Domino Effect at Work with Euro - Last Days of the Eurozone ? - UPDATE: S & P put EU on Negative Watch

[Ephilant]

You totally misunderstood my comment about being more intelligent in apportioning blame.
In any case the points you make are exactly as I intended - i.e. Irish should not accept the orchestrated attempt to blame the ordinary Greek for the disaster.

Great, 2 down, 14,999,998 to go

[riposte]

I think that the blame game here, as everywhere else, is a total waste of time and energy. Apart from getting nobody anywhere, it plays into the hands of the ruling class. Get Irish Joe Soap to blame Greek Joe Soap, and Greek Joe Soap will start wasting time and energy on defending himself, if not throwing blame back, etc. As I said, divide and conquer. We are were we are and we need to get out of it, irrespective of how we got here. Irish Joe Soap and Greek Joe soap both know that we are being held by the short and curlies, and instead of helping those doing the holding to twist as well, by playing the blame game, we would all be a lot better off and further on the road to a future worth having if we would indeed stick together and stand as one instead of brown nosing our suppressors for individual gains (which will NOT be forthcoming, you can be sure of that!). If only Irish, Portuguese, Spanish, Italian and Greek Joe soap could see that, and join in a parallel Union, we would not be too long waiting to be heard and treated like the equals we are supposed to be...

I agree with this 100% Ephilant ...... I was just musing on whether the EU -ECB etc...... would pay a blind bit of notice to a Greek veto on anything.

It's true ..the Irish were engaged in brown-nosing the Germans by voting for the Fiscal Treaty ........ but then ..... the Greeks were brown-nosing the Germans by voting for those parties who were committed to enforcing the 2nd Bailout for Greece ........and all the austerity that went with it.

Backbone is in short supply ......all round.

[C. Flower]

I agree with this 100% Ephilant ...... I was just musing on whether the EU -ECB etc...... would pay a blind bit of notice to a Greek veto on anything.

It's true ..the Irish were engaged in brown-nosing the Germans by voting for the Fiscal Treaty ........ but then ..... the Greeks were brown-nosing the Germans by voting for those parties who were committed to enforcing the 2nd Bailout for Greece ........and all the austerity that went with it.

Backbone is in short supply ......all round.

The merit of setting up the parallel structure, is that when the present one disintegrates, there will be an alternative ready to kick in.

[Count Bobulescu]

2) KRUGMAN: It’s hard to see a case for optimism for Europe. “Over the past few months I've read a number of optimistic assessments of the prospects for Europe. Oddly, however, none of these assessments argue that Europe's German-dictated formula of redemption through suffering has any chance of working…What would it really take to save Europe's single currency? The answer, almost surely, would have to involve both large purchases of government bonds by the central bank, and a declared willingness by that central bank to accept a somewhat higher rate of inflation. Even with these policies, much of Europe would face the prospect of years of very high unemployment. But at least there would be a visible route to recovery. Yet it's really, really hard to see how such a policy shift could come about…So will Europe save itself? The stakes are very high, and Europe's leaders are, by and large, neither evil nor stupid. But the same could be said, believe it or not, about Europe's leaders in 1914. We can only hope that this time is different.” Paul Krugman in The New York Times.
http://www.nytimes.com/2012/07/02/op...wpisrc=nl_wonk


4) EL-ERIAN: Europe may lose its chance to save itself. “Optimists – fortunately, there remain a few, especially in Europe itself – believe that when the situation becomes really critical, political leaders will turn things around and put Europe back on the path of economic growth, job creation, and financial stability. But pessimists have been growing in number and influence. They see political dysfunction adding to financial turmoil, thereby amplifying the eurozone's initial design flaws. Of course, who is ultimately proven correct is a function of eurozone governments' willingness to make the difficult decisions that are required, and in a coordinated and timely fashion. But that is not the only determinant: governments must also be able to turn things around once the willingness to do so materializes. And here, the endless delays are making the challenges more daunting and the outcome more uncertain.” Mohamed El-Erian in Project Syndicate.
http://www.project-syndicate.org/com...wpisrc=nl_wonk

