The € EURO thread

[Trajan]

the euro was dead the day it was created, the funeral is coming, it should be tomorrow.

Behind the EU and € are not only economic interests but enormous strategic interests.
It's not dead because you wish it to be dead.

Forget Greece, read about corruption in Romania and Bulgaria who are already EU members and should one day enter €-zone. There's significant mentality differences in some parts of Europe.
States need to be organized in an effective way and they need to increase tax revenues, EU has major plans from common defense policy (Army) to achieving the switch to green energy. All which needs money.
No dolce-vita or corruption, and for this to happen there is no path other than centralization.

German Finance Minister:

“We can only achieve a political union if we have a crisis,”

http://www.nytimes.com/2011/11/19/w...opes-crisis.html?_r=4&pagewanted=2&ref=global

I wouldn't bet on €'s "funeral". It's more likely, that €-zone will transform from a union of equals to a union controlled by the heavyweights. If the smaller states don't like it, they'll have to leave €, go bankrupt and will be bought anyway by the heavyweights.
In some parts of €-zone they already can't pay the social benefits without next payment tranches from EU-IMF, and their governments have been replaced by technocrats who do as they're told to do.

first- I don't wish it dead. you are it appears taken up by the very same emotion that created it, you THINK it should be and WANT it to be, except, social-human mechanics says- it CANNOT be.

I think it should die becasue its a mess and was never well thought out, as they began almost immediately to break their own rules....anyway, its going t happen, becasue thats the reality.





* NOVEMBER 25, 2011, 8:19 A.M. ET

Italian Yields Jump After Poor Auction

FRANKFURT—Italian two-year and five-year government-bond yields soared to euro-era highs Friday as investors began giving up on the euro zone's ability to break the political gridlock that is blocking a more decisive response to the currency bloc's debt crisis.

Italian two-year and five-year yields climbed to 7.7% and 7.8%, respectively, and the 10-year yield moved further above the key 7% mark to 7.3%.

more at-

Italian Yields Jump After Poor Auction - WSJ.com

 

[Toro]

I think the euro is going to survive but it is not inconceivable that it won't.

As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.

Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.

The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.

A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.

“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.

Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.

Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.

Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.

Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund.

There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday.

The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable.

Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.

The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”

The EU treaties that created the euro and set its membership rules contain no provision for members to leave, meaning any break-up would be disorderly and potentially chaotic.

If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse.

Prepare for riots in euro collapse, Foreign Office warns - Telegraph

 

[Toro]

Merkel's opposition to eurobonds.

Angela Merkel's response could hardly have been clearer. European Commission President Jose Manuel Barroso on Wednesday presented a study outlining the possible forms euro bonds could take -- whereupon the German chancellor found unusually unambiguous words in response. The proposal, she said, was "extraordinarily distressing." She also called it "inappropriate."

The reaction was unusually firm for Merkel. She has become notorious in Germany for shying away from positions that can't be wriggled out of later. But when it comes to pooling the debt of all euro-zone member states in the form of euro bonds, she has long been firm in her rejection. In December 2010, for example, she said "the euro zone needs more harmony and competitiveness rather than common euro-zone bonds." In September, she called euro bonds "absolutely wrong." Wednesday's outburst, in other words, should not come as a surprise. ...

Germany has largely isolated itself in the ongoing European discussion over what steps should next be taken to confront the euro crisis. Governments across the Continent are clamoring for a solution. And analysts around the world have come to the conclusion that the spread of Europe's ongoing debt crisis can only be halted by implementing one -- or both -- of two methods: Either debt must be pooled in the form of euro bonds, or the European Central Bank must become the lender of last resort by buying up massive quantities of sovereign bonds from indebted euro-zone members.

Virtually all euro-zone members have thrown their support behind one of those two antidotes. Germany, though, has firmly opposed both. Berlin fears that massive ECB bond purchases could significantly drive up inflation (indeed, it evokes fears of 1920s hyperinflation in the country) and sacrifice the independence of the Frankfurt institution, which was modelled after the German central bank, the Bundesbank, that for decades served as guardian of the highly stable deutsche mark. And it's opposition to euro bonds? SPIEGEL ONLINE provides an overview of the most important reasons.

