Tuesday, August 28, 2012

Around the horn in Europe - August 28 , 2012....Greece can kick continues as Troika twiddles its thumbs on completing its assessment , Spain continues to worsen ( GDP revisions show - 1.3 percent shrinkage for Q 2 rather than - 1 percent , ECB President Draghi blows off Jackson Hole meetings as he's too busy , Spaniards pulled 5 percent of private sector deposits in July alone , Spain and Italy sell short term debt at decent rates today ( more buyers whom will be sitting on huge losses in due course )

http://www.guardian.co.uk/business/2012/aug/28/eurozone-bailout-german-objections


German objections to euro bailout reach defining moment

If Germany's constitutional court rules in the plaintiffs' favour, it will ask the president not to sign the European Stability Mechanism treaty
Berlin's Reichstag houses the German Bundestag (lower house of parliament)
Berlin's Reichstag houses the German Bundestag (lower house of parliament). The Bundestag has already ratified the ESM. Photograph: Axel Schmidt/AFP/Getty Images
Europe and the world are eagerly awaiting the decision of Germany's constitutional court on 12 September regarding the European Stability Mechanism (ESM), the proposed permanent successor to the eurozone's current emergency lender, the European Financial Stability Mechanism. The court must rule on German plaintiffs' claim that legislation to establish the ESM would violate Germany's Grundgesetz (basic law). If the court rules in the plaintiffs' favour, it will ask the president, Joachim Gauck, not to sign the ESM treaty, which has already been ratified by Germany's parliament.
There are serious concerns on all sides about the pending decision. Investors are worried that the court could oppose the ESM such that they would have to bear the losses from their bad investments. Taxpayers and pensioners in European countries that still have solid economies are worried that the court could pave the way for socialisation of eurozone debt, saddling them with the burden of these same investors' losses.
The plaintiffs represent the entire political spectrum, including the Left party, the Christian Social Union MP Peter Gauweiler, and the justice minister in former chancellor Gerhard Schröder's Social Democratic government, Herta Däubler-Gmelin, who has collected tens of thousands of signatures supporting her case. There is also a group of retired professors of economics and law, and another of "ordinary" citizens, whose individual complaints have been selected as examples by the court.
The plaintiffs have raised several objections to the ESM. First, they claim that it breaches the Maastricht Treaty's "no bailout" clause (Article 125). Germany agreed to relinquish the Deutsche Mark on the condition that the new currency area would not lead to direct or indirect socialisation of its members' debt, thus precluding any financial assistance from EU funds for states facing bankruptcy. Indeed, the new currency was conceived as a unit of account for economic exchange that would not have any wealth implications at all.
The plaintiffs argue that, in the case of Greece, breaching Article 125 required proof that its insolvency would pose a greater danger than anticipated when the Maastricht Treaty was drafted. However, no such proof was provided.
Second, Germany's law on the introduction of the ESM obliges Germany's representative on the ESM council to vote only after having asked the Bundestag for a decision. According to the plaintiffs, this is not permissible under international law. If Germany had wished to constrain its governor's authority in this way, it should have informed the other signatory states prior to doing so. On the other hand, Germany's representative on the governing council is sworn to secrecy, which, the plaintiffs argue, precludes any accountability to the Bundestag.
Moreover, the plaintiffs claim that, while the ESM treaty is restrictive in granting resources to individual states, requiring a qualified majority vote, it does not specify the conditions under which losses are acceptable. Losses can result from excessive wages paid by the ESM governing council members to themselves, a dearth of energy in efforts to collect debts from countries that have received credit, or other forms of mismanagement. And, because governing council and executive board members enjoy immunity from criminal prosecution, misbehavior cannot be punished.
If losses arise, they must be covered by the initial cash contribution of €80bn (£63bn), which then would be topped up automatically by all participating countries according to their capital shares. If individual countries are no longer able to make the necessary contributions, others must do so on their behalf. In principle, a single country might have to assume the entire burden of losses. Such joint and several liability, the plaintiffs assert, contradicts the court's previous statements that Germany should not accept any financial commitments stemming from other states' behavior.
Worse, according to the plaintiffs, although the liability of any country vis-a-vis external partners is limited to that country's share of capital, this limitation does not apply to other signatory states. It is theoretically possible that a single country could be held liable for the ESM's total exposure of €700bn.
Finally, the ESM cannot be considered on its own, but must be seen in the context of the total exposure amount, which includes the €1.4tn in bailout funds that have already been granted. In particular, the Target2 credit drawn by the crisis-afflicted countries' central banks, which already totals almost €1tn, should also be taken into consideration.
Nobody knows how the constitutional court will rule on these objections. Most observers believe that the court is unlikely to oppose the ESM treaty, though many expect the judges to demand certain amendments, or to ask Germany's president to make his signature subject to certain qualifications.
It is good that the court's decisions cannot be forecast, and even better that the court cannot be lobbied or petitioned. The European Union can be based only on the rule of law. If those in power can break its rules on a case-by-case basis, the EU will never develop into the stable construct that is a prerequisite for peace and prosperity.