The World Bank may offer technical assistance to crisis-plagued countries like Greece. “The World Bank's new president, on his first day on the job, said on Monday that the institution would be open to offering technical assistance to crisis-plagued high-income countries like Greece. ‘There are many situations in which what our member countries want most of all is our technical expertise,’ Jim Yong Kim, an American physician and global health expert, told reporters. ‘There are so many sources of capital these days in the world that that's not going to be our role, but our role will be to provide technical assistance.’ In offering such assistance, the bank would not be disbursing loans or grants. Rather, it would act as a consultant, helping a government draft an infrastructure investment or poverty reduction plan, for instance. Still, Dr. Kim said that the bank would remain focused on its core goal of eradicating poverty around the world.” Annie Lowrey in The New York Times.

[Sam Lord]

Ten year bond yields on the increase again. Looks like the summit did not fix much.

The rate, or yield, for the Spanish 10-year bond was up 0.22 percentage points to 6.96 per cent by early afternoon in Madrid. That level is deemed unsustainable over the long term and could push Spain to seek a full-blown bailout like Greece, Ireland and Portugal.

Italy's equivalent rate was up 0.13 percentage points to 6.01 per cent. In comparison, Germany's bond — seen as a safe haven for investors — was commanding a yield of just 1.37 per cent.

http://www.thestar.com/business/arti...lds-rise-again

[ang]

Finland will leave the eurozone rather than pay the debts of other Countries -

10.29 The Finnish finance minister, Jutta Urpilainen, said in a newspaper interview this morning that she'd consider crashing her AAA-rated country out of the eurozone rather than face paying the debts of another country:

http://www.telegraph.co.uk/finance/d...sappoints.html



Portugal has austerity problems - A Portuguese Court Just Threw A Wrench In Austerity Plans

ISBON, Portugal (AP) — Portugal's Constitutional Court has struck down a government measure to cut public sector wages, delivering a setback to the bailed-out country's efforts to reduce its budget deficit.

Read more: http://www.businessinsider.com/a-por...#ixzz1zr3UbxzD

[Count Bobulescu]

Top story: The return of the central banks
The ECB cut interest rates to a historic low. “The European Central Bank has cut its main interest rate to a historic low amid signs that prospects for the eurozone economy are looking increasingly bleak. Mario Draghi, ECB president, said policy makers had ‘unanimously’ decided to cut the central bank's main policy rate by a quarter of a percentage point to 0.75 per cent, pushing the rate under 1 per cent for the first time…The ECB also cut the interest rate on its deposit facility to zero, marking a bold step in its attempts to reduce general market interest rates and stimulate interbank lending. The deposit rate is what the ECB pays banks for their overnight deposits with it. It in effect sets a floor for market rates, since banks have no incentive to lend to each other for less reward than they get for parking money safely at the central bank.” James Wilson in The Financial Times.
.
Economists were underwelmed by the ECB’s actions: http://on.wsj.com/PnHbEx.


China cut interest rates for the second time in less than a month. “China's central bank unexpectedly cut regulated bank lending rates by nearly a third of a percentage point on Thursday evening, and made a rule change that could further reduce borrowing rates for companies with good credit by an additional three-fifths of a percentage point…The People's Bank of China reduced the regulated rate for one-year bank loans by 0.31 percentage points, to 6 percent. At the same time, the central bank also said that banks would be allowed to charge as little as 70 percent of the regulated interest rate to good customers; the previous minimum, set a month ago, had been 80 percent. And until the initial rule change early last month, banks had been required to charge at least 90 percent of the regulated rate, even to their best customers.” Keith Bradsher in The New York Times.

