Germany walking a thin line - how can they extend further assistance To Greece , assist Spain / Portugal / Ireland , give Italy and Monti support - - without leaving their countrymen and women up in arms ? How does spain satisfy the Troika-lite teams and not set off their Unions and countrymen and women.... how will September play out once reality returns along with the end of summer ?

http://www.zerohedge.com/news/tales-unexpected-who-really-benefited-euro-hint-not-germany

Tales Of The Unexpected: Who Really Benefited From The Euro (Hint: NOT Germany)

Submitted by Tyler Durden on 08/17/2012 18:13 -0400

• Capital Markets
 
• Councils
 
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• France
 
• Germany
 
• Greece
 
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• Netherlands
 
• Portugal
 
• Reality

With austerity supposedly destroying standards of living (that no real austerity has actually been implemented is a different matter entirely) across Europe's insolvent periphery, the only recourse said broke countries (here's looking at you Mario Monti and Mariano Rajoy) have is to desperately attempt to shame those countries who have money such as Germany, Austria, Finland and the Netherlands, aka Europe's AAA club, into shoveling more and more and more cash into the bottomless pit that are the PIIGS. After all, precisely this was the basis for the "hostage and extortion" strategy that Monti employed at the June 29 summit, and which has resulted in a surge in European stocks on hopes Germany will indeed bail everyone out. The reason for this is that, at least according to conventional wisdom, it was these countries that benefited the most from a decade of EUR-facilitated mercantilism, and exported inflation to their spendthrfit (and 'debt-thrift') southern neighbors. So it is only "fair" that these countries now give back a little (or a whole lot) back (just as it is only "fair" that Germany give a helping hand in Obama's reelection chances, which as everyone knows would be negligible if the global capital markets were to tumble just before November if reality in Europe were to come back with a vengeance). Well, as virtually always happens, conventional wisdom is wrong, and as the following chart from UBS demonstrates, when one analyzes the only relevant metric that compares changes in standards of living across various income deciles- namely changes in real disposable household income - it is precisely the PIIGS that benefited, while countries such as Germany and Austria were left in the dust.

From UBS:

If we look across the larger and longer established Euro membership we can see these two patterns being replicated according to country type. Each country shows the cumulative real disposable household income growth for each of its income deciles. The lowest income decile is to the left of each country’s selection, and the highest to the right.

Austria looks to be alarmingly weak – what this actually represents is very little change in nominal disposable income growth, coupled with inflation. Germany, Ireland, most of Italy and the French middle class all experience a decline in their standards of living. In most of these countries, the highest income groups do relatively well.

What stand out are Greece, Portugal and Spain. These economies have benefited from increased standards of living under the Euro (at least, until 2010), as nominal incomes have overcome inflation pressures. There has also been a concentration on improving the lot of the lower income groups in these societies.

Of particular note is the chart of France which is coming to every socialist and crony-capitalist country near you: the best off from the Eur "growth" phase are the bottom and top deciles. Everyone else, aka the middle class was substantially worse off. This pattern of class schism will be repeated in all other supposedly "egalitarian" countries as everyone becomes more and more "equal."

So what are the implication of this novel reinterpretation of the winners and losers from the Euro, and what happens now that Germany will have sufficient ammo to deflect ongoing attempts by broke Italy, Spain et al to attempt shaming the country with allusions to World War II and other irrelevant allusions:

This chart unfortunately plays into the hands of the more nationally minded politicians of the Euro core. The argument can be made (and increasingly is being made) that periphery economies must simply accept the declines in living standards that their non-periphery counterparts have had to accept. Lower living standards in the sense of real disposable income implies either  lower wages, or yet more fiscal austerity, or indeed both measures in combination. Why should Germany see its living standard decline to pay to maintain the Greek, Spanish or Portuguese living standard, when those standards rose by so much in the recent past? As a political sentiment it has a ready populist appeal.

... Someone occupying the bottom decile of French income distribution has twice the level of income of someone in the bottom decile of Greek income distribution in 2010. The income inequality between countries in the Euro area has been narrowed by the pattern of real disposable income growth (as a rule). In what is supposed to be a common enterprise, there is something disturbing about asking the poorest members of the poorest societies to become even poorer, in order to enhance the living standards of the richest societies. As the Italian Prime Minister has had occasion to point out, there may also be a natural limit to the extent to which such demands can be placed on poorer societies (or the poorest in societies) without creating a threat to civil order.

The problem is that this debate cuts both ways, using exactly the same argument. Why should one group of countries force another group of countries to accept lower living standards? This question could be asked by Germans of the Greeks (why should we see our taxes rise / disposable income fall to maintain your level of disposable income?). This question could be asked by the Greeks of the Germans (why should we see greater income inequality when we are already amongst the poorest in the Euro area, and suffer from a Germanocentric rather than a Helleno-centric monetary policy?). Both questions have a degree of validity. It does not make finding a solution any easier.