... Euro bonds, though, would essentially transform Germany -- and its solid, AAA credit rating -- into the strongest guarantor of collectivized euro-zone debt. And, should worse come to worst, German taxpayers would, once again, be forced to fork over. That, at least, would appear to be the widespread fear. A survey performed by Emnid in August found that fully 76 percent of Germans oppose euro bonds, with only 15 percent in favor. ...

Less than 2 percent. That was the interest rate being commanded by German 10-year government Bund bonds on Wednesday. Indeed, there are some analysts who would argue that Berlin's inability to find buyers for its entire bond issue was not necessarily an indication of growing wariness of euro-zone debt. Rather, it showed merely that, with such a low return, they simply weren't all that attractive.

That particular view of the situation was not widely shared, however. Most saw the shortfall as another sign that the euro-zone crisis is frightening investors off. And on Thursday, interest rates on German bonds shot upwards to 2.26 percent. "This is just one auction," Don Smith, an analyst with ICAP, told the Financial Times. "But there is a growing feeling among many in the markets that the crisis is heading one way -- and that is towards the break-up of the euro zone." ...

By pooling euro-zone debt, however, euro bonds would likely make it more expensive for Germany to borrow. Some models under consideration would, of course, allow Germany to continue to issue its own sovereign bonds. But it seems certain that the interest rates on those bonds, too, would rise were the country to become a guarantor of pooled euro-zone debt. And with a debt load of over €2.2 trillion, representing 81.2 percent of the country's gross domestic product, a lasting increase in German bond yields would translate to billions more needed to service that debt.

In September, Germany's Constitutional Court handed down a landmark ruling on the country's participation in bailout efforts for Greece and for other heavily indebted euro-zone countries. While the court allowed Berlin to go ahead on its planned support for the European Financial Stability Facility (EFSF), it made it clear that any additional moves to aid fellow euro-zone member states would be viewed negatively.

Specifically, the ruling clearly indicated that Germany's constitution frowns on any permanent mechanism to transfer German taxpayer money to foreign countries in the form of a bailout. The larger such payments are, the larger the frown. The court also specifically warned against a situation whereby foreign governments could trigger payments of German guarantees through their actions. ...

euro bonds would be an entirely different case. Wolfgang Münchau, the Financial Times columnist who recently began writing editorials for SPIEGEL ONLINE, points out that they would be everything that the German Constitutional Court finds questionable about bailout programs thus far. They would have the potential to make Germany liable for debts incurred by other countries in the euro zone, the program would be huge (otherwise there would be no point in introducing them in the first place) and German guarantees could be triggered by the actions of foreign governments. "The court's verdict leaves me no alternative but to conclude that (euro bonds) are indeed unconstitutional," Münchau wrote in the Financial Times in September. ...

The Return of 'Madame Non': Why Merkel Remains Opposed to Euro Bonds - SPIEGEL ONLINE - News - International

 

[Toro]

Now an even bigger calamity is looking likelier. The intensifying financial pressure raises the chances of a disorderly default by a government, a run of retail deposits on banks short of cash, or a revolt against austerity that would mark the start of the break-up of the euro zone. ...

Consider the three ingredients for recession: a credit crunch, tighter fiscal policy and a dearth of confidence. In aggregate, European banks’ loans exceed their deposits, so they rely on wholesale funds—short-term bills, longer-term bonds or loans from other banks—to bridge the gap. But investors are becoming warier of lending to banks that have euro-zone bonds on their books and that can no longer rely on the backing of governments with borrowing troubles of their own. Long-term bond issues have become scarce and American money-market funds, hitherto buyers of short-term bank bills, are running scared. ...

The drying-up of funding for sovereigns and for banks is a threat to the integrity of the euro, because of the stark divide between debtor and creditor countries within the zone. ...

During the credit boom, cheap capital flowed into Greece, Ireland, Portugal and Spain to finance trade deficits and housing booms. As a result, the net foreign liabilities—what businesses, householders and government owe to foreigners, less the foreign assets they own—of all four are close to 100% of GDP. (By comparison, America’s net foreign liabilities are 17% of GDP.) Much of their debt is being financed by local bank borrowing or bonds sold to investors in creditor countries, such as Germany. Ireland is unusual in that a large chunk of what it owes is in the form of equity (all those American-owned factories and offices) and so does not need to be refinanced.

