http://www.acting-man.com/?p=20047
http://globaleconomicanalysis.blogspot.com/2012/10/spanish-military-association-wants.html
As Spain sinks further into the abyss, expect more cries from separatists, not less. As happened in Greece (but so far to a much less extreme in Spain), citizens have shifted well away from the center to far left or far right groups.
Everyone, everywhere is Fed up with austerity (which to this point has primarily focused on tax hikes). Tax hikes have been an enormous mistake.What's really needed is work rule reform and less government.
Unfortunately, badly-needed reforms have been put off for so long that increased violence is highly likely in Greece, in Spain, in Portugal, and in Italy, should such reforms finally be implemented.
Mike "Mish" Shedlock
http://www.zerohedge.com/news/2012-10-19/overnight-sentiment-another-disappointing-european-summit
Submitted by Tyler Durden on 10/19/2012 07:14 -0400
and from The Telegraph liveblog.....
Angela Merkel was asked if her "reticence" over setting up the new banking supervisor was anything to do with German elections next September.
European leaders have taken a step towards the creation of a single supervisor for banks in countries that use the euro but details over when it will be up and running have yet to be ironed out.
Like all EU ideas, it can mean different things – a recipe for trouble. An EU deal in June for a banking union to break the “vicious cycle” between banks and states fell apart later when Germany and its AAA allies denied that they had agreed to an EU-financed clean-up of Spanish lenders.
The logic of a banking union isn’t all bad. Eventually, backed by a resolution fund and deposit guarantee scheme, the ECB should be allowed to order bank wind-downs and losses for shareholders. Thus, it will finally be possible to flush out Europe’s shaky banking system. In practice, however, this is extremely difficult to achieve, not least because several countries will resist such a loss of control.
Tonight, I have the confirmation that the worst is behind us. We are on track to solve the problems that for too long have been paralysing the eurozone and made it vulnerable.
EU Grappling With Keeping Bailout Costs Down
Over the past week it has become increasingly clear how exactly the EU wants to avoid a costly bailout of Spain, while still enabling Spain's government to apply for ESM aid and become subjected to 'conditionality' and 'troika' supervision.
The latest idea is that Spain will simply apply for a 'precautionary credit line' from the ESM that is only going to be activated in case of dire need. This application will then enable the ECB to begin with its OMT bond manipulation scheme. In short, the EU wants the ECB to finance the bulk of the bailout.
“Spain is considering a request for a line of credit from the European Union's new bailout mechanism, a senior Spanish Finance Ministry official said Monday, giving the first details of the country's plans for seeking help to avoid its debt problems spinning out of control.The official, in an evening briefing for the international press, said Spain was seeking support from euro-zone partners to go forward with a bailout request. But he said the government was uncertain of unanimous backing because of what he called concerns that investor nervousness over the stability of the euro could then spread to heavily indebted Italy.[…]To qualify for ECB support, a government would first have to apply for one of two kinds of help from the new European Stability Mechanism, which will have an eventual lending capacity of €500 billion ($643 billion).
Under one option, the ESM would become the government's sole lender, covering all of Spain's new borrowing needs. Spain, the official said, would prefer a second option available under the new bailout arrangements: It would apply for a credit line, a request that the ESM make money available only if needed.In recent weeks, Spain's borrowing costs, though high, have stabilized below a level that would compel the country to seek a bailout. The official said that once Spain made a bailout requests, those costs would drop and Spain wouldn't need a disbursement of ESM credit.
"One could say it's a virtual credit line," the official said.(emphasis added)One could call this a variation on the 'bazooka theme': on the one hand, it is speculated that the credit line would never be needed, as the mere fact that it exists will be sufficient to keep the markets happy. On the other hand, there is more to it than a simple variation of the famed 'Paulson bazooka' of 2008, as the ECB will be intervening in the secondary market. This will allow Spain's commercial banks to use the reserves they get from selling bonds to the ECB to step in and keep buying new debt when issued at Spain's government bond auctions. Moreover, to the extent that the ECB buys bonds from non-banks, extant deposit money in the system will be increased directly, thus 'lubricating' the funding-challenged banking system (to the detriment of all current holders of euros who will see their purchasing power diluted commensurately over time).
