyway. The crisis did not drop out of the sky like an asteroid strike from nowhere. It is the end result of a willy-nilly credit expansion instigated by the fractionally reserved banking system and aided and abetted by the central bank. This fundamental problem has continually received the silent treatment – and it still seems not deemed to be fit for debate. Similarly, the urgent need for economic liberalization has not received the urgent attention it deserves.
    In conclusion, it seems to us that things could get rather dicey in the very near future. Batten down the hatches.



    Euro-Stoxx bank index: a feeble bounce in recent days has lifted it off its lows, but this index has now lost about 80% from its former highs - click chart for better resolution.




    Via Goldman Sachs: various 5 year CDS on financials – European banks, US banks, and the I-Traxx Senior Financials index, compared to I-Traxx Main and CDX - click chart for better resolution.


    Addendum: On the Lighter Side – Bovine Tea Leaves Reading in Germany

    For readers who remember the late 'Paul the Octopus' who correctly predicted the outcome of all the games Germany played in the 2010 soccer world cup, he now has a successor: Yvonne the cow.

    Yvonne became famous when she broke out from her enclosure in Bavaria and evaded the people chasing her for a full nine weeks. Even when she was finally cornered and shot with a tranquilizer dart she still attacked a nearby tractor in an attempt to get away.

    People were quite enamored with her feat and she has been allowed to live out the rest of her life on a meadow in Bavaria. Now she is the new soccer oracle that will replace and hopefully channel Paul.

    Maybe someone should ask her for stock market tips on the side?


    The new soccer oracle Yvonne.
    (Photo via dapd)





    Her predecessor Paul, deliberating over the contestants.
    (Image source unknown, the Web)





    http://globaleconomicanalysis.blogspot.com/2012/06/bank-of-spain-inspectors-question.html


    Friday, June 08, 2012 2:19 PM


    Bank of Spain inspectors question the viability of BMN Bank Group


    Courtesy of Google Translate please consider Bank of Spain inspectors question the viability of BMN
     The latest monitoring report prepared by the inspectors of the Bank of Spain on the integration process of the Banco Mare Nostrum (BMN) group casts doubt on its viability and even states that it "virtually impossible" to "return the financial support of the FROB."

    The supervisor reports that BMN has spiraled out of control.

    The report, which was completed on 8 May (three days before the announcement of the second reform of De Guindos) warns that deviations are "very significant".
    But the failure to meet targets set in the plan, is not the only thing that is highlighted in the report. Inspectors also note changes in accounting principles, "inflated margins," inadequate risk rating and, an incorrect adjustment to reserves that would have rid the institution of record losses in 2011.

    The BMN group, born from the union of Caja Murcia, Caixa Penedes, Sa Nostra and Caja Granada, received in June 2010 915 million preference shares FROB.
    Quick Translation

    The BMN group is bankrupt and it is "virtually impossible" to pay back money to the Fund for Orderly Bank Restructuring (FROB).

    Clearly the alleged orderly restructuring process is not so orderly.

    For more on the FROB, please see Lending to Peter so Peter Can Lend to Paul

    and.......


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