Posts
The
euphoria after Spain's “bailout” wore off after little more than
24 hours to be replaced again by pessimism. I am wondering if
attention will now shift to Italy
These are the headlines from the mainstream media today....
Market
euphoria over Spanish bank bailout fizzles
11
June, 2012
Financial
market euphoria over a European bailout for Spain's debt-stricken
banks faded quickly on Monday as investors sounded the alarm over its
impact on public debt and bondholders, and eyed the next risks in the
euro zone's debt crisis.
For
article GO
HERE
Spain's
rescue loan sows debt fears
SMH,
12
Jun, 2012
Investors'
euphoria over a huge eurozone rescue loan for Spain's banks
evaporated Monday as they fretted over the details and feared a
stormy Greece exit of the eurozone.
For
article GO HERE
There is a bit more reality in this next article...
Italy
remains in deep recession, fueling fears the country may be next
after Spain to need aid
11
June, 2012
The
confirmation on Monday that Italy’s recession is deepening
heightens pressure on Premier Mario Monti’s government, which is
struggling to fend off the debt crisis and the perception that Italy
could be next to seek a bailout following Spain’s decision to ask
for help for its ailing banks.
Official
statistics confirmed that Italy’s economy contracted by a quarterly
rate of 0.8 percent in the first three months of the year, the worst
contraction in three years and significantly more than in Spain,
whose economy contracted 0.4 percent.
For
article GO
HERE
And from Zero Hedge and Karl Denninger...
Riiiight.
Elections are coming at the end of the week. And if Syriza wins, the party's leader has said they will tear up the "deal" and walk off.
The middle finger will be end of the game, if it occurs.
The problem with "deposit guarantees" is what happens if you provide them and then one of the nations exits and devalues. The effect of such a guarantee would be to provide an instant windfall to anyone who has a deposit in a bank inside the area where the exit occurs.
That's the problem with such a cross-border guarantee system and why it won't happen.
But without it, the bank runs can't be avoided if the people get the idea that they're going to get an enforced "holiday", which in turn creates the self-perpetuating cycle.
We're still not facing the truth here -- those who lent money with no reasonable capacity for the debtor to pay must take their loss. Those who borrowed and can't pay must go bankrupt. And governments must stop spending more than they tax.
Finally, the price of borrowing money must rise -- dramatically -- so that it reasonable reflects the risk of non-payment, while at the same time credit must not be extended beyond collateral -- that is, the game of "infinite credit expansion" beyond the rate of GDP advance in the economy must be halted and allowed to reverse.
None of this is particularly likely. But the game that has been played for the last four years is now resulting in half-lives measured in hours rather than months, weeks or days -- and as such what we're headed for is a credit collapse -- like it or not.
Creditanstalt my friends.....
Want
A Collapse Trigger? Here It Is
Karl
Denninger
11
June, 2012
(Reuters) - European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.
EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen - no one Reuters has spoken to expects Greece to leave the single currency area.
Riiiight.
Elections are coming at the end of the week. And if Syriza wins, the party's leader has said they will tear up the "deal" and walk off.
The middle finger will be end of the game, if it occurs.
The problem with "deposit guarantees" is what happens if you provide them and then one of the nations exits and devalues. The effect of such a guarantee would be to provide an instant windfall to anyone who has a deposit in a bank inside the area where the exit occurs.
That's the problem with such a cross-border guarantee system and why it won't happen.
But without it, the bank runs can't be avoided if the people get the idea that they're going to get an enforced "holiday", which in turn creates the self-perpetuating cycle.
We're still not facing the truth here -- those who lent money with no reasonable capacity for the debtor to pay must take their loss. Those who borrowed and can't pay must go bankrupt. And governments must stop spending more than they tax.
Finally, the price of borrowing money must rise -- dramatically -- so that it reasonable reflects the risk of non-payment, while at the same time credit must not be extended beyond collateral -- that is, the game of "infinite credit expansion" beyond the rate of GDP advance in the economy must be halted and allowed to reverse.
None of this is particularly likely. But the game that has been played for the last four years is now resulting in half-lives measured in hours rather than months, weeks or days -- and as such what we're headed for is a credit collapse -- like it or not.
Creditanstalt my friends.....