Spain's 10 year government bond yield and estimated bond sales over the next four years (via the WSJ, estimated based on RBS projections) – click for better resolution.The Danger of Not Applying for Aid
Perversely, Spain takes a big risk by not applying for ESM aid. The reason is that the ECB's bond buying plan is contingent on a government 'retaining full access to the market' to finance itself. If Spain's government waits too long, it may eventually be faced with failing bond auctions, in which case this basic requirement of the ECB's OMT plan would no longer be fulfilled.On the other hand, many fear that if Spain does apply for aid, the market's focus will shift back to Italy again, which has been conveniently forgotten by everyone in recent weeks.How this conundrum will be resolved is not entirely clear at this time, but it seems to us that Spain choosing the 'precautionary credit line' option is what is most likely to happen. Of course there is another risk no-one has considered yet: what if the ECB joins the fray, but its bond buying program fails to have the intended effect? In that case the buying would presumably be stepped up considerably until the desired effects are achieved (since the central bank can create money from thin air without limit, it could in theory become the sole owner of the entire Spanish government debt stock).Moreover, the central bank could eventually be faced with Spain failing to adhere to the conditions of the MoU with the 'troika', in which case it would have to decide whether to continue buying anyway, or alternatively risk a break-up of the euro with its balance sheet laden to the rafters with dodgy peripheral debt (not to forget, the ECB still holds over €200 billion in peripheral sovereign debt from the SMP program, the predecessor of the 'new and improved' OMT bond buying program).What would the ECB do in that case? We think Spain would actually hold the stronger hand in that particular poker game.
http://globaleconomicanalysis.blogspot.com/2012/10/spanish-military-association-wants.html
Friday, October 19, 2012 11:30 AM
Spanish Military Association Wants "Declaration of War" Against Separatist Catalunya; Expect More Extremism
The AME, a Spanish military organization says in an interview on Dutch TV "in the event of tampering or separatism" the military should act.
Via Google Translate, please consider military association calls for declaring a "state of war" against Catalunya.
Via Google Translate, please consider military association calls for declaring a "state of war" against Catalunya.
Barcelona (Editorial). - The Association of Spanish soldiers returned to the charge. The AME explained in an interview with Dutch television Nieuwsur that, in his opinion, "in the event of tampering or separatism" should be declared "a state of war, state of emergency or a state of siege" in Catalunya.
This has manifested forcefully president of the association, one of three in Spain that brings together active and retired military, Colonel Leopoldo Munoz Sanchez quartermaster. The AME, specifically, make 3500 partners.
"Spain is a nation totally inseparable and if split or threat of separatism us, in accordance with Article 8 of the Spanish Constitution, we must ensure the territorial integrity, so our view is to declare a state of war, state of emergency or martial law ", said Muñoz Sánchez in a Dutch documentary about the Catalan question.Expect More Extremism
Not the first time that the AME is expressed in this regard. On September 24 threatened to bring before military tribunals President of the Generalitat , Artur Mas, and all Catalans institutional positions that promote the independence of Catalonia, if the military is forced to intervene to "guarantee the sovereignty, independence and territorial integrity "of Spain.
Nor was the only military threat to Catalonia in recent times. In late August, the Army Infantry excoronel Spanish, Alaman Francisco Castro, said in an interview with confidential Digital Alert willingness to respond with their own lives to defend the state of eventual independence of Catalonia. So the military has been expressed, it considers that the separation of any autonomy only be "over my dead body."
As Spain sinks further into the abyss, expect more cries from separatists, not less. As happened in Greece (but so far to a much less extreme in Spain), citizens have shifted well away from the center to far left or far right groups.
Everyone, everywhere is Fed up with austerity (which to this point has primarily focused on tax hikes). Tax hikes have been an enormous mistake.What's really needed is work rule reform and less government.
Unfortunately, badly-needed reforms have been put off for so long that increased violence is highly likely in Greece, in Spain, in Portugal, and in Italy, should such reforms finally be implemented.
