Eurozone / Troika news.....

http://www.acting-man.com/?p=23262

The ECB and Germany – Another Spat Develops

May 14, 2013 | Author Pater Tenebrarum

ECB eager to Inflate

As we noted in our update on the last ECB rate decision, Mario Draghi said in his press conference that the ECB wishes for the creation of a larger ABS market (asset backed securities) in Europe in order to be able to monetize more debt. The difficulty for the ECB, as Draghi explained, is that it is forbidden by statute from financing governments, while monetizing bank loans directly has the disadvantage that they lack a market price and an independent credit rating. While one of the emergency measures the ECB has taken in the course of the crisis was to allow national central banks to accept such bank loans as collateral, these are only taken aboard at very large discounts in order to reflect the associated risks. This is obviously not a useful means for goosing credit expansion.

Hence the pining for more ABS issuance. The ECB also has plans to steer more credit in the direction of small and medium sized enterprises in the periphery, as the high interest rates on private sector credit in the periphery have failed to decline along with the yields on sovereign bonds.

After the G-7 meeting, Draghi talked about the 'many options' the ECB is considering, once again mentioning ABS as a potential target of ECB purchases. Apparently, the ECB doesn't want to get left behind in the global race to debase. It can even point to a very large decline in euro area inflation expectations for justification of more easing measures. After all, the 'price stability' policy also encompasses averting 'deflation' (this is to say, falling prices).

According to Bloomberg:

“European Central Bank President Mario Draghi said the ECB is considering buying asset-backed securities among possible options to support lending to small and medium-sized companies.

“We looked at a variety of things, one of which was this ABS,” Draghi told reporters after a Group of Seven meeting of finance chiefs in Aylesbury, near London. “We’re still looking at that, it’s one of the many options. We don’t have a position, certainly, on that.”

The ECB is keen to rally lending at banks, which account for about 80 percent of corporate financing in the euro area, compared with less than 20 percent in the U.S. Lending to households and companies in the region contracted for an 11th month in March, and small- and medium-sized companies, which account for the bulk of employment in Italy and Spain, have been particular victims.

“On the lending side, we see that the situation is still tight, especially in the periphery, but not exclusively,” Draghi said. Still, “the situation is in a sense getting less bad,” he said. “In other words it’s still tight, but it’s less tight than it used to be.” ECB Executive Board member Joerg Asmussen said on May 8 that the central bank has discussed ABS purchases, while his fellow board member Yves Mersch said the same day that it was “looking at ways to restart the ABS market.”

Acquisitions in the ABS market are “not easy for the ECB to do because we’re in a completely different set-up from the U.S., where you have a capital market,” Draghi said today. “So the ABS in this case would have to contain assets from the banking system of the euro system and you can understand what sort of moral hazard there is there.” Last month, the ECB Governing Council tasked technical committees at the central bank to investigate ways to stimulate lending to small- and medium-sized businesses.”

So this is the situation at present – the ECB continues to look for things it can buy with money from thin air. Never mind that in the crisis countries, there may be literally nothing left to lend due to the massive capital consumption during the boom. It is not enough to simply print money. Borrowing by entrepreneurs is ultimately about obtaining capital, not just money. There is a clear difference between the two; money is the medium of exchange, but it cannot actually fund production.

Disputes Over Monetary Rectitude

In any case, Germany and the Bundesbank are often quite critical regarding the ECB's various crisis policies, and the latest ideas haven't escaped criticism either. While the BuBa wrote in its amicus curiae brief to the constitutional court that it regards 'OMT' as being in conflict with the ECB's statutory limitations, the idea to buy ABS has provoked resistance from Germany's minister of finance, Wolfgang Schäuble. As Der Spiegel informs us:

“German Finance Minister Wolfgang Schäuble and European Central Bank head Mario Draghi have never seemed particularly eager to avoid conflict with one another. Just in January, the two got into a mini war-of-words over the need to bail out Cyprus, with Schäuble openly questioning whether the country was systemically relevant.

Now, the two are at odds again. SPIEGEL has learned that Schäuble is deeply critical of an ECB idea to purchase asset-backed securities, fearing that the plan could be little more than "obscured state financing," a no-no for the ECB. Schäuble made his remarks at a breakfast of conservative lawmakers last Wednesday, according to sources present. Schäuble said that such a plan would violate European Union treaties.

The motivation for considering such a move is clear. The ECB is eager to stimulate bank lending, particularly in Southern European countries where the debt crisis has made banks wary of issuing loans. But Schäuble is concerned that an ECB program of buying asset-backed securities could amount to the bank taking over some €70 billion in debt owed by Italy to private creditors.