Europe
Brings Out The "Capital Controls" Bazooka
Here
we go:
- EU SOURCES HAVE DISCUSSED IMPOSING CAPITAL CONTROLS AS WORST CASE SCENARIO IF GREECE LEAVES EUROZONE - RTRS
- IMPOSING BORDER CHECKS, LIMITING ATM WITHDRAWALS ALSO PART OF WORST-CASE SCENARIO PLANNING - EU SOURCES - RTRS
- SUSPENSION OF SCHENGEN ALSO DISCUSSED
In
other words, that money you thought you had... You don't really have
it. We
can only hope this message was not meant to restore confidence and
prevent future bank runs. Because
if Europe wanted a continental bank run, it may have just gotten one.
This
is getting scary very fast.
European
finance officials have discussed as a worst-case scenario limiting
the size of withdrawals
from ATM machines, imposing border checks and introducing capital
controls in at least Greece should Athens decide to leave the euro.
EU
officials have told Reuters the ideas are part of a range of
contingency plans. They emphasised that the discussions were merely
about being prepared for any eventuality rather than planning for
something they expect to happen - no one Reuters has spoken to
expects Greece to leave the single currency area.
Belgium's
finance minister, Steve Vanackere, said at the end of May that it was
a basic function of each euro zone member state to be prepared for
problems. These discussions appear to be in that vein.
But
with increased political uncertainty in Greece following the
inconclusive election on May 6 and ahead of a second election on June
17, there is now an increased need to have contingencies in place,
the EU sources said.
The
discussions have taken place in conference calls over the past six
weeks, as concerns have grown that a radical-left coalition, SYRIZA,
may win the second election, increasing the risk that Greece could
renege on its EU/IMF bailout and therefore move closer to abandoning
the currency.
No
decisions have been taken on the calls, but members of the Eurogroup
Working Group, which consists of euro zone deputy finance ministers
and heads of treasury departments, have discussed the options in some
detail, the sources said.
As
well as limiting cash withdrawals and imposing capital controls, they
have discussed the possibility of suspending the Schengen agreement,
which allows for visa-free travel among 26 countries, including most
of the European Union.
"Contingency
planning is underway for a scenario under which Greece leaves,"
one of the sources, who has been involved in the conference calls,
said. "Limited
cash withdrawals from ATMs and limited movement of capital have been
considered and analysed."
Another
source confirmed the discussions, including that the suspension of
Schengen was among the options raised.
"These
are not political discussions, these are discussions among finance
experts who need to be prepared for any eventuality," the second
source said. "It is sensible planning, that is all, planning for
the worst-case scenario."
The
first official said it was still being examined whether there was a
legal basis for such extreme measures.
"The
Bank of Greece is not aware of any such plans," a
central bank spokesman in Athens told Reuters when asked about the
sources' comments.
The
vast majority of Greeks - some surveys have indicated 75 to 80
percent - like the euro and want to retain the currency, something
Greek politicians are aware of and which may dissuade them from
pushing the country too close to the brink.
However,
SYRIZA is expected to win or come a strong second on June 17. Alexis
Tsipras, the party's 37-year-old leader, has said he plans to tear up
or heavily renegotiate the 130-billion-euro bailout agreed with the
EU and IMF. The EU and IMF have said they are not prepared to
renegotiate.
If
those differences cannot be resolved, the threat of the country
leaving or being forced out of the euro will remain, and hence the
need for contingencies to be in place.
Switzerland
said last month it was considering introducing capital controls if
the euro falls apart.
In
a conference call on May 21, the Eurogroup Working Group told euro
zone member states that they should each have a plan in place if
Greece were to leave the currency.
Belgium's
Vanackere said two days after that call that it was a basic function
of each euro zone member state to be prepared for any eventuality.
"All
the contingency plans (for Greece) come back to the same thing: to be
responsible as a government is to foresee even what you hope to
avoid," he told reporters.
"We
must insist on efforts to avoid an exit scenario but that doesn't
mean we are not preparing for eventualities.
Spanish
CDS Storms Above
600bps
11
June, 2012
Spanish
5Y CDS broke back above 600bps (just shy of their record 603bps
level) and 35bps wider of their intrday low spread from 5 hours ago.
Spanish 10Y yields are over 50bps wider/higher than their intraday
lows just after the open in Europe. Italy also just broke 550bps.
EURUSD is almost unch now.
Spain
5Y CDS > 600bps
Italy
5Y CDS > 550bps
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