Mike "Mish" Shedlock
http://www.zerohedge.com/news/2012-10-19/overnight-sentiment-another-disappointing-european-summit
Overnight Sentiment: Another Disappointing European Summit
Yesterday for the first time in years, the irrelevant headlines out of Europe, which continues to pretend to shuffle money out of one pocket (Germany's) into another (everyone else's), was well-deservedly backstage to the Google earnings fiasco one day ahead of the 25th anniversary of Black Monday (which is today). The EU summit was one of the more toothless ones in a long time, with no discussions at all of the one item that matters - Spain's bailout (as well as Greece's) - but with a lot of fluff considerations for a EU banking union and joint deposit guarantees - events which, like in the June summit, Germany has implicitly gone along with for the ride, but explicitly has said only over its dead body and in which it will not participate (note we said "pretends" above). The summit continues today for a second day, and will hardly make any more news than it did yesterday. In real news, GE missed revenue expectations and joins virtually every other company this earnings seasons in confirming deteriorating unfudgable topline conditions. Elsewhere, in Greece a pool by VPRC for Greece Tomorrow showed that the anti-bailout Syriza party would win outright with 30.5% of the vote, with New Democracy getting 27% and the Pasok coalition partners getting 5%. The Neo-Nazis would get 14%. Also notable is that on Sunday Spanish regions Basque country and Galicia hold local elections. As Rabobank warns, Galicia is Rajoy’s home region, and traditional stronghold of his Popular Party. A poor PP showing may highlight political hurdle to making bailout request, thus challenging the recent OMT-inspired support to Spanish bonds. This in turn would confirm what we have said all along, namely that a bailout request means an end to the current ruling regime and political chaos. Finally, the November 25 Catalonian elections may also trigger Spanish euphoria reversal.
More on the European summit non-event from DB's Jim Reid:
EU Summit headlines were thin yesterday but have picked up overnight. In a potentially disappointing development, French President Hollande said that a potential bailout for Spain was not discussed at Thursday’s meeting. The EU leaders issued a joint statement welcoming the progress made by Greece and the Troika in reaching an agreement and stating that the Eurogroup will take necessary decisions following the troika report. The headlines on bank recaps were mixed. EC President Juncker said that a decision on Spain’s banking recap will be made within the next few weeks. Meanwhile, Dow Jones is reporting that the potential for direct recaps of banks could occur in 2013 with a Eurozone bank supervisor to be put in place by Jan 2014, citing French government sources. However, newswires are reporting German opposition to that timetable, and follows Merkel’s speech to the Bundestag yesterday seeking to slow the transition to a single European bank supervisor (FT).
Some more on the Google crash:
Google’s stock fell 10% after the results were leaked, which showed Q3 EPS and revenue 15% and 4% below consensus estimates. The stock was halted trading wise for over 2 hours and finished the day down 8% after activity resumed. Particularly spooking investors was the average cost-per-click paid by advertisers to Google, which fell 15%yoy and 3%qoq as an increasing number of users accessed Google via mobile devices. The cost-per-click on mobiles is about half as much compared to ads on desktop computers (amazing what a quick Google search will uncover!). Microsoft (-0.3%) and AMD (-5.4%) also reported disappointing results, joining other technology industry heavyweights Intel and IBM who released weaker earnings/downward guidance earlier this week. It wasn’t a good day for technology stocks generally, with the IT sector down 1.8%, driving a modest loss for the S&P500 (-0.24%). Indeed technology stocks have lagged in recent weeks, with the S&P500’s IT sector down 5.6% since the recent market peak on 14th September while the broader S&P500 is down only 0.6%.
