Judgment Day For The Euro And What’s At Stake

Judgment Day For The Euro And What’s At Stake (ZeroHedge, Aug 28, 2012):

Hans-Werner Sinn – Judgment Day For The Euro

Hans-Werner Sinn is Professor of Economics at the University of Munich and President of the Ifo Institute for Economic Research. He also serves on the German economy ministry’s Advisory Council. Hi… Full profile

Europe and the world are eagerly awaiting the decision of Germany’s Constitutional Court on September 12 regarding the European Stability Mechanism (ESM), the proposed permanent successor to the eurozone’s current emergency lender, the European Financial Stability Mechanism. The Court must rule on German plaintiffs’ claim that legislation to establish the ESM would violate Germany’s Grundgesetz (Basic Law). If the Court rules in the plaintiffs’ favor, it will ask Germany’s president not to sign the ESM treaty, which has already been ratified by Germany’s Bundestag (parliament).

Read moreJudgment Day For The Euro And What’s At Stake

The European Headlines Are Back: ‘The Euro Crisis May Last 20 Years’

“The Euro Crisis May Last 20 Years” – The European Headlines Are Back (ZeroHedge, Aug 18, 2012):

In Europe, the “no news” vacation for the past month was great news. The news is back… As is Merkel.

  • “The Euro Crisis May Last 20 Years” – Welt

The first five years of the global crisis are over, investors flee from complex financial products and into gold, silver and commodities. Experts warn against a false sense of security. “We should not give us the illusion that the crisis will soon be over,” says Patrick Artus of the French bank Natixis. Years of negative developments such as the growing debt, or the de-industrialization of specific sectors should now be reversed. “Such a process takes time.” Arthur looks to get politically and economically unstable savers years. “Investors have to live with depressed markets and considerable fluctuations learn.” In his view, it must not remain in a lost decade. “The euro crisis may also last 20 years,” says Arthur.

  • German finmin: no new aid programme for Greece – Reuters

German Finance Minister Wolfgang Schaeuble said on Saturday that there were limits to the aid that could be granted to Greece and said the crisis-stricken country should not expect to be granted another programme.”It is not responsible to throw money into a bottomless pit,” Schaeuble said at a government open day in Berlin. “We cannot create yet another new programme.”

  • Euro Countries Plan Strategies to Prevent Break-Up: Sueddeutsche (via Bloomberg)

Euro-currency area countries are evaluating a multitude of reform options, Sueddeutsche Zeitung reports, citing unidentified people with knowledge of the plans.

These are to be whittled down into a coherent strategy in the “coming weeks”. If Greece exits, members will boost plans to support other vulnerable countries. Options include increasing aid to Ireland and Portugal. ECB would consider supporting Italy and Spain through bond purchases. Greece’s new start would be supported by EU funding. These questions will be discussed “in the autumn”.

  • Deutsche Bank Among Four Said to Be in U.S. Laundering Probe – Bloomberg

Deutsche Bank AG (DBK) is among four European banks being investigated by U.S. regulators for alleged money-laundering violations, according to an attorney with knowledge of the matter. Federal regulators, including the U.S. Treasury’s Office of Foreign Assets Control, the Federal Reserve, the Justice Department and the New York District Attorney’s office are all involved in the probe of Deutsche Bank and three other European banks, said the attorney, who asked not to be identified because the investigations are confidential.

  • German Industry Group Head says No Place for Greece in Eurozone: WiWo (via Bloomberg)

If Greece doesn’t meet IMF and EU requirements, it must leave the euro, Hans-Peter Keitel, president of Germany’s BDI industry federation, says in an interview with Wirtschaftswoche magazine. Keitel previously said Greece must stay in the euro at all costs: WiWo

Keitel says clear progress is being made in combating the euro crisis. The German federal government is not ambitious enough in its savings program, Keitel says.

  • German Taxpayer Association Head Criticises ESM: Euro am Sonntag (via Bloomberg)

Rainer Holznagel, head of German taxpayer association, says payment of Spanish bank debt would require 3% VAT increase in Germany, Euro am Sonntag reports, citing interview.

ESM reduces the rights of the German parliament and the independence of nation states, Holznagel says: Euro am Sonntag

  • Bundesbank Vice-Head Opposes Schaeuble’s Banking Proposal: WiWo (via Bloomberg)

German Finance Minister Wolfgang Schaeuble’s proposal to separate traditional banks from their investment banking units isn’t possible, Bundesbank Vice- President Sabine Lautenschlaeger tells Wirtschaftswoche magazine.

