THE Eurozone Economics Thread pt 1 (merged) Archived

[Plantagenet]

Hollande: My Win Is A Rejection Of Austerity
French President-elect Francois Hollande has told tens of thousands of cheering supporters that his victory was a rejection of austerity measures as the answer to the euro crisis.

"In all the capitals... there are people who, thanks to us, are hoping, are looking to us, and want to reject austerity," he shouted above the din.

We'll find out soon enough how sincere Mr. Hollande in his rejection of austerity measures in the EU.

Greece is scheduled to get another tranche (bailout check) from the EU soon, on the condition that they have met the austerity goals set by the EU.

Obviously Greece will fail to meet their austerity target.

Then Hollande will have to show if France will stand will with Germany (i.e. Merkozy will seamlessly turn into Merde) in favor of austerity, or if France will abandon Germany and stand with Greece against more austerity.

[dolanbaker]

It's more the bat* up Merkel's nightdress that will cause the most commotian.


*Here are a couple of videos I watched the other night, long story short;
FT economist suggests that Germany & Holland need to have a depression to level the playing field of the Eurozone as most other states are incapable of reaching German levels fiscal stability.
All the money of the EU has migrated to Germany, for the EU to work in the long term it needs to flow back out again.

http://youtu.be/HNvJ-okKwuc
http://youtu.be/-qUPkmK7xdU

[dolanbaker]

http://www.telegraph.co.uk/news/worldnews/europe/germany/9255534/Eurozone-crisis-Angela-Merkel-forced-to-postpone-fiskalpakt-ratification.html
Eurozone crisis: Angela Merkel forced to postpone 'fiskalpakt' ratification

Angela Merkel was on Wednesday forced to postpone German ratification of the eurozone's "fiskalpakt" until after an Irish referendum on May 31 by a gathering domestic and European backlash against austerity.

Even the Germans are having second thoughts!
Unravelling faster than Dougal's sweater!

[eXpat]

Things are getting interesting
Greece in chaos as Alexis Tsipras's coalition talks fail

Greece's political turmoil deepened last night after a key Leftist leader failed in his bid to form a coalition government, making fresh elections next month all but inevitable.
Alexis Tsipras, whose Syriza party was the surprise runner-up in Sunday’s election and is expected to fare even better in a second election, had earlier declared the €130 billion (£104 billion) EU bail-out of Greece dead in a letter to Brussels.

He told colleagues "we cannot make true our dream of a Left-wing government" after failing in a bold challenge to the two mainstream parties, Pasok and New Democracy, to renounce the recovery plan they supported last year.

Antonis Samaras, leader of the conservative New Democracy party, who has already tried and failed to form a coalition, said the pulling out of the loan package would lead to "Greece's exit from the euro and the country's bankruptcy".

http://www.telegraph.co.uk/news/worldnews/europe/greece/9255939/Greece-in-chaos-as-Alexis-Tsiprass-coalition-talks-fail.html

[dolanbaker]

Greek bailout: Eurozone holds back 1bn-euro payment

http://www.bbc.co.uk/news/business-18014075

The eurozone's rescue fund has decided to hold back 1bn euros ($1.3bn; £800m) of the latest instalment of its bailout to Greece.

This comes after a majority of Greeks voted against the political parties that supported the country's bailouts and the austerity they have imposed.

The rescue fund said that it would disburse 4.2bn euros of the 5.2bn euros due to Greece.

It said that Greece did not need the remaining funds this month.

A bit of arm twisting going on!

[eXpat]

Another door closes
CIC Stops Buying Europe Government Debt on Crisis Concern

Gao Xiqing, president of China Investment Corp., said the nation’s sovereign wealth fund has stopped buying European government debt on concerns about the region’s financial turmoil.

CIC will continue to look for new investments in Europe as part of its strategy to boost allocations to infrastructure, private-equity assets as well as emerging markets to help boost returns, Gao said. CIC, with an estimated $440 billion in assets, is the world’s fifth-largest country fund, according to Sovereign Wealth Fund Institute.
“What is happening in Europe right now is of course of concern,” Gao said in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”

Europe’s turmoil is reigniting on the second anniversary of policy makers’ first attempt to prevent Greece’s woes from spreading. That raises fresh doubt over the strategy just as Greece’s election spurs concern that the country may not meet the terms of its international rescues and will seek a solution outside the euro.

The 17-nation euro area is on the verge of losing one of its members, with more than 50 percent of investors predicting an exit this year as Greece’s election impasse threatens to push the crisis to new depths, according to a Bloomberg Global Poll.

