Around the horn in europe - Draghi comments and Eurogroup stating that the Eurozone is considering direct EFSF purchases of Spanish bonds sparking some hopium ( of course Germany has not agreed to this and in fact has repeatedly said no ) , revisiting the oft repeated hope the ESM might get a banking license ( ECB and Germany has repeatedly said no ) ... focus on Greece Troika consultation....

http://www.zerohedge.com/news/greek-deposit-plunge-continues-tax-inspection-finds-every-business-zakynthos-broke-law

Greek Deposit Plunge Continues As Tax Inspection Finds Every Business On Zakynthos Broke The Law

Submitted by Tyler Durden on 07/26/2012 15:13 -0400

• fixed
 
• Germany
 
• Greece

On one hand we have Mario Draghi promising he has a magic wand (not a printer - remember the keys to that are now held by Angela Merkel who is on vacation) and to "believe him" that the EUR will survive. On the other we have Greece which is a poster child of everything that is wrong in Europe. And that we summarize as follows: i) an epic and now relentless deposit outflow from Greek banks which continues as all trust in the local banking system is now gone, as €7 billion in deposits or the second biggest amount ever, is pulled and 20% of the entire corporate and household deposit base has vaporized in the past year, and ii) an economy in which it is every man for himself and where nobody pays any taxes any more, period. Best of luck in preserving that EUR Super Mario.

Here is the just released move in June deposits in Greece:

And a quick story on which Greece will never be fixed no matter what magic Draghi and Potter concoct between them:

The Financial Crimes Squad (SDOE) on Thursday reported that six in 10 businesses inspected at popular tourist resorts were not issuing sales receipts, and that of the 1,410 checks conducted in July, 57.1 percent found business owners to be in breach of the law.

SDOE officials said that they recorded a total of 22,435 infringements during their sweep, and that their efforts will continue throughout the summer.

In Zakynthos in the Ionian and Rethymno on Crete, every business inspected was breaking the law, while on the islands of Paros and Myconos,70 percent were avoiding taxes.

No deposits, and no tax revenues: thank you Germany for continuing to fund this slow motion trainwreck thus providing everyone with hours of taxpayer-subsidized entertainment.

and.....

http://in.reuters.com/article/2012/07/26/italy-auction-zero-coupon-idINI6E8GT00320120726

(Reuters) - Italy's two-year yield hit an eight-month high of 4.86 percent at a sale of zero-coupon paper on Thursday, tracking Spain's borrowing costs higher as investors fret about the two economies most vulnerable to the worsening debt crisis.

This was the highest yield Italy has paid to borrow on this maturity since a euro lifetime high of 7.81 percent it paid at the height of the crisis in November, when the country was seen on the brink of financial collapse.

The yield at a similar sale a month ago was 4.71 percent.

On Thursday, Italy sold the top planned amount of 2.5 billion euros in zero-coupon bonds due in May 2014, with the generous yield spurring demand from domestic players.

The auction was covered 1.78 times, up from 1.65 at a slightly bigger sale a month ago.

The small size also helped the Treasury push the auction through, after it decided not to offer inflation-linked paper at Thursday's sale as it would have normally done.

A sovereign downgrade by Moody's this month is forcing Italian linkers out of some indices, leading some funds to sell their holdings. To ease pressure on these assets, Italy bought back 1.3 billion euros of its own linkers at an exchange auction on Wednesday.

Concerns about Spain's budget and banking troubles and the impact that a possible loss of market access for Madrid would have on Italy fuel markets' risk aversion, quashing appetite among international investors for bonds issued by the two debt-laden countries.

Italy's Treasury returns to the market on Friday with an 8.5 billion euro sale of six-month bills and faces a tougher test on Monday when it will sell five and 10-year bonds.

and....