Schäuble was backed on Monday by Hans Michelbach, the top conservative in the Finance Committee in parliament. "After the extremely questionable ECB purchase of sovereign bonds, this would be a clear violation of European treaties," Michelbach said, according to German news agency DPA. There are, he said, apparently some people in the ECB leadership "who consider the ECB to be the Bad Bank of Southern Europe."

(emphasis added)

Not only did Schäuble detect that there was a possibility of covert government funding by the ECB through the ABS back door so to speak, he also poured cold water on the banking union, which he thinks may be in violation of the treaties as well. Draghi had admonished EU governments to hurry up with the banking union in his press conference. Note that the current sanguine mood in the financial markets is largely based on the idea that all these things – 'OMT', the banking union, further ECB easing measures – are basically a 'done deal'. They are not, at least not yet. A renewed flare-up of the crisis may change that again, but right now Schäuble (and Jens Weidmann of the BuBa) are finding fault with practically everything Draghi has proposed.

“Schäuble, however, is not just concerned about the threat Draghi might pose to EU treaties. He also on Monday voiced his concern that efforts to push ahead a bloc-wide banking union could be in violation of EU rules. In a contribution for the Financial Times, Schäuble proposes a "two-step approach" that would leave bank bailouts in the hands of national authorities for now. The plan of having a super-national authority for the entire euro zone, he writes, require treaty changes before the have the necessary legal foundation.

Germany has long been pursuing a "banking union" as a way to prevent a repeat of the euro crisis in the future. Euro-zone leaders would like a separate bank bailout fund, the ability to wind down banks that run into significant difficulties and clear rules regarding when and if taxpayers must be responsible for a bailout.”

(emphasis added)

As we have pointed out previously, Germany's banks and politicians are dead set against the banking union, at least insofar as it involves a communal deposit insurance scheme. Without such a scheme however, the risk posed to depositors by banks in the periphery remain quite large as Cyprus has demonstrated.

We guess that the fat lady has probably more singing to look forward to in euro-land.

German finance minister Schäuble: wary about the ECB's ABS plans as well as the proposed banking union.

http://ransquawk.com/headlines/eurogroup-s-dijsselbloem-says-bail-in-rules-need-to-take-effect-asap-in-2015-14-05-2013

Eurogroup's Dijsselbloem says bail-in rules need to take effect ASAP in 2015

Says:
- Doesn't support uninsured depositor preference.
- Prefers equal treatment of senior creditors and uninsured depositors.

Update details:

- A bail-in of junior bondholder was first discussed following the financial crisis in Cyprus which was a method of protecting uninsured depositors but still gaining contributions from bank bond holders.
- This method of dealing with failing banks has been discussed as a template for other Eurozone nations although many are reluctant to agree with the blueprint.

10:40 - Economic commentary - Source: Newswires

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_14/05/2013_498677

Court rules Finland must reveal Greek collateral deal

Finland’s government must reveal the details on a collateral agreement it made with Greece in exchange for providing funds for a second rescue loan, the Nordic nation’s top administrative court said.
The Finance Ministry must make the agreement public with the exception of names and other identifiers of the Greek banks that facilitated the asset swap, the Supreme Administrative Court in Helsinki said on Tuesday in a ruling posted on its website.
Finance Minister Jutta Urpilainen (photo) and Greece’s then-Finance Minister Evangelos Venizelos signed the deal on Feb. 20, 2012, after reaching an agreement acceptable to other euro-area members on Oct. 5, 2011. Urpilainen demanded collateral in exchange for backing the bailout, based on an election promise to protect taxpayers.
Finland was the only country to take the collateral deal that was made available to all euro members. The Finance Ministry had showed the document to lawmakers without allowing them to make copies and then published a brief summary. Greece wanted the document to remain confidential, according to the court statement.
Under the accord, a total of about 880 million euros ($1.14 billion) of Greek bonds are transferred from Greek banks to a trustee, which sells them and invests the proceeds in bonds of the five highest-rated euro-area sovereigns with maturities of 15 to 30 years.
The court intervened to make the deal public after seven complaints were filed, including from two lawmakers, a researcher and several news reporters.
“It’s great that secrecy didn’t prevail,” Pirkko Ruohonen-Lerner, a lawmaker of the opposition “The Finns” party and one of the complainants, said in a statement. “The ruling is a significant victory for good and transparent governance needed in a democratic state.”
In exchange for the special treatment, Finland paid up-front its contribution to the permanent rescue fund’s capital and agreed to forgo a share of profits from loans granted by the European Financial Stability Facility. Collateral wouldn’t cover its entire Greek exposure. In the event of default, it couldn’t cash in on the collateral until Greece’s official loans mature, a wait that might last 30 years.
The Nordic country’s share of the second Greek rescue was about 2.2 billion euros and it gave Greece a 1.3 billion-euro bilateral loan in the first bailout, according to the Finance Ministry. [Bloomberg]

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_14/05/2013_498645

ECB's Asmussen wants single bank supervision, resolution next year

European Central Bank policymaker Joerg Asmussen threw his weight behind demands by France and the European Commission for the swift establishment of a single supervisory authority and resolution regime for eurozone banks next year.

