Sovereign debt bubble thread

[Sheilbh]

Or as Rachman said - Germany. It's very fortunate that most of our parties are very mellow and the extremists lack charisma and are generally idiots. I hope it stays that way.

I agree.  I didn't mention Germany because you've not got a Wilders or a True Finns Party to take advantage of the creditor resentment.

Your point being? You like unpayable freebies and unrealistic policies?

Not quite.  I support austerity and structural reform.  But I think the policies being imposed are wrong and should be changed - my point is that there's no-one else to vote for.

Definitely. As I wrote months or years ago either here or on Paradox, a messy exit from the Eurozone that gives countries back the ability to forge their own fortune might be a better choice. Staying in the Euro is not worth sacrificing democracy.

Agreed.  And it's sad that this is even being considered.  We should have listened to Delors

[Zanza]

How was Fischer's intervention about Germany accidentally destroying the European order for a third time in a century taken in Germany?  It seemed extraordinarily strong to me.  Sincere no doubt, but very strong indeed.

He is just a political commenter nowadays and has to use strong words to get printed. I doubt that even his own party cares much.

Sounds like Cameron.  With the crucial difference that she'll do it well

She is very, very good at that actually. It's well possible that no government might be feasible without her in 2013 either and then she'll stay until 2017.

[MadImmortalMan]

Moody's downgraded Spain to Baa3. Sheep, 3rd class.

[citizen k]

from zh:

Helmet time.
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What do you get when you mix counterparty and agency risk, and throw in some currency collapse fear for good measure? This.

[citizen k]

It was only a matter of time before the stoic Germans, long abused as the piggy bank pinatas of Europe's monetary experiment, said something. And after last week's confused Spanish campaign demanding that Merkel stop (what exactly - bailing out the Spanish banks? Funding Spanish current account deficits?), Germany has found its retort. As of a few hours ago, the German empire has decided to strike back using the #StoppESM hashtag on twitter. Are we about to have our first European twitter war? And while we know what the hashtag for Greece wil be (#StopTaxes), and Ireland (#StopSobriety), we have yet to figure out the appropriate terms for all the other insolvent European countries. There are many.

For now the campaign is modest, as it is sourced by people not on the receiving end of the Second Great October Revolution. We expect that, with typical German efficiency, it will only pick up steam and traction with time, instead of burning out promptly and fizzling into obscurity.

[citizen k]

Wolf Richter   www.testosteronepit.com

Josef Ackermann, Deutsche Bank's CEO until a couple of weeks ago, who knows a thing or two about skeletons hidden in the bank's vast closets, said at the Atlantic Council that he is "grateful the US is pushing Europe to act faster." Just like his US counterparts on Wall Street in 2008, he wanted massive taxpayer-funded bailouts of the banks and exhorted the Eurozone to complete the latest bailout fund, the ESM, quickly. Together with the existing EFSF, they would create a €1 trillion firewall—enough to bail out Spain and its banks, but not enough to do the same for Italy.

He pushed Chancellor Angela Merkel to permit banks to draw on these funds directly—though these funds were designed to bail out countries, not corporations. And the German parliament approved them on that basis. He had "no doubt" that the German people would support rescuing the Eurozone, he said, though he left unclear why he exempted, for example, the French or his own compatriots, the Swiss, who're also suffering from the Eurozone's woes [Read... Bracing for a Euro Crash: The Swiss Caught in a Vice]. And he was confident that "everything would be done to bail out the Eurozone."

But the German people weren't so sure about that—and started to demonstrate. So they were in the streets in Munich to express their opposition to what was being shoved down their throats. The demonstration was organized by Freie Wähler (Free Voters), an organization of voter groups with 19% of the seats in the Bavarian parliament. In addressing the crowd (video), their leader Hubert Aiwanger called for a "Europe of democracy" that would be "open to the world." He was worried about the "future of our children," a future where a "child, just after being born, is already liable for the bailout umbrella that great-aunt Merkel had signed." Rousing applause.

"It's on us to take our fate into our own hands so that we don't learn by watching TV what was signed once again in Brussels," he said. "These people believe they can turn this very big wheel, but they're historically forgetful and don't remember what they promised two or three years ago."

Money that people put aside during a life of hard work would be "taken hostage by the policies of speculation," he feared, and would "lose its value in a few years because now we calculate in trillions...." And he added, "we must create a future for our children and grandchildren where not every euro is already in hock."

But President Obama, feeling Mitt Romney's hot breath on his neck, didn't care about German children. He cared about being reelected—and any effluent from the Eurozone quagmire oozing into the US economy over the next few months would impact his chances. So Friday, he exhorted Europeans to act, and as fast as possible. He had a whole laundry list of tasks for them. Most importantly: recapitalize the banks—that is, socialize their losses across borders. He sounded increasingly desperate. Earlier in the week, he'd had a private phone conversation with Merkel. Fruitless probably. But the one he'd had with British Prime Minister David Cameron led to a message targeted at Merkel and her government: come up with an "immediate plan" to solve the crisis and to reestablish the "confidence of the markets."

