Monday, July 30, 2012

Germany is rapidly reaching the " Nein " point and Spain is insolvent already - who bails out Italy ? And what happens when France extends the beggars cup ?

http://www.zerohedge.com/news/bundesbank-pulls-cloud-nein-under-hollande-draghi


Bundesbank Pulls Cloud Nein From Under Hollande, Draghi

Tyler Durden's picture
Submitted by Tyler Durden on 07/31/2012 09:04 -0400



Minutes ago French socialist president Hollande once again climbed on top of Cloud Nine, fully hopeful that Draghi's bluff would be enough:
  • HOLLANDE CITES `STRONG WORDS' BY ECB'S DRAGHI ON EURO
  • HOLLANDE SAYS ALL WILL BE DONE TO `DEFEND, PRESERVE' EURO
This led to a brief spike in the EURUSD until moments later, CNBC's Steve Liesman, by way of the Bundesbank, just converted Cloud Nineinto Cloud Nein, which in turn was promptly pulled from under Hollande:
  • BUNDESBANK TELLS LIESMAN MONETARY POLICY SHOULD FOCUS SOLELY ON PRICE STABILITY, STATES NEED FISCAL INTERVENTION
This means the Bundesbank does not give its blessing to SMP reactivation, and does not all "all" to be done to defend the Euroe. And with that the German response to Draghi's bluff is complete, just as predicted. Check to Mario who is suddenly boxed in a very big corner.
The market response is immediate:
  • SPANISH 10-YEAR BONDS ERASE ADVANCE; LEAVES YIELD AT 6.62%.
And this latest headline is certainly not going to help:
  • GERMAN SAVINGS BANKS GROUP REJECTS BANK LICENSE FOR ESM
There goes the crutch that led the EURUSD rise last week on Ewald Nowotny's Wednesday rumor.


and from FM Schauble.....


Schauble Makes It Clear: Beggars Can't Be Choosers

Tyler Durden's picture
Submitted by Tyler Durden on 07/31/2012 09:16 -0400



Merkel may still be on vacation, but Germany decided to make it all too clear just who is in charge after last week's idiotic headfake by Draghi et cie:
  • GERMAN FINANCE MINISTRY SEES NO NEED TO GIVE ESM BANK LICENSE
  • GERMAN MINISTRY SAYS THERE ARE NO SECRET TALKS ON BANK LICENSE
  • GERMAN MINISTRY SAYS NOT HOLDING TALKS ON BANK LICENSE FOR ESM
Translating Schrodinger Schauble: the quantum state of Begging and Choosing can not co-exist in tensor superposition. Just in case the previous headline from the Bundesbank was not clear enough.







http://www.zerohedge.com/contributed/2012-07-30/germany-tapped-out-its-only-matter-time-eu-breaks


Germany is Tapped Out... It's Only a Matter of Time Before the EU Breaks Up

Phoenix Capital Research's picture
Submitted by Phoenix Capital Research on 07/30/2012 16:24 -0400





The European Crisis is accelerating with every day. Indeed, at this point there’s a new major development (if not more than one) on a daily basis.

Rather than detailing every single news item, I’d rather address the larger concerns. This will better help you understand the larger systemic issues and how this is all likely to play out.

Greece, which we’ve been told was “saved” more than a dozen times, is back on the ropes and on the verge of needing a third bailout:

            Greece will need more debt restructuring…EU officials

Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments.
The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country.

Inspectors from the European Commission, the ECB and the IMF -- together known as the troika -- returned to Athens on Tuesday and will complete their debt-sustainability analysis next month, but the sources said the conclusions were already becoming clear.

It means Greece's official-sector creditors -- the ECB and euro zone governments -- will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing.


How this can be a surprise to anyone is beyond me. Greece was already asking for repayment extensions after its first bailout. Put another way Greece was already showing that it couldn’t meet its easier/ more lax debt repayment schedule back in 2010.

