I still believe that Greece will exit the euro, but timing is uncertain - in couple of weeks or a year? The European banks have offloaded their Greek bonds to the ECB and EFSF, but would those two institutions be able to handle the losses now, especially politically as the Spanish bailout is around the corner?
Merkel and Hollande, or Merde, will meet on Tuesday, almost immediately after Mr. Hollande has been crowned as the new president. They will not be talking about golf or old Sven Väth dj mixes.
Elsewhere, the Spanish bond market crashed and burned, and the latest monthly balance sheet from Spain's central bank shows that the country is very dependent on Eurosystem financing and deposit flight is continuing. Greece is almost gone. It is not a major issue for German and French banks anymore. Spain is. The Merde will talk about Spain, and then they will call Super Mario in Frankfurt am Main.
So the real moment of truth comes if and when the ECB — or more accurately the Bundesbank, which may ultimately be on the hook — decides to pull the plug. Paul Krugman / NYT
News – Between
The Hedges
Markets – Between
The Hedges
Recap – Global
Macro Trading
The Closer
– alphaville / FT
Market
Commentary – A
View From My Screens
Tyler’s European Summary – ZH
Iberia Implodes To 17 Year
Lows As Stigma Trade +200%
Tyler’s US Summary – ZH
rips
and dips for the sixth day in a row
Debt
crisis: live – The
Telegraph
Europe Crisis Tracker – WSJ
FX Options
Analytics – Saxo
Bank
European
10yr Yields and Spreads – MTS indices
EURO CRISIS: GENERAL
Moody's Downgrades 26 Italian Banks: Full
Report – ZH
The unwinding – Free
exchange / The Economist
I don't know how this ends exactly, but one
answer may be that the single-currency area will ultimately have the membership
that markets find credible. That could mean a Germanic northern union or a
complete break-up. It is quite unlikely to be the current configuration.
The Axis of Weeble is Definitely Wobbling – TF
Market Advisors
Shorting Germany, preferably bunds, is my favorite way to play this (with French bonds a
close second). I think the next leg if it occurs wipes out the myth of Germany as “safe haven”. If Greece goes, losses to the
Troika will be real and any attempt to paint over them will be too obvious.
Neverland – Dr. Ed’s Blog
Two charts:
industrial production and stock markets of select European countries and some
trashing:
Europe is a socialist’s wonderland. Actually, it’s more like where Peter Pan
resides.
Rebalancing the Eurozone – Project
Syndicate
As long as the eurozone's internal divergence
in unit labor costs persists, the euro crisis cannot be fully resolved, because
current-account deficits and/or slow growth will continue to stalk the “south,”
perpetuating worries about sovereign debt and commercial banks. But the burden
of adjustment cannot rest solely on the south.
The only player that can assist is the
ECB. It cannot fix an issue of
solvency. However, it can offset the
pressures of illiquidity. It has done so
and will do so again. We expect the ECB
balance sheet to expand again by a large amount as it attempts to use
additional liquidity to stave off collapsing markets.
Merkel and Hollande: you say growth, I say
austerity, let’s call the whole thing off – alphaville
/ FT
While the relationship has had an inauspicious
start, the signs are that it will go well, at least initially. Both leaders
find themselves under pressure at home, but they need each other.
Lloyds’s Mercuri Says Contagion Is Focus of
Euro Zone – BB (mp3)
EURO CRISIS: EURO GROUP
MEETING
Five European Central Bankers Discuss Greek
Eurozone Exit; Lies and Half-Truths from German Finance Minister; Message to
Greek Politicians "No New Concessions" – Mish’s
“I think Hollande knows that the fiscal pact
can’t be renegotiated,” Schaeuble said. That is a lie as well and we will find
out soon enough. Given the Crushing Defeat for Merkel's CDU Party in German
Elections last weekend, Hollande will press even harder for what he wants:
Eurobonds and a weakening of austerity measures.
Greek tragedy – MacroScope
/ Reuters
Greece will obviously loom large over this evening’s meeting of euro zone
finance ministers in Brussels. But so will Spain… If Spain is cut some slack
then why not Greece?
EURO CRISIS: GREECE
Default now or default later? – Wolfgang
Münchau / FT
By following the EU-IMF programme, Greece will end up with 10
years of depression, an inevitable euro exit and a possible breakdown of
democracy. The best option, in my view, would be a strategy to achieve a primary
balance by 2013 and then to default on all outstanding foreign debt, public and
private.
Felix
argues that it is easier for Greece to just default on everything,
including IMF loans – but because of its banking system it could not remain in
euro.