The Bank of England extended its QE program. “The Bank of England has turned the printing presses back on after a majority of the members of its interest-rate setting committee voted to pump another ?50bn into the stalled economy. Interest rates were held steady at 0.5 per cent…The monetary policy committee has torn up its growth and inflation forecasts of just a few months ago in reaction to signs that the UK economy was weaker than it thought. This, along with falling commodity prices, has pulled inflation from a peak of 5.2 per cent last September to 2.8 per cent in May.” Sarah O'Connor in The Financial Times.

Denmark’s central bank dropped its deposit rate below zero. “Denmark’s central bank mirrored the European Central Bank’s historic rate cut by taking a rare step of its own: slashing its deposit rate below zero for the first time…Nationalbanken left the key policy lending rate in positive territory, although it was cut by a quarter of a percentage point, to 0.2%, from 0.45%. So, it is still charging interest on its loans, but not much. Investors seeking havens have been willing to accept negative interest rates on newly-issued government debt during the euro zone crisis.” Flemming Emil Hansen in The Wall Street Journal.

Even Kenya’s central bank cut its interest rates. “Kenya’s central bank declared a measure of victory over high inflation and currency volatility after a months-long battle, cutting its benchmark lending rate by a bigger-than-expected one and a half percentage points. While a sharper-than-forecast fall in inflation last month offered scope for a rate cut, particularly after disappointing first quarter growth figures, the bank was left balancing the need to spur output and protect a still vulnerable currency. The regulator came under fire last year for sacrificing the currency and prices at the altar of economic growth, when soaring inflation and currency turmoil engulfed the region. It atoned in the final quarter of 2012 when it jacked up rates. The Monetary Policy Committee on Thursday cut the central bank rate by 150 basis points to 16.5 percent, saying its tightening stance had worked to cool inflation and stabilise the shilling.” Duncan Miriri in Reuters.

But the Fed isn’t expected to mirror the ECB’s deposit rate cut. “The European Central Bank's decision to cut its overnight deposit rate to zero to spur lending isn't likely to prompt a similar move by the U.S. Federal Reserve, economists said Thursday in the wake of a flurry of global central bank activity. Fed officials have said U.S. banks are holding around $1.6 trillion in excess of what they need to back their deposits at the U.S. central bank, but few economists expect the Fed to lower the interest it pays on those funds-already very low at 0.25%-in a bid to nudge banks to use it elsewhere.” Kristina Peterson in The Wall Street Journal.

The euro didn’t fare so well in the aftermath. ”The clear loser in the currency markets after three of the world's big central banks either cut interest rates or embarked on more emergency bond-buying was the euro. The single currency tumbled against every other big currency…It fell to below $1.24 versus the dollar, hitting its lowest level in a month and more than giving up the gains it had made since last week's summit of EU leaders. Analysts say the effect of the ECB's decision is to eliminate the interest rate advantage the euro has had over other big currencies, including the dollar and the yen.” Alice Ross in The Financial Times.

The ECB is running out of conventional monetary tools. “Mario Draghi is almost out of wriggle room. By cutting its main policy interest rate a quarter of a percentage point on Thursday and bringing the rate it pays on overnight deposits to zero, the European Central Bank moved close to the end of the road in terms of what normal monetary policy can do to revive the stalling EU economy. Mr Draghi said the ECB's governing council was unanimous in deciding on the measures, which leave a further quarter-point reduction as perhaps the last interest rate cut open to the bank before moving into more unconventional territory, such as more support for or sovereign bond purchases…Asked whether the ECB was running low on policy options, Mr Draghi, said ‘there was no such feeling … we still have all our artillery ready.’ He said the council had not discussed any other ‘non-standard’ measures such as buying sovereign bonds or making more long-term cheap funding available to banks.” James Wilson in The Financial Times.