Bavaria FinMin says Greece should leave the euro Bavaria's Finance Minister Markus Soeder said Thursday Greece should leave the euro area instead of receiving more European aid. “Because Greece can't or doesn't want to make it... it only makes sense to smooth its way out of the euro -- otherwise it is just like a money sink,” the Wall Street Journal quoted him as telling German radio. The comments by Soeder, who is a member of the Christian Social Democrats, the junior coalition partner of Chancellor Angela Merkel's Christian Democrats, followed remarks by German Economy Minister Philipp Roesler who this weekend indicated he was skeptical about Greece's progress with reforms. “In terms of reform steps, there is nothing,» Soeder was quoted as saying about Greece. “So I don't think the solution lies in giving more money to Greece but that Greece will leave the eurozone.” The leaders of the three parties that form Greece’s coalition government on Thursday faced the unhappy task of approving 11.5 billion euros in spending cuts over the next two years in the hope that this will help convince the country’s lenders to release further bailout funding for Athens. Meanwhile, European Union Commission President Jose Manuel Barroso was scheduled to meet Greek Prime Minister Antonis Samaras on Thursday in Athens to discuss the nation's progress. His trip coincides with a visit by EU/IMF inspectors to assess whether Athens deserves to receive more payments under the 130 billion euro rescue program.

ekathimerini.com , Thursday Jul 26, 2012 (12:10) and.... Spain feels debt heat, Greece way off bailout terms By Julien Toyer & Luke Baker Spain paid the second highest yield on short-term debt since the birth of the euro at an auction on Tuesday, and EU officials said Greece had little hope of meeting the terms of its bailout, casting fresh doubt on its future in the eurozone. Spain's increasingly desperate struggle to put its finances right has seen its borrowing costs soar to levels that are not manageable indefinitely, reflecting a growing belief that it will need a sovereign bailout the eurozone can barely afford. It has become the recent focus for investors, but Greece -- where the sovereign debt crisis began -- remains a powder keg. If Athens were to default or exit the eurozone, the knock-on effects could push Spain and even Italy over the edge. With inspectors from the EU, European Central Bank and International Monetary Fund returning to Greece to decide whether to keep it hooked up to a 130-billion-euro lifeline or let it go bust, three EU officials said they were likely to conclude Athens cannot repay what it owes, making a further debt restructuring necessary. This time, the European Central Bank and eurozone governments would likely have to take a hit on some of the estimated 200 billion euros ($240 billion) of Greek government debt they own if Athens is to be put back on a sustainable footing. But there is no willingness among member states or the ECB to take such dramatic action at this stage. “Greece is hugely off track,” one of the officials told Reuters, speaking on condition of anonymity. “The debt-sustainability analysis will be pretty terrible.” Prime Minister Antonis Samaras said Greece's economy could contract by more than 7 percent this year, pushing debt-cutting targets further out of reach, but he pledged to stay the course. “There are certainly delays in this year's agreed program, and we must quickly catch up,” Samaras told party colleagues. “Let's not kid ourselves, there is still big waste in the public sector, and it must stop.” Underlining the pressure on the eurozone, Moody's Investor Service lowered the outlook on the EU's temporary bailout fund, the European Financial Stability Facility (EFSF), after threatening the top-notch credit rating of three of its main backers, including Germany, earlier in the week. The Spanish Treasury sold the 3 billion euros of three- and six-month bills it was aiming to, though yields climbed; the six-month paper jumped to 3.691 percent from 3.237 percent last month. “The most important takeaway from this auction is that Spain was able to get all its debt out the door,” said Nicholas Spiro of Spiro Sovereign Strategies. “Still, in March, Spain was able to issue six-month debt at a yield of under 1 percent. Now it is paying 3.7 percent.” Spain had cushioned itself by securing well over half its annual debt needs in the first six months of the year when market conditions were more benign, but that advantage has evaporated as its funding needs for the rest of the year have grown. On Friday, the government said it expected the economy to remain in recession well into next year, while the autonomous region of Valencia became the first to ask Madrid for aid to pay debt obligations it cannot meet. Others are expected to follow. Spain's northeastern region of Catalonia, responsible for a fifth of the country's economic output, admitted it had financing needs to meet while its access to markets was shut, but had not decided yet whether to tap a state liquidity line. On the secondary market, Spanish five-year government bond yields rose above 10-year yields for the first time since June 2001. Having to pay more to borrow shorter-term rather than longer-term is usually a sign that markets think the risk of a default or debt restructuring has increased. “The spread between 5- and 10-years moved to negative today, which is a classic sign that the market thinks the current trends are unsustainable for Spain's fiscal dynamics,” said Nick Stamenkovic, bond strategist at RIA Capital Markets. The return investors demand to hold Spanish 10-year bonds is now at 7.6 percent, while the cost of insuring Spanish debt against default has also hit record highs. Ten-year yields above 7 percent have proved to be a tipping point leading eventually to bailouts for other countries in the eurozone, though Spanish Economy Minister Luis de Guindos insisted on Monday that Madrid would not need more aid. The government has already asked for up to 100 billion euros to recapitalize the nation's banks, which have been battered by a four year economic downturn and a property crash. The government has launched a fresh 65 billion euro package of tax rises and spending cuts designed to chip away at its debt mountain but it will also probably drive the economy deeper into recession. The alarming spiral of Spain's debt costs has banished any hopes that a bailout of its banks, or a June EU summit that gave the eurozone's rescue funds a green light to intervene in the markets, has put the debt crisis into abeyance. Spain and Italy have called for help to ward off market pressure. The ECB has cut interest rates but has shown marked reluctance to revive its bond-buying program, the only mechanism that could lower borrowing costs at a stroke. De Guindos and Wolfgang Schaeuble, Spain and Germany's Finance Ministers, called on Tuesday for a quick implementation of the decisions of the last European Union summit, particularly setting up a banking union with a single European supervisor. They also said after meeting in Berlin that Spain's funding costs did not reflect the fundamentals of its economy and the sustainability of its debt. French Foreign Minister Laurent Fabius said further aid for Spain could take the form of an increase in Europe's rescue fund or action by the ECB. “I hope it will not be necessary to intervene again,” he told France 2 television. “If we have to intervene, it could be an increase in the firewalls... or interventions by the central bank.” The eurozone as a whole is now subsiding into recession. Business surveys on Tuesday showed the currency area's private sector shrank for a sixth month in July, with the downturn that began in the eurozone's high debt nations now becoming entrenched in Germany and France. Moody's lowered the outlook on the EFSF's provisional Aaa long-term rating to negative from stable, in a move it said followed from its decision earlier in the week to change the outlooks for Germany, the Netherlands and Luxembourg to negative. The ratings agency cited an increased chance that Greece could leave the eurozone when in lowered the outlook on all the fund's top-rated guarantors except Finland. It also warned Germany and the other 'AAA'-rated countries that they might have to increase support for Spain and Italy. [Reuters] ekathimerini.com , Thursday Jul 26, 2012 (12:30)

