Links: Europe’s never ending crisis – ECB and Italy, Spain, Slovenia, and Greece

Here’s round two of the links, this time on Europe. It is mostly about the ECB and the rumours about unlimited liquidity. I have already written about this twice today so I won’t say any more. But I will note the Reuters article on how Angela Merkel has a friend in Mario Draghi at the ECB. This article is very much out of character compared to the usual fare we see. It suggests that the pragmatism in both actors pulls them together for common cause despite the perceived differences in agendas. I think it’s a great and perceptive article and probably the best one to read in today’s links.

Enjoy.

Schuldenkrise: Bankenkrise erfasst Sloweniens Realwirtschaft | FTD.de

Slovenia’s problems have increased and at the beginning of the last week the yield on its 10-year debt reached 7.5%. The likely outcome here is aid from the Troika. Supposedly the Slovenes were model eastern Europeans during the pre-crisis days. Now they look like a basket case with huge amounts of bad loans on bank boos – 17-25% of GDP. This German language article goes into all this and more. The bailouts are everywhere.

Spain Out of Options « naked capitalism

“Spanish depositors were pushed to convert their deposits into preference shares, which they were told were just as safe. This was a simple desperation move by the banks to save their own skins, customers be damned, by raising equity from the most unsophisticated source to which they had access. And now that that gambit failed, these shareholders are due to have those investments wiped out unless the Spanish authorities can cut a deal to spare them. Don’t hold your breath.”

Yanis Varoufakis: How the ECB is Complicit in a Macro-Financial Debacle « naked capitalism

“The European Central Bank (ECB) is the only serious institution that the Eurozone has. It was meant to be the guardian of the euro’s credibility but, alas, during both periods (Ponzi growth and Ponzi austerity), the ECB proved incapable of playing this role. When toxic capital flowed disastrously into the Periphery, the ECB whistled in the wind. When it flowed out, causing the collapse that then gave rise to the Ponzi austerity, the ECB was part and parcel of this crime against the peoples and the spirit of Europe. Now that the chickens are coming home to roost, the ECB is pledging to do “all it takes” to save the euro, but fails to back up such strong words with deeds.”

ECB Capping Rates on PIIGS? Wait Till Traders Call Its Bluff | EconMatters

This analysis is all wrong. It relies on non-existent bond vigilantes as a way of forcing a central bank that prints money to do what they want. How many times are we going to hear this palaver about the UK, the US and other countries. Hello? The CB prints money. How can bond vigilantes force it to do anything? We may not like the central banks’ policies but they are monopolists, central planners and they have control. As soon as you hear people saying otherwise and pointing to the bond vigilantes, you know they are all wrong.

ECB mulling interest rate threshold for bond buys: magazine | Reuters

Here is Reuters’ reporting of the ECB bond buying rumour. The FT and the WSJ have carried columns debunking this via ECB spokespeople.

Italiens Banken stark auf die EZB angewiesen – NZZ.ch, 17.08.2012

This Swiss German-language article says that Italian banks are preparing to offload dogy loans as collateral onto the ECB in order to help pretty up their balance sheets. At the end of July, Italian banks had 283.3 billion in loans outstanding to the ECB.

Schuldenkrise: Spanien: EZB soll unbegrenzt Staatsanleihen aufkaufen – Wirtschaft – FAZ

Before the whole ECB “unlimited” liquidity brouhaha blew up via Der Spiegel there were the Spanish economy minister comments about the same. Luis de Guindos said at the end of last week that Spain needed the ECB to commit to unlimited liquidity. Here is the FAZ in Germany reporting his comments.

ECB limited and conditional lending is not ‘what it takes’ | vox

“In principle, the ECB can eliminate this risk by acting as lender of last resort and capping yields at a level that ensures solvency (unless things turn out badly in terms of economics or policy effort). The ‘target’ yield would need to be sufficiently low to be consistent with debt sustainability but sufficiently high to maintain the incentives to undertake domestic reforms. This would theoretically eliminate (or at least reduce massively) the risk of default and start a virtuous cycle. However, in order to be ‘successful’, the ECB would need to be credible that it is going to defend its desired target rate.”

ECB denies reports of yield-capping plans – FT.com

“It was “absolutely misleading to report on decisions which have not yet been taken and also on individual views, which have not yet been discussed by the ECB’s governing council”, the central bank said yesterday – suggesting that the idea could yet be debated.”

Analysis: Merkel’s Italian ally at the ECB | Reuters

“When Angela Merkel backed Mario Draghi to become president of the European Central Bank in May last year, many in Europe assumed it was with resignation, a setback for her and Germany.”

Deutsche Bank investigated in U.S. over Iran: New York Times | Reuters

“U.S. prosecutors are investigating Deutsche Bank and several other global banks over business linked to Iran, Sudan and other nations currently under international sanctions, the New York Times reported on Saturday.”

German finance minister: no new aid program for Greece | Reuters

“German Finance Minister Wolfgang Schaeuble said on Saturday that there were limits to the aid that could be granted to Greece and said the crisis-stricken country should not expect to be granted another program.”

Spain says there must be no limit set on ECB bond buying | Reuters

“The European Central Bank must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its refinancing costs and eliminate doubts over the euro zone’s future, Spain’s economy minister said in comments published on Saturday.”

Greek exit manageable but not preferable: ECB’s Asmussen | Reuters

“A Greek exit from the euro zone would be manageable, European Central Bank policymaker Joerg Asmussen was quoted on Monday as saying, although he would prefer it if the crisis-stricken country remained within the single currency bloc.”

Bundesbank Steps Up ECB Bond Plan Criticism; Rift Widens – Bloomberg

“Germany’s Bundesbank stepped up its criticism of the European Central Bank’s plan to embark on potentially “unlimited” government bond purchases, widening a rift over how to tackle the sovereign debt crisis.”

FT Alphaville » Spiegel, Buba, the ECB and a rather predictable back and forth

“Alternate title:”Vergemeinschaftungen von Solvenzrisiken” — which means, apparently, “mutualization of solvency risks””

BBC News – Eurozone trade surplus rises to record high in June

FT Alphaville » Greece, Portugal and Spain really have benefitted most from the euro

“Has the single currency been good to you? It’s a question sure to inflame people across Europe, many of whom seem to believe they’ve suffered while others have made out like bandits.
The answer is pretty straightforward, according to Paul Donovan at UBS. If you look at the growth in household real disposable income between 2000 and 2010, those living in peripheral countries have benefited the most.”

The Euro is Not in Trouble; the People Are » Counterpunch: Tells the Facts, Names the Names

“One of the phrases frequently written in economic circles in the United States (and to a lesser degree in Europe) is “the Euro is going to collapse.” Those who repeat that phrase over and over again do not seem to know how the Euro was established, by whom, and for whose benefit. If they knew the history of the Euro, they would have noticed that the major forces behind the Euro have done very well and continue to do so. As long as they continue to benefit from the Euro’s existence, the Euro will continue to exist.”

South African police open fire on striking miners – in pictures | World news | guardian.co.uk

Finland prepares for break-up of eurozone – Telegraph

““We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government.
“It is not something that anybody — even the True Finns [eurosceptic party] — are advocating in Finland, let alone the government. But we have to be prepared,” he told The Daily Telegraph.”