As a standalone item, Greece is now at the point of either leaving the Euro or defaulting. Both items are receiving coverage in the mainstream financial media, which tells us that high-level officials have plans in place for either eventuality (things don’t get out into the media in Europe until political “sources” plant them).
Greece’s Far-Left Leader Says Country Will Default

Greek’s leftist leader said his country would default, and has forecast that the ruling coalition government would look into returning to using the country’s old currency.

Syriza party head Alexis Tsipras said in an interview Saturday with Greek weekly Real News that the government will “soon present” the idea for Greece to stop using the euro and use the drachma, reported the Athens-Macedonian News Agency.

Tsipras said that any extension of the deal with the International Monetary Fund and the European Union is “essentially a longer rope with which to hang ourselves.”

Tsipras is the head of Greece’s anti-Euro Syriza party, which has grown rapidly in popularity over the last few elections:


October 2009
May 2012
June 2012
SYRIZA’s % of Vote
4%
16.8%
26.9%

Indeed, in the most recent election, Syriza lost by less than 3%. With Greece now showing a GDP contraction of 20% (this is on par with Argentina in 2001 which was accompanied by systemic collapse and full-scale defaults), it is highly likely that should Greece hold another election, Syriza would take is Parliament. The man who says Greece should just default would then be in charge of things in Greece.

On the other side of this debate is Germany whose political leaders are increasingly calling for Greece to leave:

Angela Merkel's coalition partners are lining up to demand a Greek exit from the euro, mounting pressure on the German chancellor and fanning market fears that Greece could shortly leave the single
currency bloc.
Patrick Döring, general-secretary of Angela Merkel's junior coalition partners the Free Democrats (FDP), told the regional Passauer Neue Presse newspaper that Greece could recover and regain competitiveness more quickly outside the eurozone.

"If Greece was no longer a part of the eurozone it could create trust on markets", he said in remarks published Tuesday (24 July).

He is the latest of a number of top-ranking members of the two smaller parties in Merkel's coalition to call for an exit for the benefit of Greece and to prevent contagion, mindful of the rising cost to Germany of bailing out weaker eurozone states.

Rating agency Moody's acknowledged that burden on Monday, dropping its outlook on German debt from stable to negative.


The Moody’s outlook change on Germany lets us know that this time around the debate is more than political posturing. If Germany loses its AAA status, then it’s GAME OVER for the EU: the German population, already outraged by the EU bailouts, and now facing a recession will NOT tolerate a credit rating downgrade.
As I’ve stated many times, Germany is THE REAL backstop of the EU. And it’s comprised its own solvency as a result: the country is only €328 billion away from reaching an official Debt to GDP of 90%, the level at which national solvency is called into question.

Moreover, that €328 billion has already been spent via various EU props. Indeed, when we account for all the backdoor schemes Germany has engaged in to prop up the EU, Germany's REAL Debt to GDP is closer to 300%.

Folks, Germany is tapped out. It’s now only a matter of time before the EU is broken up.


and.....

http://www.zerohedge.com/contributed/2012-07-30/forget-it-draghi-spain-finished-heres-why


Forget It Draghi, Spain is Finished... Here's Why.

Phoenix Capital Research's picture
Submitted by Phoenix Capital Research on 07/30/2012 11:04 -0400





As I’ve outlined in earlier articles, Spain will be the straw that breaks the EU’s back. The country’s private Debt to GDP is above 300%. Spanish banks are loaded with toxic debts courtesy of a housing bubble that makes the US’s look like a small bump in comparison. And the Spanish government is bankrupt as well.

Indeed, in the last two weeks alone we’ve seen:

  1. Spain request a €300 billion bailout from Germany (the original bailout was only €100)
  2. The regions of Catalonia, Valencia, and Marcia (and three others) hinting at needing or requesting bailouts.

Indeed, the following story reveals more than I think Spain would like… but it’s clear that EU political leaders are prepping for something VERY nasty.

