http://www.zerohedge.com/news/bundesbank-reiterates-objection-new-bond-buying-german-finmin-refutes-spiegel-report
Submitted by Tyler Durden on 08/20/2012 06:45 -0400
http://www.zerohedge.com/news/living-land-beyond-belief
Submitted by Tyler Durden on 08/20/2012 08:13 -0400
A series of multi-billion-euro bail-outs – and more to come – have now planted a north-south political divide at the heart of the European project. Taxpayers in Europe’s north resent underwriting their southern neighbours, while voters in the south are equally frustrated at having austerity imposed upon them from abroad. As has been noted repeatedly, this is the greatest tragedy of this crisis: a project that was meant to bring people together, now risks driving them further apart. Alas, events in the eurozone this autumn could further exacerbate this tension.
The sheer magnitude of Greece's slump has contributed to a growing sense that little remains, in economic terms, that would force lenders to cut off funding to Greece and boot it out the euro zone.
The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability.
11.04 The euro has not taken kindly to comments made by a Germany finance ministry spokesman, who said he is not aware of a potential plan of the European Central Bank to buy bonds of eurozone states at capped yields, as reported over the weekend. He said that theoretically speaking, such an instrument is certainly very problematic.
That prompted the euro to pare its earlier gains:
It is all settled, there is no problem, Greece will honour these payments. We have the money we need.
Bundesbank Reiterates Objection To New Bond Buying As German FinMin Refutes Spiegel Report
And to think that the market could have learned its lesson by now. Following the planting of an unsourced, glaringly obvious ECB propaganda report such as that attempted yesterday in Der Spiegel, in which nothing of substance was in fact enacted or even proposed (as rate caps is merely a regurgitation of ideas thrown out previously in the summer and fall of 2011), peripheral bonds once again tightened on absolutely nothing, with the Spanish 10 Year now back in the 6.30% territory, over 100 bps inside where it was a month ago. On not a single enacted reform or actual ECB action. Of course, it was a matter of hours before the German FinMin put an end to this latest rumor, and sure enough an hour ago a spokesman for the German FinMin said they were unaware of any ECB plan to target bond spread. Perhaps because there are none? And of course, if there were, the Germans would promptly put an end to what is my implication an open-ended bond buying program without conditionality: something that worked like a "charm" last summer with Italy. And just to make sure Germany's message was read loud and clear, here is the Bundesbank turning on the "just say 9" machine.
From MarketNews:
The Bundesbank on Monday reiterated its objection to new government bond purchases by the European Central Bank and called for strict conditionality on any new bailout loans."The Bundesbank maintains its view that government bond buys in particular should be assessed critically and that they come with significant risks for stability policies," The Bundesbank warned in its monthly report."Decisions regarding yet more pronounced pooling of solvency risks should be made through fiscal policies - that is, governments and parliaments - and should not be carried out via the central bank balance sheets," the Bundesbank said.The German central bank warned against further weakening of conditionality on aid provided by the Eurozone's bailout funds, the European Financial Stability Facility and the European Stability Mechanism.Additional interest rate charges on bailout loans and strict economic and fiscal policy conditions are key to maintaining incentives for bailout countries to quickly adjust and secure a return to capital markets, the report said."In this context the tendency towards weakening conditionality is alarming," the Bundesbank warned.
In the meantime, unanonymous sources warn that listening to anonymous sources may be hazardous for your P&L:Germany's finance ministry is not aware of any plans for the European Central Bank to target spreads of bonds of struggling euro zone member states, a spokesman said on Monday in response to a media report."I am not aware of any such plans and haven't heard anything," spokesman Martin Kotthaus told a news conference."In purely theoretical, abstract terms, such an instrument would certainly be very problematic. But I know of no proposal along these lines," he said.The latest edition of Der Spiegel says, without naming its sources, that the ECB is discussing interest rate thresholds for individual euro zone countries with a view to intervening if the premium over German bonds is exceeded.
and this sums up europe right about now.......
