Wednesday, July 25, 2012 10:53 AM
ESM Banking License? Rumors of Non-Solution Send Sovereign Yields Lower; Purposeful Non-Elaboration
The mantra of eurocrats is quite obvious: When times get tough, roll out already discarded rumors and hope they stick for a while.
Earlier today yield on 2-year Spanish bonds hit 7.14%. The yield now is a still unsustainable 6.42%.
What happened?
The answer is another silly rehash of something the German constitutional court probably would not allow, and is not even being seriously discussed at the moment anyway: a banking license that would allow the ESM to use leverage.
European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full- scale Spanish bailout.
“I think there are pro arguments for this,” Nowotny, who heads Austria’s central bank, said in an interview in his office in Vienna yesterday. “There are also other arguments, but I would see this as an ongoing discussion,” he said, adding he’s “not aware of specific discussions within the ECB at this point.”
Granting a banking license to Europe’s permanent bailout fund, the European Stability Mechanism, would give it access to ECB lending, easing concerns that its 500 billion-euro ($602.5 billion) cash pot won’t be enough if Spain or Italy require aid. While ECB President Mario Draghi said on May 24 that such a move amounts to the central bank financing governments, which is prohibited by European Union law, publicly-owned credit institutions such as the European Investment Bank are exempt.
“It is not something that is only in the field of monetary policy, so this is part of a broad discussion,” Nowotny said. He declined to elaborate.
Purposeful Non-Elaboration
Declining to elaborate was a good move from the standpoint of politics. The more that is said about rehashed ideas, the less believable the rumor is. Note that the ECB has already rejected this idea, so has the German central bank and numerous German politicians.
Moreover, no one really wants to discuss this issue now anyway, fearing it might impact a German constitutional court ruling coming up in September.
The game plan, if there is one (other than obvious BS), is to sneak this idea in later, after a favorable court ruling. However, if Merkel really supported this idea, it would have happened already.
It is quite possible the constitutional court picks up on this chatter, and puts an end to the idea even if it approves the ESM. Let's hope so.
Regardless, leverage will not solve anything, anyway. This rehash of a discarded idea might calm the markets for a few days, but that is likely it.
and.....
ESM Banking License? Rumors of Non-Solution Send Sovereign Yields Lower; Purposeful Non-Elaboration
The mantra of eurocrats is quite obvious: When times get tough, roll out already discarded rumors and hope they stick for a while.
Earlier today yield on 2-year Spanish bonds hit 7.14%. The yield now is a still unsustainable 6.42%.
What happened?
The answer is another silly rehash of something the German constitutional court probably would not allow, and is not even being seriously discussed at the moment anyway: a banking license that would allow the ESM to use leverage.
Earlier today yield on 2-year Spanish bonds hit 7.14%. The yield now is a still unsustainable 6.42%.
What happened?
The answer is another silly rehash of something the German constitutional court probably would not allow, and is not even being seriously discussed at the moment anyway: a banking license that would allow the ESM to use leverage.
European Central Bank council member Ewald Nowotny said there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full- scale Spanish bailout.
“I think there are pro arguments for this,” Nowotny, who heads Austria’s central bank, said in an interview in his office in Vienna yesterday. “There are also other arguments, but I would see this as an ongoing discussion,” he said, adding he’s “not aware of specific discussions within the ECB at this point.”Purposeful Non-Elaboration
Granting a banking license to Europe’s permanent bailout fund, the European Stability Mechanism, would give it access to ECB lending, easing concerns that its 500 billion-euro ($602.5 billion) cash pot won’t be enough if Spain or Italy require aid. While ECB President Mario Draghi said on May 24 that such a move amounts to the central bank financing governments, which is prohibited by European Union law, publicly-owned credit institutions such as the European Investment Bank are exempt.
“It is not something that is only in the field of monetary policy, so this is part of a broad discussion,” Nowotny said. He declined to elaborate.
Declining to elaborate was a good move from the standpoint of politics. The more that is said about rehashed ideas, the less believable the rumor is. Note that the ECB has already rejected this idea, so has the German central bank and numerous German politicians.
Moreover, no one really wants to discuss this issue now anyway, fearing it might impact a German constitutional court ruling coming up in September.
The game plan, if there is one (other than obvious BS), is to sneak this idea in later, after a favorable court ruling. However, if Merkel really supported this idea, it would have happened already.
It is quite possible the constitutional court picks up on this chatter, and puts an end to the idea even if it approves the ESM. Let's hope so.
