Past week's action was dominated first by euro pessimism and rising bond yields in the periphery - turned upside down on Thursday by ECB's bazooka hints. The "risk is back on"-attitude then took control for the rest of the week. I'll post Trading & Markets + View & Off-Topic-posts later today. I've also included links to Finnish articles for my local audience.
Previously
on MoreLiver’s:
Weekender: Weekly Support
(updated!)
Joke of the Day: Monetary policy for dummies: If this continues, the cake will be smaller
even before anyone has tasted it. The deflation rat has a better appetite than
the inflation mouse. Deflation rat also shits on everything it will not eat.
– Tyhmyri
Quote of the Week: Since
1975 the countries now in the euro zone have given birth to just one company
currently among the world’s 500 biggest (ironically it is from Spain: Inditex);
by contrast California alone has created 26. – alphaville
Quote of the Week II: As
I write this, it seems that news of Mario’s super human jawboning efforts have
finally reached Angie’s ears and she’s quickly placed a call to whoever it is
minding the fruit stall in her absence. Cue the Bundesbank, with headlines
hitting the wires that their stance (Angie’s stance) has not changed and the
concept of buying sovereign toilet paper (government bonds) is no better an
idea today than it was the last time some central banker suggested it was and
thus they do not support the concept. Hand slapped for Mario? These guys should
really talk to one another more often. – Ken
Veksler / Saxo Bank
GENERAL
Buying the euro break-up – IFR
Speculation that Finland could be the first country to exit the eurozone and reintroduce its own
currency has been one of the factors touted as driving recent flow into
short-dated Finnish paper.
War Of The Central Banks? – Testosterone
Pit
doing whatever it would take to save the euro
wasn’t about Greece anymore. Its life support may get unplugged in September. Politicians
have apparently given up…The fearless leaders were afraid of Spain, whose vital signs
were deteriorating.
Registration
required. Lists possible surprises.
The markets will therefore continue to attack
the euro – with occasional respites – until either a politically viable
solution is found or the single currency collapses under the weight of its own
contradictions. How to break this cycle without giving in to the tyranny of
extremes? Eurozone leaders should create a fifteen-year political union, set to
expire in 2029.
The structure of EU debt and bonus pop quiz! – alphaville
/ FT
Also interesting is analysis of state
guarantees as a percentage of GDP. While they are not part of government debt, they are contingent
liabilities. Portugal’s levels had a particularly notable increase year-on-year.
The Euro and the Mark – Supply
Side Liberal
Although from an economic point of view
splitting off Germany from the Eurozone (reintroducing the Mark) should be
equivalent to splitting off all the countries but Germany from the Eurozone
(introducing the Mediterano for all the other countries), thinking of the split
into two different currencies in these two different ways hints at two
different ways to handle the transition.
ESM armed with a banking license - the ultimate
bailout "bazooka" – Sober
Look
The danger of course is that after this
buildup, the "bazooka" and other expectations from the Eurozone may
not materialize.
A solution to the ongoing crisis looks
increasingly beyond the powers of the eurozone's creaking authorities… Finland is a plausible candidate for its own euro-exit. Elsewhere, the balance
of costs and benefits turns against membership. Disintegration looms large.
Mysterious low euro vol – alphaville
/ FT
Nomura: Against this background, it is surprising
that FX vol is sitting at historically low levels across G10
ECB
Analysis: Draghi raises market hopes ECB may
not want to meet – Reuters
Mario Draghi has set a high bar by declaring
that his European Central Bank will do whatever it takes within its mandate to
preserve the euro.
Bundesbank narrows ECB crisis-fighting options – Reuters
Germany's powerful Bundesbank pushed back on Friday against European Central
Bank President Mario Draghi's pledge to do whatever is necessary to protect the
euro zone from collapse, but markets rallied on a report of imminent policy
action.
Schauble Just Says Nein Again: German FinMin
Denies Rumors Of ECB Bond Buying – ZH
Schäuble is saying the right things. For
starters, ECB backdoor bailouts of Spain are likely against
the German constitution. Even if they weren't, why should German taxpayers
accept the risk of any of these leveraged proposals that have been circulated, and
recirculated?
Winning over Buba – alphaville
/ FT
If Draghi is serious about undoing the
distortions in yields (hence, policy transmission) caused by fear of
“convertibility”, or is considering further rate cuts, surely the ECB needs to
be supporting rates in Germany, being wary of a negative yield trap. And for
that the Bundesbank will be needed.