Spanish and Italian bond yields continued to rise. “A sell-off in Spanish government bonds intensified Thursday despite the European Central Bank’s decision to slash interest rates to record lows, as the country was forced to pay higher yields at a debt auction, in a sign that optimism following last week’s European Union summit is fading. Spain’s debt has now erased the majority of the gains of the past week, as doubts over the details of reforms agreed at the summit continue to mount. Italian yields also rose, further taking the gloss off the rally in peripheral debt that began when the summit delivered more than markets had hoped for. The ECB cut its benchmark interest rates by 25 basis points each…But any hopes that the move would calm tensions in Spanish and Italian bond markets were swiftly dashed, with traders saying some investors had been hoping for additional steps from the ECB, such as a further three-year liquidity operation.” Tommy Stubbington and Emese Bartha in The Wall Street Journal.

FINANCIAL TIMES: The central banks fell short. “Tight fiscal and loose monetary policy is, in the words of UK chancellor George Osborne, a textbook response to the financial crisis. But across Europe, a slowdown is weakening fiscal stances while a credit crunch is eroding the stimulus offered by central banks. Had the Bank of England and the European Central Bank not relaxed monetary policy on Thursday – Frankfurt by cutting rates a quarter-point; Threadneedle Street by buying another ?50bn of gilts – they would have been complicit in the growing cost of credit faced by households and businesses. Even what they did do is so modest that they are running just to stand still…Both central banks fell short of the real credit boost their economies need…To do its job, the ECB must restart buying bonds in the market – this is justified even on its own contorted rationale for these programmes…Instead, it acted solely on the interest rate – the action with the least impact.” The Financial Times Editorial Board.

BARLEY: Monetary policy may not be able to do much at this point. “Welcome to rate-cut city. The People’s Bank of China, the European Central Bank and the National Bank of Denmark all cut rates Thursday, and the Bank of England delivered another ?50 billion ($77.95 billion) of so-called quantitative easing through bond buying…In many developed economies, the monetary-transmission mechanism, whereby reductions in official rates filter through to juice demand, is broken. Very low rates may even be an impediment to growth, as they signal how poor the outlook is and squeeze those on fixed incomes. Despite rates that have been negative in real terms for years now, the BOE noted that U.K. output had barely grown for 18 months, while the ECB acknowledged that the whole euro-area economy was being damaged. Thursday’s rate cuts and bond purchases are an understandable response and may not be the last. But–perhaps with the exception of China–they look increasingly subject to diminishing returns.” Richard Barley in The Wall Street Journal.

5) LIND: American history holds lessons for the eurozone. “The irrelevance of American federalism to the EU's crisis does not mean that Europeans cannot learn anything from the American experience. The US is not only a federal nation state but also the military and economic hegemon of North America…The American example shows that these hegemonic functions can be carried out effectively in the absence of formal, supranational, regional institutions…The parallel is not exact. By itself, Germany, the largest country in the EU, does not have anything like the weight of the US in North America. But the American example suggests that, by concerted action, the two or three largest European economies might function as a responsible regional hegemon, acting as both lender and consumer of last resort…If regional economic hegemons exercise responsible leadership, formal regional institutions are unnecessary. And if regional hegemons refuse to play constructive roles, formal regional institutions will be useless.” Michael Lind in The Financial Times.

Greece has dropped its push to ease the terms of its bailout. “Greece's new government has dropped a plan to seek softer terms for its second bailout following warnings that it would be rejected by international lenders. Yannis Stournaras, finance minister, said the governing coalition would have to accelerate reforms before asking for modifications in a EUR174bn programme agreed in February with the European Union and the International Monetary Fund…Greece's change of tack came as EU and IMF officials visiting Athens this week echoed a statement by Christine Lagarde, the IMF managing director, in a television interview that she was ‘not in negotiations or re-negotiations mood’ on the Greek bailout. The three coalition partners – the conservatives and two left-of-centre parties – all pledged during recent election campaigns that Greece would seek a one- or two-year extension of the programme to ease the impact of almost five years of recession, with unemployment now above 21 per cent.” Kerin Hope in The Financial Times.

