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Tuesday, April 24

24th Apr - You Better Read This


SocGen's view on euro - source: FT
Okay, we again live in interesting times. On one hand we have the TBTF & TBTS Spain (too big to fail or save). We have the balanced budget agreement that has been and is broken by almost every country – and only three countries have ratified it. We have French elections, and Hollande, the poll favourite, has promised to break the pact and plenty of other things as well.

The austerity pact is dead, and this means more debt. More debt means higher chance of further bailouts. The bailout mechanisms have not been funded, so they would have to be funded at a point when some countries are unable to even access financing.

But thanks to LTRO and fragmentation in the national central banks’ collateral policy, monetary policy, banking and debt holdings, central banking is becoming more and more nationalized. This is the plan B. I believe someone is planning to leave the club – or to kick someone out. This is just a plan, a scenario, and the door is currently being opened juuuust a little bit, inch by inch. When it is needed, it will be ready. And it will be used.

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Markets – Between The Hedges
The Closer – alphaville / FT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank

EURO CRISIS: GENERAL
Euro crisis is not over. Just how surprised should you be? Also Sprach Analyst
As Paul Donovan of UBS said, Europe could be in a 5-year rolling crisis, or as Wolfgang Münchau said, 9 years of strikes.  Here, I also believe that the crisis will continue until either a break-up of the Eurozone, or a fiscal union.  The end result is clear, one way or another.  It is the path that is not certain.

How Much Bigger Can TARGET2 Imbalances Grow? Goldman Answers: "A Lot"ZH
Goldman Sachs: The ECB’s two 3-year LTROs should have, all else equal, reduced the capital flight from periphery to core to the extent that fears of an immediate liquidity crisis of the banking sector in the periphery were a major driving force behind these flows. There is little evidence, so far at least, for this. In any case, we think it is reasonable to assume that genuine concerns about the solvency of peripheral banks are also playing a role here and these concerns are unlikely to go away any time soon…

Euro bail-out funds lack oversight, auditors sayeuobserver
Scrutinised neither by national audit offices nor by the European Parliament, the two eurozone bail-out funds amounting to €700 billion lack democratic oversight and accountability, several auditors and MEPs said on Tuesday

European turmoil, American collateralThe Guardian
For the US, the risk of damage from the eurozone's crises is not primarily economic, but political. But there is opportunity, too

Key issues about the crisis and the European responseBIS (pdf)
by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the Center for Strategic and International Studies, Washington DC, 20 April 2012.

The situation in the euro areaBIS (pdf)
by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Paris Europlace Financial Forum Luncheon, New York City, 23 April 2012.

EURO CRISIS: AUSTERITY & REALPOLITIK
Democracy Is Having Its SayNYT
Tyler Cowen: Today, very few countries in the euro zone are capable of making credible commitments or binding agreements with the others. Quite simply, democracy is having its say…The euro zone probably was unworkable from the beginning, and now we are seeing why.

The T Report – The Day Austerity DiedTF Market Advisors
The reality is that spending won’t solve anything. It will grow debt faster than the spending can improve the economy… It is no co-incidence that more and more sovereign debt is being funded by institutions in that country. It is specifically to make leaving the Euro easier.
 
Political upheaval all round?alphaville / FT
What was supposedly agreed in Europe on Friday just ain’t gonna happen…only three countries have actually ratified the new fiscal pact: Portugual, Greece, and Slovenia. So… perhaps fines will be narrowly escaped?

Euro zone goes DutchMacroScope / Reuters
one of the building themes – a backlash against rapid, frontloaded austerity… Does the success of parties out of the mainstream mean the political class have lost their electorates? If that’s true, then we really are in an unpredictable new world though there has been little or no sign of social unrest yet.

France votes to throw down the gauntlet to EuropeThe World / FT
The battle for
France has a couple of weeks to run. After that, the battle for Europe will begin. Both Nicolas Sarkozy and his challenger in the French presidential election, François Hollande, are promising to save the “French exception” by radically changing the direction of the European Union.

