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The EU is in survival mode and that never works out well for any parties involved, when a bunch of overpaid, underworked, overrated politicians and policy makers meet to "safe the world"
The market is fed up with talk and need real measure/ actions - What has been published so far this week-end is merely a poor threath to the financial markets, similar to
a parent scolding a child in vain, listen once and for all: The market is right- and the politicians/bureacrats don't get it. The debt financing must stop. The pain needs to be taken - only then can we move to society of less leverage, more predictable growth, inflation, most importantly: allocation of capital to highest marginal utility.
This is not a crisis for the EUR it is a crisis for EZ policy making and solvency. All talk of EUR being under attack must stop right here, if anything the EUR/USD is at least 26 figures too high, it should be back at 2000/2001 levels not above 1.2500!
The measured announced are good for the long-term future of Europe, but between now and these measure being implemented there is the issue of solvency:
Facts: Mark-to-market Greece, Portugal, Spain and probably UK, US is bankrupt, in the sense that including pension liabilities it will not be able to pay its debt, in particular now with rising long-term yields coming for weak debtors.
Again, and we have stressed this 100 x times over the last 2 months. The first loss is always the cheapest loss. Greece needs to go through debt restructuring! It is not viable to merely lent money for interest now doing anything on the outstanding debt level.(probably also Spain with 20% unemployment - 40% youth unemployment and more dwellings built in the last 5 years than rest of Europe combined)
We took profit on 99% of our positions Friday only because we know politicians / bureaucrats are bound to make further major policy mistakes - but I am still following the script of this being Crisis 2.0 not only a second crisis but a bigger one than the first.
This one will test the framework of the Eurozone, the FIAT financing and most importantly it is a fight versus the poltical establishment, which is why Sarkozy(probably the worst Liberal ever in history) is all over the place trying to fight people like me as if I created this crisis. The stakes are high and we will probably have GAP RISK opens in all markets Monday. Let's hope this is something the market can take in stride, I am personally gettign nervous (maybe I should go to the cashmachine tonight to get some cash out ? :-)
Be safe tomorrow, this week will define politics and finance for a long long time.
Winston
Below the best links for this week-end:
Germany Didn't Grasp Greek Crisis Quickly, Quaden Tells L'Echo
2010-05-08 15:02:57.181 GMT
By Kevin Costelloe
May 8 (Bloomberg) -- Germany did not immediately understand
that support for Greece was needed, European Central Bank
Governing Council member Guy Quaden said in an interview with
L'Echo.
"Other European countries, Germany in particular, did not
immediately understand that support for Greece was necessary,
not only for Greece but also for the general interest of Europe
and of each country of the euro zone. That is to avoid contagion
to the public debt and to the financial sector of other European
countries," the newspaper quoted him as saying. He said the
process of aiding Greece was "slow."
Quaden also said that the euro area needs "greater
surveillance and collective pressure," the newspaper quoted him
as saying. Asked about a possible negative impact on European
economic growth from the Greek crisis, Quaden told L'Echo: "The
pervading uncertainty can have a negative psychological
2010-05-08 15:02:57.181 GMT
By Kevin Costelloe
May 8 (Bloomberg) -- Germany did not immediately understand
that support for Greece was needed, European Central Bank
Governing Council member Guy Quaden said in an interview with
L'Echo.
"Other European countries, Germany in particular, did not
immediately understand that support for Greece was necessary,
not only for Greece but also for the general interest of Europe
and of each country of the euro zone. That is to avoid contagion
to the public debt and to the financial sector of other European
countries," the newspaper quoted him as saying. He said the
process of aiding Greece was "slow."
Quaden also said that the euro area needs "greater
surveillance and collective pressure," the newspaper quoted him
as saying. Asked about a possible negative impact on European
economic growth from the Greek crisis, Quaden told L'Echo: "The
pervading uncertainty can have a negative psychological
effect."
=============
Statement by the Euro-Area Heads of State or Government: Text
2010-05-07 23:52:22.255 GMT
May 8 (Bloomberg) -- Following is a statement issued today
by the leaders of the 16 nations using the euro.
Brussels, 7 May 2010
STATEMENT OF THE HEADS OF STATE OR GOVERNMENT
OF THE EURO AREA
1/ Implementation of the support package for Greece
In February and in March, we committed to take determined and
coordinated action to safeguard financial stability in the euro
area as a whole.
Following the request by the Greek government on April 23 and
the agreement reached by the Eurogroup on May 2, we will provide
Greece with 80 billion euros in a joint package with the IMF of
110 billion euros. Greece will receive a first disbursement in
the coming days, before May 19.
The program adopted by the Greek government is ambitious and
realistic. It addresses the grave fiscal imbalances, will make
the economy more competitive, and will create the basis for
stronger and more sustainable growth and job creation.
The Greek Prime Minister has reiterated the total commitment of
the Greek government to the full implementation of these vital
reforms.
The decisions we are taking reflect the principles of
responsibility and solidarity, enshrined in the Lisbon Treaty,
which are at the core of the monetary union.