“We want a single European resolution regime, together with a single resolution agency and a single resolution fund that is financed by a levy from the banking industry. This should come into place in parallel with the single supervisory mechanism hopefully by the summer of next year,” Asmussen told reporters ahead of a meeting of EU finance ministers in Brussels on Tuesday.

“What we want to do, as the ECB, is do a thorough asset quality review of the banks that will be supervised by us,” the ECB Executive Board member said.

The comments set him at odds with German Finance Minister Wolfgang Schaeuble, who says that EU treaties provide a basis for the new single banking supervisor but not for a central resolution authority to restructure or wind up failed banks.

To establish such a new authority, European Union treaties would need to be changed, Schaeuble has said. This process could take years and is likely to be risky because the revised treaty needs to be ratified in 27 EU parliaments.

Schaeuble has argued that to have a banking union “of sorts” and avoid treaty change, the European Union could stick for now to the intermediate stage of a coordinated network of national resolution authorities, rather than one pan-EU resolution authority.

Most euro zonecountries and institutions believe a full banking union, which would help deal with banking crises, is needed urgently to restore investor confidence.

“I hope to make some progress (on banking union),” Dutch Finance Minister and Eurogroup chief Jeroen Djisselbloem said ahead of the meeting of finance ministers.

“I’m sure we won’t be finalizing it today. That would be hoping too much. It’s very important to move forward on the banking union and this is one of the first steps to take.”

European Union leaders committed to a banking union last June but deep cracks have since emerged, with Germany in particular raising doubts about its overall feasibility.

The first step – to create a single bank supervisor under the ECB – looks set to be in place by mid-2014. But the creation of the second pillar – an EU resolution agency to close failed banks — has been thrown into doubt by the German demand for treaty change.

There is now also little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day. [Reuters]

http://hat4uk.wordpress.com/2013/05/14/global-looting-strategy-iii-for-stealiing-your-assets-rears-its-head/

GLOBAL LOOTING: Strategy III for stealing your assets rears its head

Greece is about to declare its citizens as criminals….purely for tax purposes

A week ago, I mentioned very briefly that small businesses in Greece are to be taxed based on estimated income. At the time, I thought it no more than another mad tax wonk trying to grab some tax back from evasive SMEs, he or she not having noticed that most of them have closed down. I thought it was probably there to tick a box for Troikanauts in turn desperate for something to show the lunatics in Brussels-am-Berlin. I thought, “there’s another flock of government employees about to chase ether and waste yet more Hellenic money”.

Well, I was wrong. What’s been emerging gradually over the last few days is that ‘estimation’ is the wrong word here: if the electricity company estimates your bill and by next April you’ve overpaid hugely, you can get a refund. The new idea from the department of Finance Minister Yannis Stournaras isn’t going to work like that. It’s not an estimation, its an assertive assumption that transubstantiates – having been made flesh in the new tax law – as fact, and thus a sum you must pay. As you almost certainly don’t have the cash to pay it, well….er, you can see where this is going can’t you? I mean, you’re not on the streets are you?

Oh, and I was wrong about another little dimension of this law: it isn’t just for dead SMEs, it’s for live people too. To be precise, everyone.

The Greek Finance Ministry has calculated that every person living in Greece needs 250 euro per month to stay alive. The fact that they think this in the first place can be explained by the hermetically sealed nature of the bubble within which they exist; but for once, we should be grateful for that. As from now, millions of Greek taxpayers will be called upon to cough up even if they have no income, but they are alive and have a home to live in.

It’s the legalisation of asset seizure, pure and simple. It is the assumption that you are a tax evader, and therefore a suitable case for sequestration. It is, in a nutshell, the new test-method for stealing. We’ve had the depositor haircut. We’ve had the secret raids on pension and assurance funds direct from the suppliers. Now we have the creation of fantasy criminals who must of course be punished, and their assets taken in lieu.