Spain in crisis talks with Germany over €300bn bailout

Germany's finance minister, Wolfgang Schäuble, will meet his Spanish counterpart, Luis de Guindos, for crisis talks on Tuesday amid fears that spiralling bond yields in the eurozone's fourth biggest economy will force it to seek a €300bn bailout from the European Union and the International Monetary Fund.

Interest rates on Spain's 10-year borrowing rose to 7.59% – the highest since the euro was created – and the stock market in Madrid fell by 5% in morning trading following fresh bad news about the financial health of the country's regions.

Hints from politicians in Berlin that Germany is preparing the ground for Greece to leave the single currency also unsettled markets, with hefty falls in equity prices on European bonuses and the euro under pressure on the foreign exchanges. London's FTSE 100 index was down 100 points at midday, at 5551.

Dealers were unimpressed by de Guindos's claim that Spain would not become the fourth eurozone country to require a formal bailout, after Murcia on Sunday became the second Spanish region to request financial assistance from the government. The Spanish finance minister categorically denied that a bailout was imminent, but media reports from Spain suggest up to six regions could require financial aid, with Catalonia next in line.


This story tells us several important items:

  1. Germany IS the money for the EU (Spain went to Germany, NOT the ECB or IMF)
  2. The original bailout request for €100 was an outright lie or a covering up of the facts (why does Spain now need €300 billion only one month later?)
  3. Spain as a country is broke. As in BROKE. Its sovereign Debt to GDP of 70% is not the issue, the issue is the hundreds of billions of Euros worth of debt hidden amongst the various regions and its banking system.

If you need more info on Spain, the bullet items from them that you need to know are that:

  1. A huge portion of Spain’s banking system (representing over 50% of mortgage loans AND deposits) was totally unregulated up until just a few years ago.
  2. Spanish banks are drawing €337 billion from the ECB on a monthly basis to fund their liquidity needs.
  3. Every political figure and bank in Spain is HIGHLY incentivized to lie about the true nature of the Spanish banking system (a private text message from the Prime Minister claimed the REAL capital needs were closer to €500 billion… which is assuming he knows what he’s talking about/ the banks were honest with him… which I HIGHLY doubt).
  4. Indeed, the markets have figured out the Spain is DONE.  After all, if the IMF and ECB are refusing to fund Greece anymore, how on earth could they fund Spain whose problems are many multiples of the size of Greece’s?

    Indeed, the yield on Spanish ten year bonds is now well above the “we need a bailout” 7% level. Moreover, Spanish Credit Default Swaps (bets that Spain will default) are at record spreads.

    And Spain’s Ibex has broken its 15-year bull market and is now on the verge of confirming a Head and Shoulders pattern with a downside target of nearly ZERO:


    European political leaders can play their little games, but the markets have a way of figuring out the truth sooner or later. And the truth is that Spain is in as bad a shape as Greece if not worse. Expect things to get very, very ugly soon.

    The reason for this is that: Spanish banks need to roll over (meaning renew terms on) more than 20% of their bonds this year.
    With interest rates spiking throughout Spain (meaning Spanish corporate, bank, and sovereign bonds are falling in value), Spanish bank bondholders are going to be demanding much higher rates of return when it comes time to renew their positions.

    With Spanish banks already under severe funding stress (again, they drew €337 billion from the ECB last month), they’re in no position to start paying out higher interest payments to bondholders.

    And with investors realizing that Spain’s banks are all lying about the state of their balance sheets (remember, Bankia was talking about paying a dividend just one month before it collapsed and revised its €41 million 2011 profit to a €3.3 billion LOSS), we’re going to be seeing plenty of bank failures this year.

    Remember, Spain’s initial request was for the EU to bail out its banksNOT the country itself. However, with some six Spanish regions (probably more) looking for bailouts Spain is now facing both a sovereign debt AND a banking crisis.

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