Both types of banks would still be dependent on market confidence, Lautenschlaeger says. Lautenschlaeger favors an investigation into the relationship between lenders and those banks which trade in unregulated financial products.

  • Westerwelle Opposes Relaxing Greek Aid Terms: Tagesspiegel

Relaxation of the agreed on terms for Greek assistance would be misunderstood by countries such as Spain, German Foreign Minister and FDP member Guido Westerwelle told Tagesspiegel am Sonntag in interview.

Spanish prime minister would have difficulty passing reforms in parliament if terms were eased for Greece, Westerwelle says. Westerwelle gives his “solidarity” to the people of Greece. Greek Prime Minister Antonis Samaras to visit Berlin on Friday

And just to prove that Europe’s beggars continue to refuse to get the memo…

  • Spain says there must be no limit set on ECB bond buying – RTRS

The European Central Bank must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its refinancing costs and eliminate doubts over the euro zone’s future, Spain’s economy minister said in comments published on Saturday. “There can be no limit set or at least (the ECB) can’t say how much they will use or for how long,” when it buys bonds in the secondary markets, Luis de Guindos told Spanish news agency EFE.

and:

  • France Favors Greece Rescue Package, Opposing Germany: Welt (via Bloomberg)

France and southern European nations are in favor of a third rescue package for Greece should it prove necessary, Welt reports, without saying where it got the information. Germany rejects a new rescue package. Germany opposes giving Greece more time to enact cost cuts. Preparations underway for Greece possibly leaving the euro. Main consideration is how to protect other euro crisis countries from the fallout.

Germany: New Lawsuit Filed Against ESM Threatens Further Bailout Fund Delay

New Lawsuit Filed Against ESM Threatens Further Bailout Fund Delay (ZeroHedge, Aug 13, 2012):

Just as we were complaining about lack of newsflow, here comes Germany, coincidentally just as Merkel comes back from vacation, with an update from Karlsruhe that the Constitutional court, which may reject the ESM as is in its September 12th decision, will likely be delayed even more following the filing of a brand new lawsuit challenging the constitutionality of the ESM.

From Handelsblatt, loosely google translated:

The Constitutional Court in Karlsruhe has received a further appeal against the euro rescue package, which could upset the timetable for the euro rescue. According to information from Reuters Online, a group of plaintiffs to the € critic Professor Markus Kerber has filed a constitutional complaint, including an emergency petition. The key message is: Since the last ten days at the European Court in Luxembourg, the complaint is similar to an Irish MPs to decide, the German judges would wait until the spoke on the matter higher court judgment. The original date expected for an announcement, the 12th September, at which they would decide on the fast track in terms of admissibility of ESM and Fiscal Pact was likely untenable.

Read moreGermany: New Lawsuit Filed Against ESM Threatens Further Bailout Fund Delay

Germany Has ‘Reached Its Limit’ On Greek Aid

Sep. 12 (Bundesverfassungsgericht ruling on the ESM) is the date to watch!!!

Let’s see if Germany walks its talk, because that would mean the end of the euro.

Got physical gold and silver?

See also:

Greece Now Prints It’s Own Euros, The ECB Approves, The Bundesbank Nods: No One Wants To Get Blamed For Kicking Greece Out


Germany Has “Reached Its Limit” On Greek Aid (ZeroHedge, Aug 11, 2012):

While Frau Merkel remains beach-bound somewhere, hence the lack of ‘Neins’ recently, her deputy chancellor Michael Fuchs made it unequivocally clear this morning in a Handelsblatt interview that Germany had “reached the limit of its capacity” over additional EFSF payments to Greece and reiterated the double-whammy that the ESM should NOT receive a banking license and that the ECB should NOT act as “money printing press in disguise” by extending emergency loans and bypassing EFSF/ESM. A decision about whether Greece should be given the second tranche of its loan will not be made until October, after the Troika finalizes its first review of the second rescue program in September. However, BNP Paribas notes that there have been a couple of developments worth noting over the past week and more are likely in the coming weeks.