It gets worse:

The development of real disposable income growth across the Euro area adds an additional complication to the increasingly Byzantine Euro problem. Just like the Olympics, much of the attention is focused on the dynamic of speed. Looking at the growth of real incomes over the first few years of the Euro’s existence, it is hard to argue against the idea that the peripheral countries should be taking more pain now. Core countries have had to accept a decline in real living standards, and it seems unrealistic to expect them to finance an increase in living standards for others[ZH: Germany, are you reading this? Good].

When considering the static of income levels, however, the Euro has successfully engineered a slow move towards greater equality between nations, evidenced by the increase in real disposable income for the very lowest income groups in the Euro area. To reverse that achievement would seem to be perverse.

Politics and human nature means that the dynamic of growth rather than the static of income levels is likely to dominate policy makers’ discussions. It will not make for comfortable politics in the councils of Europe. Baron de Coubertin’s well known dictum from the first modern Olympics was “The most important thing… is not winning but taking part; the essential thing in life is not conquering, but fighting well”. The ideal is ideal, but it has a hollow ring if applied to the Euro. For most of the Euro countries if not all of them, taking part in the dysfunctional monetary union of the Euro at all was a bad decision in economic terms. Having signed up to the Euro’s irrevocable monetary union, the fact that living standards have fallen for some participating economies is likely to breed resentment and bitterness against those economies that have experienced an improvement in living standards.

All of the above simply means that the precarious European balance in which Germany quietly became the shamed underdog, responsible for funding its drunk, broke, and wayward neighbors because somehow it was its fault it benefited from their irresponsible spending ways, has just been shattered: now the opponents of the "convergence" theme have cold hard facts on their side, and we expect the above chart to make the front pages of most German papers in short order.

It also means that the political opposition to any acquiescence by Merkel to current and future Monti demands will now spike to intolerable levels, with dire consequences in national polls.

Finally, it also means that the entire precariously built-up European "Nash equilibrium" over the past 6 months was just dismantled. Courtesy of the facts.

We already knew September was going to be when the fun resumes (with August a scratch - just as expected). Now, we can hardly wait.

and......

THURSDAY, AUGUST 16, 2012

Mariano Rajoy walking a fine line

In order to avoid the wrath of his nation's labor unions, Spain's prime minister agreed to extend the unemployment benefits for another six months.

Bloomberg: - Rajoy said yesterday his government will continue to make payments to the long-term unemployed, extending for six months a benefit adopted by his Socialist predecessor three years ago that was due to expire today.

This may further strain the nation's budget deficit and potentially irritate Germany, who reluctantly agreed to allow the ECB to provide direct support to the Spanish government. And Spain is fully expected to ask for that support.

BNP Paribas: - Both Spain and the European Commission seem to be moving closer to a Spanish bailout. This Tuesday, after a meeting with the King of Spain who had interrupted his holiday, the Spanish prime minister, Mariano Rajoy, reiterated that the Spanish government might be willing to request support as long as the conditions of the ECB’s bond buying are known. And, on the same day, the European commissioner, Oli Rehn, said that Spain has an open mind on the issue of a possible request for a bailout and that if that request comes, the European Commission stands “ready to act”.

Spain's near-term financing needs are not insurmountable (chart below), but the market could shut down rapidly if the ECB does not begin its bond purchase program soon. At this stage the markets will be unforgiving should the bailout fall short of expectations.

Spain's maturing bonds and bills (€mm; source: BNP Paribas)

That's why taking actions that may jeopardize current fiscal conditions is so dangerous, particularly at this stage.

Bloomberg: - “He’s going to provoke an angry response and make the ECB even less willing to provide support,” said Stuart Thomson, a fund manager at Ignis Asset Management in Glasgow, who expects Spain to seek external funds by the end of the year. “Why poison the negotiations with resistance and decisions that will annoy the northern Europeans?”

As the "risk calendar" shows, the next few weeks are going to be critical. Rajoy will meet and greet the Eurozone leadership in order to secure this ECB bailout without agreeing to unsustainable austerity measures.

BNP Paribas: - ... the office of the Spanish prime minister has announced that Mr Rajoy will meet the president of the European Council, Herman van Rompouy, before the end of August, German chancellor, Angela Merkel, on 6 September and the Italian prime minister, Mario Monti, before the end of September. According to press reports, even though the official agenda includes the discussion of the “European situation” in general, Mr Rajoy is likely to use these meetings to press for light conditionality if Spain requests support from the ESF/ESM.

The hope is that the latest action to extend unemployment benefits will not sufficiently irritate Spain's new "creditors" to put a damper in the negotiations.


Note: Portugal and Greece will be watching these negotiations closely to make sure that they didn't get "short-changed" relative to Spain on their own bailout. If the Portuguese politicians feel that Spain got away with a better deal, there may be some push-back on troika to renegotiate the terms.

and.....

http://soberlook.com/2012/08/september-risk-calendar.html?utm_source=BP_recent

THURSDAY, AUGUST 16, 2012

September risk calendar

For those shorting equity index options because (as someone pointed out) "volatility is dead", consider the following events coming up during September. Also consider the fact that with VIX at current levels, much of the "good news" has already been priced in.