And French President François Hollande was dealt a resounding defeat in Germany ... that went mostly unnoticed in Germany. But it was front and center in France. He and his country had been under the illusion that he could impose his campaign promises on Merkel's government—after having antagonized them during the campaign by coddling up to the opposition SPD. So he pushed for Eurobonds and for more government deficit spending to create stimulus. Merkel vehemently brushed off his Eurobonds, though she left a door open for them way in the future, if the Eurozone ever became a political and fiscal union.

Then he tried to implement his campaign promise to renegotiate the fiscal union pact, a hastily drawn-up treaty to induce budgetary discipline into the 25 governments that signed it. Merkel's grand oeuvre. Hollande wanted to include provisions for additional deficit spending, his "measures of growth," and he'd block ratification if he had to. He even had the German opposition SPD and EU officials in his camp. But EU officials were just decoration. And Merkel made a side deal with the SPD; she'd support their pet project, a financial transaction tax, and they'd support the fiscal union pact. Hollande was left to twist in the wind.

Humiliation was the word used in the French media. Perhaps the French had thought that the election would change everything in Europe, but it changed nothing.

The German government hasn't deviated from its principles yet, despite rumors to the contrary: cleanup of budget deficits and implementation of structural reforms in exchange for bailout billions. Growth would come through the private sector, increased competitiveness, and removal of barriers—not from government boondoggles. And her nod towards a political union appeased the federalists in Brussels, but the conditions she attached to it, including ceding sovereignty to Brussels, remain unpalatable everywhere (except in Brussels), thus eliminating any risk it would ever be accepted.

And in Greece, tourism, its second largest industry after the shipping industry, took another hit as tour-bus drivers went on strike; owners had demanded that they take a 50% pay cut on top of the 20% cut they already suffered! And Greece is the model for Spain and Italy.

[Syt]

How smart was it to give money to Spain, anyways?

Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.

[Tamas]

I generally don't like the people who tell such things, but I do get the feeling sometimes that still the only real priority behind the scenes is to prevent or ease the fall for the big bank execs. They are the ones with personal connections (and possibly hold on) to the decision-makers. Not your average Irish or Spanish citizen.

[Iormlund]

How smart was it to give money to Spain, anyways?

Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.

Just as smart as the rest of the half measures taken until now. Or in other words, not at all.

We hit 7% today, by the way.

I generally don't like the people who tell such things, but I do get the feeling sometimes that still the only real priority behind the scenes is to prevent or ease the fall for the big bank execs. They are the ones with personal connections (and possibly hold on) to the decision-makers. Not your average Irish or Spanish citizen.

In our case most of the troubled banks were previously regional savings institutions (cajas) controlled by regional politicians. Which is why both Populares and Socialists have blocked attempts to look for those responsible in the Bankia fiasco. They know perfectly well whose responsible: them.

[Syt]

How smart was it to give money to Spain, anyways?

Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.

Just as smart as the rest of the half measures taken until now. Or in other words, not at all.

Indeed. Giving the money directly to the banks would have worked better IMHO.

[Iormlund]

Indeed. Giving the money directly to the banks would have worked better IMHO.

But that's verboten.

[Sheilbh]

Money to Spain = higher debt for Spain = worse credit rating for Spain = Spanish government loan bonds lose value, of which most are held by Spanish banks, increasing their problems.

That was why people (including the Spanish government) were arguing the money should go straight to the banks, so that the sovereign-bank link is broken.

My understanding is that's not allowed for the ESM, but is allowed under the EFSF rules.  But the reasons against it were mainly political.

[MadImmortalMan]

from zh:

Helmet time.
From Oanda:

Due to the extreme volatility some market analysts foresee could result in the coming days, OANDA fxTrade will not accept any trading activity from 6:00 AM EST until approximately 3:00 PM EST, on Sunday, June 17, 2012. OANDA believes the convergence of a major market event during off-market hours represents a potential trading risk and has taken this rare step to protect traders from excessive rate fluctuations.

Please note that during this halt in trading, you can still access your account details but no trading activity will be accepted. For this reason, OANDA strongly recommends that all traders consider minimizing currency exposures prior to the trading halt.

If you do intend to maintain open positions during this period, be aware that OANDA will hold exchange rates steady during the trading halt. However, when trading resumes, rates will immediately adjust to the current market rate and it is possible that the updated rate could result in a margin closeout if the price has moved significantly against your positions.

Therefore, it is your responsibility to ensure you have adequate funds in your account to prevent a margin closeout.

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Best regards,

The OANDA team

What do you get when you mix counterparty and agency risk, and throw in some currency collapse fear for good measure? This.

Wow. Maybe I'll go into the weekend holding a straddle. That way, I win no matter which way it moves as long as it moves big.

[Crazy_Ivan80]

In our case most of the troubled banks were previously regional savings institutions (cajas) controlled by regional politicians. Which is why both Populares and Socialists have blocked attempts to look for those responsible in the Bankia fiasco. They know perfectly well whose responsible: them.

Sounds delightfully Dexia. Everyone knows who did it but the enquiry didn't yield any results. They need to fu***** hang.

Soit, there will be no happy end here.

[MadImmortalMan]

Rumor: G20 central banks preparing for coordinated action following the Greek election.


Market spiking like mad.