On one level, we can marvel once again at the brass neck involved in leaving the Greek élite cheats immune from prosecution, while the now universally poor rest of the population continues to be financially buggered. If ever you wanted a fertiliser to render the soiled ideas of Socialism attractive once more, then this new law is it. And another word for fertiliser is, of course, sh*t.

I may be wrong in this, but I think this is probably the first time any First World tax law has dropped the thing about, you know, assuming innocence until guilt has been proved beyond a reasonable doubt. But I am certain about one thing: the Establishment’s slip is showing bigtime here.

What the Greek, Troika and EU authorities are doing with this law is declaring all citizens to be criminals – Enemies of the State who must pay in full for the joy of being tolerated by that State. This being the State that cheated Brussels, bad-debted the bondholders, embezzled huge amounts of its revenue, and then declared itself (thanks to the Parliamentary legal work of Evangelos Venizelos personally) immune from any and all forms of prosecution.

You may still think that global looting is a fantasy. I suggest you change your mind soon. The looting isn’t going to work, but it is going to be tried….and as Cyprus showed, two weeks after the biggest theft of citizen money since the Roman salt tax, nobody outside the Aegean or in the media GsAF. You too could wind up a hard-working Dubliner or Dane or former Squaddie who went back to the Cyprus of their youth for a quiet retirement, and discovered that the hidden price of doing so was obligatory poverty.

Face it: bankrupt governments and insolvent banks have run out of options. For the time being, we the citizenry are it: a desperate, last-chance for the losses to be recouped…..at someone else’s expense, naturally.

We are the straw to be grasped by the drowning men. And it is the last straw.

and......

Germany wobbling ?

http://www.zerohedge.com/news/2013-05-14/muted-sentiment-following-german-confidence-miss

Muted Sentiment Following German Confidence Miss

Submitted by Tyler Durden on 05/14/2013 06:56 -0400

There was a time three months ago, when "beating" German confidence served as an upward stock and EURUSD catalyst not once but twice in the same week. One would therefore assume a German confidence miss, such as with today's German ZEW, which barely budged from 36.3 to 36.4 on expectations of a rise to 40.0, with the current situation

dropping from 9.2 to 8.9, on expectations of a rise to 9.8, should be risk negative. Well, it wasn't: it is the new normal after all, and in fact the EURUSD jumped in a kneejerk reaction at 5 am, rising over 1.3000, albeit briefly, assisted by ZEW members saying that respondents do not see a further ECB rate cut - well, of course not - they are Germans, and Draghi isn't. Perhaps the news of a better than expected Eurozone Industrial Production print, which rose from 0.3% to 1.0%, on expectations of a more modest increase to 0.5%, is what catalyzed the subsequent drop in both the EUR, and US stock futures. The IP strength was driven by Germany, Spain and Netherlands offset be decline in France and Italy.

In additional economic news out of Europe, we saw April German and Spanish CPIs print right on top of expectations at 1.2% and 1.4%, respectively, and both unchanged from the previous month. Also today, Spain opened the books for another 10 year EUR bond at mid-swaps +278 bps, with demand (supposedly out of Japan and Spanish banks as usual), topping €14 billion.

Finally, in "sustainability" news, Italian debt rose to a record €2.035 trillion in March, up from €2.018 trillion in February.

Other notable news stories out of Europe:

On the US docket we have NFIB small business confidence at 7:30; followed by US Import Prices, at 11 am we get an update of total Q1 student loan delinquencies when the NY Fed releases its quarterly household debt survey.

SocGen recaps the key macro catalysts for the day

The consensus forecast of 9.8 for the German ZEW this morning vs 9.2 last month looks very tepid against a background where the Dax has rallied over 10% over the last three weeks, and so the scepticism about the eurozone economy must to a large extent be blamed for the reticent mood among market participants. Unless they are wrong, and the actual outcome surprises by a considerable margin and the index returns to levels last seen in Q312. Whether that is enough to put a floor under EUR/USD is far from certain, but at least it should help to keep the gap between US/EU 10y swaps from widening. The spread reached 45bp yesterday in a knee-jerk reaction to the stronger US retail sales data, and rate lock-related paying interest in anticipation of new issuance this week should keep the spread in the ascendency regardless of the ZEW print. EUR/USD however is fighting tooth and nail to keep its head above 1.2950.

