http://www.telegraph.co.uk/finance/financialcrisis/9457368/Germany-and-Italy-near-blows-over-euro.html
8:55PM BST 06 Aug 2012
211 Comments
“We must make it clear to Mr Monti that we Germans will not shut down our democracy to pay Italian debts,” said Alexander Dobrindt, secretary-general of Bavaria’s Social Christians (CSU).
Bundestag president Norbert Lammert said parliament’s integrity cannot be subordinated to the ups and downs of the markets. Free Democrat (FDP) leaders said Italy’s unelected prime minister is playing with political fire by trying to circumvent democratic legitimacy.
The dispute comes as relations between Germany and Italy touch the lowest ebb since the Second World War, with Il Libero publishing a front-page picture of Chancellor Angela Merkel under the headline “Fourth Reich”.
“The tone of the debate has turned dangerous. We must be careful that Europe does not rip itself apart,” said German foreign minister, Guido Westerwelle. He himself fanned the flames over the weekend, saying he was “categorically” against further expansion of the EU rescue machinery or bond purchases by the European Central Bank. “I can’t imagine that a majority of the Bundestag will back unlimited debt liabilities,” he said.
The outburst leaves it unclear whether Germany will agree to activate the eurozone rescue fund (EFSF) on acceptable terms if Spain and Italy request bail-outs, the political trigger needed for ECB bond purchases under the “Draghi Plan”. Mrs Merkel and finance minister Wolfgang Schauble back ECB action but revolt within her coalition threatens to spread beyond a hard core.
and......
http://globaleconomicanalysis.blogspot.com/2012/08/crash-in-spanish-2-year-bond-yield.html
( low short end rates just encourage Spain and Italy from requesting the inevitable bailouts - for awhile...... )
Crash in Spanish 2-Year Bond Yield; Monti Calls for More Crisis-Fighting Urgency; No Structural Problems Fixed
Yield on 10-year Spanish bonds remains stubbornly high near 7%, but yield on 2-year bonds is in the midst of a breathtaking crash.
click on any chart for sharper image
Spain 10-Year Government Bond Yield
Spain 2-Year Government Bond Yield
click on any chart for sharper image
Spain 10-Year Government Bond Yield
Spain 2-Year Government Bond Yield
Of the two charts, the second is far more important. Spain will be rolling over short-term bonds, not 10-year notes.
As dramatic as that move in the 2-year yield has been, please note that German 2-year bonds yield a negative .05%.
Germany 2-Year Government Bond Yield
Monti Calls for More Crisis-Fighting Urgency
Bloomberg reports Monti Calls for More Crisis-Fighting Urgency in ECB Standoff
Bloomberg reports Monti Calls for More Crisis-Fighting Urgency in ECB Standoff
Italy’s Prime Minister Mario Monti warned of a potential breakup of Europe without greater urgency in efforts to lower government borrowing costs, as a standoff over European Central Bank help for Italy and Spain hardened.
Monti, in an interview with Germany’s Der Spiegel magazine published yesterday, said that disagreements within the 17- nation euro area are detracting from the policy response to the debt crisis and undermining the future of the European Union.
Spain and Italy, whose surging borrowing costs have shunted them to the heart of the turmoil in the euro area, are resisting pressure from ECB President Mario Draghi to formally request aid in return for strict conditions before the central bank will buy their bonds. Monti and Spanish Prime Minister Mariano Rajoy have both said they will await further details as the ECB works up its plan. The German government said for the first time today that Chancellor Angela Merkel supports Draghi’s proposals.
French President Francois Hollande is pushing Monti and Rajoy to request aid from Europe’s bailout fund to help ease markets and protect France from speculation, Italian newspaper la Repubblica reported, without citing anyone.
Italy Hung Out to DrySigh of Relief
“Italy has, to all intents and purposes, been hung out to dry,” Nicholas Spiro, managing director of Spiro Sovereign Strategy Ltd., said in an e-mailed comment. “As far as Rome is concerned any external assistance would be the kiss of death. This puts Mr. Monti in an untenable situation.”
Draghi Misunderstood
Spanish Economy Minister Luis de Guindos told ABC newspaper at the weekend that his country awaits details of the ECB’s bond-buying proposals before deciding whether to request aid. Both Italian Bank of Italy Governor Ignazio Visco and Minister for Economic Development Corrado Passera said in separate newspaper interviews that the country doesn’t need a bailout.
Visco told La Repubblica that markets had initially misunderstood Draghi’s comments.
