http://www.businessinsider.com/a-quote-from-an-anonymous-european-official-is-undermining-the-entire-eu-summit-2012-7
and.....
http://www.zerohedge.com/news/all-you-had-do-was-wait
Submitted by Tyler Durden on 07/09/2012 08:01 -0400
and....
http://www.zerohedge.com/news/spains-budget-deteriorates-so-much-it-gets-one-year-extension-eu-meet-deficit-targets
Submitted by Tyler Durden on 07/09/2012 06:30 -0400
http://www.zerohedge.com/news/eur-spikes-desperate-europe-regurgitates-last-summits-headlines
Submitted by Tyler Durden on 07/09/2012 06:37 -0400
This paragraph is really making the rounds.
“I need to make clear what the ESM can do: the ESM is able–if one were to decide ever on such an instrument–to take an equity share in a bank. But only against full guarantee by the sovereign concerned... What you have is that it cuts out the effect of that loan on the debt-to-GDP ratio of the sovereign. Does it still remain the risk of the sovereign or [does it go to] the ESM? It remains the risk of the sovereign.”
That quote is attributed to an anonymous senior European official, and it was told to star reporter Matina Stevis at The Wall Street Journal.
Both Edward Hugh at Economonitor and economist Karl Whelan writing at Forbes picked up on that paragraph and understood that it signified a devastating truth: The entire EU Summit was basically a joke.
While in public all the talk was about how Spanish banks would get a bailout without it burdening the government debt, this anonymous senior European official is saying that the bailout to the banks really is just a loan to the government in disguise because "it remains the risk of the sovereign."
So if you want to understand why things have gone kaput so fast, this is about half of the problem. Even the things said in public can't be trusted. And then when politicians get home from these summits, and they have to pander to the voters and so forth, the agreements deteriorate even more.
and.....
http://www.zerohedge.com/news/all-you-had-do-was-wait
All You Had To Do Was Wait
From Mark Grant, author of Out of the Box
All You Had To Do Was Wait
“What makes people so impatient is what I can't figure; all the guy had to do was wait.”-Ken KeseyIt was approximately twelve months ago that I called for a U.S. ten year at 1.25%. The yield back then was around 2.25%. We are a scant 26 bps from my prediction now and we have seen a 75 bps drop in yield during this time period. This has been fueled by the continuing “moments” generated in Europe and the demand for anything having some sort of safe haven status. We now have a second driver which is the recession in Europe and the substantial slowdown in the economy of China which I predict will place America in recession by either the fourth quarter of this year or the first quarter of the next.The American stock market, always myopic in its view, is about to be hit by what it does pay attention to which is earnings. Europe represents 25% of the global economy and the recession there is about to have a very substantial impact on the revenues and profits of many American corporations. It was inevitable, as hindsight will expose, and now as our earnings season gets underway it will get documented in the numbers. If you don’t delight in losing money you will find that the yields of many senior and subordinated corporate bonds far outpace the returns of dividends and certainly the depreciation in value will be far less. Further, in times of economic stress, it is far safer as has been proved time and time again to be towards the top of the capital structure in bonds rather than in the bottom of the capital structure which is equities.I can report a wide array and a great diversification of viewpoints on just what will take place in Europe but what also can be said with certainty is that most institutional investors all agree that there is a lot of risk on the table now. As part of this process I also wish to congratulate the media. Many commentators in the Press or on television are no longer willing to take the official press releases as fact. There are more people who are not only questioning the headlines but who are looking past them in trying to decipher not only their accuracy but there meaning. I suppose this has occurred by one announcement after another coming from the Continent that was so shaded and so misleading that eventually people woke up to the fact that inaccurate data was being provided and being provided in a systemic fashion. Then there is the timeline issue where plans are tossed out, do not materialize and are being held to account as mollifying statements that somehow never seem to achieve their goals. Whether it was the statements of the IMF and the EU that the new structural plan for Greece would produce a debt to GDP ratio of 120% or the giant firewall that would prevent Spain or Italy from ever needing to be bailed out or the bailout for Spain which their Prime Minister called “A Great Victory for Europe;” the cries of “wolf” are falling on less and less accepting ears.