“Two or three years ago we started moving gradually from Europe and North America to Asia and Latin America,” Gao said. “We aren’t doing too much” in Europe.

http://www.bloomberg.com/news/2012-05-09/china-investment-stops-buying-europe-debt-on-crisis-concern-1-.html

[eXpat]

That bailout is looking more and more elusive
Anti-Bailout Coalition Soars In Popularity Ahead Of Second Greek Election

Now that the first parliamentary election vote is meaningless, with no party able to form a coalition government, everyone is focusing on the outcome of the next election, which will take place some time in mid-June. Minutes ago Marc and Alpha (via Reuters) released the results of a poll conducted on Tuesday but just published, and which, if sustained means major trouble for the EMU, because the results show that Anti-bailout Syriza is alone going to have almost as much represented as its two main pro-bailout opponents combined, and confirms that all the other parties are losing voters which instead are going toward the one party that seeks above all, to sever the terms of the Memorandum.

Syriza: 23.8%, up from 16.8% in the election
New Democracy: 17.4%, down from 18.9%
Pasok: 10.8%, down from 13.2%
Independent Greeks: 8.7%, down from 10.6%
KKE: 6.0%, down from 8.48%
Golden Dawn: 4.9%, down from 7%
Dimar: 4.0%, down from 6.11%

http://www.zerohedge.com/news/anti-bailout-coalition-soars-popularity-ahead-second-greek-election

[smiley]

Well you have to hand it to them,...

the Greec have succeeded in unifying Europe...

Against them.

[dolanbaker]

Well you have to hand it to them,...

the Greec have succeeded in unifying Europe...

Against them.

I'm not so sure of that, many people here are looking at Greece and wondering when will that shit reach us!

[smiley]

I'm not so sure of that, many people here are looking at Greece and wondering when will that shit reach us!

I think it won't. Popular perception is that Eire got in this mess by poor oversight over the banks by the Government while in the case of Greece it was caused by general laziness, irresponsibility, and corruption on all levels. The fact that Ireland swallowed the bailout terms without much fuss whereas the Greec immediately started burning down their own capital only adds to that perception.

Now I don't say such statements are true, but this is the general perception. And this matters because politicians need to have the support from their electorate when they funnel help to other countries. Sending help to Ireland at this moment is no problem, but helping the Greec, will get you politically killed.

I lived in Ireland for a short while in the beginning of Celtic tiger and at that time the two most abundant roadsigns were the blackspot and the blue and yellow stars. EU support for Celtic tiger was just payed for from the general funds of the EU.

The EU can give a tremendous amount of direct support from its general funds, and van Rompuy and the Jager for instance, have already committed to use these funds to help countries who suffer under their own austerity measures.

But there is a certain like factor involved there.

[GASMON]

EU central bankers ponder Greece euro exit

http://www.bbc.co.uk/news/world-europe-18046280

Europe central bankers have been openly expressing views on the possibility of Greece leaving the eurozone as its leaders struggle to form a government. Germany's top banker said it was up to the Greeks to decide, but if they did not keep to their bailout commitments, they would receive no new aid. His counterpart in the Irish Republic said a Greek exit would be damaging but not necessarily fatal to the euro. Greece is to make a final attempt at forming a government on Sunday.

Gas

[eXpat]

Time to contemplate what a Greece euro exit would look like:

Consequences for Greece
What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area.

There would remain many contracts and financial instruments involving Greek private and public entities denominated in euro (or other currencies, like the US dollar) that are not under Greek law. These would not get redenominated into ND. With part of their balance sheet redenominated into ND which would depreciate sharply and the rest remaining denominated in euro and other currencies, any portfolio mismatch would cause disruptive capital gains and losses for what’s left of the Greek banking system, Greek non-bank financial institutions and any private or public entity with a (now) mismatched balance sheet. Widespread defaults seem certain.

As discussed in Buiter and Rahbari (2011), we believe that the improvement in Greek competitiveness that would result from the introduction of the ND and its sharp depreciation vis-à-vis the euro would be short-lived in the absence of meaningful further structural reform of labour markets, product markets and the public sector. Higher domestic Greek ND-denominated wage inflation and other domestic cost inflation would swiftly restore the old uncompetitive real equilibrium or a worse one, given the diminution of pressures for structural reform resulting from euro area exit.

In our view, the bottom line for Greece from an exit is therefore a financial collapse and an even deeper recession than the country is already experiencing - probably a depression.

Consequences for the remaining euro area and EU member states of a Greek exit
...
As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account in that country (or in those countries) will withdraw his deposits from banks in countries deemed at risk - even a small risk - of exit. Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira (to name but the most obvious candidates) would withdraw his deposits from the countries involved at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland. The ‘broad periphery’ and ‘soft core’ countries deemed at any risk of exit could of course start issuing deposits under English or New York law in an attempt to stop a deposit run, but even that might not be sufficient. Who wants to have their deposit tied up in litigation for months or years?
Apart from bank runs in every country deemed, by markets and investors, to be even remotely at risk of exit from the euro area, there would be de facto funding strikes by external investors and lenders for borrowers from these countries. Again, putting under foreign law (most likely English or New York) all cross-border (or perhaps even all domestic) financial contracts and instruments could at most mitigate this but would not cure it.