and...















http://www.zerohedge.com/news/spains-catalonia-region-demands-%E2%82%AC5-billion-bailout-warns-will-not-tolerate-conditions


Spain's Catalonia Region Demands €5 BIllion Bailout, Warns Will Not Tolerate Conditions

Tyler Durden's picture
Submitted by Tyler Durden on 08/28/2012 08:23 -0400




Beggars can once again be choosers. In other news, non-news (the Catalan bailout was announced at least two times before) is news again, and magically drives the amnesiac market all over again.
From Cinco Dias, courtesy of the always amusing google translate, which makes any news, no matter how tragic, quite hilarious without fail:
Catalonia 5,023,000 calls but will not accept the State Policies

The Catalan government today applied to join the Spanish Government Autonomous Liquidity Fund, which will borrow EUR 5.023 million, but has warned he will not accept "political conditions" to provide some resources "that are of the Catalans".

The Catalan government spokesman Francesc Homs, has stated that the Government will use these resources - the fund is endowed with 18,000 million euros to meet the budget deficit that is required (1.5% of GDP by end 2012 ) and to refinance "maturities outstanding" between now and year end.

The Catalan government has finalized this application to join the Liquidity Fund at its first meeting after the summer break.  
Needless to say, Germans, who are ultimately indirectly paying for this unconditional party, are delighted.

and....





http://www.zerohedge.com/news/chart-day-spain-real-pain-may-be-just-beginning


Chart Of The Day: For Spain, The Real Pain May Be Just Beginning

Tyler Durden's picture
Submitted by Tyler Durden on 08/28/2012 07:58 -0400



Up until now, the title of "Spain's scariest chart" belonged to one depicting its youth (and general) unemployment, both of which are so off the charts it is not even funny (especially to those millions of Spaniards who are currently unemployed). As of today we have a contender for joint ownership of said title - Spain's monthly deposit outflows, which in July hit the highest amount ever, and where the YTD deposit outflow is now the highest on record. One look at the chart below confirms that nobody in Spain got the June 29 Euro summit memo that "Europe is fixed"...

And some other ugly charts confirming memo non-receipt.



and....









http://www.zerohedge.com/news/september-knocking-here-annotated-european-event-calendar


With September Knocking, Here Is An Annotated European Event Calendar

Tyler Durden's picture
Submitted by Tyler Durden on 08/28/2012 06:48 -0400



By now everyone is well aware that the payback for the absolute zero that was August in terms of newsflow and events, the first quiet August in three years, will be September, which as we and others dubbed, will be "Crunchtime" for Europe. And with September now just days away, and with the transitionary Jackson Hole forum virtually assured to be the latest dud, with Draghi surprisingly bowing out at the last minute (even as Buba's Jens Weidmann is still set to attend), and with Bernanke guaranteed to do nothing more than just jawbone some more without real action, the time to refresh on what to expect over the next 30 days has come, courtesy of this annotated calendar from SocGen.
From SocGen
Thanks to ECB President Draghi, markets have this year been able to enjoy a more normal summer break without constant glances at the newswires. As European politicians made a slow return this week, the question now is whether the ECB and policymakers can provide more substance to a framework that credibly can deal with upcoming threats and allow us to start contemplating lifeafter the crisis.

The first half of September is likely to be decisive in terms of markets getting some long-awaited answers on how various hotspots will be dealt with, in particular Greece, Spain and Italy. While the mood is relatively positive currently, we fear that markets are underestimating the risks associated with conditionality and continued weak real economic data. The ECB  meeting on 6 September may disappoint in delivering further details, given reports that the ECB may await the decision by the German Constitutional Court before presenting its plans for bond buying.