Commerzbank’s Schnautz Sees Growing Austerity DivideBB (mp3)
Lombard Street’s Dumas Says Euro Is a ‘Suicide Pact’BB (mp3)
Humboldt’s Burda Says Germany Losing Allies in EuropeBB (mp3)
Standard’s Costerg Says Political Risk High in EuropeBB (mp3)
Legal & General’s Grodzki Says Austerity Defiance GrowsBB (mp3)


EURO CRISIS: PIIGS
The Euro Is Still Doomed: Why Most of the News Out of Europe Doesn't MatterThe Atlantic
The road back to competitiveness begins with southern European wages falling relative to German wages. Germans are terrified of inflation, so that leaves one option: southern European wages fall dramatically while German wages stay steady. There are two ways for wages to fall: (1) Everybody takes a partial pay cut, or (2) Some people take a 100% pay-cut by losing their jobs.

Continuing flow of capital out of GreeceSober Look
It's important to note is that the outflows are not just coming from Greek households. Corporate and foreign deposits have been declining as well. Banks have become incapacitated as the run on the banking system continues.

The Pain in SpainJohn Mauldin / The Big Picture
It really does seem to be All Spain All the Time, but there is a reason. Unlike Greece, Spain makes a difference to the eurozone. It may be both too big to allow to fail and too big to save.

The Spanish Dilemma: Euro's Fate Hinges on Austerity in MadridSpiegel
Spain in recent days has taken center stage in the euro crisis. The country's banks are threatened with collapse and the government in Madrid has not been successful in efforts to get the national budget under control. Will the country be forced to request aid from the euro bailout fund?

Spanish banks 1, Spanish mortgages 0MacroScope / Reuters
…given that Spanish lenders were among the biggest taker of the ECB’s largesse  (officially known as  LTROs, a name only a central banker’s mother could love) the lack of trickle down  is less than bracing.  The suspicion is that Spain’s banks are holding back on lending because of their wonky balance sheets…

Once upon a time in Italian bankingalphaville / FT
The sages of Barclays bid us to look away from Italia. Like the depositors of that now sorrowful land have done, they implore you to also find fortune elsewhere

Portugal’s Finance Minister: We Tried Stimulus and It Didn’t WorkDealBook / NYT

EURO CRISIS: AUCTIONS
And a Spanish contrast…alphaville / FT
Spain saw pretty good demand at its Tuesday morning auction

Summary Of Europe's Sovereign Bond AuctionsZH
Spain,
Netherlands, Italy, commentary + roundup of analyst views

A Dutch auction and an old rivalryalphaville / FT
Netherlands got its (very small) sale away in undramatic fashion following the collapse of its government.

OTHER
FOMC Preview: Watch Out for ‘Fed Fakes’MarketBeat / WSJ
“We worry that the market could misread a hawkish intent into the information the FOMC will release on Wednesday,” write economists at Bank of
America. “We thus caution investors to be wary of another such ‘Fed fake.’”

It's The FX Repatriation, StupidZH
Citigroup: EUR strength (vs USD) is European institutions repatriating their foreign holdings – not ‘bullish on
Europe

The Foreign-Exchange Traders’ LamentMarketBeat / WSJ
The market isn’t wrong, it is just stupid! So said one veteran trader of the foreign-exchange markets, a statement that is no doubt echoed by many others who are frustrated with the lack of trending activity in the foreign-currency markets recently.

IMF Roundtable on Global EconomyCharlie Rose
Lagarde + others, 55 minutes

To bin or not to bin the FTTalphaville / FT
It’s all gone a bit quiet on the financial transactions tax front but Algirdas Šemeta, the European Union’s tax commissioner, wants you to know that the idea is still very much alive.

What Happened To Peak Oil?The Capital Spectator
Fears that the world is running short of oil aren't going away, but judging by the latest figures on global oil production there's no sign that the peak oil factor is an imminent threat.

G-10 Macro Data Plunges To Worst In Six Months, Turns NegativeZH
Citigroup's Economic Surprise Index which tracks the rise and fall of both misses and beats as well as better or worse data…For the first time in over six months, macro data for the G-10 has turned negative (with Europe having been there for a while and the US getting very close) indicating significant weakness.

A Curated Linkfest For The Smartest People On The Web!Simoleon Sense