With a few exceptions, the benchmark cost of credit in each euro-zone country is related to the balance of its international debts. Germany, which is owed more than it owes, still has low bond yields; Greece, which is heavily in debt to foreigners, has a high cost of borrowing (see chart 2). Portugal, Greece and (to a lesser extent) Spain still have big current-account deficits, and so are still adding to their already high foreign liabilities. Refinancing these is becoming harder and putting strain on local banks and credit availability.

The higher the cost of funding becomes, the more money flows out to foreigners to service these debts. This is why the issue of national solvency goes beyond what governments owe. The euro zone is showing the symptoms of an internal balance-of-payments crisis, with self-fulfilling runs on countries, because at bottom that is the nature of its troubles. And such crises put extraordinary pressure on exchange-rate pegs, no matter how permanent policymakers claim them to be.

One of the initial attractions of euro membership for peripheral countries—access to cheap funds—no longer applies. If a messy default is forced upon a euro-zone country, it might be tempted to reinvent its own currency. Indeed, it may have little option. That way, at least, it could write down the value of its private and public debts, as well as cutting its wages and prices relative to those abroad, improving its competitiveness. The switch would be hugely costly for debtors and creditors alike. But the alternative is scarcely more appealing. Austerity, high unemployment, social unrest, high borrowing costs and banking chaos seem likely either way. ...

Market gurus and other students of misaligned stock, bond or home prices often say that although it is easy to spot an asset-price bubble, it is impossible to know the event that finally pricks it. In much the same way, the likeliest trigger for a disintegration of the euro is unknowable. But there are plenty of candidates. ...

The euro: Beware of falling masonry | The Economist

 

[editec]

The euro: Beware of falling masonry | The Economist

What a chilling read that was, Toro.

Thanks for bringing it to my attention.

 

[Trajan]

I think the euro is going to survive but it is not inconceivable that it won't.

...well yes it can go either way.

I will say- it won't. It can't.

for this carefully contrived house of cards to survive, whats required is a total, and I mean total restructuring in how the weaker gov.s do biz. and I mean from who gets a truck drivers license to who gets to open a pharmacy, thats how much control some of these nations states have over enterprise in their countries. This and the welfare state cum pension system cannot survive in the form its natives demand as they have become accustomed to it.

to say that they, the great unwashed would take a bath in newly minted or from under the mattress poorer than euro drachmas/francs etc. if they jumped the euro is an argument in MITIGATION.

they are boxed in and what is true when he said it is still true today in every use;

"You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time."

 

[Trajan]

humm, word on the street is the German central bank is ready to drop growth outlook to or below .5 % next year....is a downgrade coming for Germany?

 

[Toro]

humm, word on the street is the German central bank is ready to drop growth outlook to or below .5 % next year....is a downgrade coming for Germany?

No.

 

[Trajan]

so what to make of this;


Europe's Leaders Pursue New Pact
Deal Would Bring Closer Fiscal Ties

BERLIN—Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact aimed at preventing the currency bloc from fracturing by tethering its members even closer together.

The proposal, which hasn't yet been agreed to, would make budget discipline legally binding and enforceable by European authorities. Officials regard the moves as a first step toward closer fiscal and economic coordination within the currency area. That would mark a seminal shift in the governance of the 17-nation euro-zone.

European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.

The proposed pact represents the boldest attempt by Europe's leaders to halt the spread of the crisis since they agreed in July to offer Greece a new bailout and to bolster the region's bailout fund. Those steps, initially hailed as a breakthrough, quickly proved insufficient.

snip-

As recently as this summer, measures such as a centralized fiscal-enforcement authority with power to seize control of national budgets would have been viewed in most capitals as an unacceptable invasion of sovereignty. That such steps are now under serious consideration reflects the perilous turn the crisis has taken in recent months.

more at-
Europe's Leaders Pursue New Pact - WSJ.com



didn't they have rules in the Maastricht treaty that demanded gdp debt ration limits etc etc? now they think that say Greece et al will turn over the direct power to allocate national departmental funding to...the EU? seriously?