The assertion in the FT yesterday that hedge funds are turning bullish EUR (see article) strikes us as a tad exaggerated and in simple terms as another way of saying that the US is becoming expensive and Europe is cheap, and hopefully that gap will narrow. No longer seeing a break-up as ‘likely' does not constitute a bullish argument of course, and the fact that stock markets in Europe are cheap (Cac and Dax are vs Nasdaq and Nikkei, but not vs Dow or S&P) is a reflection of different growth paths and prospective returns, but it's not enough to make the EUR a hit. Indeed, the weekly CFTC positioning data show net EUR positions are still negative vs the USD, though short positions have been cut back by over 20% since early April. The ESM disbursed its first aid payment (EUR2bn) to Cyprus as planned yesterday and the Bank of France updated its Q2 GDP growth to 0.1%. We are moving along, but it is still a poor show compared to the mood across the Atlantic as Q2 hits full flow and momentum from Q1 is keeping growth at a faster clip than originally thought.

Aside from the ZEW, we also get EU industrial output and Swedish CPI today. Following the 3% rally in EUR/SEK on the Riksbank repo forecast change in April, the trading range has narrowed considerably with 8.55 being the main pivot. Weak CPI data and a stronger ZEW release could spur a fresh move back over 8.60, but a weekly close above that level has eluded the pair since 8 February.

A full overnight recap from DB's Jim Reid

On the data front, there was a fair bit of focus on the retail sales data in the US yesterday after the headline April sales managed to print at +0.1% mom (vs -0.3% expected). DB’s Joe Lavorgna noted the resiliency in the report’s details including upward revisions to retail control. This is the portion of retail sales that is a direct input into the consumption component of GDP and yesterday saw it improve by +0.5% in April (vs 0.3% expected) after March was revised up 0.3% to +0.1%, and February was revised up 0.2% to +0.5%. The result was positive enough for a number of economic forecasters to lift their Q2 GDP growth estimates. On a less positive note, yesterday’s set of Chinese data for April was described by DB’s Jun Ma as a bit of a mixed bag with IP accelerating to 9.3%yoy but slightly below expectations of 9.4%. Retail sales (+12.5%) and FAI (+20.6%) were largely in line with market expectations.

In overnight markets, Asian equities are generally trading firmer led by gains on the KOSPI (+0.8%), Nikkei (+0.1%) and the ASX200 (+0.2%). Chinese-related stocks are underperforming overnight after China’s 21st Century Business Herald reported that Beijing may tighten rules on the pre-sale of homes which is a significant source of funding for property developers. The Shanghai Composite (-1.6%) is on track for is largest one day loss in three weeks with all ten industry sectors trading in the red. This is also weighing on the Hang Seng (-0.1%). Asian credit is trading a touch wider this morning with the focus being on recent new issues.

On today’s data calendar we have European industrial production for March and the German ZEW Survey. The ECOFIN will be meeting in Brussels. In the US, the NFIB small business survey is the major data print with the NY Fed also releasing its household debt report. The Fed’s Plosser will be speaking on monetary policy in Sweden and the ECB board member Asmussen will be speaking in Berlin. In the UK, the Conservative Party is set to unveil a draft bill today to prepare for a referendum by the end of 2017 on Britain's European Union membership (Reuters).

Taiwan and Philippines on track for war ? Asia squabbling ?

http://www.zerohedge.com/news/2013-05-13/taiwan-may-send-warships-f-16s-escalate-philippine-naval-confrontation

Taiwan May Send Warships, F-16s To Escalate Philippine Naval Confrontation

Submitted by Tyler Durden on 05/13/2013 23:40 -0400

China

Japan

While most consider the Middle-East a hot-bed of geopolitical risk (prone to flare at any moment), it seems hot money flows and territorial disputes are rapidly turning the South China Sea into a powder-keg. As Japan vs China is off the front pages for a moment (and US and South Korea engage in joint naval exercises) it seems Taiwan and the Philippines are escalating rapidly following the death of a Taiwanese fisherman last week after Filipino military fired on his vessel in supposedly disputed territory between Taipei and Manila. The situation is evolving rapidly as the Philippines' un-apology (though they sent their condolences) may prompt Taiwan to send F-16 fighters, Kidd-class destroyers, and three or more warships, according to The Liberty Times. The threat of escalation is premised on a formal apology coming within 72 hours. As Stratfor notes, Taiwan's territorial 'claims' are "outrageously ambitious" but the various island nations all appear set on rattling sabres as mainland China stiffens its resolve against Japan over the Senkakus.

Taiwan's "ambitious" territorial claims...

Timeline of the Philippines vs Taiwan drama... (via The Global Times)

Brief Stratfor clip on the tensions...

Given the movements of the Navy (below), it would seem the US is well aware of where tensions are starting to rise - in addition to the nimitz which is part of the Korean exercise, there is a large deck amphibious ship in the East China Sea

Catharsis Ours

Tuesday, May 14, 2013