Daily: Already backtracking on European summit details

Daily commentary: Europe

Today’s links are in multiple parts because I haven’t posted since Thursday. The biggest news is that the EU is already backtracking on the Euro summit deal that decoupled the sovereign-bank tie which had been causing Spanish and Italian yields to rise. And predictably, Spanish and Italian yields have risen once more. On Thursday, I wrote that Ireland is the biggest winner from last European summit, largely because of the decoupling of banks and sovereigns that Europe agreed to in the summit. I wrote that:

Going forward, we will need to see both the talk of an EU-wide banking union and the Euro-TARP agreement solidify for these gains to hold.

What we are seeing now, however, is that Europe is backtracking on the agreement and therefore these gains will not hold. It is still being hotly debated under what conditions Spanish banks actually receive any money. Right now, some European officials are saying the funds must be coupled to a sovereign guarantee until a banking union comes into effect. The sovereign guarantee is essentially worthless since the banking liabilities are beyond the sovereign’s ability to backstop alone. So we are back to square one.

Meanwhile, Europe is relaxing the deficit targets for Spain yet again. Originally, the target was a government deficit of 3.5% for 2012 but it was lifted as Spain missed targets. The latest target is now 6.3% as it is clear that Spain won’t even hit the 5.3% target since they already have a 3.4% deficit through the first half of the year.

Greece is also calling for a bailout extension as it is clear that they will not hit their program targets and will therefore need more money.

Bottom line: things are looking worse in Europe, not better. And they will continue to deteriorate both politically and economically given the policy positions in place. I see little reason to hope this turns around. We should be thinking about an eventual disorderly breakup as the base case outcome for the Euro crisis and what impact that will have on portfolios and the economy.

That’s it. Here are the links.

La UE da margen a España y flexibilizará el déficit del 5,3% al 6,3% en 2012 | Economía | EL PAÍS

Analysis: Euro zone fragmenting faster than EU can act | Reuters

BBC News – Spanish borrowing costs rise ahead of euro summit

Euro zone can help banks directly once supervisor set up | Reuters

Merkel’s public approval ratings soar – FT.com

Eurozone crisis will last for 20 years – FT.com

Euro-Rettungsschirm: Seehofer zieht knallharte Grenzlinien für den ESM – Nachrichten Wirtschaft – WELT ONLINE

German Bonds Surge as ECB Cuts Rates Without Supporting Spain – Bloomberg

The Real Testosterone Junkies | ZeroHedge

Irish manufacturing growth hits 14-month high in June | Reuters

Greece’s Evangelos Venizelos calls for three-year bailout extension – Telegraph

Troika soll erhebliche Reformversäumnisse bemängeln – EU-Schuldenkrise – derStandard.at › Wirtschaft

Portuguese court blocks key part of austerity plan – Telegraph

Protestaufruf: Der offene Brief der Ökonomen im Wortlaut – Wirtschaft – FAZ

Angela Merkel is wrong, say 172 economists – Telegraph

BBC News – Italy approves deep cuts in national spending

Greece unable to collect €12.6bn fines due to lack of staff – Telegraph

Finland could leave the eurozone rather than pay other nations’ debts, says Jutta Urpilainen – Telegraph

Dutch rule out ECB buying up any more government bonds – European, Business – Independent.ie

BBC News – Tourists to Spain face extra airport tax

BBC News – French to tax foreign second-home owners

Insight: The dark side of Germany’s jobs miracle | Reuters

Euro Crisis Exposing Fault Lines in Merkel Government – SPIEGEL ONLINE

Eurozone crisis: Tough questions for Franco-German axis after Merkel’s big defeat | Business | guardian.co.uk

BBC News – Wolfson prize for euro exit plan won by Roger Bootle

Why the EU summit decisions may destabilise government bond markets | vox

bailoutbanksEuropeEuropean breakupfinancial newsSpain