“The secret of being a top-notch con man is being able to know what the mark wants, and how to make him think he's getting it.”-Ken Kesey
It may work, for a moment, to rally equities after the next new piece of sliced white bread is announced but then the reaction flattens out and then the market declines as reality sneaks back in and finds its rightful place at the table. From the very beginning with the first European bank stress test which counted what Europe wanted to be counted and ignored what should have been counted to the second one which was falsified by its methodology; results begin to occur and calamities begin to happen, such as with Dexia, as the real data forced what the phony data reported tried to hide. Europe may cook the books and allow for risk-free assets or the Spanish central bank may allow for “smoothing” and carrying Real Estate at levels with no reflection of reality in them but when mortgages are not paid and commercial loans are delinquent; the lack of revenues and profits tell the accurate tale whatever was allowed to be ignored or not.
All of the time wasted on firewalls and great deceptions worked in the short term but the height of a fence does nothing to help a horse or a nation which is sick inside them. Europe has vastly overspent and tried their best to whitewash the financials of the countries and the European banks and now, and each quarter out for some time; we are going to see a worsening financial landscape for the European nations and their banks. This will not be Armageddon or the end of the world but it is going to be quite painful and have a decided impact on the United States and perhaps the scaring may be deep. In Europe that have mouthed so much nonsense for such a long period of time that they have come to believe in what they have manufactured. This is not uncommon historically but the depth and breadth of it is without comparison. Germany says one thing to placate France and Italy believes the drivel that is touted by the Netherlands and now Greece wants the ECB to forgive their $238 billion in Greek debts on the basis of a united Europe, which would bankrupt the ECB, and then it becomes clear that someone has to pay for all of this and countries start banging on the doors of the asylum to get out. Listen carefully; the banging has begun and will grow loader and more raucous during the balance of the year.
“The world news might not be therapeutic.”-One Flew Over The Cuckoo’s Nest
http://www.zerohedge.com/news/spains-budget-deteriorates-so-much-it-gets-one-year-extension-eu-meet-deficit-targets
Spain's Budget Deteriorates So Much, It Gets A One Year Extension By The EU To Meet Deficit Targets
Remember the running joke about Spain's constantly deteriorating budget? Or was that Greece's? No matter: there was a time when Spain was expected to hit a 5.3% budget deficit in 2012, and the Maastricht mandated 3.0% by 2013. So much for that. It turns out the Spanish economy has deteriorated so much in the last few months, that the EU had no choice but to grant Spain a 1 year extension, according to Europapress. In doing so, the EU has eased deficit targets for Spain by 1% in 2013, granting it a 6.3% deficit miss, a number which will be revised at least once more before the year is over, and the 2013 target is now widened by 1.5% to 4.5%. So much for serious deficit cutting. But let's blame "austerity" while we are at it. It would, however, be great if countries in Europe, or anywhere, were actually austere, and cut their deficits, instead of just blaming austerity for every economic problem while never actually enacting such policies (as weexplained before). So while Spain gets an extension due to a "recession of rare violence", the trade off will be even greater supervision by the Eurogroup, or said otherwise, more people will watch how Spain does nothing to actually fix itself and then 6 months from now everyone will be shocked, shocked, when the 2013 deficit is over 8%. In other news, Spain 10 Year bond were trading at 7.08%, well wide for the day and about 20 bps shy of the all time record lows.
* * *
and....
EUR Spikes As A Desperate Europe Regurgitates Last Summit's Headlines
Those following the EURUSD may be surprised by the rather violent spike higher in the past few minutes. Don't be: it is just the same old European unfounded speculation repackaged and regurgitated as headlines, in this case the following:
- EU SAYS NO SOVEREIGN GUARANTEE NEEDED FOR DIRECT ESM BANK FUNDS
Or, for those whose event memory has a one week cutoff, the exact same thing that the Euro summit from June 28 "concluded" sending the EURUSD higher by 200 pips, only to see it crash to 2 year lows in the week following after Germany made it clear this was not really the case. Turns out it is not really the case this time either:
- Details of how the future system will work remain to be negotiated: Commission spokesman Simon O’Connor
Cue responses from Finland, Holland, Slovakia and maybe, just maybe Germany, all of whom agree to disagree, and some of whom even demand collateral even for just EFSF borrowings.
In other words: the EU just resaid what it said originally 10 days ago, while leaving the detail void just as it did at the summit when it announced the MOU. No matter: the algos fell for it an covered to the tune of at least 50 pips. Mission accomplished. Sadly, halflife in thgis particular case: 10 minutes.
and....
http://www.guardian.co.uk/business/2012/jul/09/eurozone-crisis-greek-government-confidence-vote
There are reports from Athens in the last few minutes that deputy labour minister Nikos Nikolopoulos has resigned.