and this may be sparking some hopium today....

Daily Morning Newsbriefing: Eurogroup considers direct purchases of Spanish bonds (26.07.2012)

This is our last briefing before the summer break - back on Monday, August 13; Süddeutsche Zeitung reports that the eurogroup is considering direct EFSF purchases of Spanish bonds from Spanish banks; the purchases would be conducted by the ECB on behalf of the EFSF; Germany is ready to support this operation, but officials warn they are not certain of whether a Bundestag would approve it given the faltering support for rescue operations; it might also take some time until the purchases happen, as Spain needs to make a formal application, and the ECB has to issue a formal recommendation, before this is put to a vote; Ewald Nowotny yesterday moved markets when he said in an interview that the ESM should get a banking licence; Spanish yields improved for the first time in 10 days, and the euro rose back to over $1.21; El Pais writes the ECB is currently studying a number of options to help Spain and Italy, including new collateral rules; it writes that attempts to endow the ESM with a banking licence are likely to hit severe opposition by the Bundesbank and other central banks; Neal Kimberley writes that a banking licence would increase the ESM's contingent liabilities that fall disproportionately on Germany; the Ifo index fell to 103.3, the lowest level since March 2010, amid rising evidence that Germany may have entered a recession; Christian Noyer says ECB policy is not working, as the transmission channels are blocked, which is why a banking union is urgently needed; Gene Frieda, meanwhile, argued that the size and structure of Europe's firewall needs to be changed.  

and....

http://soberlook.com/2012/07/draghi-sends-crowded-shorts-running-for.html?utm_source=BP_recent

THURSDAY, JULY 26, 2012

Draghi sends crowded shorts running for cover

As discussed last weekend, the short euro position has been a crowded trade for some time now. Short Spanish and Italian debt and long treasuries and Bunds was getting there as well. To provide relief to Spain, Draghi threatened the markets. "Believe me, [my actions] will be enough [to hurt the shorts]".

vertical with all the short covering.