The funding strike and deposit run out of the periphery euro area member states (defined very broadly), would create financial havoc and mostly like cause a financial crisis followed by a deep recession in the euro area broad periphery. The counterparty inflow of deposits and diversion of funding to the ‘hard core’ euro area and the removal (or at least substantial reduction) of the risk of ECB monetisation of EA sovereign and bank debt would drive up the euro exchange rate. So the remaining euro area members would suffer (at least temporarily) from an uncompetitive exchange rate as well from the spillovers of the financial and economic crises in the broad periphery.

As noted by the new IMF Managing Director, Christine Lagarde (Lagarde (2011) and confirmed by Josef Ackerman (Ackermann (2011, p.14)), the European banking sector is seriously undercapitalised. It would not be well-positioned, in our view, to cope with the spillovers and contagion caused by a Greek exit and the fear of further exits. Ms Lagarde was arm-twisted by the EU political leadership, the ECB and the European regulators into a partial retraction of her EU banking sector capital inadequacy alarm call.10 However, this only served to draw attention to the obvious truth that despite the three bank stress tests in the EU since October 2009 and despite the capital raising that has gone on since then both to address any weaknesses revealed by these tests and to anticipate the Basel III capital requirements, the EU banking sector as a whole remains significantly undercapitalised even if sovereign debt is carried at face value. In addition, the warning by Ackermann that “… many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels…” (Ackermann (2011), see also IMF (2011, pp. 12 -20)) serves as a reminder of the fact that Europe is faced with a combined sovereign debt crisis in the euro area periphery and a potential banking sector insolvency crisis throughout the EU.

http://www.zerohedge.com/news/if-greece-exits-here-what-happens
And that is just Greece. The domino called "Spain" (the more likely next one) is even bigger and heavier..., and let´s not forget Italy and the new "no austerity" France.

[smiley]

And that is just Greece. The domino called "Spain" (the more likely next one) is even bigger and heavier..., and let´s not forget Italy and the new "no austerity" France.

I think that is a bit far-fetched. If that where true then you would already see a larger market reaction on the comments made by various officials on the possibility of a Greec exit. It wouldn't surprise me if these comments were floated deliberately to gauge the market reaction.

It's all about sentiment. If the market believes that the EU would collapse due to a Greec exit then it surely would, if they don't it won't. And right now when you scan trough the various financial sections most investors and analyst agree that a Greec exit would perhaps hurt the union but not bring it down. So I would not expect a panic reaction.

And even from the fundamental side a lot of the knock-on risks that were present two years ago have largely been mitigated
- Greec debt owned by the banks has already largely been written off.
- Particularly Portugal and Italy but also Spain and Ireland have done well to get their deficits under control and reduce their financing needs.
- PIIG bonds are already pretty low priced so that a bond shock is unlikely.

[dolanbaker]

http://www.bbc.co.uk/news/business-18084700
The Bank of England has cut its growth forecast for this year to 0.8% from 1.2%, saying the eurozone "storm" is still the main threat to UK recovery.

The eurozone was "tearing itself apart" and the UK would not be "unscathed", said its governor Sir Mervyn King.

He also confirmed that the Bank has been making contingency plans for the break-up of the euro.

[dolanbaker]

http://www.bbc.co.uk/news/business-18071070
A European Central Bank board member has conceded the ECB may have "saved" the eurozone banking system and eurozone economy in Autumn 2011 by providing one trillion euros of emergency loans to hundreds of European banks at an interest rate of just 1%.

ECB Executive Board member, Benoit Coeure, told Robert Peston: "We were very close to a collapse in the banking system in the euro area, which in itself would have also led to a collapse in the economy and deflation, And this is something that the ECB could not accept."

Probably not news to many here but it will be a wake up call to BBC2 viewers.

[eXpat]

Yesterday bankruns in Greece, today in Spain!!!
Bankia customers pull out over 1-billion euros

Customers of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros ($1.3 billion) from their accounts over the past week, El Mundo newspaper reported on Thursday.
The newly appointed chairman, Jose Ignacio Goirigolzarri, informed a board meeting that customers had pulled out funds since the bank was taken over by the government, El Mundo said, citing information from the board meeting it had seen.

The government took over Bankia, the country's fourth largest lender, on May 9 in an attempt to dispel concerns over the bank's ability to deal with losses related to a 2008 property crash.

Uncertainty over the final cost of Spain's banking reform has stoked investor fears that an expensive international bail-out could be on the cards, putting the survival of the euro zone at stake.