Living In A Land Beyond Belief
From Mark Grant, author of Out of the Box
Living In A Land Beyond Belief
Europe has taken to making comments and engaging in either great promises of future events or the denials of any epitaphs on any gravestones in the days that separate Friday from Monday. The markets are closed these days and it has become an obvious strategy to swing the various banners of national interests or to offer such schemes and plans as would suit the people who live and die based upon bold faced headlines and who give no thought as to their meaning. The propaganda machines spew sweet cakes and sweet meats and hope that no one recognizes that someone must clean up after the retching that will invariably take place. I suggest to each of you that your concentration should not be placed upon offers of Nirvana but squarely and solidly upon what is actually implemented for it is there that the truth is found and it is from there that future events may be predicted.
The Spanish Finance Minister calls for unlimited bond buying by the ECB and schemes are floated of tying the yields of all of the periphery debt to that of Germany and each is heralded as brilliant in its conception and without consequence in the real world as if the blue fairies in some Elfin Kingdom are going to pick up the tab. Please notify me, contact me immediately day or night, when this Kingdom is discovered because it will be at that precise moment when I change my view on Europe and come to the conclusion that all can be righted without consequence and that the ECB is an institution outside of the boundaries of this universe as many people seem to think these days. When this Magical Land is found I will also believe, along with so many others, that the capital of Europe is unlimited, that Germany receives money from the mines of the Dwarves beneath Stuttgart and that the proprietors of all of the restaurants in Europe always pick up the bill and free lunches have been brought back to our world in a flurry of pixie dust and wizard’s incantations. I am in France now; send me the Hobbits, Peter Pan is invited to any meal, I will go to any body of water and converse with Merlin and the Lady of the Lake, I will meet with anyone from Harry Potter’s Ministry of Magic upon a moment’s notice and having seen the proof of “Money for Nothing and Chicks for Free” I will recant at any Inquisition, Spanish or otherwise, and confess the errors of my ways.
Some who wander about in the lands of fantasy and make-believe point to the lack of Inflation and proclaim this the Rosetta stone of all of the grand designs for Union. Inflation is but one indicator, one consequence of many that are to be found under the heading of VALUATION which is the correct barometer for the success or failure of the plans in the offing. Here it is not just a discussion of Inflation or Deflation but valuation and its implications and consequences where the costs of goods and services vies with the capital to afford them at any price and where just who has what in their purse, past a promise of the coins that are in the purse, meets the reality of actually opening it and pouring out the contents on the round table of Camelot in front of the perhaps not so Joyous Garde.
For a thousand years and longer the Alchemists have promised that lead could be turned into gold and I have yet to see the proof of this oft promised accomplishment. Germany is responsible for 27% of the European Union and 22% of the European Central Bank and how Germany would not be affected by an unlimited balance sheet at the ECB or the cost of some Firewall of all Firewalls is an economic equation that eludes me. I suppose that when Keynes, or Galbraith or Friedman won’t suffice that one must return to Gandalf and the Lord of the Rings for economic wizardry and the magic of creating money from thin air. It is generally recognized that Quantitative Easing has consequences but here we have a new type of magic, we are told again and again, where capital can be freely distributed and no one is responsible or accountable for the disbursement.
Perhaps we have entered a new land where balance sheets only contain assets and where liabilities do not exist nor are they counted. In this Never-Never Land contingent liabilities will not be allowed to occur and bonds are always paid in full and on time and the markets’ rally and rally some more in recognition of our having enter into this new universe of fantasy and make believe. It is no longer a question of risk on or risk off because there is no risk at all and money is waved into existence by some new spell concocted at the end of Frau Merkel’s magic wand. Spain is not being bailed out it is only the banks and not all of the banks but just certain banks that are no longer important as they are guaranteed by the government who is in great financial shape and is not in recession and who has no unemployment as that is an old paradigm from some other universe that no longer exists.
I have been credited with some foresight from time to time and I now can see where all of this is going in our new universe where economic laws and fiscal policy have entered some black hole of a new kind of fiscal warp. The ECB will pay off all of the debt of Spain and Madrid will be free of all obligations. All Italian debt will also be paid off by the ECB and two of the core countries in Europe will require no firewalls at all or fiscal restraint or any measures of austerity since debt no longer exists for these nations. Germany, in a grand gesture, will forgive all of the debts of Greece and each electric utility in the world now can use olive oil in a new process invented by Apple and Athens replaces London as the monetary capital of Europe. This new plan will not only be promised but implemented for all of the nations of Europe and the ECB, whose liabilities would normally be in excess of seventy-five trillion dollars will have none either because the printing presses are rolling and money is arriving from the new, new universe that will replace the new, new normal in everyone’s thinking. Magic will have returned to the Continent and diamonds are glittering upon the streets of St. Tropez and the Champagne flows, without cost of course, at each and every restaurant in the town square. I admit, I was there the other evening and did not see it but then I am an American and inhibited in my abilities to see such things. The Euro will be worth fifty times the value of any other currency when the debts of the Continent are erased and the banks will all be re-capitalized with the diamonds shipped in from St. Tropez. The products of Germany will have buyers without end and the new market for German goods, recently discovered on a small planet slightly to the left of Alpha Centauri, miraculously also has Euros to pay for them.
Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”
“I like fantasy---it wakes up the brain cells.”Dr. Seuss
and...
http://www.telegraph.co.uk/finance/debt-crisis-live/9485964/Debt-crisis-live.html
12.07 Mats Persson, director of the Open Europe think tank, has written in The Telegraph today on the 'showdowns that will define Europe's future', arguing that EU leaders may soon have to choose between keeping the euro and maintaining democracy:
A series of multi-billion-euro bail-outs – and more to come – have now planted a north-south political divide at the heart of the European project. Taxpayers in Europe’s north resent underwriting their southern neighbours, while voters in the south are equally frustrated at having austerity imposed upon them from abroad. As has been noted repeatedly, this is the greatest tragedy of this crisis: a project that was meant to bring people together, now risks driving them further apart. Alas, events in the eurozone this autumn could further exacerbate this tension.
He adds that there are at least five key stand-offs to watch over the next few months: Greece v Germany; Spain v the North; Dutch v Europe; Germany v France; and the bail-out funds v national democracy.
11.49 There is tough talk this morning on whether Greece's rescue package should be extended by two years. As well as Germany's deputy finance minister saying it's too early to discuss loosening an aid agreement between Greece and its international creditors, Finland's minister for European affairs has said that there will be no third package for Greece if it does not make structural reforms.
But amid this hard-line rhetoric, research by Reuters suggests that analysts are increasingly thinking that Greece's fate lies inside the currency union rather than out:
The sheer magnitude of Greece's slump has contributed to a growing sense that little remains, in economic terms, that would force lenders to cut off funding to Greece and boot it out the euro zone.
For economists, Greece's future in the euro zone is no longer an economic question but one of political willpower, which remains firm in Athens and Brussels, in spite of opposition from politicians in Germany.
There is now a strong consensus that Greece will still be in the euro zone in 12 months, with 45 out of 64 economists polled last week in agreement. Even as recently as May, opinion was fairly divided.
11.27 As mentioned at 11.04, a German finance ministry spokesman dampened talk of the ECB buying eurozone bonds at capped yields. Also weighing on the euro is the Bundesbank remaining critical of the ECB's plan to intervene in debt markets to reduce Spain and Italy's crippling costs, saying this was the responsibility of states rather than central banks.
In its monthly report released today, the Bundesbank - which is fiercely opposed to Mario Dragahi's plan to restart the bond-buying programme, said that the volume of bond buying "could be unlimited, and should in any case be sufficient".
Reuters reports that the bank wrote:
The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability.
Decisions about a possibly even broader mutualisation of solvency risks should be anchored in financial policy, meaning with the governments and parliaments, and should not occur via central bank balances.
11.14 There is not much data doing the rounds today at all, but Eurostat has published statistics showing that production in construction in the euro area fell by 0.5pc in June, compared to May.
Production across Europe fell by 1.7pc in June, compared to the previous month.11.04 The euro has not taken kindly to comments made by a Germany finance ministry spokesman, who said he is not aware of a potential plan of the European Central Bank to buy bonds of eurozone states at capped yields, as reported over the weekend. He said that theoretically speaking, such an instrument is certainly very problematic.
That prompted the euro to pare its earlier gains:
09.41 Greece has indicated that it will easily reimburse maturing bonds held by the European Central Bank, easing concerns about a possible default.
AFP cites a Greek finance ministry official, who said:
It is all settled, there is no problem, Greece will honour these payments. We have the money we need.
Grece is waiting for payment of the next instalment of financial aid from the European Union and International Monetary Fund, but was able to raise €4.1bn last week with an issue of three-month treasury bills.
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