2/ Response to the current crisis
In the current crisis, we reaffirm our commitment to ensure the
stability, unity and integrity of the euro area. All the
institutions of the euro area (Council, Commission, ECB) as well
as all euro area. Member States agree to use the full range of
means available to ensure the stability of the euro area.
Today, we agreed on the following :
- First, consolidation of public finances is a priority for all
of us and we will take all measures needed to meet our fiscal
targets this year and in the years ahead in line with excessive
deficit procedures. Each one of us is ready, depending on the
situation of his country, to take the necessary measures to
accelerate consolidation and to ensure the sustainability of
public finances. The situation will be reviewed by the Ecofin
Council on the basis of a Commission assessment by the end of
June at the latest. We have asked the Commission and the Council
to strictly enforce the recommendations addressed to Member
States under the Stability and Growth Pact.
- Second, we fully support the ECB in its action to ensure the
stability of the euro area.
- Third, taking into account the exceptional circumstances, the
Commission will propose a European stabilization mechanism to
preserve financial stability in Europe. It will be submitted for
decision to an extraordinary ECOFIN meeting that the Spanish
presidency will convene this Sunday May 9th.
3/ Strenghtening economic governance
We have decided to strengthen the governance of the euro area.
In the context of the Task Force headed by the President of the
European Council, we are prepared to:
- broaden and strengthen economic surveillance and policy
coordination in the euro area, including by paying close
attention to debt levels and competitiveness developments;
- reinforce the rules and procedures for surveillance of euro
area Member States, including through a strengthening of the
Stability and Growth Pact and more effective sanctions;
- create a robust framework for crisis management, respecting
the principle of Member States' own budgetary responsibility.
The President of the European Council decided to accelerate the
work of the Task Force. The Commission will present its
proposals next week on May 12.
4/ Regulation of the financial markets and the fight against
speculation
Finally, we agreed that the current market turmoil highlights
the need to make rapid progress on financial-markets regulation
and supervision. Increasing transparency and supervision in
derivatives markets and dealing with the role of rating agencies
are among the key priorities for the EU. We also agreed on
intensifying the work on crisis management and resolution in the
financial sector and on a fair and substantial contribution of
the financial sector to the costs of crises. The work on
assessing whether more steps are necessary in view of recent
speculation against sovereign debtors should be sped up. The
President of the European Council therefore intends to discuss
these issues at the June European Council, on the basis, where
needed, of Commission proposals.
2010-05-07 23:52:22.255 GMT
May 8 (Bloomberg) -- Following is a statement issued today
by the leaders of the 16 nations using the euro.
Brussels, 7 May 2010
STATEMENT OF THE HEADS OF STATE OR GOVERNMENT
OF THE EURO AREA
1/ Implementation of the support package for Greece
In February and in March, we committed to take determined and
coordinated action to safeguard financial stability in the euro
area as a whole.
Following the request by the Greek government on April 23 and
the agreement reached by the Eurogroup on May 2, we will provide
Greece with 80 billion euros in a joint package with the IMF of
110 billion euros. Greece will receive a first disbursement in
the coming days, before May 19.
The program adopted by the Greek government is ambitious and
realistic. It addresses the grave fiscal imbalances, will make
the economy more competitive, and will create the basis for
stronger and more sustainable growth and job creation.
The Greek Prime Minister has reiterated the total commitment of
the Greek government to the full implementation of these vital
reforms.
The decisions we are taking reflect the principles of
responsibility and solidarity, enshrined in the Lisbon Treaty,
which are at the core of the monetary union.
2/ Response to the current crisis
In the current crisis, we reaffirm our commitment to ensure the
stability, unity and integrity of the euro area. All the
institutions of the euro area (Council, Commission, ECB) as well
as all euro area. Member States agree to use the full range of
means available to ensure the stability of the euro area.
Today, we agreed on the following :
- First, consolidation of public finances is a priority for all
of us and we will take all measures needed to meet our fiscal
targets this year and in the years ahead in line with excessive
deficit procedures. Each one of us is ready, depending on the
situation of his country, to take the necessary measures to
accelerate consolidation and to ensure the sustainability of
public finances. The situation will be reviewed by the Ecofin
Council on the basis of a Commission assessment by the end of
June at the latest. We have asked the Commission and the Council
to strictly enforce the recommendations addressed to Member
States under the Stability and Growth Pact.
- Second, we fully support the ECB in its action to ensure the
stability of the euro area.
- Third, taking into account the exceptional circumstances, the
Commission will propose a European stabilization mechanism to
preserve financial stability in Europe. It will be submitted for
decision to an extraordinary ECOFIN meeting that the Spanish
presidency will convene this Sunday May 9th.
3/ Strenghtening economic governance
We have decided to strengthen the governance of the euro area.
In the context of the Task Force headed by the President of the
European Council, we are prepared to:
- broaden and strengthen economic surveillance and policy
coordination in the euro area, including by paying close
attention to debt levels and competitiveness developments;
- reinforce the rules and procedures for surveillance of euro
area Member States, including through a strengthening of the
Stability and Growth Pact and more effective sanctions;
- create a robust framework for crisis management, respecting
the principle of Member States' own budgetary responsibility.