A year ago, it was nearly impossible to get a
diplomat in Brussels to talk about the possibility of Greece leaving the euro
zone. Now, it's the opening to most conversations.
The Market’s ‘Rationality Put’ is Failing – MarketBeat
/ WSJ
If people begin to believe that Greece will soon exit the
euro and the eurozone, as we noted last week, it could ignite runs on the
banks. First in Greece then quickly Spain and Italy. Would there be a
rush to things like capital controls? It’s hard to exercise a “rationality put”
if things turn irrational beyond your control.
Exit and Exports – Krugman /
NYT
Greece may have more opportunities than people realize.
Grexit and the euro: an exercise in guesswork – alphaville
/ FT
Everyone who’s anyone (and some other people
too) has a view on what will happen to the value of the euro if Greece makes an exit.
Will the Greek exit be voluntary or
involuntary? – Credit
Writedowns
I believe Europe can ‘handle’ a Greek departure from
the euro zone…the possibility of a more near-term or unilateral exit has
increased.
Brinkmanship rhetoric hides cost of Greek euro
exit – euobserver
Peter De Keyzer, chief economist at BNP Paribas Fortis, said both Greek and
EU politicians "are bluffing." He and other economists say that the
eurozone can survive a Greece exit but ask at what
cost.
Last Call For Greek Parties? – Open
Europe
latest developments seem to suggest that new
elections could, at this stage, be inevitable.
FFTW’s Johnson Says Greek Exit Would Be
Catastrophic – BB (mp3)
The influential German news weekly Der Spiegel
certainly knows what it wants to happen to the eurozone: "Adieu Greece" is the headline
on the latest issue. The paper argues it's time to kick the country out of the
euro. It seems a full scale confrontation is on the cards. So exactly how would
Greece leave the euro? Business Daily has gone back to an earlier era of
European confrontation to find out. We've taken a look at the challenges of
changing currency - Pathe newsreel style. And Justin Rowlatt debates the
intricacies of exit with Guntram Wolff of the European economic think tank
Breugel and with Andrew Walker the BBC's Economics Correspondent. Plus -
how do you know when you've met a truly powerful woman? It's pretty simple,
according to our regular commentator Lucy Kellaway of the Financial Times.
EURO CRISIS: OTHER PIIGS
The crisis has taken its toll on the country,
leading to a resurgence of tired clichés about wine and flamenco and the
punishment of Spanish companies abroad
Some chasm-like eurozone bond spreads – alphaville
/ FT
As Euro crisis intensifies again, Spanish yield
is making new high
– ASA
Nice bond
charts
ELA stumble du jour – alphaville
/ FT
€18bn mystery ELA. Luc Coene, Belgium’s central
bank governor may have turned snitch on Portugal: “Of course in countries like an Ireland, Greece, Portugal, you can’t get out in the short time and it will take a little longer.”
Portugal? I never mentioned Portugal.
CHINA
RRR cuts ≠ credit easing. Keep saying it. – alphaville
/ FT
an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.
an RRR cut is not so much a move to make more credit available as it is to avoid reductions in liquidity.
China’s economic data disaster – alphaville
/ FT
China’s trade data for April came in well short of expectations on Thursday, and was followed by a raft of more disappointing data on Friday.
China’s trade data for April came in well short of expectations on Thursday, and was followed by a raft of more disappointing data on Friday.
OTHER
I Know What You Did This Summer – The
Reformed Broker
Now these are just charts, reflecting what has
happened and what is happening - not what will happen. But the fact that we are slowly eating away
at the gains of Q1 so early in the summer tells me everything I need to know
about what we have in store.
It's An Interconnected World After All – ZH
JPM: It will be hard for the world to
grow if China depends on Europe which depends on China which depends on the US which depends on China and Europe. It’s an odd market: in the US, 98% of the S&P
500’s cumulative 27% return since January 2010 occurred either during corporate
earnings season, or right after QE programs. The rest of the time, the S&P
500 is flat, since the economic news has not been that good.
The mysteriously falling US trading volumes – alphaville
/ FT
Credit Suisse:
…the influence of stock prices on volumes
in detail, but we do find a strong inverse relationship between the two. So it
appears that our good fortune of improving performance is offset by lower
trading activity.
Hedge me up before you go, go – Deus Ex Macchiato
P/L
volatility hedges and tail hedges. The first looks better on paper, while the
second works well in reality.
Previously
today:
and during
the weekend:
11th May - Best of The Week