Sunday linkage - Euro crisis edition

The coming hours and days will in all likelihood decide the fate of the euro and with it the fate of many European nations. Whatever happens, it is going to be a stormy couple of days. I haven't the time today to properly post something. But reading the next few links will give you some idea of what we're facing.

First up, a couple of links from ZeroHedge:
Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt
[N]ot only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion. (...)

That means that Germany "contin[g]ent liabilities", in the worst case scenario where France again gets downgraded, and it likely will eventually, would surge to about €3.3 trillion, or an insane 133% of German GDP!
But then: It Just Went From Bad To Far, Far Worse As Germany Says Italy Is Too Big For EFSF To Save, Refuses To Carry Euro Bailout Burden. As the BBC says: All eyes are now on Merkel.
It's is hardly the fault of the German chancellor that others are in the cross-hairs of the bond market, but she is the one person who could disarm that market firepower. (...)

It's not just about the Germans. The Dutch and the Finns know that they would be required to commit a similar proportion of financial and political capital, but only the Germans have the scale and status to take the lead.
Indeed, Germany has already stated categorically Italy can't be bailed-out. The money just isn't there.

The Telegraphs Philip Aldrick foresees the break up of the eurozone.
Having let the crisis get so out of hand, buying that confidence will not be cheap. In Germany, in particular, Angela Merkel may exhaust her remaining political capital if she throws more taxpayer money into creating a viable eurozone firebreak.

Nick Bullman, managing director of ratings agency CheckRisk, believes the biggest risk now is that Germany, the Netherlands and Finland – the strong euro members – leave. A two-tier euro could emerge with the weaker nations on the old euro pegged to the stronger ones' new euro.

He is not alone. The Centre for Economics and Business Research has put the chances of the euro being in its current form in 10 years' time at just 20pc.
And the CEBR is not alone. A poll released today shows that only 32 percent of the Dutch expect the euro zone to survive the current crisis. A majority of 56% deems a euro zone collapse inevitable.

And if you are (or can read) Dutch: Over on DDS Hannibal has a good write up on this weekend and the possible end-game that is going to play out in the coming days.
The news that the European Central Bank presidents are having a teleconference on Sunday, seen in the light of the events [of last Friday], can only be explained as a first stock-taking of the essential procedures for the dismantling of the euro in its current form.
And tomorrow? Tomorrow is going to be another Black Monday (NL).

[UPDATE001] Doesn't this just fit nicely into the we already have on our hands: Ireland is now signalling their willingness to default. Others are now seriously arguing for Ireland to quit the euro. Austerity has failed.

[UPDATE002] Over on ZeroHedge: Joint Statement From Merkel And Sarkozy On Global Financial Crisis. Short version: We're sticking to the July 21st plan. No mention of ESFS enlargement. It's been decided then: Italy and Spain are too big to bail.

[UPDATE003] And here's your Sunday read (pdf): Europe on the Brink

[UPDATE004] Statement by the President of the ECB:
The ECB will actively implement its Securities Markets Programme.
The ECB is going to buy up Spanish and Italian bonds after all. Merkel and de Jager caved. Again.

On the other hand, this seems to be a plan to buy time until September, when the documents mandating and installing the EFSF should be ratified by all member states. The market may not allow the EUnion that time.

Italian and Spanish debt will be bought up by the ECB, transferring privately held debt (by banks) to publicly held debt. That would be our money. This is a bail-out of the financial sector, nothing more, nothing less. And it doesn't change the end-game. It just makes the hurt a whole lot worse. Because there is no-one in the EUnion willing to face reality. Useless effing SWINE!

[FINAL UPDATE] AEP gives it three weeks.
If we are going into a global double-dip (defined as global growth below 2.5pc), [Italy and Spain] have no chance at all unless the ECB throws all caution to the wind, defenestrates the two German members from the 36th floor of the Eurotower, and embraces QE a l’outrance.

Germany might not like that.

I have a nasty feeling that nothing whatsoever has been resolved.

7 opmerkingen:

Bernd zei

A few months ago there was this award winning movie about a mountainclimber stuck in between rocks. After a while he cut his arm of (himself) in order to be able to escape and survive. This is the EUnion: there has to be some one to decide to cut of the arm (whether it be Greece or the bottomless well we call EFSF) and end the suffering for the rest of the body, just in order to survive. It will be painfull, sure; It will be harsh on the severed limb, okay; but it will be the only way for the otherwise healthy body to escape the predicament and survive. I sincerely hope that the next week, starting tomorrow's black monday, will bring forward the one leader who says: let's cut it off!!!

Klein Verzet zei

That makes two of us.

And yes, that's a very strong analogy.

Ferdy zei

No, don't cut the arm! Don't do it! It's to expensive!

Let's wait until we need to cut off both arms!

Ferdy zei

In a show of total cluelessness the Dutch finance minister has warned that enlargement of the Euro rescue fund might negatively affect credit ratings of the supporting countries. He seems to imply that a fund enlargement big enough to support Spain and Italy is unsustainable because it will be very hard if not impossible to finance the needed money, because lower ratings result in higher yields, making it harder for the supporting countries to refinance their own debt and the extra debt of the southern socialist.

Klein Verzet zei

Well, he does have a point. The ECB interventiontoday saw the yields of Spanish and Italian bonds go down. But the French and German bond yields went up in response, indicating the risk is shifting from the Southern countries to the euro-core countries. Enlargement of the ESFS would only increase that perception.

If ZH is right about the EFSF needing to be 3.5 trillion euros large, Holland is liable for 170 billion. That is a third of our GDP! One third of our total yearly economic earnings. If budget cuts of 18 billion are wrecking large portions of the Dutch public sector, what does anybody think 170 billion (plus interest) will do? This isn't solidarity any more. Its economic suicide.

Ferdy zei

Sure he has a point, but if it’s true, why did he then first supported racking up the bill for a game you cannot win? The good man is just surprised by the downgrading of the US, he is totally clueless.

Klein Verzet zei

Yeah, well. You know what I think? I think he's not that clueless. I think he's a crafty SoB. But I don't know what is aim is. Which is why I don't trust him (no matter how many awards for trustworthy pol of the year he gets).

He bailed out the Greeks, knowing full well there's very little chance of recouping that money (let alone earning interest on it). But he tried is level best to keep up appearances.

And now that Germany is balking he's right along with Ms. Merkel. I get the distinct impression that Dutch policy is tightly married to German policy. On the face of it that may not be a bad strategy. If the Germans pull out of the euro, Holland has got no viable option but to follow.

But de Jager will not draw the ultimate conclusion himself. It isn't brave, it isn't principled. Then again, he's a politician in the early decades of this, the 21st century Europe. Experience tells us that hoping for much more then opportunism is naive. He does what is expedient to do. Nothing more.

Not exactly leadership qualities, but such is the hand we heave been dealt.