The President of the European Council decided to accelerate the
work of the Task Force. The Commission will present its
proposals next week on May 12.
4/ Regulation of the financial markets and the fight against
speculation
Finally, we agreed that the current market turmoil highlights
the need to make rapid progress on financial-markets regulation
and supervision. Increasing transparency and supervision in
derivatives markets and dealing with the role of rating agencies
are among the key priorities for the EU. We also agreed on
intensifying the work on crisis management and resolution in the
financial sector and on a fair and substantial contribution of
the financial sector to the costs of crises. The work on
assessing whether more steps are necessary in view of recent
speculation against sovereign debtors should be sped up. The
President of the European Council therefore intends to discuss
these issues at the June European Council, on the basis, where
needed, of Commission proposals.
====================
Guest post: El-Erian on a critical weekend for Europe and the economy
Posted by Guest writer on May 08 17:32.
This is a critical weekend for Europe (and the global economy), with governments shifting to a "whatever it takes" mode as they scramble to regain control of the situation, Pimco's chief executive Mohamed El-Erian writes for FT Alphaville.
Yesterday night's important news out of Europe points to renewed efforts to rescue Greece and safeguard the Euro. The news will undoubtedly be accompanied by additional announcements out of Brussels and Berlin, as well as Washington DC. In the process, the stakes are getting even bigger…for Greece, Europe and the global economy.
As the announcements multiply, it is even more important to be clear about the key question. This is best summarized by a simple, and disturbing image, that a friend alerted me to:
With Greece (as well as Portugal and some other countries) now visibly drowning in a sea of debt, the question is whether the rescuer (EU/IMF) can pull off the rescue or, instead, get pulled down with all parties drowning.
So far, the attempts at rescue-including last Sunday's dramatic EUR 110 billion announcement-have have been incomplete with respect to both design and implementation. They were thus viewed as insufficient and not credible by analysts and markets. As a result, the Greek crisis morphed in the following days into something much more sinister for Europe and the global economy.
This explains this weekend's shift in the EU to a "whatever it takes" mindset. We are seeing evidence of a significant step-up in crisis management. Yet the question is not whether a step-up is required-it clearly is. The question is whether the strengthened rescue attempt will prove sufficient.
Has the rescuer been bolstered enough to pull out the drowning parties, or will the latest rescuer be pulled down too?
It is too early to make this call with a sufficient degree of foundation and conviction. At the very minimum, we have to wait for tomorrow's operational details.
Even with this critical uncertainty, we should not under-estimate the historical relevance of what is happening this weekend; and the stakes for Europe and the global economy are huge.
If this rescue attempt does not work, there will be a material acceleration in the process of change to Europe's economic, financial, and institutional landscape; and the reality of the debt explosion in industrial economies will become even more of a destabilizing factor for the world economy.
Mohamed El-Erian is CEO and co-CIO of PIMCO
=================
ECB's Trichet Says Stability Mechanism Is EU's Responsibility
2010-05-07 22:52:37.537 GMT
By Tony Czuczka
May 8 (Bloomberg) -- European Central Bank President Jean-
Claude Trichet said the financial backstop mechanism being
proposed by euro-area leaders is the responsibility of the
European Union.
Trichet didn't specify any ECB role in the mechanism and
said he won't attend a special meeting of EU finance ministers
on May 9 to work on the mechanism.
2010-05-07 22:52:37.537 GMT
By Tony Czuczka
May 8 (Bloomberg) -- European Central Bank President Jean-
Claude Trichet said the financial backstop mechanism being
proposed by euro-area leaders is the responsibility of the
European Union.
Trichet didn't specify any ECB role in the mechanism and
said he won't attend a special meeting of EU finance ministers
on May 9 to work on the mechanism.
=====================
Merkel's Adviser Urges ECB to Buy Bonds, Euro am Sonntag Says
2010-05-08 09:14:24.800 GMT
By Julie Cruz
May 8 (Bloomberg) -- Peter Bofinger said the European
Central Bank should purchase government bonds in the short-term
to stabilize the situation in the eurozone, Euro am Sonntag
reported.
The European Union should also take "long-term fundamental
reforms," the newspaper said, citing an interview with
Bofinger, a member of German Chancellor Angela Merkel's council
of economic advisers. This would include a specific timetable
for the consolidation of public finances in the euro zone, which
includes Germany, he told the newspaper.
"Targeted sanctions" should be created for countries with
a lack of budget discipline, Euro am Sonntag reported Bofinger
as saying.
2010-05-08 09:14:24.800 GMT
By Julie Cruz
May 8 (Bloomberg) -- Peter Bofinger said the European
Central Bank should purchase government bonds in the short-term
to stabilize the situation in the eurozone, Euro am Sonntag
reported.
The European Union should also take "long-term fundamental
reforms," the newspaper said, citing an interview with
Bofinger, a member of German Chancellor Angela Merkel's council
of economic advisers. This would include a specific timetable
for the consolidation of public finances in the euro zone, which
includes Germany, he told the newspaper.
"Targeted sanctions" should be created for countries with
a lack of budget discipline, Euro am Sonntag reported Bofinger
as saying.
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