“Not only did the ECB not take any steps backward, but it took decisive steps forward to correct the functioning of monetary policy transmission, and therefore of the stability of the single currency,” he told the newspaper.
For now, the markets are breathing a sigh of relief over lower yields in Spain. Draghi will likely wait now before announcing his plan, assuming he really has a plan other than to buy more time.
I suspect a key part of his plan is to hope he can placate the markets until the German constitution court gives a blessing on the ESM. The court rules on September 12.
Until then, Draghi has every reason to be purposely vague about what he will or will not do. Much will depend on the wording of the ruling. In the meantime, as we have seen previously, a month is a long time in Europe.
No Structural Problems Fixed
The market is cheering now, but no structural problems have been fixed. There has been no work rule reform in Spain, Italy, or Greece. Indeed, France has taken a major step in the wrong direction with president Francois Hollande's proposal to make it impossible to fire workers.
Taxes have gone up across the board in struggling countries, certainly the wrong approach with the unemployment rate in Spain near 25%.
In simple terms, policy moves have been ass-backwards. Good luck with that.
http://www.zerohedge.com/news/shell-pulling-cash-out-europe-due-shift-willingness-take-risk
Shell Pulling Cash Out Of Europe Due To "Shift In Willingness To Take Risk"
Even as the ECB is desperately doing its best to stick a finger in every hole in the leaking European dam, in which just like in the US failed monetary policy is a substitute for sound fiscal one, and in which the pattern of interventions and cause and effect will now follow that of Japan until the bitter end, others are not waiting around to see the results. Reuters reports that Royal Dutch Shell is pulling some of its funds out of European banks "over fears stirred by the euro zone's mounting debt crisis, The Times reported on Monday." And shell is not the only one: more and more institutional are actively preparing to lock up their cash on a moment's notice, an eventuality which can be seen best at the ECB itself, where deposits with the ECB (collecting 0.00%), dropped to just €300 billion the lowest since 2011, while the ready for withdrawal current account saw holdings rise to a record €550 billion overnight, a €20 billion increase overnight. And so the cycle repeats anew, and Gresham's law rises to the surface, as bad money pushes out good money, and in return the situation deteriorates once more, until the next time much more than just harsh language out of the ECB will be needed just to preserve the status quo.
More:
The company's chief financial officer Simon Henry told the newspaper that Shell is cutting back its exposure to European credit risk in the worst-hit economies and putting a higher price on doing business with the region's peripheral nations."There's been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit," Henry is quoted as saying.Henry is cited as saying that the Anglo-Dutch oil major would rather deposit $15 billion of cash in non-European assets, such as U.S. Treasuries and U.S. bank accounts.The firm is forced to keep some money in Europe to fund its operations, but is keeping the bulk of its reserve liquidity out of the euro zone to avoid growing macroeconomic risk, the report said.
And what Shell is doing, everyone else can't be far behind - certainly not the head of a Greek bank who decided to pull his money out of Greece and "launder" it via London real estate: just as so many others are doing.
and around the horn in Europe.....A political row has erupted in Athens after the former head of a big Greek state bank admitted to transferring €8m of personal savings abroad to buy a London property months before his Agricultural Bank headed towards insolvency.
Theodoros Pantalakis, former chief executive of Greece’s Agricultural Bank (ATEbank), strongly denied any wrongdoing, telling Realnews, a Greek website, that he had declared the transaction to authorities in 2011 and had paid tax on the amount transferred.“I’m on holiday and I don’t plan to say anything more until I come back to Athens,” Mr Pantalakis told the FT from his villa on the Aegean island of Paros. He is expected to testify on his three years at the helm of ATEbank before a parliamentary committee at the end of August, said a person with knowledge of the dispute.
And that, in a nutshell is Europe: do as I say, and "believe" what I say... Just not what I do.
12.23 Finland could be dragged into recession next year if the global economic slowdown persists, according to the country's finance minister.
Jutta Urpilainen sharply cut the country's growth forecasts to between zero and 1pc in 2013, from a previous forecast of 1.2pc.
Mr Urpilainen said that the outcome depended "very much on what happens in the international economy."
Finland exited recession in the second quarter of 2010.
12.01 Solving Cyprus's problems will be painful and the government faces the prospect of not being able to pay salaries, according to leaked comments made by the "troika".
Debt inspectors from the International Monetary Fund, European Central Bank and European Commission visted Cyprus last month to assess how much aid the country may need to prop up its ailing banks, which are heavily exposed to Greece.