In effect this would be tantamount to say, allowing Peking to dictate our budget if sold them bonds.....

They are desperate now, that is clear, I can smell it.

 

[Wiseacre]

so what to make of this;


Europe's Leaders Pursue New Pact
Deal Would Bring Closer Fiscal Ties

BERLIN—Euro-zone leaders are negotiating a potentially groundbreaking fiscal pact aimed at preventing the currency bloc from fracturing by tethering its members even closer together.

The proposal, which hasn't yet been agreed to, would make budget discipline legally binding and enforceable by European authorities. Officials regard the moves as a first step toward closer fiscal and economic coordination within the currency area. That would mark a seminal shift in the governance of the 17-nation euro-zone.

European officials hope a new agreement, which would aim to shrink the excessive public debt that helped spark the crisis, would persuade the European Central Bank to undertake more drastic action to reverse the recent selloff in euro-zone debt markets.

The proposed pact represents the boldest attempt by Europe's leaders to halt the spread of the crisis since they agreed in July to offer Greece a new bailout and to bolster the region's bailout fund. Those steps, initially hailed as a breakthrough, quickly proved insufficient.

snip-

As recently as this summer, measures such as a centralized fiscal-enforcement authority with power to seize control of national budgets would have been viewed in most capitals as an unacceptable invasion of sovereignty. That such steps are now under serious consideration reflects the perilous turn the crisis has taken in recent months.

more at-
Europe's Leaders Pursue New Pact - WSJ.com



didn't they have rules in the Maastricht treaty that demanded gdp debt ration limits etc etc? now they think that say Greece et al will turn over the direct power to allocate national departmental funding to...the EU? seriously?

In effect this would be tantamount to say, allowing Peking to dictate our budget if sold them bonds.....

They are desperate now, that is clear, I can smell it.

Yes, that treaty has to be changed and ratified. Which is problematical, there's some countries who won't give up any part of their sovereignty. Some countries are gonna pull out, the question is who and when. Don't know that anybody cares a whole lot about Greece, but Italy is another matter.

 

[Zander]

Interesting take by Peter Schiff.....well worth the time to read.

With fiscal time bombs ticking in both Europe and the United States, the pertinent question for now seems to be which will explode first. For much of the past few months it looked as if Europe was set to blow. But Angela Merkel's refusal to support a Federal Reserve style bailout of European sovereigns and her recent statement the she had no Hank Paulson style fiscal bazooka in her handbag, has lowered the heat. In contrast, the utter failure of the Congressional Super Committee in the United States to come up with any shred of success in addressing America's fiscal problems has sparked a renewed realization that America's fuse is dangerously short.

Chancellor Merkel has been emphatic that European politicians not be given a monetary crutch similar to the one relied on by their American counterparts. Her laudable goal, much derided on the editorial pages of the New York Times, is to defuse Europe's debt bomb with substantive budget reforms, and as a result to make the euro "the strongest currency in the world." Much has been made of the poorly received auction today of German Government bonds, with some saying the lack of demand (which pushed yields on 10-year German Bonds past 2% --hardly indicative of panic selling) is evidence of investor unease with Merkel's economic policies. I would argue the opposite: that many investors still think that Merkel is bluffing and that eventually Germany will print and stimulate like everyone else. It is likely for this reason that yields on German debt have increased modestly.

In contrast, the U.S. is crystal clear in its intention to ignore its debt problems. With the failure of the Super Committee this week it actually became official. American politicians will not, under any circumstances willingly confront our underlying debt crisis. While the outcome of the Super Committee shouldn't have come as a great surprise, the sheer dysfunction displayed should serve as a wakeup call for those who still harbor any desperate illusions. Some members of Congress, such as John McCain, have even come out against the $1.2 trillion in automatic spending cuts that would go into effect in January 2013. Expect more politicians of both parties to cravenly follow suit.