Read moreGermany Has ‘Reached Its Limit’ On Greek Aid

Spain And Italy Are Toast Unless Germany Allows The ECB To Print Trillions Of Euros

Spain And Italy Are Toast Unless Germany Allows The ECB To Print Trillions Of Euros (Economic Collapse, Aug 2, 2012):

The financial chess game in Europe is still being played out, but in the end it is going to boil down to one very fundamental decision.  Is Germany going to allow the ECB to print up trillions of euros and use those euros to buy up the sovereign debt of troubled eurozone members such as Spain and Italy or not?  Nothing short of this is going to solve the problems in Europe.  You can forget the ESM and the EFSF.  Anyone that thinks they are going to solve the problems in Europe is someone that would also take a water pistol to fight a raging wildfire.  No, the only thing that is going to keep Spain and Italy from collapsing under the weight of a mountain of debt is a financial nuke.  The ECB needs to have the power to print up trillions of euros and use that money to buy up massive amounts of sovereign debt in order to guarantee that Spain and Italy will be able to borrow lots more money at very low interest rates.  In fact, this is probably what European Central Bank President Mario Draghi has in mind when he says that he is going to “do whatever it takes to preserve the euro”.  However, there is one giant problem.  The ECB is not going to be able to do this unless Germany allows them to.  And after enduring the horror of hyperinflation under the Weimar Republic, Germany is not too keen on introducing trillions upon trillions of new euros into the European economy.  If Germany allows the ECB to go down this path, Germany will end up experiencing tremendous inflation and the only benefit for Germany will be that the eurozone was kept together.  That doesn’t sound like a very good deal for Germany.

Right now, the yield on 10 year Spanish bonds is above 7 percent and the yield on 10 year Italian bonds is above 6 percent.

Those are unsustainable levels.

The only thing that is going to bring those bond yields down permanently to where they need to be is unlimited ECB intervention.

But that is not going to happen without German permission.

Meanwhile, the situation in Spain gets worse by the day.

An article in Der Spiegel recently described the slow motion bank run that is systematically ripping the Spanish banking system to shreds….

Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.

In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.

If those numbers sound really bad to you, that is because they are really bad.

At this point, authorities in Spain are starting to panic.  According to Graham Summers, Spain has imposed the following new capital restrictions during the last month alone….

  • A minimum fine of  €10,000 for taxpayers who do not report their foreign accounts.
  • Secondary fines of  €5,000 for each additional account
  • No cash transactions greater than €2,500
  • Cash transaction restrictions apply to individuals and businesses

How would you feel if the U.S. government permanently banned all cash transactions greater than $2,500?

That is how crazy things have already become in Spain.

Read moreSpain And Italy Are Toast Unless Germany Allows The ECB To Print Trillions Of Euros

Eurogroup Head Confirms ‘It Has Become Serious’, As He Is Back To Lying

Eurogroup Head Confirms “It Has Become Serious”, As He Is Back To Lying (ZeroHedge, July 30, 2012):

The insolvent banana continent is back. Recall back in May 2011:

When it becomes serious, you have to lie.” Jean Claude Juncker

Ergo, things in Europe are very serious again because the Eurogroup’s head, who until recently promised he was quitting his post because “he had gotten tired of the Franco-German interference in managing the region’s debt crisis”, only to spoil the fun and say he was lying about that too, is back to doing what he does best – lying. To wit: “the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries.” And now cue Schauble: “Federal Finance Minister Wolfgang Schaeuble has rejected speculation about impending purchases of government bonds by Spanish EFSF and ECB.”

From Suddeutsche Zeitung:

“No time to lose”: The chairman of the €-group sees a crucial point of the debt crisis has arrived. Jean-Claude Juncker supports plans by ECB chief Draghi for the purchase of government bonds – and Germany are partly to blame for the crisis. Berlin treats the euro area “as a branch.” Also called “chatter on the withdrawal of Greece” is not helpful.

Juncker confirmed that the euro countries are preparing together with the bailout fund EFSF and the European Central Bank to buy government bonds if necessary clip euro countries. Because there is no doubt, he said. “It is still necessary to decide exactly what we will do and when.” This depended “on the developments of the next few days and from reacting as fast as we need.”

And to think only yesterday the only person whose opinion matters, Germany’s Finance Minister,  “denied plans for a new aid program for Spain, according to newspaper Welt am Sonntag, after the media reported European Union leaders aim for Spanish government bond purchases by the European rescue fund and the European Central Bank.”