Minutes of a meeting seen by Reuters show that the troika found the economy in a "worse state than expected". Maarten Verwey, who represents the European Commission, was quoted as saying:
What we have seen is that your fiscal system is worse than we expected [...] prospects for growth are lower than what we expected, and as a result, there is a huge gap between your income and expenditure [...] You cannot maintain your present lifestyle if this continues [...] The government will not be able to pay salaries, so there is an urgent need for adjustment.
While Delia Velculescu of the IMF, said:
It would have been easier to have fixed them when times were good. Today it is harder because of difficult times, and worst (days) that lie ahead.
10.49 The German fire brigade is out in force this morning in an attempt to extinguish talk of the eurozone tearing itself apart.
Deputy government spokesman Georg Streiter said that ChancellorAngela Merkel did not share Mario Monti's concern of a eurozone break-up. He urged “more calm” in the political debate over responses to the crisis.
Mr Streiter also said that Mrs Merkel backed the ECB bond buying plan announced last week, adding that Germany had “no doubt” that the central bank was acting within its mandate.
His comments contradict those made by CDU chairman Volker Kauderon German radio today (see 09.36).
10.01 Confidence in the eurozone fell to a three-year low in August, according to German research group Sentix.
The monthly gauge of business conditions in the 17-member bloc fell from -30.3 in August from -29.6 in July, well below the 0 "neutral" reading. The report said:
The main reason for [the drop] was probably ECB President Draghi's unusually energetic defence of the euro.
Sentix also predicts a 73pc chance of a eurozone break-up.
09.45 It may be a slow day for European data, but politicians are ramping up the rhetoric. Germany's foreign minister Guido Westerwelle (below) has warned Europe's politicians "not to talk Europe apart".
We need a strengthening, not a weakening of democratic legitimacy in Europe
09.36 Angela Merkel's Christian Democrats party support Bundesbank President Jens Weidmann's opposition to a fresh round of bond buying, according to party chairman Volker Kauder.
Mr Kauder told German radio that “It’s good that Weidmann took that position,” adding:
There always has to be a sensible one who prevents matters getting out of hand.
The German Chancellor has kept tight-lipped on her thoughts about possible ECB action, although some members of her party have warmed to the idea.
Elmar Brok told German radio last week that a move to purchase the debt of troubled states was “a wise middle way” to solve the debt crisis.
09.12 Mariano Rajoy's tenure as Spain's prime minister is on shaky ground, writes David Gardner in today's Financial Times, who claimsthat the silent Rajoy is deaf to the Spanish emergency.
The extent to which the government of Mariano Rajoy – or any Spanish government in these circumstances – can be considered master of its own fate is limited. As Spanish borrowing costs reach euro-era highs, the markets are not just placing bets on Spain (or Italy) but on the survival of the euro. This administration, in power for a little more than seven months, already has the feel of a government approaching the end of its term.
Since winning an absolute majority last year, Mr Rajoy’s Partido Popular has liberalised rigid hire-and-fire laws, started (albeit belatedly) to clean up regional savings banks crippled by overexposure to the burst housing bubble, slashed public spending and raised taxes. While all this has won plaudits in Brussels and Berlin, it clearly does not feel like a viable programme for recovery to a surprisingly broad spectrum of Spaniards. Among the middle classes of Madrid, Barcelona and Bilbao, there is a pervasive sense of a government losing control. Even though so much about Spain’s future depends on its eurozone partners, this is an odd situation to be in for a newly elected, majority government.
One distressed PP insider says of Mr Rajoy: “He is the wrong man, in the wrong place at the wrong time.”
[...] Indeed, an increasingly alarming feature of the Rajoy government is its inability to grasp that the world is listening to what it says as well as watching what it does. “One sometimes gets the impression that Rajoy speaks in public as if he was addressing a parish where the internet has yet to arrive,” Jesus Ceberio, a former editor of the daily El País, wrote last week.
08.36 Meanwhile, French President Francois Hollande is reportedly pushing Italy to request aid from Europe's bail-out fund in order to protectFrance from market speculation, according to Italian daily la Repubblica.
However, the paper said that Mr Monti was reluctant to request any form of aid, and may contact his namesake in Frankfurt, ECB president Mario Draghi for further discussions today.
08.30 Greece has made some progress in finding budget cuts needed to continue its bailout programme but not all work is done and international inspectors will return in September for a final verdict, officials said at the weekend.
08.22 Tensions within the eurozone over how to resolve the debt crisis are turning countries against each other and threatening to rip Europe apart, Italian Prime Minister Mario Monti warned this weekend.