Over the next decade, the U.S. government expects to spend more than $40 trillion. Even if the $1.2 trillion in automatic cuts are allowed to go through, the amount totals just 3% of the expected outlays. In a masterstroke of hypocritical accounting, $216 billion of these proposed "cuts" merely represent the expected reductions in interest payments that would result from $984 billion of actual cuts. These cuts won't make a noticeable dent in our projected deficits, which if history can be any guide, will likely rise by much more as economic reality proves far gloomier than government statisticians predict. Finally, the cuts are not cuts in the ordinary sense of the word, where spending is actually reduced. They are cuts in the baseline, which means spending merely increases less than what was previously budgeted.

In the mean time, the prospect of sovereign default in Europe is driving "safe" haven demand for the dollar. So contrary to the political blame game, Europe's problems are actually providing a temporary boost to America's bubble economy. However, a resolution to the crisis in Europe could reverse those flows. And given the discipline emanating from Berlin, a real solution is not out of the question. If confidence can be restored there, each episodic flight to safety may be less focused on the U.S. dollar. Instead, risk-averse investors may prefer a basket of other, higher-yielding, more fiscally sustainable currencies.

The irony is that Europe is actually being criticized for its failure to follow America's lead. This misplaced criticism is based on the mistaken belief that our approach worked. It did not. Sure, it may have delayed the explosion, but only by assuring a much larger one in the future. In the mean time, many have mistaken the delay for success.

However, if Merkel's hard line works, and real cuts follow, Europe will be praised for blazing a different trail. As a result the euro could rally and the dollar sinks. Commodity prices will rise, putting even more upward pressure on consumer prices and interest rates in the United States.

Any significant reversal of the current upward dollar trend could provide a long awaited catalyst for nations holding large dollar reserves to diversify into other currencies. My guess is that Merkel understands the great advantage the U.S. has enjoyed as the issuer of the world's reserve currency. I believe she covets that prize for Europe, and based on her strategy, it is clearly within her reach.

There is an old saving that one often does not appreciate what one has until it's lost. The nearly criminal foolishness now on display in Washington may finally force the rest of the world to cancel our reserve currency privileges. The loss may give Americans a profound appreciation of this concept.

 

[Trajan]

Interesting take by Peter Schiff.....well worth the time to read.

With fiscal time bombs ticking in both Europe and the United States, the pertinent question for now seems to be which will explode first. For much of the past few months it looked as if Europe was set to blow. But Angela Merkel's refusal to support a Federal Reserve style bailout of European sovereigns and her recent statement the she had no Hank Paulson style fiscal bazooka in her handbag, has lowered the heat. In contrast, the utter failure of the Congressional Super Committee in the United States to come up with any shred of success in addressing America's fiscal problems has sparked a renewed realization that America's fuse is dangerously short.

Chancellor Merkel has been emphatic that European politicians not be given a monetary crutch similar to the one relied on by their American counterparts. Her laudable goal, much derided on the editorial pages of the New York Times, is to defuse Europe's debt bomb with substantive budget reforms, and as a result to make the euro "the strongest currency in the world." Much has been made of the poorly received auction today of German Government bonds, with some saying the lack of demand (which pushed yields on 10-year German Bonds past 2% --hardly indicative of panic selling) is evidence of investor unease with Merkel's economic policies. I would argue the opposite: that many investors still think that Merkel is bluffing and that eventually Germany will print and stimulate like everyone else. It is likely for this reason that yields on German debt have increased modestly.

In contrast, the U.S. is crystal clear in its intention to ignore its debt problems. With the failure of the Super Committee this week it actually became official. American politicians will not, under any circumstances willingly confront our underlying debt crisis. While the outcome of the Super Committee shouldn't have come as a great surprise, the sheer dysfunction displayed should serve as a wakeup call for those who still harbor any desperate illusions. Some members of Congress, such as John McCain, have even come out against the $1.2 trillion in automatic spending cuts that would go into effect in January 2013. Expect more politicians of both parties to cravenly follow suit.

Over the next decade, the U.S. government expects to spend more than $40 trillion. Even if the $1.2 trillion in automatic cuts are allowed to go through, the amount totals just 3% of the expected outlays. In a masterstroke of hypocritical accounting, $216 billion of these proposed "cuts" merely represent the expected reductions in interest payments that would result from $984 billion of actual cuts. These cuts won't make a noticeable dent in our projected deficits, which if history can be any guide, will likely rise by much more as economic reality proves far gloomier than government statisticians predict. Finally, the cuts are not cuts in the ordinary sense of the word, where spending is actually reduced. They are cuts in the baseline, which means spending merely increases less than what was previously budgeted.