We leave it up to readers to figure out which of the above two is telling the truth, but in the meantime, here are some other soundbites from the man who is back to desperation pleading with markets:

Read moreEurogroup Head Confirms ‘It Has Become Serious’, As He Is Back To Lying

Six Reasons Why Spain Will Be Forced To Request A Sovereign Bailout

Six Reasons Why Spain Will Be Forced To Request A Sovereign Bailout (ZeroHedge, July 24, 2012):

Just as the summer finally arrives in Northern Europe, the Eurozone crisis is heating up once again. With an increasingly flat (heading to inversion) yield curve, and spreads at record wides,  Spain appears to be in a downward spiral of market turmoil that might require a full-fledged TROIKA bail out. However, as UBS points out, rather than taking the country off the market, the program would have to allow Spain to keep borrowing from private investors. Any bail out of Spain would have to be designed in a way that would also be applicable to Italy. Spain has been the most recent crisis focus, and looks to intensify further with nothing immediately in sight that could reverse the trend. We, like UBS, have argued for some time that a full-fledged TROIKA program will ultimately be unavoidable and the following six reasons briefly explain why anything else is a pipe-dream.

Via UBS FX Strategy:

The Eurogroup last week formally approved a €100bn bank bailout but as our banking colleagues have argued, the programme generates no equity and no funding and is thus unlikely to make any lasting difference either to the limited market access of the banks or to the credit crunch affecting the country. Also, the decision at the June EU summit to take a first step towards a banking union has done very little to ease the pressure. The market initially assumed that the €100bn would be offloaded from the sovereign balance sheet to the ESM by the October or December EU summits once an ‘effective supervisory mechanism’ had been created.

However, subsequently it became clear that:

Read moreSix Reasons Why Spain Will Be Forced To Request A Sovereign Bailout

Dummies Guide To Europe’s Ever-Increasing Jumble Of Acronyms

Dummies Guide To Europe’s Ever-Increasing Jumble Of Acronyms (ZeroHedge, July 12, 2012):

It seems every week there are new acronyms or catchy-phrases for Europe’s Rescue and Fiscal Progress decisions. Goldman Sachs provides a quick primer on everything from ELA to EFSM and from Two-Pack (not Tupac) to the Four Presidents’ Report.

Rescue Programs

EFSF
European Financial Stability Facility. A temporary special purpose vehicle financed by members of the euro area to address the European sovereign debt crisis by providing financial assistance to euro area states in economic difficulty. The ESFS can issue bonds or other debt instruments in the market to raise funds needed to provide loans to euro area countries under financial stress, recapitalize banks (through loans to governments) or buy sovereign debt; these bonds are guaranteed by the Euro area member states. Euro area member states’ capital guarantees total €780 billion and the facility has a lending capacity of €440 billion. Since it began operations in August 2010, money has been lent to Ireland, Portugal, and Greece and is in the process of being lent to Spain and Cyprus.

EFSM
European Financial Stabilization Mechanism. An emergency funding program for EU member states in economic difficulty, which is reliant on funds raised in the financial markets and guaranteed by the European Commission (EC) using the budget of the European Union as collateral. The fund has the authority to raise up to €60 billion and has made loans to Ireland and Portugal (in conjunction with the European Financial Stability Facility (EFSF) since its May 2010 inception.

Read moreDummies Guide To Europe’s Ever-Increasing Jumble Of Acronyms

Will A German Constitutional Court Delay Today Cripple The EUphoria?

Will A German Constitutional Court Delay Today Cripple The EUphoria? (ZeroHedge, July 10, 2012):

While early news are still abuzz with last night’s largely irrelevant FinMin meeting, which came up with nothing new, but merely regurgitated the June 28 summit decisions in a way to send Peripheral bonds modestly higher, however briefly, the real news this morning will be out of Karlruhe, where the German Constitutional Court – which holds the fate of the European bailout mechanism –  has already said there will be no final decision on the constitutionality issue. The question now is whether the Court will issue a temporary injunction, which however, the court itself admits “will be interpreted by the foreign press as ‘euro-rescue is halted.” Instead, what will likely take place is a two step process. As Market News reports, “Judges during the hearing suggested a two-part decision was likely, first on the injunction in about three weeks, and then in early 2013 on the broader constitutional question.” Obviously, the court is not in any rush to come up with a definitive judgment. The problem is that Spain is. As is Italy: unless the ESM is able to promptly roll out its rescue functionality, the entire bailout mechanism will be halted and all the “progress” achieved so far will be for nothing. Sure enough, “a delay could have “serious economic consequences” for the Eurozone as well as Germany, and in turn would risk placing the entire euro project “in question,” Schaeuble warned.” Yet not even the German FinMin will dare to tell German’s constitutional arbiters to hurry up. Which is why keep a close eye on those Red flashing headlines out of Germany: they can make or break both the Euro, the PIIGS bonds, and broadly risk, if there is indeed a major delay, and certainly, if the court does order an injunction.

