Europe update

This has not made any of the mainstream news I have been listening to

LIVE: EUROPE IS IMPLODING

Europe is having a no good, very bad day

Business Insider,

23 May, 2012

European equities markets saw a major sell-off, while EU leaders prepared to meet for an informal summit in Brussels. The euro fell and stuck below the important $1.26 benchmark.

In the lead up to the summit, analysts speculated that euro area common bonds ("eurobonds") would top the docket for discussion, with French President Francois Hollande, Spanish PM Mariano Rajoy, and Italian PM Mario Monti all prepared to face off against the anti-eurobond Angela Merkel.

They were also expected to discuss international aid for Spanish banks and titter over Greece.

Here are the major developments we've seen so far:

Merkel confirmed that nothing will happen at today's EU summit in statements made to reporters.

According to German newspaper Die Zeit, the European Central Bank has already set up a crisis committee to prepare for a possible Greek exit from the eurozone.

A Eurogroup draft document seen by Reuters suggested that the European Union offer Greece €50 billion to leave the euro quietly (via ForexLive).

Clemens Fuest, a senior advisor to the German Finance Ministry, told us that the German government is not as resolute about Greece sticking to its current bailout plan as they'd like everyone to believe.

Investors are chattering about an unconfirmed report that Merkel is proposing some kind of bank deposit guarantee program.

Hollande told reporters that while he's not expecting EU leaders to endorse eurobonds today, they could make some progress on this issue in June (via @ItalianPolitics).

Scroll down for live updates. We're updating regularly.

ORIGINAL (7:07 AM EDT): European shares are in free fall right now, with all major indices down about 2 percent or more.

A look at the carnage so far:

CAC 40: -2.1%
DAX: -1.8%
FTSE MIB: -3%
IBEX 35: -2.1%

Meanwhile, the euro is also getting killed, briefly dipping to $1.261 before recovering to about $1.266, its lowest value since 2010. Meanwhile, U.S. Treasuries are confirming this risk-off attitude, with yields rivaling lows seen late last year.

UPDATE I (10:30 AM EDT): The implosion is going nuclear.

Italy is now off a full 3.6 percent, and the CAC 40 is off 2.6 percent!

Meanwhile, the euro has hit its lowest value since August 2010, falling below $1.26 and breaking through earlier resistance that had kept it above that important benchmark. 

Just check out the EUR/USD trade so far today:

Marketwatch

UPDATE II (11:30 AM EDT): European markets fell dramatically right into the close. A look at the miserable scoreboard:

FTSE 100: -2.35%
CAC 40: -2.59%
DAX: -2.22%
FTSE MIB: -3.7%
IBEX 35: -3.3%

The euro remains below $1.26.

This market carnage comes ahead of an informal—but highly anticipated—EU summit in Brussels today, where many leaders are likely to discuss reiterate arguments that the newest round of elections are a referendum on Greece's membership in the euro currency.

On the other hand, they'll also be discussing far more activist measures than we've seen them consider so far. Backing for eurobonds appears to be at an all-time high, with the staunch support of French President Francois Hollande. They are also likely to discuss international support for the troubled Spanish banking sector.

UPDATE III (12:30 PM EDT): Merkel confirmed that nothing will happen at today's EU summit, a conclusion that we had predicted earlier today.

According to Bloomberg, she reiterated her opposition to common euro area bonds and told reporters that leaders "will only exchange options" at today's meeting.

Greek exit fears send global markets reeling

Investors increasingly nervous as Greek poll nears but Athens denies rumours of eurozone emergency plan

the Guardian,

23 May, 2012

Rumours that eurozone countries are drawing up emergency plans for life without Greece sent share prices plunging on both sides of the Atlantic on Wednesday.

As Europe's leaders prepared to meet in Brussels to discuss the crisis, Athens was forced to issue a formal denial of claims that the "euro working group" of member-country governments had been asked to set out how they would cope if Greece left the single currency.

"Such reports not only are false, but actually hinder the efforts of the Hellenic Republic to address its challenges at this critical juncture," the Greek government said in a written statement.

The FTSE 100 index closed 136 points lower amid the nervous mood, at 5266, a fall of 2.5%. The French CAC lost 2.6%, and Germany's DAX shed 2.4%.

Investors are watching nervously as the Greek electorate prepares for elections on 17 June, after an inconclusive poll left the balance of power in the hands of anti-austerity parties. Europe's leaders have urged the Greeks to see the upcoming poll as a referendum on euro membership; but the risk of Greece leaving is putting pressure on other vulnerable countries such as Italy and Spain. The Italian stock market index was down 3.7%, and the Spanish market was off 3.2%. On Wall Street the Dow Jones was down 161 points at 12,340 by mid-morning, a fall of 1.3%.

A paper from Germany's Bundesbank spelling out the possible consequences if Greece fails to fulfil the promises of tough austerity measures made when it received its €130bn bailout earlier this year added to the sense of a looming crisis.

"When the euro system provided Greece with large amounts of liquidity, it trusted that the programmes would be implemented and thereby ultimately assumed considerable risks. In the light of the current situation, it should not significantly increase these risks," the Bundesbank said, suggesting that parliaments and governments of other member states should decide whether to offer any more help to Greece.

Simon Derrick, currency strategist at BNY Mellon, said: "Everyone's going through the same basic process of saying, is anything going to happen before 17 June 17, and what are the possible outcomes on 17 June?" He added that governments such as Germany and the Netherlands have shown an increasingly frustrated tone in recent weeks. "You get the sense that they have been pushed as far as they could and they will not be pushed any farther."

The sharp divide between healthy countries such as Germany and its stricken southern neighbours was underlined by an auction of German debt, which saw Berlin sell €4.6bn-worth of two-year bonds at a record low yield of 0.07%.

That's less than the rate of inflation, so that buyers are accepting a negative real yield on their investment.

Sony Kapoor, of Brussels-based thinktank Re-Define, said: "The new record low negative real borrowing costs being enjoyed by Germany and other AAA-rated eurozone countries are less a reflection of their strength and more a symptom of investor desperation amid all the talk of a Greek exit."

He added: "As long as the new record highs being tested by German bonds are seen by some as a reflection of German economic strength, rather than as a sign of a eurozone in crisis, it will make a political solution harder."City analysts are holding out little hope that tonight's meeting will yield anything radical enough to staunch the crisis and ensure that the consequences of a Greek exit from the eurozone could be contained.

Chris Beauchamp, of IG Index, said, "today is the anniversary of the Defenestration of Prague in 1618, the start of the 30 Years' war. Frankly, it seems as if this crisis has been going on for 30 years...Hopes for today's EU summit have been well and truly chucked out of the window, as the Germans once again state their firm opposition to eurozone bonds as a means of solving the crisis. Berlin has ignored the pleas of the OECD, IMF and its allies in Paris and Rome, believing that such a solution would only worsen the spendthrift ways of their southern neighbours.

"There will probably be little progress at tonight's meeting," said analysts at Citi. "It will probably require more pressure from the market and from deposit holders at periphery banks to agree on measures such as a likely euro-area-wide deposit guarantee scheme. In our view, broad-based common bond issuance is unlikely to take place any time soon.

John Higgins, of Capital Economics, said, "stock markets fell back sharply again on Wednesday and the euro came under further pressure as doubts grew that the evening's informal meeting of EU leaders in Brussels would do much to prevent an imminent exit of Greece from the euro-zone."