[Ephilant]

The German Predisent Joachim Gauck has put the cat amongst the pigeons and asked the impossible question.
"Why does the Euro need saving, and what will it cost Germany?"
the question is directed at Merkel directly, with the demand to explain. Wonder what crap she going to come out with to justify her policies?

http://en.europeonline-magazine.eu/g...eol_country=35

[DCon]

Wolfgang Münchau, in the FT, says that the eurozone crisis will last for 20 years

The consensus among observers had been that the EU had taken an important step in the right direction by agreeing a pathway towards a banking union, but that they did not do enough on crisis resolution. I disagree with that statement. I think it was a very large step – in the wrong direction. The summit made a concrete crisis resolution decision contingent on a future decision, which will be even harder to reach, and thus even more likely to fail.

They agreed that there shall be no common bank recapitalisation until a full banking union is established. And the Bundesbank has reminded us that the latter is not possible without a political union. The logical implication is that we won’t solve the crisis for the next 20 years.

What we know now is that Germany will not agree to mutualised deposit insurance. It cannot even agree to give the European Stability Mechanism a banking licence so that it can leverage itself. If Germany cannot do the minimum necessary now, why should anybody think it can agree a political union? This is less credible than the promise by an alcoholic to give up drinking in five years.

The banking union that is required is the one Germany will not accept: central regulation and supervision, a common restructuring fund and common deposit insurance. It would take years to create. If done properly, it would require a change of national constitutions and European treaties, if only to redefine the role of the ECB. It is sheer madness to make crisis resolution contingent on the success of what would be the biggest European integration exercise in history.

The message I took away from the summit is that the eurozone will not resolve the crisis. In that sense, it was indeed a “historic” meeting.

http://www.ft.com/cms/s/0/c9de2906-c...#ixzz206nLcOwE

[DCon]

The Dutch 2 year govt bond yield just went negative for the first time ever

[Dr. FIVE]

Krugman sees two possible outcomes both of which are "impossible."

ECB aggressively buys peripheral debt and caps the borrowing costs of Spain and Italy, while simultaneously making it clear that they're going to promote "expansionary monetary policies" that boost inflation in Germany and help restore competitiveness between Germany and the periphery.

"That can work... it's still going to be extremely painful," he says.

"Any solution is going to come out of Berlin and Frankfurt... Frankfurt will do the actual lifting, but has to have Berlin's permission."

But would Berlin actually sign off on an ECB-based debt monetization, pro-inflation scheme? That's very un-German.

That gets to Krugman's other possibility ... Basically, eventually the ECB stops propping up all the banks (as they are now), and you get bank runs, bank holidays, and currency redenominations. That would mean the end of the euro system, which would then bring "cataclysmic" effects, both economic and legal.

You look at that scenario, says Krugman, and it seems impossible that the Germans would let the entire project disintegrate like this.

So what happens?

"I say it's 50/50 ... Either the Germans have to accept something they consider unacceptable, or they have to accept something, the breakup of the euro, that they consider something unacceptable."

As for which way the Germans lean, he says, "They're complicated ... they're not all as rigid as they are in official positions.

video here

http://www.businessinsider.com/paul-...#ixzz20dJ5OJk4

[C. Flower]

Well spotted and well explained by Yanis Varoufakis - The ECB interest rates - and Eurozone monetary policy - is dead.

The Libor scandal was an attempt to cook the books when there was no real interbank lending to base the rate on.

Interest rates are now being set locally, on the basis of expectation - or not - of ability of individual states to meet their "obligations."

http://yanisvaroufakis.eu/2012/07/17...tem-is-broken/

The Eurozone is incrementally breaking up, and this is only one of the ways in which it is happening.

[riposte]

It won't be long now.

US and European stocks slid on Friday and the euro hit record lows against several currencies after Spain's heavily indebted Valencia region called for aid, increasing investor fears that the Spanish government is moving toward a full-blown bailout.

http://www.independent.ie/business/e...d-3174748.html

[Dr. FIVE]

[ang]

Borris Johnson on the Andrew Marr show discussing the euro says -

"better an end with horror than a horror without end"

quite, Boris, quite