Read moreWill A German Constitutional Court Delay Today Cripple The EUphoria?

The Perfect Storm: Rick Santelli Meets Nigel Farage (Video)

The Perfect Storm – Santelli Meets Farage (ZeroHedge, July 9, 2012):

The undisputed champion of European political ranting (UKIP’s Nigel Farage) discussed the sad reality of Europe’s inevitable demise with the reigning US chief of non-hype Rick Santelli in a no-holds-barred cage-match of like-minded skeptics. From Rajoy’s incompetence to the ‘genius of mutual indebtedness’, Farage explains the problem is ‘bedeviled with complexity’ as, for example, the last summit left “the Finnish and Dutch finance ministers leaving with a very different perspective on what happened than the rest” and now even Merkel is arguing domestically what she has and has not agreed to. From the simple self-referential idiocy of Spain’s EUR100 billion bailout – that creates vicious circles on all the peripheral ‘bailing’ nations; to “the same bundle of money going round and round in circles” leaving Nigel tempted to describe it as “a giant ponzi scheme”; Santelli, not to be outdone, explains how the US is just such a money-circulating ponzi scheme as “one part of the government issues debt as another part is buying”. The ECB, of course, is becoming plagued with more and more of the ponzi-like peripheral paper and as Farage notes “the day Greece leaves the Euro – and it will – the ECB is left with a massive paper loss” leaving the ECB under-capitalized – which in all its wonderful craziness means “it has to go and get fresh capital from the other countries that themselves have been bailed out and are in fact in trouble”. A farcical perfect storm as the “medicine is killing the patient”, and he fears if the nettle is not grasped (Euro break-up) now then the markets will overwhelm the whole thing this summer.

If the clip is not working (since it seems CNBC has been a little flaky with this embed – perhaps due to its rough content) – here is the link to the clip.

Spain’s Not Getting a Bailout… Neither is Italy… It’s the END GAME Folks

Spain’s Not Getting a Bailout… Neither is Italy… It’s the END GAME Folks (ZeroHedge, July 7, 2012):

Spain got a “bailout” or so the media claimed. Because I cannot find any entity in Europe with the funds to actually bailout Spain (the EUFN is tapped out, the ESM has major political issues, and Germany is risking a credit downgrade and insolvency based on its backdoor EU props).

As one would expect in this situation, things are rapidly going into hyper-drive in Spain. The weekend before last the country implemented capital controls including

  • A minimum fine of  €10,000 for taxpayers who do not report their foreign accounts.
  • Secondary fines of  €5,000 for each additional account
  • No cash transactions greater than €2,500
  • Cash transaction restrictions apply to individuals and businesses

Does this sound like the actions of an economy with a sound banking system?

On a related note, Italy is once again back on the brink: in the last 2 weeks Italy’s Prime Minister Mario Monti has said that the country is “flirting with economic disaster… [and] in a crisis.” He, like Spain’s PM Rajoy, has pushed for the ESM to buy sovereign bonds. He’s also asked the ECB to implement a mechanism through which it would buy Italian sovereign bonds whenever the spread between them and German bunds grows too large (a type of bailout).

Indeed, things are so desperate that he invited German Chancellor Angela Merkel, French President Francois Hollande, and Spanish Prime Minister Mariano Rajoy to an emergency meeting in Rome over the weekend. His goal was to convince EU leaders to allow Italy to receive funding directly from the EFSF and ESM.

The ECB and Germany have already rebuked this idea:

Read moreSpain’s Not Getting a Bailout… Neither is Italy… It’s the END GAME Folks

Germany’s Constitutional Court May Delay Bailout Fund Ratification

The ESM is totally unconstitutional, but who cares?


German court may delay bailout fund ratification (Reuters, June 21, 2012):

Germany’s constitutional court said on Thursday it will need time to study the euro zone’s permanent bailout mechanism after its expected approval in the German parliament next Friday, which could delay its scheduled start date on July 1.