In the mean time, the prospect of sovereign default in Europe is driving "safe" haven demand for the dollar. So contrary to the political blame game, Europe's problems are actually providing a temporary boost to America's bubble economy. However, a resolution to the crisis in Europe could reverse those flows. And given the discipline emanating from Berlin, a real solution is not out of the question. If confidence can be restored there, each episodic flight to safety may be less focused on the U.S. dollar. Instead, risk-averse investors may prefer a basket of other, higher-yielding, more fiscally sustainable currencies.

The irony is that Europe is actually being criticized for its failure to follow America's lead. This misplaced criticism is based on the mistaken belief that our approach worked. It did not. Sure, it may have delayed the explosion, but only by assuring a much larger one in the future. In the mean time, many have mistaken the delay for success.

However, if Merkel's hard line works, and real cuts follow, Europe will be praised for blazing a different trail. As a result the euro could rally and the dollar sinks. Commodity prices will rise, putting even more upward pressure on consumer prices and interest rates in the United States.

Any significant reversal of the current upward dollar trend could provide a long awaited catalyst for nations holding large dollar reserves to diversify into other currencies. My guess is that Merkel understands the great advantage the U.S. has enjoyed as the issuer of the world's reserve currency. I believe she covets that prize for Europe, and based on her strategy, it is clearly within her reach.

There is an old saving that one often does not appreciate what one has until it's lost. The nearly criminal foolishness now on display in Washington may finally force the rest of the world to cancel our reserve currency privileges. The loss may give Americans a profound appreciation of this concept.

thx A-man...

this;

Finally, the cuts are not cuts in the ordinary sense of the word, where spending is actually reduced. They are cuts in the baseline, which means spending merely increases less than what was previously budgeted.

is what I have been saying and at the risk of going off Euro for a moment, in what nation in what universe is trying to cut spending in a country that already borrows 40 cents of EVERY single dollar we spend every single day an infamnia? why here of course...

and his points on the EU unwittingly shielding us from inflationary blowback, as he alludes, this to shall pass, good Christ when they get their shit together, we'll be in for some hard sledding.

 

[Toro]

Several good articles today.

79% of Germans oppose the issuance of Eurobonds. Hence, there will be no Eurobonds.

Poll: Germans strongly against eurobonds - BusinessWeek

Per ekrem's point, the PIIGS have become uncompetitive because wages have risen too much.

Here's The REAL Reason Germany Doesn't Want The ECB To Print Money

Egan Jones cuts Italy's bond ratings to BB. That is junk.

Egan Jones Downgrades Italy From BB+ To BB, Projects 157% Debt/GDP By 2014 | ZeroHedge

 

[Trajan]

Several good articles today.

79% of Germans oppose the issuance of Eurobonds. Hence, there will be no Eurobonds.

Poll: Germans strongly against eurobonds - BusinessWeek

Per ekrem's point, the PIIGS have become uncompetitive because wages have risen too much.

Here's The REAL Reason Germany Doesn't Want The ECB To Print Money

Egan Jones cuts Italy's bond ratings to BB. That is junk.

Egan Jones Downgrades Italy From BB+ To BB, Projects 157% Debt/GDP By 2014 | ZeroHedge

do those wage calcs count benefits

 

[Toro]

Moody’s Investors Service said it’s considering lowering debt ratings for banks in 15 European nations reflecting the potential removal of government support.

Moody

 

[Wiseacre]

Moody’s Investors Service said it’s considering lowering debt ratings for banks in 15 European nations reflecting the potential removal of government support.

Moody

I believe they're taking a hard look at France right now. I wouldn't be at all surprised if they didn't get downgraded pretty soon.

 

[Toro]

Some European nations, struggling to find buyers for their bonds, are pressuring their own already-stressed banks to fill the gap by acting as lenders of last resort—in certain cases, pushing the amount of risky European debt on those institutions' books even higher.