Meanwhile in other markets:European equities had a better day with the Stoxx600 closing 0.2% higher, although equities in the periphery were weaker (Italy’s MIB -0.3%, Spain’s IBEX -0.34%). A solid Spanish auction boosted sentiment early in the session helping Spanish 10yr yields close 12bp lower at 5.344% (its lowest level since 2nd April). The average yield on the Spanish 10yr sale (5.46%) also marked the lowest auction rate since January (Reuters). The Spanish Economy Ministry said the government has completed 94.4% of its planned issuance for 2012 and has four more bond auctions planned before the end of the year. Credit took a breather with the Crossover (+7bp) and Main (+3bp) closing wider for the first time in more than a week.Turning to overnight markets, most bourses are in consolidation mode following a week of strong gains. The KOSPI (-0.9%), Shanghai Composite (--0.1%) and Nikkei (--0.05%) are all lower as we type. PBoC’s advisor Song Guoqing commented overnight that the government will not be providing large economic stimulus this year, although he noted that with CPI falling, the scope for easing was increasing. Notably, Song said that he couldn’t rule out CPI falling below zero in 2013. The comments haven’t hurt the Chinese yuan however which has hit a 19 year high against the dollar in onshore trading. Asian credit is trading marginally wider (+1bp).Commentary on EURUSD levels from SocGen:
EUR/USD 1.3046-1.3079 overnight range. Spot very quiet overnight and muted reaction after first elements coming from the EU summit. Talk of 1.3100 option expiring today. Market still waiting for concrete news surrounding Greece and Spain to get a clearer direction. Support 1.2989 (10DMA) Resistance 1.3130 (18 Oct high.) USD/JPY 79.22-79.27 overnight range. Spot still bid but capped by 2-month high at 79.47. The JPY remains weak on expectations for further BoJ easing next month.GBP/USD 1.6032-1.6069 overnight range. The cable stabilised overnight after a huge dip from 1.6170 to 1.6040 yesterday. EUR/GBP hit 5-month highs of 0.8148. Risk sentiment will give the tone today. Focus on EU summit day 2.AUD/USD 1.0354-1.0384 overnight range. AUD/USD runned ourt of steam overnight, sill caught between positive Asian equities (for a fifth day in a row) and dovish RBA. Equities will give the tone in the short term. Support 1.3042 (200DMA) Resistance 1.0443 (61.8% Fibo).
And what to lookout for today, aside from the usual stock market halts and flash crashes.
Markets did not do much overnight despite European leaders agreed on a new supervisor for euro-zone banks up and running next year. This would pave the way for the bloc's bailout fund to pump capital directly into banks. But Euro-zone leaders stopped, for now, on any news surrounding Greece and Spain.
With two US data reports yesterday indicating slower employment growth in October, it is not too difficult to find excuses to trim back short USD positions after a fairly one-sided affair this week where high beta currencies have made the most of a 3.5% rally in Eurostoxx. This incidentally also puts UST 10y under the spotlight just as buyers and sellers square up around the key 200d ma (1.80%). Failure to pull away from the same 200d ma area in August and September (1.86%/1.88%) resulted in a reversal of yields back to the 1.55%/1.60% zone in both months. A bigger than forecast drop in US existing home sales would on its own not change the momentum, but the EU summit will be more important for risk sentiment with no clear direction for now. Greece is allegedly not on the summit agenda, but a report circulated yesterday suggested that an agreement had been reached on releasing the next bail-out instalment into an escrow account. This would give the Troika the flexibility to halt payments in case of non-compliance with deficit targets. The EU stated yesterday that the official Troika report would not be due before early November, but this did not stop GGB 10y yields from extending their decline to 17.11% vs 20.48% at the start of this month.
and from The Telegraph liveblog.....
12.28 An update from Bruno Waterfield in Brussels:
Angela Merkel was asked if her "reticence" over setting up the new banking supervisor was anything to do with German elections next September.
With a wry smile, the German Chancellor said the thought the national elcetions had never crossed her mind.
"I haven't even thought about this before you said it," she replied to an Austrian journalist.
12.16 Reuters reports that Spain's Prime Minister, Mariano Rajoy, has made no decision on seeking a bail-out. No change there, then.
11.45 And the real Angela Merkel is giving a press conference in Brussels. She says that the eurozone needs an integrated budget and that only once a single banking regulator is set up can there be direct recapitalisation of banks. She repeats her earlier warning that banking union will take time, more than "one or two months", but that the legal framework should be in place by December.
11.34 The fake Angela Merkel is out of bed and has taken to Twitter, but she's hours late for the start of the day's proceedings already...
09.15 The eurozone's cash surplus rose to €8.8bn in August, up from €8.1bn, says the ECB this morning.
09.11 AP have hit the nail on the head with this update on the results of yesterday's negotiations in Brussels:
European leaders have taken a step towards the creation of a single supervisor for banks in countries that use the euro but details over when it will be up and running have yet to be ironed out.