EUR (dollars per one euro) intraday

There are not many "bullets in Draghi's gun", and threatening to do something major was one of them. He just used it. If there is no follow-through, his credibility is shot.

http://www.zerohedge.com/news/and-here-what-draghi-can-do-his-own-words

And Here Is What Draghi CAN Do, In His Own Words

Submitted by Tyler Durden on 07/26/2012 07:55 -0400

• Bank of England
 
• Bond
 
• Central Banks
 
• European Central Bank
 
• Federal Reserve
 
• Germany
 
• Monetary Policy

For those stunned that the market is reacting as euphorically as it is to remarks which are basically a rehash of prior Draghi statements and are nothing new, or that bond yields are ripping in on the implicit threat that Draghi may reactivate the SMP, in the process further subordinating bondholders and cramming them down forcing even more selling, here is a sampling of previous Draghi statements explaining what he can do, and more importantly, what he is allowed to do under the existing European framework. Which is why we find it not very surprising that Draghi waited until all usual German suspects are on vacation and are thus unable to immediately issue a press release as to the structural limitations of what Draghi can do. Because when in doubt, ask this: does export-heavy Germany want a strong or a weak euro?

December 2011 - ECB Press Conference

Question: Why is it so impossible for the ECB to act like the other central banks, like the Federal Reserve System or the Bank of England? Why do you not act more directly to help European countries by buying up the debt on a massive scale?

Draghi: As I said before, we have a Treaty and the Treaty states what our primary mandate is, namely to maintain price stability. Also, the Treaty prohibits monetary financing. I am old enough to remember that, when this Treaty was written in the early 1990s, some of the countries around that table were actually doing what you suggest doing now, namely some of the central banks of these countries were financing the government expenditure of their governments through money creation, and the consequences were there for all of us to see. That is why, in a sense,this Treaty embodies the best tradition of the Deutsche Bundesbank, whereby monetary financing has always been prohibited.

Question: Mr Draghi, speaking in Parliament you also emphasized that the ECB would ensure price stability in both directions. Does that mean that there is a fear of deflation? My second question is, from a purely legal point of view, do you think there is any limitation on the ECB regarding the amount of government bonds that can be bought, as long as it can be justified on the basis of monetary policy considerations.

Draghi: At the present time we do not see a high probability of deflation. That is one point to keep in mind. The second point is, as I have said many times, that the purpose of the SMP is to reactivate the transmission channels of monetary policy. As I said in the statement to the European Parliament, the SMP is neither eternal nor infinite. We must keep this in mind and we do not want to circumvent Article 123 of the Treaty, which prohibits the monetary financing of governments.

And secondly, you have mentioned Article 123 in the Treaty. Would you consider active buying at around the time certain instruments are issued to be something that would be state financing, and would you regard that as being against ECB law?

Draghi: On the first issue, we are aware of the technical complexities that would arise with the SMP having an infinite size, but we will think about this. As for the other question, one can construct many different cases. But, as I said before, the key thing is that we should not try to circumvent the spirit of the Treaty. No matter what the legal trick is, I think what matters for the people and what matters for the confidence and credibility of the institution is the spirit of this provision of the Treaty.

 2/9/12 - ECB Press Conference

Question: I also had a question on the EFSF. If the ECB were to transfer the bonds it has acquired under the SMP to the EFSF, would that be monetary financing?