Italy and Portugal, among other European governments, are leaning on their banks to continue buying—or at least to stop selling—government bonds, according to people familiar with the matter.

Meanwhile, in Spain and other European countries, the quantities of loans banks are doling out to local and national governments have been rising sharply.

The pressure reflects mounting worry in Europe's financially shaky countries that, without buyers, their own borrowing costs will spiral out of control. At the same time it presents banks with a paradox: While investors and regulators want the banks to sell off their holdings of European sovereign debt, local politicians are twisting arms to make sure they don't. ...

Lackluster demand for the bonds could push the countries' borrowing costs into unsustainable territory. To make sure that doesn't happen, banks in each country are likely to face heavy pressure to participate in the auctions, experts say. Already, they are among the biggest holders of the bonds, accounting for about 16% of Italy's outstanding government debt securities and about 23% in Portugal.

The deep financial links between European governments and their banks have played a part in fueling the Continent's debt crisis. Banks across Europe are collectively holding hundreds of billions of euros of bonds issued by countries that investors fear are at risk of default. Worries about whether the banks are strong enough to survive losses on their government-bond holdings have ignited fears that strained governments might need to bail out their banks.

Investors have been punishing banks holding big portfolios of debt issued by countries such as Greece, Ireland, Italy, Portugal and Spain. And regulators have provided further reason for banks to pare their positions. The European Banking Authority is in the process of calculating new capital requirements for banks, based partly on their holdings of risky government bonds. The more such bonds they're holding, the more capital they will need to protect against potential losses.

The situation has prompted many big lenders in Europe and the U.S. to rapidly sell down their holdings, which they accumulated in an era when the high-yielding bonds were viewed as virtually risk-free.

Yet as those pressures bear down on the banks, governments are running out of options for borrowing money and increasingly turning to their banks for help. That is further entrenching the kinds of financial ties causing heartburn among investors, regulators and policy makers.

When some European banks have begun selling chunks of their sovereign debt in the market, their governments have urged them to stop, according to people familiar with the matter. In some cases, the requests have persuaded banks to stop shrinking their government-bond portfolios, the people said.

"We know that if we reduce our exposure, we'll be killed by the Italian Treasury," a senior Italian bank executive said. Echoing other people familiar with the matter, the executive described receiving phone calls from Treasury officials exerting "friendly pressure" after his bank unloaded some Italian government bonds. ...

Some governments are approaching banks for loans to finance their day-to-day operations.

In Spain, bank loans to the public sector increased 14% in the first nine months of the year, reaching a record of €87 billion, according to the Bank of Spain. It's the only loan segment that's growing, and it came as overall lending fell 2.6%, the sharpest drop on record.

European Nations Pressure Own Banks for Loans - WSJ.com

 

[KissMy]

Greece gets it's 6th bailout traunch of $7.7 billion.

 

[Wiseacre]

..BRUSSELS (AP) — Officials in Brussels say eurozone finance ministers have approved an €8 billion ($10.7 billion) bailout loan installment for Greece.

Without the loan Greece would have run out of cash and been in default before Christmas.

The EU had demanded, and received, letters from the leaders of Greece's main political parties pledging support for tough austerity measures to get the loan.

The installment is part of a €110 billion ($150 billion) bailout package from eurozone nations and the International Monetary Fund that has kept Greece afloat since May 2010.

The officials spoke on condition of anonymity to divulge information while the meeting was still going on.

..

So, not official yet. Oooohhh, letters of support, I'll bet the German voters are appeased now. Can, meet foot.

 

[Toro]

It is increasingly clear that Italy’s public debt is unsustainable and needs an orderly restructuring to avert a disorderly default. The eurozone’s wish to exclude private sector involvement from the design of the new European Stability Mechanism is pig-headed – and lacks all credibility.

With public debt at 120 per cent of gross domestic product, real interest rates close to five per cent and zero growth, Italy would need a primary surplus of five per cent of gross domestic product – not the current near-zero – merely to stabilise its debt. Soon real rates will be higher and growth negative. Moreover, the austerity that the European Central Bank and Germany are imposing on Italy will turn recession into depression. ...

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EconoMonitor : Nouriel Roubini's Global EconoMonitor » Italy