29 August – Chancellor Merkel and PM Monti to meet: PM Monti is under pressure to deliver some concessions from his European partners – also in view of the Italian parliamentary elections in April next year which risks seeing the return of less reform-committed politicians.
SG view: We expect the meeting to focus on the possibility of Italy seeking support from EFSF/ESM/ECB later this year.
6 September – Chancellor Merkel and PM Rajoy to meet:Depending on the progress with determining modalities over the conditionality for EFSF/ESM/ECB support (presented the same day), there could be some news from Spain regarding how it sees the need for more support and resistance to more conditionality.
6 September – ECB meeting: This key event is expected to spell out the concrete details and modalities of ECB’s new non-standard measures, in particular its secondary market interventions to ease “convertibility” risk on government bonds and financial market fragmentation. However, recent reports suggest that a delay is possible, awaiting the German  constitutional court decision on 12 September.

SG view:

1) ECB to buy government bonds again. The ECB has already expressed its readiness to take on more credit risk, under strict conditionality, via a new/revamped SMP programme, focusing on shorter term maturities. The ECB will work in cooperation with the EFSF/ESM (expected to act on the primary market), which will agree a Memorandum of Understanding with individual countries. A one-to-one match by the ECB, would raise the European firewalls to around €800bn which could cover, in extremis, the  financing needs of both Spain and Italy over three years.
2) No pre-commitment on amounts. The ECB is unlikely to announce specific amounts, but has already suggested that they will be “sufficient” (Bundesbank also conveyed the view that intervention could potentially be unlimited, but in any case sufficient). We expect full transparency on amounts and destinations only ex-post.
3) No explicit yield caps. We see small chances of any yield caps which would imply the possibility for unlimited interventions, which in turn could conflict with the primary objective of price stability (although the supply of bonds is presumably limited).
4) Some adjustment to ECB’s seniority. The ECB has promised to address problems related to its senior status. The easiest way would be to accept pari passu with private investors, but also some formula of guarantees from EFSF/ESM could be perceived.
5) Other non-standard measures are also possible to deal with fragmented markets, including non-recourse repos, easing of collateral or reserve ratio requirements, a new LTRO to banks and/or extension of ECB’s covered bond purchase programme.

6) Another rate cut is expected. Most indicators continue to signal weakening demand, also in the core countries, suggesting that monetary policy will need ease further. We do not however expect to see the deposit rate below zero.

12 September – German constitutional court: The German constitutional court is expected to deliver its decision on whether to issue an injunction to delay the establishment of the permanent rescue fund ESM.
SG view: The Court will not rule against the ESM allowing it to become operational, but any conditions would have implications on further integration and debate in Germany.
12 September – Dutch elections: Early election in September was the price tag of the five-party austerity budget for 2013. While we expect austerity to remain in place in Holland, there is a shift to the left, with the Socialist Party expected to double its votes on opposition to both domestic austerity and the fiscal compact.
SG view: The Dutch election has the potential to cause renewed uncertainty in Europe – even if the winning parties may soften its stance, the fragmentation of Dutch politics suggest that there will be difficulties in finding a stable coalition necessary to ratify important decisions such as on the ESM, the fiscal compact and further steps towards a banking union.
12 September – FOMC meeting: Slower momentum in consumer spending over the course of Q2 as well as weakening in forward-looking surveys has led to FOMC staff revising down forecast in the near term.

SG view: With growth expected to be below potential also in the medium term, we maintain our view of additional QE measures being announced in mid-September.

15 September – Eurogroup meeting: Provided more clarity in early September, we expect Spain to be ready to decide relatively soon whether to apply for bond purchase support from EFSF/ESM and the ECB.
SG view: While most attention currently is on the ECB’s and EFSF/ESM’s efforts to lower bond yields, additional initiatives should not be ruled out. The main aim would be to keep bond markets open for private investors, which in addition would help reducing the measures by EFSF/ESM.
End-September – Commissions report on single European bank supervision: As announced by President Draghi, the Commission is advanced in its preparation of a new mandate for bank supervision by the ECB.
SG view: We expect the ECB to be given a core set of powers to oversee all banks in the euro area while delegating day-to-day supervision to national authorities which could be implemented as soon as early 2013.
End-September – Cyprus: A deal for the fifth euro area country to seek external help could be struck by end-September. Discussions are complicated by the communist-led government which is opposed to “indiscriminate, across-the-board measures that lead to recession”. A bail-out could exceed the €10bn estimated, due to Cyprus’ public finances being in a worse shape than initially expected, according to the Troika. Bank recapitalisation will be at the centre of any bail-out, given losses inflected by developments in Greece.