It appears that Nikolopoulos has quit in protest at Antonis Samaras's refusal to renegotiate changes to Greek labour laws with the Troika. That's an early blow the government, just hours after winning its vote of confidence.
More to follow.
Portugal's banks borrowed a record amount from the European Central Bank last month, as the country remained locked out of the money markets.
The Bank of Portugal reported this morning that its commercial banks have now borrowed a total of €60.5bn from the ECB, up 3% from May.
Portugal's reliance on the ECB actually fell in April, following the central bank's second huge injection of liquidity. But it rose in May, as fears grew that the country may need a second bailout when the €78bn package agreed in April 2011 expires.
From Brussels, my colleague Ian Traynor explains what has gone wrong in Europe since the 'breakthrough summit' of 28th and 29th June:
The summit resolved to break the invidious link between failing banks and weak sovereigns by agreeing to use eurozone bailout funds to recapitalise banks directly and not via governments, to avoid pushing up debt levels.But since the summit, creditor eurozone governments have backtracked on the pledges amid furious debate and rancour over what was actually agreed and how the accord will be implemented.While the Germans and other north Europeans insist that direct bank injections can only be contemplated once a new regime of eurozone banking supervision is in place (likely to take a year), senior Eurogroup officials signalled that even in the event of bailout funds going straight to banks, the host country would still be burdened.Were the main bailout fund, the European Stability Mechanism, to take equity in troubled banks, the host government would need to underwrite the risk and be liable if the bank went bust, the officials involved in preparing tonight's meeting said."The ESM is able to take an equity share in a bank but only against full sovereign guarantees. It remains the risk of the sovereign. There's some degree of mystification going on here," said a senior official.
As if to back up that point, we're getting newsflashes from the European Commission's daily briefing in Brussels, that sovereign guarantees may not be needed, but the details 'remain to be negotiated'.
Developing....
Ian also says there is speculation in the corridors of power that fresh emergency talks may be needed, especially if tonight's eurogroup meeting goes badly:
The ministers are expected to try to reach a "political understanding" on a memorandum of understanding between the eurozone and Madrid to be finalised later this month. In Brussels there is talk of new emergency Eurogroup talks around July 20 or even an extraordinary summit. Or ministers could confer by video-conference instead before the August holiday.
The frantic backtracking seen since the Summit has undermined confidence in one of the key breakthroughs -- a pledge to use eurozone bailout funds to
recapitalise banks directly and not via governments. Marketwatch dubs this "Merkel's Law of Permanent Disappointment" - after the German chancellor suggested that nothing had really changed, and that closer banking union is really about "joint supervision" rather than "collective liability".
Elizabeth Afseth of Investec fears we will see little progress this evening (and tomorrow, when all 27 EU finance ministers meet):recapitalise banks directly and not via governments. Marketwatch dubs this "Merkel's Law of Permanent Disappointment" - after the German chancellor suggested that nothing had really changed, and that closer banking union is really about "joint supervision" rather than "collective liability".
Nobody has any trouble understanding German reluctance to agree to such, both in terms of having to pay up for others' excesses as well as in terms of a moral hazard argument.But with investor confidence at a low and the weaker countries struggling to finance themselves the alternative is a break-up of the currency union, and that is likely to be more costly to Germany than a well structured banking union and some (hopefully temporary) regional transfers.
Tomorrow, the German Constitutional Court will consider a request to slap a temporary injunction on the European Stability Mechanism (ESM). If that happens, the crisis really will ignite...
Investor confidence across the eurozone dropped to a new three-year low last month, according to data just released.
The monthly Sentix survey (which tracks investor sentiment across the single currency region) dropped to -29.6 this month (from -28.9 in June). That's the lowest level since July 2009, when the eurozone was in recession. July's drop was mainly caused by a drop in confidence with Germanby.
Speaking of Spain, there's an interesting story in the Financial Times about its banking bailout.
The FT reckons Spain is ready to create a single "bad bank" to house the toxic assets that are dragging down its banking sector. Madrid has been resisting this idea until now*, arguing that pumping more capital into the banks would suffice. But it could now cave in over the 'bad bank' idea, in return for the bailout aid agreed last month.
The FT says:
After repeated attempts to contain the problems in the Spanish banking sector, Madrid is prepared to establish a sector-wide body if it is a condition of accessing EU aid, Spanish officials said.Such a move would potentially assuage eurozone concerns about how to oversee rescued banks because it would create a centrally-administered body that would be easier to monitor.
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