Bundesbank tries to spoil the party, as usual –
ignore them – The
Big Picture
The Bundesbank and other similar comments by
German politicians was predictable. However, forget the Bundesbank – they only
have 2 out of 23 votes on the ECB and, indeed, will be outvoted.
The decision by the German Constitutional Court remains a far more serious issue.
Draghi Said to Hold Talks With Weidmann on
Bond Purchases – BB
Having secured the backing of governments in Spain, France and Germany, Draghi is now seeking to win over ECB policy makers for a
multi-pronged approach to reduce bond yields
What Draghi Didn’t Do – Krugman
/ NYT
Europe also needs sufficiently high inflation
over the next few years to make it possible for Spain etc. to regain
competitiveness without devastating deflation. So have market expectations of
inflation risen from their unworkably low levels of recent months? No.
The ECB: Whatever It Takes to Preserve the
Euro – EconoMonitor
The concern about moral hazard applies as much
to the current defensive strategy (buying up excess bonds after the event; that
is ‘debt monetisation’) as it does to the proposed preventative strategy (that
is ‘deficit monetisation’). When the debt crisis is brought under control,
monetary and fiscal policy coordination can then be re-assessed. The policy paradigm discussed above has
general application whether or not individual periphery countries stay inside
the Eurozone, or leave it.
Is the ECB Ready and Able to Cross the
Rubicon? – naked
capitalism
What does “whatever it takes” really mean? It’s
a paradox. To make his “whatever it takes” pledge credible, Mr. Draghi has to
go well beyond the traditional boundaries of economic and central banking
orthodoxy. But in going well beyond these boundaries, does Mr. Draghi risk
creating another crisis of confidence in the euro?
PIIGS
Spain has at last conceded it may need a state
bailout and policymakers are considering writing down Greek debt to their
central banks, European officials said on Friday, as markets anticipated
radical new action to pull the continent out of its debt maelstrom.
Bank of
America’s excellent piece, full pdf here.
Italian Euro Exit: why it might come in 2-3
years and why it will help the Eurozone and Italy – Testosterone
Pit
We think that Italy, as opposed to Argentina in
2001 and Spain today, would survive a euro exit without big problems…If Italy,
however, does not leave the euro zone, both Italy and Germany run the risk of
long-lasting balance sheet recession, in which both consumers and firms try to
reduce debt and consume less, Germans in the fear of future German liabilities
via the ESM, Italians in response to more and more austerity measures. Hence an
Italian Euro exit would really help the euro zone.
Ray Dalio Issues Stark Warning: Spanish
Collateral Is Running Out – ZH
The attempt to manage the imbalances among the
Euroland economies is an extremely dangerous highwire act, and to the extent
that monetary policies diverge to serve individual countries' needs, the
further capital flows will likely go in the opposite direction.
Full report
here
Key goals: make the economy more competitive to
boost growth, clean up the financial sector, put public finances on a
sustainable footing - Labor reforms should aim to put more people back to work
- IMF will monitor financial
assistance to Spain's banks
Greek euro exit: near-term risk, medium-term
likely – UBS
Global Risk
Watch latest edition: see a 20-25% of probability that Greece will leave the euro in 2012, and a
greater than 50% probability that it will leave within the next 12 months (link
omitted)
IN FINNISH
Miten pienen euromaan
valtiontalous tuhotaan – sen voi tehdä kreikkalaisittain tai irlantilaisittain
– Tyhmyri
VM julkisti
sensuroidun version Espanjan vakuussopimuksesta – HS
Kreikan eroaminen
eurosta toisi Suomelle 5,4 miljardin menetykset – HS
Tulkinta siitä miksi
Urpilainen ei halua euron säilyvän – Henri
Myllyniemi / US Puheenvuoro
Ferrolangasta: mitä
euroalueen jättiveloille voidaan tehdä? – Henri
Myllyniemi / US Puheenvuoro
Eurosta eroamisen
seuraukset – Kalle
Pahajoki / US Puheenvuoro
EKP laulamassa korot
suohon – Henri
Myllyniemi / US Puheenvuoro
Kalevan kysely: Kaksi
kolmesta suomalaisesta pitäisi euron – IL
Suuri verokeskustelu
– Pauli
Vahtera / IL