* * *

So to summarize, SocGen sees the possibility of any game changers as low, or said otherwise, Europe will do everything in its power to avoid making any important decisions this time around either.













http://www.telegraph.co.uk/finance/debt-crisis-live/9502734/Debt-crisis-live.html


11.37 There's still no firm deadline for European debt inspectors to complete their review of Greece's progress on its austerity targets, according to the European Commission.
Simon O’Connor told reporters that "troika" officials from the ECB, ECand IMF will return to the country in early September, where they will remain for "several weeks".
11.09 Spain's economy may be in a dire state now, but the worst is yet to come, according to the country's deputy economy minister.
Fernando Jimenez Latorre said the worst of Spain's recession would come from now until the end of the year.
He added that it was still too early to assess the impact of yesterday's GDP revisions (see 08.59) on the country's deficit targets, which have already been relaxed by the European Commission to 6.3pc of GDP, from a previous target of 5.3pc.
10.52 Mario Draghi will not travel across the Atlantic to Jackson Hole on Friday because he is too busy, according to an ECB spokesman.
The president of the ECB will miss the annual bankers jaw-jaw, led by US Federal Reserve chairman, Ben Bernanke this weekend. Mr Draghi had been scheduled to sit on a panel at the event on September 1, in what would have been his first conference since he became ECB president in November.
10.43 Italy has got its own debt auction away this morning, selling a range of bonds, including €3bn of two year debt at average yields of 3.064pc. This was down from the 4.86pc it paid in July. There were 1.95 bidders for every bond on offer (v.1.78).
10.15 Spaniards have continued to pull their money out of the country's banks at a record rate.
Private sector deposits fell by almost 5pc in July to €1.509 trillion, ECBdata show, as nervous savers sought safer havens for their cash, andSpanish loan books continued to shrink.
On a brighter note, deposits in Greek banks rose by 1.8pc to €159.4bn, following a series of rapid falls. However, July's figure is still 30pc below the deposit peak in December 2009.
Spanish private sector deposits have plummeted in recent months (Source: ECB).
09.54 Commenting on the auction, Nicholas Spiro at Spiro Sovereign Strategy, said:
Quote1. The overriding priority for Spain right now is to keep getting its debt out the door and retain market access. This is what it did today, and at significantly lower yields at that. Yet the real test begins next month when sentiment could worsen significantly if ECB-backed measures to shore up Spanish and Italian debt markets fall short of expectations. This may well be the summer lull before the storm.
2. The Rajoy government appears determined to hold out for as long as possible before requesting an ECB-backed bond-buying programme. The politics of conditionality have taken centre stage. All eyes will be on the yield on Spanish 2-year paper which is currently trading at 3.7% having soared to 6.6% just five weeks ago.
3. What is most concerning about Spain is not the standoff between the Rajoy government and the ECB over bond-buying, but the severity of the economic downturn which is undermining the credibility of fiscal consolidation and hampering efforts to restructure the banking sector.
09.50 Spain has just sold short-term debt at much lower rates.
The country sold €1.67bn of three month debt at average yields of 0.946pc. This compares with the 2.434pc it had to pay at a similar auction in July.
It also sold €1.93bn of six month bills at average rates of 2.026pc, versus 3.691pc in July. This is the lowest rate since May.
Demand was pretty strong, with 3.35 bidders for every bond on offer at the three-month auction (versus 2.94), and 2.17 bidders (v. 3.02) at the six month auction.
09.37 Europe needs deeper integration to ensure that banks don't run into "colossal" problems, according to the head of the world's oldest bank.
Alessandro Profumo, the chairman of Banca Monte dei Paschi di Siena (pictured, below), said banks will run into trouble without a single body supervising the region's banks. He said:
Quote(Banks) have lent out more money than they have collected... If we don't create this European system we will not be able to plug that gap and this will be a colossal problem.
MPS has lived for 540 years and wants to live for other 540 years, but this is being put at serious risk.
In June, Italy was forced to bail-out the bank, after it failed to find private investors to plug a €2bn (£1.6bn) shortfall.
09.16 Mr Asmussen is not the only ECB board member to stress the "strict conditionality" part of the ECB's bond buying plan. Earlier this month, Belgium's central bank governor said buying Spanish and Italian debt "makes no sense" because it takes away the pressure on politicians to act.
Luc Coene told Belgian newspapers De Tijd and L’Echo:
QuoteWe haven’t forgotten what happened in August of last year: We bought Italian bonds and right after that the Italian government reneged on its pledges.
09.05 Elsewhere in Europe, the August theme of all talk and no action continues.
Jörg Asmussen warned in a speech last night that the European Central Bank must carefully tailor its bond buying plan and not repeat the mistakes of last summer when it bought Italian debt only for the country to renege on its reform pledges. He said:
QuoteThere cannot be a repeat of the mistakes with Italy in the summer of last year, when the ECB bought Italian sovereign bonds and the time was unfortunately not used for necessary adjustment measures.
Mr Asmussen repeated that the central bank would "only act within [its] mandate". He added:
QuoteThe whole discussion will be led by the requirement that any concerns about treaty-violating state financing are dispelled.
08.59 More bad news for Spain this morning. The economy shrank by 1.3pc on an annual basis in the second quarter, from previous estimates of 1pc, according to Spain's INE statistics office.
On a quarterly basis, the data remained unchanged. Spain's economy by 0.4pc between April and June, INE said, following a 0.3pc contraction in the first three months of the year.
The final estimate of GDP comes a day after data for previous years were also revised down.
Spain's economy grew by just 0.4pc last year, not the 0.7pc previously stated. Growth in 2010 was also revised down to -0.3pc, from previous estimates of -0.1pc.