Shares in Bankia slumped 10 percent on Wednesday, compounding a week of falls, as small investors who had participated in a July stock market listing sold their holdings which have lost over half their value since the flotation.

http://www.businesslive.co.za/world/int_companies/2012/05/17/bankia-customers-pull-out-over-1-billion-euros

[eXpat]

Contagion, contagion:
Spain falls into recession amid fears of eurozone bank run

MADRID – Spain tumbled into recession and European stock markets and the euro fell Thursday as Greece installed a crisis government to tackle its crippling debt, EU leaders prepared for talks and analysts raised the spectre of a run on eurozone banks.

“Markets are worried about eurozone bank deposit runs and an escalating banking crisis,” London-based VTB Capital economist Neil MacKinnon told Agence France-Presse.

Heavy withdrawals of deposits have been reported in Greece and Spain, and top European Union leaders were to hold a videoconference later in the day.

They were initially to discuss an upcoming G8 meeting of industrialised countries but were now faced with a serious deterioration of the situations in Greece and elsewhere across the eurozone.

http://business.inquirer.net/60015/spain-falls-into-recession-amid-fears-of-eurozone-bank-run

Run on nationalised Spanish bank sees customers withdraw €1BILLION... as

French government slashes its own pay by 30%
Shares in Bankia, Spain's fourth largest bank, fall 27% after media reports
Greece forms government, but will dissolve it tomorrow for new election
Francois Hollande slashes pay to 'highlight difference' with Sarkozy
A €1billion run on a recently nationalised Spanish bank has sparked further fears that the 17-nation eurozone is about to implode.

European markets fell as fears of a continent-wide contagion from goverment-less Greece's economic crisis also spread.

Shares in Bankia, Spain's fourth biggest bank formed in 2010 through a merger of seven struggling regional savings institutions, today plummeted by 27 per cent.

http://www.dailymail.co.uk/news/article-2145764/Run-nationalised-Spanish-bank-sees-customers-withdraw-1BILLION--French-government-slashes-pay-30.html?ito=feeds-newsxml

Potential Bank Runs in Greece Spark EU Contagion Panic

As the prospect of Greece leaving the eurozone dominates headlines around the world, Greeks are reportedly lining up at ATMs and financial institutions to withdraw their funds in what some analysts have already described as the start of a run on the banks. More than a billion euros have been withdrawn just in the last few days. And experts say the panic could soon spread to other fragile countries such as Italy and Spain.

Even Greek officials acknowledged that the nation’s banks were teetering on the verge of a catastrophe as panicky depositors rush to salvage what they can of their savings. According to minutes of meetings cited in news reports, President Karolos Papoulias told political leaders that Greece’s central bank chief knew “there was great fear that could develop into a panic." He also warned that the banking system might run out of money, posing a “threat to our national existence.”

While those fears may not have become a full-blown bank-run crisis just yet, that moment could be fast approaching. "Withdrawals and outflows by 4:00 pm when I called him exceeded 600 million euros and reached 700 million euros," Papoulias was quoted as saying, citing central bank boss George Provopoulos. "He expects total outflows of about 800 million euros, including conversions in German Bunds and other such things."

http://www.thenewamerican.com/world-news/europe/item/11409-potential-bank-runs-in-greece-spark-eu-contagion-panic

[Fishman]

My canary is starting to swoon. Thanks Expat for keeping us up to date.

[eXpat]

My canary is starting to swoon. Thanks Expat for keeping us up to date.

Thank you Fish! BTW, I have a morsel for your canary!
Fitch Calls For Capital Increase As Run On Spanish Banks Continues

Fitch ratings has called for a huge increase in capital reserves at the world’s biggest banks today as the markets reel from the run on Spain’s banks. The agency recommended banks across the world raise a total of $556 billion an increase of 23 percent over what the banks are currently holding.

Fitch made the recommendations on 29 of the world’s systemically important banks. That list includes Goldman Sachs Group (NYSE:GS), HSBC Holdings plc (LON:HSBA), Mizuho Financial Group Inc. (TYO:8411), Bank of America Corp. (NYSE:BAC) Societe General S.A. (EPA:GLE), and JPMorgan Chase & Co. (NYSE:JPM).

Those banks are judged to be vital to the functioning of the global financial system and failure in any of the institutions would

The recommendation comes after crisis hit Spanish and Greek banks. Financial institutions in the European nations saw large levels of deposits removed in recent days. Bankia, a conglomerate of Spanish Banks formed in 2010 to help save the country’s financial system, saw more than 1 billion euro withdrawn in the last week alone. The firm’s shares tumbled today by more than 25%.

http://www.valuewalk.com/2012/05/fitch-calls-for-capital-increase-after-run-on-spanish-banks/
Bankia´s chart says it all:

[Revi]

La situacion es muy mala. Bummer. What will this mean for the rest of the world? Is this the beginning of a global bank run?