Regardless, leverage will not solve anything, anyway. This rehash of a discarded idea might calm the markets for a few days, but that is likely it.
and.....
http://www.infowars.com/spain-clashes-violence-erupts-as-million-plus-protest-in-80-cities/
Spain Clashes: Violence Erupts as Million-Plus Protest in 80 Cities
RT
July 24, 2012
July 24, 2012
Protests engulf Spain amid financial disaster.
and.....
http://www.zerohedge.com/news/nowotny-hilsernaths-eur-futures-reviving-doomed-red-herring-discussion-esm-banking-license
( stick save attempt - how long before Draghi and Germany shoot this non starter down ? Will this stick save last any longer than the Italian and Spanish financial short selling bans which effectively lasted a few hours )
Nowotny "Hilsenraths" EUR, Futures By Reviving Doomed "Red Herring" Discussion Of ESM Banking License
Europe is once again scrambling by clutching at broken straws and juggling dead ends. To wit: instead of actually proposing a realistic solution to its massive debt overhang, the ECB's Ewald Nowotnysaid "there are arguments in favor of giving Europe’s rescue fund a banking license, reviving the debate on bolstering its firepower as leaders face the prospect of a full-scale Spanish bailout." As a reminder, this is an absolute dead end that Germany and the ECB have both repeatedly rejected as implementation would confirm just how hollow the European gutted shadow banking market (you can't have shadow banking without credible collateral). Reuters explains: 'Nowotny, however, said the issue was far from settled and that it was not being actively discussed right now - an indication that, if were to be considered, it would take time to agree on the measure. "There are also other arguments, but I would see this as an ongoing discussion," he said, adding that he was "not aware of specific discussions within the ECB at this point." France has been behind a push to give the ESM access to ECB funding operations. The ECB has repeatedly rejected the idea, arguing it would be thinly disguised monetary financing of governments. The ESM is an entity that is funded by governments."
Further slamming the Nowotny comment was Daiwa which called the Nowotny statement a Red Herring and that "remarks that ECB council member sees arguments for giving bailout fund banking license "look to be just noise," Grant Lewis, head of research at Daiwa Capital Markets Europe, says in client note. Comments appear to have been off the cuff and purely personal opinion; such a move remains “highly improbable,” as Germany and ECB “implacably opposed” to this. Finally Daiwa adds that markets will soon focus again on fact that if ESM can’t be activated in early autumn, there’s no money available to bail out Spain, “let alone Italy."
"Oddly" enough, just like yesterday's Hilsenrath non-fact stick save minutes before Apple's miss would have dragged futures down by several hundred more points, this non-event come just at the right time to prevent the EURUSD from sliding to a 1.1 handle, and has pushed not only the EURUSD higher by 100 pips, but futures well into the green. Good timing.
Efficient and unmanipulated markets.
Wednesday, July 25, 2012 1:49 AM
Spain 2-Year Treasury Yield Tops 7%, Inversion Between 5 and 10 Year Yields; Spain Sovereign Debt Restructuring Coming Up
Those wondering when the yield on Spain's 2-year government bond would exceed 7% now have an answer. Today is the day.
Spain 2-Year Government Bond Yield
Of further interest please note the inversion at the long end of the curve. The yield on 5-year treasuries now exceeds that on the 10-year treasury.
Spain 5-Year Government Bond Yield
Spain 10-Year Government Bond Yield
Synopsis
2-Year Yield + 36.5 basis points to 7.007%
5-Year Yield + 12.5 basis points to 7.717%
10-Year Yield + 2.7 basis points to 7.648%
The inversion is slight but the massive yield increase on the shorter end is significant. If this action continues, and I expect it will, the market is pricing in a sovereign debt restructuring of Spain, including bond haircuts.
and.....
http://www.telegraph.co.uk/finance/debt-crisis-live/9424694/Debt-crisis-live.html
10.58 A spokesman for Germany's finance ministry has also denied that the country was pushing Spain to seek a bail-out (see 08.25). Johannes Blankenheim said:
That's absurd and not up for debate.
Mr Blankenheim also said that Germany remained the eurozone's stability anchor.
10.54 Back to Europe, where Germany has sold 30-year debt at record low interest rates of 2.17pc, compared with 2.41pc at a previous auction in April.
09.32 BREAKING
Wow. We thought it would be bad. But not this bad. The British economy contracted by 0.7pc during the second quarter - representing the largest quarterly contraction since Q1 2009. Economists surveyed by Bloomberg had forecast a contraction of 0.2pc.
09.07 Business confidence in Europe's largest economy fell to its lowest level in 28 months in July, as the eurozone's worsening debt crisis weighed on sentiment.
Germany's Ifo think tank said its business climate index, based on a monthly survey of some 7,000 companies, fell to 103.3 in July from 105.2 in June, the lowest reading since March 2010.
08.30 This morning, an official at the Spanish Economy Ministry told Bloomberg that the report was untrue.
08.25 Last night, elEconomista reported that Germany had urged Spainto join the dole queue in Brussels and request a €300bn bail-out.
The funds would initially come in the form of a €100bn loan from the eurozone's temporary bail-out pot, the European Financial Stability Facility (EFSF). The rest would become available once the European Stability Mechanism (ESM) came into effect, the paper said.
08.09 Spanish Economy Minister Luis de Guindos will hold talks with his French counterpart Pierre Moscovici in Paris today.
Yesterday, Mr de Guindos met German finance minister Wolfgang Schaeuble to discuss the situation in Spain. In a joint statement yesterday, they insisted:
The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy.
Today, yields have climbed again.
08.05 The panic continues. Spanish borrowing costs on ten year debt have marched towards the 8pc mark this morning, at 7.74pc. Two year borrowing costs have surpassed the 7pc mark for the first time since 1996, and Italian yields aren't that far behind.
In short, things are bad.
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