and.....

http://www.zerohedge.com/news/spains-economic-collapse-results-whopping-5-deposit-outflow-july


Spain's Economic Collapse Results In Whopping 5% Deposit Outflow In July



Tyler Durden's picture
Submitted by Tyler Durden on 08/28/2012 05:26 -0400


Yesterday, Spain was kind enough to advise those who track its economy, that things in 2010 and 2011 were in fact worse than had been reported, following an adjustment to both 2010 and 2011 GDP "historical" data. Today, we learn that Q2 data (also pending further downward adjustments), contracted by 0.4% sequentially in Q2, in line with expectations, but somehow, and we have to figure out the math on this, the drop on a Year over Year basis was far worse than expected, printing at -1.3% on expectations of just a -1.0% decline. However, while its economic collapse is well known by all, the surprise came in the deposits department which imploded by a whopping 5% in July, plunging to 1.509 trillion euros at end-July from 1.583 trillion in the previous month. Keep in mind this is after the June 29 European summit which supposedly fixed everything. Turns out it didn't, and the people are no longer stupid enough to believe anything Europe's pathological liar politicians spew.The good news: Greek deposits saw a dead cat bounce after collapsing by ridiculous amounts in the past several years: at this point anyone who puts their money in Greek banks must surely realize that the probability of getting even one cent back is equal odds with going to Vegas and at least having a good time while watching one's money burn.
Reuters first has some data on Spain's relentless depression:

Spain's economy shrank further in the second quarter of the year and a slump in domestic spending accelerated, signalling a protracted recession as the country presses on with efforts to slash its public deficit.

Gross domestic product fell by 0.4 percent in the second quarter of the year, according to final data that confirmed a preliminary reading. But on an annual basis it dropped by 1.3 percent, worse than initial estimates of 1.0 percent.

Spain's economy fell back into recession in the first quarter of the year, when output fell 0.3 percent, and government estimates show GDP will probably fall for this year and next year as it pushes through further measures aimed at slashing a bloated deficit.

The data came a day after Spain said its economy performed less well than expected in both of the last two years.

On Tuesday, the National Statistics Institute, INE, also revised down 2011 fourth quarter GDP to -0.5 percent from -0.3 percent.

Close to record high borrowing costs and an economy showing little sign of picking up any time soon is nudging Spain closer to calling for a European bailout, which analysts say is only a matter of time.
"With much more fiscal austerity in the pipeline and unemployment at astronomic highs, the risks are clearly tilted towards a more protracted recession," said Martin van Vliet, economist at ING.

He expected Spain to make a formal request for additional external financing in mid-September or October. Spain has already negotiated up to 100 billion euros in aid for its ailing banks.

Keep expecting buddy: as long as the ECB ponzi scheme allows Spanish banks to buy Spanish bonds, repo to the ECB, and pretend all is fine, keeping yields at or around 6%, Rajoy will never demand a bailout.

As for the deposits...
A rush by consumers and firms to pull their money out of Spanish banks intensified in July, with private sector deposits falling almost 5 percent as Spain was sucked into the centre of the euro zone debt crisis.

Private-sector deposits at Spanish banks fell to 1.509 trillion euros at end-July from 1.583 trillion in the previous month.

However, in a more positive sign, Greek banks stopped bleeding deposits in July after June elections decreased the worst fears of the country dropping out of the common currency bloc, European Central Bank data showed on Tuesday.
Speculation about Greece possibly quitting the euro was intense in May when anti-bailout parties saw a strong showing in elections, but the Greek central bank said the process had reversed after the elections.

Then again, with both nations and banks now entirely reliant on central banks for funding, who needs deposits... or taxes?


and....

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