Though the leaders said their decision represented a step forward in the ambition of forging a banking union, many observers are struggling to figure out exactly what has been achieved.
08.56 The ECB is reportedly considering the creation of a new body that would provide a way to bring lenders in states outside the eurozone, but inside the EU, under the supervision of a new banking regulator.
There are unanswered questions around banking union: will the 10 non-eurozone EU states (including the UK) eventually be involved, and will there be a way to give them a say in supervisory decisions?
08.03 Bruno Waterfield, our man in Brussels, says that the EU agreement on banking union is "no triumph". The evidence sits hidden in plain sight in the difference between the summit text before and after yesterday's negotiations, he says:
Last night’s summit deal on banking supervision was no triumph. It was another EU exercise in decision dodging and fudge as German procrastination won the day.
Angela Merkel wanted to postpone a new European Central Bank banking supervisor because that in turn delays decision on using the euro’s bail-out fund to recapitalise banks until after German elections.
To see the tricksy, evasive, responsibility-doging fudge – a tortuous linguistic exercise that went into the early hours of today – it is necessary to contrast before and after.
Here is the original draft that the leaders began discussing yesterday: “We need to move towards an integrated financial framework, open to the extent possible to all Member States wishing to participate. In this context, the European Council invites the legislators to proceed with work on the legislative proposals on the Single Supervisory Mechanism (SSM) as a matter of priority, with the objective of completing it by the end of the year:”
Here is the agreed summit text: "We need to move towards an integrated financial framework… In this context, the European Council invites the legislators to proceed with work on the legislative proposals on the Single Supervisory Mechanism (SSM) as a matter of priority, with the objective of agreeing on the legislative framework by 1 January 2013. Work on the operational implementation will take place in the course of 2013.”
This is no triumph. The EU has gone from a deadline to “complete” from one to “agree” with the schedule slipping from December 2012 to anytime next year. This will mean that Chancellor has deferred the issue of using the ESM to directly recapitalise banks until after elections in September 2013, significantly reversing a June summit decision.
06.43 Ambrose Evans-Pritchards has digested the events of last night, and decided that there is enough ambiguity to leave the idea of banking union a "recipe for trouble":
Like all EU ideas, it can mean different things – a recipe for trouble. An EU deal in June for a banking union to break the “vicious cycle” between banks and states fell apart later when Germany and its AAA allies denied that they had agreed to an EU-financed clean-up of Spanish lenders.
The joint fund is to go far beyond crisis firefighting or enforcement of fiscal discipline on states in trouble. EU documents describe it as a fiscal buffer to offset the booms and busts caused by the EMU’s one-size-fits-all interest rates, along the lines of America’s system of fiscal transfers to depressed regions.
Talks in Brussels are going on in a parallel universe. Unless EU leaders can agree to action that is crystal clear, free of conditions, and takes all risk of Spanish default off the table for ever, they will have trouble restoring confidence. The stabilisation edifice is still on shaky ground.
06.25 In his blog post ahead of the summit, Mats Persson, director of Open Europe, wrote a brief explainer of banking union on his Telegraph blog:
The logic of a banking union isn’t all bad. Eventually, backed by a resolution fund and deposit guarantee scheme, the ECB should be allowed to order bank wind-downs and losses for shareholders. Thus, it will finally be possible to flush out Europe’s shaky banking system. In practice, however, this is extremely difficult to achieve, not least because several countries will resist such a loss of control.
06.15 Late last night, after a long debate at the 22nd emergency EU summit since 2010, European leaders finally agreed to banking union. A new regulator will be established by the end of this year and come into effect "in the course of 2013" to oversee all 6,000 eurozone lenders (although not all will fall under its remit until 2014).
But what does that mean? There are still lots of details to be worked out, but the move is seen as a key component in overcoming the three-year-old debt crisis. French President Francois Hollande said leaders didn't discuss a Spanish bail-out, but said the "worst is behind us":
Tonight, I have the confirmation that the worst is behind us. We are on track to solve the problems that for too long have been paralysing the eurozone and made it vulnerable.
If the December European summit confirms the decisions we took, if Greece finds a lasting solution, if Spain recovers funding mechanisms, then we will be done with a situation which weighed on markets and on the confidence in the eurozone.
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