Angela Merkel’s government and the centre-left opposition reached a deal on economic growth measures on Thursday which should enable parliament to ratify Merkel’s fiscal pact and the European Stability Mechanism (ESM) on June 29.

The ESM cannot come into effect without ratification by Germany, the biggest economy in the euro zone. But a spokeswoman for the top court said the ESM is so complex it expects head of state Joachim Gauck to delay his signature of the text approved by parliament until the court has had time to study it.

You Can’t Make This Up: MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY

And Now We Ramp On This Latest Non-News (ZeroHedge, June 20, 2012):

This is just getting ridiculous:

  • MERKEL SAYS BOND PURCHASING BY BAILOUT FUND A POSSIBILITY

Uhm… that whole point of the bailout fund (ESM/EFSF) is to BUY BONDS. Basically Merkel just confirmed that the whole point of the ESM, which by the way still does not exist, and whose sole purpose is to buy bonds… is to buy bonds. You can’t make this up. Yes they will subordinate existing bondholders in the case of ESM, and in the case of EFSF Finland and soon Germany will demand collateral via negative pledges (as in the case of Spain – or did the market forget all about that already), but apparently that is now merely an irrelevant detail. And the EURUSD ramps on this, once again proving that nobody has any idea what is going on in the market but flashing red healines = usually good.

From the ECB itself:

esm

Fitch Downgrades Credit Rating Of 18 Spanish Banks, Financial Contagion Spreads To Italy

See also:

Spain Loses Final A Rating With Moodys Downgrade To Baa3, May Downgrade Further (Full Text)

Nigel Farage: ‘Once Greece Leaves The ECB Is Bust’ – ‘The Euro Titanic Has Now Hit The Iceberg And Sadly There Simply Aren’t Enough Lifeboats’ (Video)


Spanish bond yields at record high as Fitch downgrades 18 banks and financial contagion spreads to Italy (Independent, June 12, 2012):

Spain’s borrowing costs soared to their highest levels since the introduction of the single currency in 1999 today, as any confidence investors might have taken from Madrid’s weekend pledge to seek a bailout for its toxic banking sector drained away.

Yields on the country’s 10 year bonds shot up to 6.8 per cent this afternoon as investors frantically dumped their holdings of Spanish debt, before falling back to 6.72 per cent.

The credit rating agency Fitch added fuel to the flames of alarm by downgrading 18 Spanish banks, following its downgrade of Madrid’s sovereign debt to BBB last month. Among the Spanish lenders cut were Bankia, CaixaBank, and Banco Popular Espanol, with Fitch blaming the weakening Spanish economy, which is forecast to contract by 1.7 per cent this year and to remain in recession well into next year.

Read moreFitch Downgrades Credit Rating Of 18 Spanish Banks, Financial Contagion Spreads To Italy

Spain Loses Final A Rating With Moodys Downgrade To Baa3, May Downgrade Further (Full Text)

Don’t miss:

Nigel Farage: ‘Once Greece Leaves The ECB Is Bust’ – ‘The Euro Titanic Has Now Hit The Iceberg And Sadly There Simply Aren’t Enough Lifeboats’ (Video):


Spain Loses Final A Rating With Moodys Downgrade To Baa3, May Downgrade Further – Full Text (ZeroHedge, June 13, 2012):

And so the final Spanish A rating tumbles. Why is this kinda, sorta a big deal? Because as we explained in the end of April, “If all agencies downgrade Spain to BBB+ or below, the ECB could increase haircuts by 5% on SPGBs. The key aspect in terms of the Spanish downgrade(s) is the ECB’s LTRO. If all three rating agencies move Spain to BBB+ or below then under the ECB’s current framework it moves into the Step 3 collateral bucket which requires an additional 5% haircut across the maturities. In classifying its risk management buckets, the ECB uses the highest of the ratings to determine an asset’s position (unlike the sovereign benchmark indices which use the lowest rating, in general). Fitch and Moodys currently rate Spain at A and A3 respectively, with both having a negative outlook in place leaving only a small downgrade margin before Spain migrates to the lower ECB bucket.”

And now the collateral squeeze is on, unless of course the ECB changes the reules one more time.

Read moreSpain Loses Final A Rating With Moodys Downgrade To Baa3, May Downgrade Further (Full Text)

Spain’s $125 Billion Euro Bailout Will Not Be Enough

Spain’s Euro Bailout Might Boost Markets Tomorrow But Don’t be Fooled (Forbes, June 10, 2012):

Will Spain’s bailout boost the markets on Monday? As Abram Brown points out the markets are eager for good news. But there are serious question marks over the bail out. Not least that the Spanish can’t seem to agree on what they have agreed to. And Euro zone members don’t actually know how they are going to pull off this refinancing.