Draghi: The EFSF is like a government. Giving money to governments is monetary financing.

and some more from Draghi....

http://www.zerohedge.com/news/first-responses-draghis-deliberately-ambiguous-remarks-trickle

First Responses To Draghi's "Deliberately Ambiguous" Remarks Trickle In

Submitted by Tyler Durden on 07/26/2012 07:32 -0400

• Bond
 
• European Central Bank
 
• fixed
 
• Germany
• Volatility

The kneejerk short covering reaction to Draghi's remark that he will do "anything to preserve the euro" (this must be news because yesterday the ECB would not do anything to preserve the euro supposedly) is over. Now the analysis begins of what was actually said. The realization is... nothing. From Bloomberg:

•  ‘Nothing Structural’ in Post-Draghi Bond Spread Moves: Credit Agricole
• While selloff in bunds may extend further, it appears to be just “correction” of what is risk- averse bull rally, Credit Agricole fixed income strategist Peter Chatwell says in interview.
• The inverse is still case for periphery; says “we’re still in a regime of elevated peripheral yields” and difficulty in those markets
• Draghi remarks on ECB readiness to act “deliberately ambiguous,” clearly in response to market volatility and distress
• In being so ambiguous, comments are “slightly threatening” for investors short the periphery; could be hinting at further easing, rate cuts, or something “much more bold”

And now the countdown to the halflife begins. Typically cases such as this where the ECB leaves an open door without any actual hints of what it will do, have a several hour kneejerk lifetime. If and when Germany comes out and denies everything Draghi said, whatever it may have actually been, it will be minutes.

and..
http://www.zerohedge.com/news/ecbs-draghi-repeats-party-line-forces-another-brief-eur-squeeze

ECB's Draghi Repeats The Party Line, Forces Another Brief EUR Squeeze

Submitted by Tyler Durden on 07/26/2012 06:37 -0400

• Ben Bernanke
 
• Bond
 
• Borrowing Costs
 
• European Central Bank
 
• Germany
 
• Monetary Policy
 
• NASDAQ

Here we go again:

• DRAGHI SAYS ECB WILL DO WHATEVER NEEDED TO PRESERVE THE EURO
• DRAGHI SAYS THE EURO IS IRREVERSIBLE
• DRAGHI SAYS YIELD DISRUPTING POLICY TRANSMISSION ARE IN ECB REMIT
• DRAGHI SAYS SHARING SOVEREIGNTY ON EU LEVEL TO COME
• DRAGHI SAYS LAST EU SUMMIT WAS MOMENT OF RECOGNITION

And of course the weak hands cover until they realize Draghi just said absolutelynothing, as at this point everything is  in Germany's hands. And not only has Germany not said anything, and won't until September when the constitutional court will approve or deny the ESM, but in fact they have been saying overnight that Spanish bonds are not eligible for EFSF purchases.

Take home: poor Draghi can't even afford Hilsenrath and has to force EURUSD squeezes himself. Because both he and Bernanke know that all they can do is talkthe markets up. Any actual event is now grounds for selling the news.

In the meantime, here is the market reaction in a world in which nothing matters any more except what hollow words comes out of broke central planners' mouths:

• S&P futures spik, now up 6.6pts (or 0.5%) after being down 6pts just before Draghi pledged ECB will do whatever needed to preserve euro.
• Dow futures up 56 or 0.4%, Nasdaq up 10 or 0.4%
• Italian stocks up 2%, Spain up 1.3%, DAX uup 0.4%, CAC up 1.1%
• Euro spikes to 1.2180, NY oil trims drop to 15c or 0.2% (was down 90c or 1%), NY gold unchanged at $1,612/oz (had been down $7.80 or 0.5% at $1,604)
• 10-yr Treasury yield rises to 1.42%

A quick Reuiters summary of what was said:

European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the euro zone from collapse, including fighting unreasonably high government borrowing costs.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," he told an investment conference in London.

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate."

The euro rose and German bond futures turned negative after the comments.

and you can really tell Merkel and Schauble on a vacation with these various comments being tossed out the last couple of days on items previously shot down ( EFSF buying Spanish debt / ESM getting a banking license .... )



http://www.telegraph.co.uk/finance/debt-crisis-live/9427827/Debt-crisis-live.html

12.38 Pierre Moscovici, the French finance minister, has been giving his tuppence worth on the EFSF bailout fund buying government bonds. He said the eurozone should not ignore this option:

On the issue of market intervention, [that option] should not be ignored.

He also praised comments made by Mario Draghi, indicating that the bank was ready to act to lower unreasonably high government borrowing costs in Italy and Spain, where bond yields have soared in the last few days.

