Category Archives: Doomsday scenarios

Satyajit Das: The Euro-Zone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany!

Yves here. Das’ post has a lot of useful information, but like a lot of finance people, he is hostage to a conventional markets-driven reading of the issues. Governments are not households or businesses. When the private sector delevers, unless a country is running a big surplus (as Germany is) you can’t have government delever at the same time. So Germany’s notion of virtue (that governments and private citizens should wear an austerity hair shirt) works only for Germany.

There are also ways to prevent an Euro train wreck that don’t involve using German’s balance sheet, such as having the ECB issue bonds, or do revenue sharing (say on a per capita basis, as Marshall Auerback suggested in a NC post). Or the ESM could be given a banking licence via the ECB so that it has the ability to deploy unlimited capital to sort out the solvency issue (as France has suggested). Yanis Varoufakis’ “Modest Proposal” is another approach. But if Germany continues to oppose having the ECB take a much more aggressive stance, Das’ concerns are germane.

Wolf Richter: Manna for Bankrupt Cyprus

In Greece’s chaotic wake bobs the listing Republic of Cyprus, soon to be the fifth Eurozone country, out of seventeen, to get a bailout. By June 30. Only last year’s €2.5 billion loan from Russia has kept it afloat. It’s economy is shrinking, unemployment is at a record, and real estate is collapsing after a phenomenal bubble and a nationwide title-deed scandal that has taken down the banks. But Cyprus has something—and it’s huge—that no other troubled Eurozone country has.

The Crisis Shifts to Italy

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As we head towards Greece’s weekend election, rumoured to be celebrated by the locals by moving ever larger sums of money elsewhere, the Eurozone appears to be seriously straining under the constant pressure of its ongoing crisis.

Marshall Auerback: Germany’s Constitutional Conundrum

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives

Hans-Werner Sinn, president of Germany’s Ifo Institute and the director of the Center for Economic Studies at the University of Munich, has taken to the pages of the NY Times to explain why Berlin is balking on a further bailout for Europe. Amongst the points that Sinn makes against German sharing in the debt of the euro zone’s southern nations is a legal one:

Bank Bonds vs German Intransigence

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

The fallout from the Spanish bank “bailout” continued overnight with Spanish yields moving back up and over their November 2011 euro area highs:

Stealth Austerity Coming to Spain?

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

So the worst kept and most predictable secret happened over the weekend with the Spanish bank bailout. Initially the deal appeared positive for Spain, but as usual the devil is in the detail. It must be noted that I don’t consider this something that, by itself, changes the medium to long term outcome of the country.

Finland Trying to Dictate Terms of Spanish Bank Bailout: “No Funds to Bad Banks”

The Finland effort to dictate terms to the Spanish bank bailout may well turn out to be noise, but it is yet another indicator that despite the general optimism about a rescue, there are a lot of details to be nailed down.

Satyajit Das: The Spanish “Bailout”, Whoops – “Assistance”!

On 11 April 2011, then Spanish Finance Minister Elena Salgado stated: “I do not see any risk of contagion. We are totally out of this.” A little over a year later, Ms Salgado and her party are no longer in power and Spain is well and truly in it.

Spanish Bank Rescue: Will the Treatment Make the Patient Worse?

Spain has reversed itself and asked the Eurozone for “up to” €100 billion after not long ago insisting it could go it alone. The proximate cost was the increase in its sovereign debt yields in the wake of the announcement of a bailout of Bankia, which was cobbled together from dud cajas. Even though Spain’s bond auction last week got off better than expected, that was likely in part due to the expectation that the creditor states would indeed ride in to the rescue.

But will the latest, yet to be finalized remedy do anything more than buy a little time?

Marshall Auerback: Beware German Trojan Horses – More “Europe” Might Mean More Fiscal Austerity

By Marshall Auerback, a portfolio strategist and hedge fund manager

As several newspapers have recently highlighted, Germany is slowly but surely moving toward a plan to combine much of Europe’s bad debt into a single fund with the idea of paying it off over 25 years.

Cleaning Up the Mess: What to Do About Teetering Eurobanks?

Yves here. The Financial Times and New York Times tonight both have good overviews on the state of play in the effort to contain a slow-motion Spanish bank run. On the one hand, the Spanish government is in a position to tell the Eurocrats that it will consider only a bank bailout and not be required to take on further austerity measures. Given that retail sales have fallen nearly 10% year to year, it’s hard to see how anyone could expect more austerity to be a good idea.

Although markets reacted as if a deal was imminent, the FT makes it sound as if quite a few details need to be ironed out. And no wonder…

Yanis Varoufakis: Why Europe Should Fear Fine Gael-like ‘Reasonableness’ Much, Much More Than it Fears Syriza

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog.

The establishment view in Europe is that the problem is too much debt (by profligate countries like Greece) and, therefore, that the solution must involve (a) austerity and (b) structural reforms (which increase the competitiveness of the weaker states). The problem, however, is that the establishment view is profoundly mistaken and, as a result, the proposed treatment poisons the patient. If this is so, Europe (and the world) have a lot more to fear from the ‘reasonableness’ of political parties like Fine Gael et al than from the ‘ultra-leftists’ of Syriza.

The FDIC Continues to Promote the Fantasy That It Can Resolve Megabanks

Due to being a bit under the gun before taking off for our holiday (I hope you all enjoyed the posts from Matt Stoller, Lambert, and the other guest writers), we didn’t address a May 10 speech by the acting FDIC chairman, Martin Gruenberg, on the FDIC’s current thinking on how to resolve so called systemically important financial institutions, or SIFIs. I’m turning to this despite the delay because I see some people who ought to know better, such as the normally solid John Hussmann, taking the FDIC”s claims at face value.