What they believe they have done is create a plan that will ward off contagion if the Greek election goes against the pro-austerity parties Monday week. That might be unraveling already, as Spaniards take to the streets to protest against the deal. Add in to the mix, skepticism about the size of the rescue – $125 billion is just not enough some analysts are saying. The real figure is at least double that.

Read moreSpain’s $125 Billion Euro Bailout Will Not Be Enough

Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout (ZeroHedge, June 9, 2012):

After two years of denials, we finally have the right answer: Spain IS Greece. Only much bigger (it is also the US, although while the US TARP was $700 billion or 5% of then GDP, the just announced Spanish tarp is 10% of Spanish GDP, so technically Spain is 2x the US). So now that the European bailout has moved from Greece, Ireland and Portugal on to the big one, Spain, here are the key outstanding questions.

1. Where will the money come from?

De Guindos, Schauble and the Eurogroup, all announced that the sole source of cash would be the ESM and/or the EFSF. The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.

Which brings us to a bigger question: now that Spain is officially to be bailed out, what happens next. And by that we mean of course the big one: Italy. Recall that as we posted in Brussels… We Have A Problem, once the contagion spreads again to Italy, and that country also needs a bailout, it is game over. From the world’s biggest hedge fund Bridgewater:

Read moreSpain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout

Here They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain

Here They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain (ZeroHedge, June 9, 2012):

Well that didn’t take long. The ink on the #Spailout is not dry yet (well technically there is no ink, because none of the actual details of the Spanish banking system rescue are even remotely known, and likely won’t be because when it comes to answering where the money comes from there simply is no answer) and we already have an answer to one of our questions. Recall that mere hours ago we asked: “We also wonder how will Ireland feel knowing that it has to suffer under backbreaking austerity in exchange for Troika generosity, while Spain gets away scott free.” We now know. From the AFP: “Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday.” And with Ireland on the renegotiation train, next comes Greece. Only with Greece the wheels for a bailout overhaul are already in motion and are called a “vote of Syriza on June 17.” And remember how everyone was threatening the Greeks with the 10th circle of hell if they dare to renegotiate the memorandum? Well, Spain just showed that a condition-free bailout is an option. Which means Syriza will get all the votes it needs and then some with promises of a consequence free bailout renegotiation. In other words Syriza’s Tsipras should send a bottle of the finest champagne to de Guindos – he just won him the election.

But back to Ireland. From AFP:

Read moreHere They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain

Spain Agrees To ‘Unconditonal’ Bank Bailout

Spain Agrees To “Unconditonal” Bank Bailout (ZeroHedge, June 9, 2012):

Just out from Bloomberg:

  • SPAIN AGREES TO SEEK BANK BAILOUT, EL PAIS REPORTS
  • IMF WILL SUPERVISE SPAIN BANK RESCUE PLAN, EL PAIS SAYS

And the funniest:

  • SPAIN RESCUE DOESN’T CARRY ECONOMIC POLICY CONDITIONS: MUNDO

So Spain has shockingly agreed to a bank bailout without conditions. Has Germany? The chips will commence falling, where they may, shortly. In the meantime, we are days from finding out just what Germany thinks when it has to ratify (that’s right, the ESM has still not been ratified by the one country which will fund the Spanish bailout) the direct rescue of the Spanish banks. Without conditions.

From El Pais:

Read moreSpain Agrees To ‘Unconditonal’ Bank Bailout

Germany Folding? Europe’s Insolvent Banks To Get Direct Funding From ESM

Germany Folding? Europe’s Insolvent Banks To Get Direct Funding From ESM (ZeroHedge, April 26, 2012):