However, following those remarks by Mr Draghi, Spain and Italy's 10-year bond yields have retreated significantly. Spain's are down 34 basis points at 6.943pc and Italy's are also down 34 basis points at 6.05pc.

11.26 Markets welcomed Mr Draghi's comments. Here's what the euro did against the dollar. It's up by nearly a cent today, at $1.2204. Spanishand Italian borrowing costs also fell slightly.

11.18 Mr Draghi said that the solution to the crisis was "more Europe," not less. He added that the European Commission's plans to create a single supervisory mechanism for banks in the eurozone would begin in early September.

On continued rumours of a euro break-up, Mr Draghi insisted that where there's a will, there's a way:

When people talk about the fragility of the euro, very often non-euro members underestimate the political capital that has been invested.

11.14 Mario Draghi has declared that the ECB will "do whatever it takes to preserve the euro". He repeated comments made to Le Monde newspaper last week that the euro is "irreversible," adding:

within our mandate the ECB is ready is ready to do whatever it takes to preserve the euro, and believe me, it will be enough.

11.00 While we wait for that, Greece's government has reportedly found €11.7bn in extra cuts for 2013 and 2014 demanded by international lenders as a condition of its bail-out terms. A senior finance ministry official told Reuters:

The government has finalised the plan and will present it later today to political leaders.

09.43 Greeks are still pulling their money out of banks at a rapid rate, according to figures out from the European Central Bank (ECB) this morning.

Deposit data for June showed that private-sector deposits fell almost 5pc to €156bn in June, following a similar decrease in May.

Greek banks have lost 30pc of their deposits since late 2009.

Across the rest of Europe, Ireland posted a 2pc deposit decline, while private-sector deposits in Spain fell to their lowest level since July 2008.

09.32 On the markets, equities are fairly subdued. London's FTSE 100 is off 0.21pc at 5487; Germany's DAX is down 0.78pc at 6359 and Spain's IBEX is off 0.21pc at 5993.

Spain's 10-year bond yields have eased 2 basis points to 7.27pc while Italy's are flat at 6.4pc.

09.09 Italy retail sales are out and have decreased 0.2pc month-on-month. As well as those figures and the German confidence, other events today include Mario Draghi, European Central Bank president, speaking at the Global Investment Conference in London. Christine Lagarde, head of the IMF, will also be there later. David Cameron will be speaking there at 10am.

08.30 Citigroup's bleak prediction comes as Jose Manuel Barroso, European Commission president, arrives in Athens for talks today. It is his first trip to the stricken country in three years and it coincides with Greece's so-called troika of international creditors - the European Central Bank, the European Commission and the International Monetary Fund - paying a visit to Greece this week.

08.20 Economists at Citigroup are still gloomy about the outlook for the currency bloc and they believe there is now a 90pc chance of Greece leaving the euro within the next 18 months, up from their previous estimate of a 50pc to 75pc chance. They wrote:

Within this subpar global outlook, we remain gloomy on the euro crisis. Our base case is for prolonged economic weakness and financial market strains in periphery countries, spilling over into renewed recession for the euro area as a whole this year and the next.

We now believe the probability that Greece will leave EMU in the next 12-18 months is about 90pc, up from our previous 50-75pc estimate, and believe the most likely date is in the next 2-3 quarters. As before, for the sake of argument, we assume that “Grexit” occurs on 1 January 2013, but we stress this is an assumption rather than a forecast of the precise date. Even with the Spanish bank bailout, we continue to expect that both Spain and Italy are likely to enter some form of Troika bailout for the sovereign by the end of 2012.

08.15 The regional leader of Asturias in Spain has become the country’s first major figure to call for a radical change of strategy and exit from the euro, unless monetary union is fundamentally reformed.

Francisco Alvarez Cascos, the region’s president and former chief of Spain’s ruling party, accused premier Mariano Rajoy of humiliating the nation by touring Europe with a “begging bowl”.

Mr Cascos said the government is “utterly incompetent”, but warned that the deeper crisis is a “perverse” monetary system where capital flight from countries in distress is funding creditor states at zero rates. “This can’t go on for long, or we will have to think about leaving the euro before we are thrown out,” he said.