We start today’s story of the day by pointing out that Deutsche Bank – easily Europe’s most critical financial institution – reported results that were far worse than expected, following a decline in equity and debt trading revenues of 23% and 8%, but primarily due to Europe simply “not being fixed yet” despite what its various politicians tell us. And if DB is still impaired, then something else will have to give. Next, we go to none other than Deutsche Bank strategist Jim Reid, who in his daily Morning Reid piece, reminds the world that with austerity still the primary driver in a double dipping Europe (luckily… at least for now, because no matter how many economists repeat the dogmatic mantra, more debt will never fix an excess debt problem, and in reality austerity is the wrong word – the right one is deleveraging) to wit: “an unconditional ECB is probably what Europe needs now given the austerity drive.” However, as German taxpayers who will never fall for unconditional money printing by the ECB (at least someone remembers the Weimar case), the ECB will likely have to keep coming up with creative solutions. Which bring us to the story du jour brought by Suddeutsche Zeitung, according to which the ECB and countries that use the euro are working on an initiative to allow cash-strapped banks direct access to funding from the European Stability Mechanism. As a reminder, both Germany and the ECB have been against this kind of direct uncollateralized, unsterilized injections, so this move is likely a precursor to even more pervasive easing by the European central bank, with the only question being how many headlines of denials by Schauble will hit the tape before this plan is approved. And if all eyes are again back on the ECB, does it mean that the recent distraction face by the IMF can now be forgotten, and more importantly, if the ECB is once again prepping to reliquify, just how bad are things again in Europe? And what happens if this time around the plan to fix a solvency problem with more electronic 1s and 0s does not work?

Here is Deutsche Bank’s Jim Reid redirecting attention back to where it was all throughout the summer and fall of 2011, until the new Goldman-based head of the ECB relented days after his appointment:

Read moreGermany Folding? Europe’s Insolvent Banks To Get Direct Funding From ESM

Next Up Spain: OpenEurope Looks At Spanish Banks’ Underprovisioned 20% In Toxic Loans

Next Up Spain: OpenEurope Looks At Spanish Banks’ Underprovisioned 20% In Toxic Loans (ZeroHedge, April 3, 2012):

The only European “thinktank” that has been more correct about predicting developments in the continent than any of its peers (“Greece will never default” – nuf said), has released a new briefing, this time looking at the latest European hotbed of trouble (which is not new at all, just the realization that the LTRO benefit has faded has finally set in), Spain, and specifically if its bank will be forced to seek a Eurozone bailout. OpenEurope is diplomatic about it but the conclusion is that all signs point to yes. Furthermore, as recent general strikes across the country, coupled with occasional rioting, showed, Rajoy’s agenda of enacting austerity which will be critical to receive German assistance simply to make Spain the latest German debt slave, may have some problems being enacted. Yet the biggest catalyst for the housing-heavy exposed Spanish banks is that, as Open Europe finds, of the €400 billion in loans made to residential sector, €80 billion is toxic. And only €50 billion in reserves are available. Hence the simple math: at least a €30 billion shortfall will need to come from Europe. And this assume no further declines in home price, which however are set for a record price drop this year. So… LTRO 3 anyone as the focus once again shifts to “deja vu Greece?”

From the executive summary:

Read moreNext Up Spain: OpenEurope Looks At Spanish Banks’ Underprovisioned 20% In Toxic Loans

EU: EFSF & ESM … A Whole Lot Of Nothing!

EU – EFSF & ESM – A Whole Lot Of Nothing (ZeroHedge, Mar 28, 2012):

A quick look at the headlines:

€200 billion already committed. So the EFSF has already committed €200 billion.  So far I only see €63 billion of debt issued by the EFSF, so they have at least another €137 billion to fund.  The bulk of their issuance so far is back to back with a they made to Greece, hardly the best collateral.  For now I’m going to assume that there is no overcollateralization requirement and just €200 billion has been committed, but if the 165% overcollateralization is in place, then that would really be €300 billion of “guarantees” used up.

Read moreEU: EFSF & ESM … A Whole Lot Of Nothing!

OECD Chief Angel Gurria: Eurozone Finance Ministers Must Raise ONE TRILLION Euro Bailout For The ‘Mother Of All Firewalls’

– Eurozone finance ministers must raise ONE TRILLION euro bailout for the ‘mother of all firewalls’ says OECD chief (Daily Mail, Mar 27, 2012):

The eurozone bailout fund should be increased to 1 trillion euros to provide ‘the mother of all firewalls’, the head of a leading international development body said today.

Angel Gurria, the secretary general of the Organization for Economic Co-operation and Development (OECD), said eurozone finance ministers need to impress finance markets with the size of their rescue fund for indebted countries when they meet later this week.

Read moreOECD Chief Angel Gurria: Eurozone Finance Ministers Must Raise ONE TRILLION Euro Bailout For The ‘Mother Of All Firewalls’