Has the Europhoria ended already?

[GRG55]

Euro, Stocks, Commodities Retreat as Bailout Optimism Ebbs

May 11 (Bloomberg) -- The euro lost all of yesterday’s gains on concern the $1 trillion bailout will hurt European economic growth. Stocks fell, paring the MSCI World Index’s biggest advance in a year. Chinese shares entered a bear market.

The euro weakened 0.7 percent against the dollar at 8:44 a.m. in New York, trading below the level it was before the European Union-led aid package was announced early yesterday...

...The European Union’s unprecedented bailout package is unlikely to be a “long-term solution” for the region, Marek Belka, the director of the International Monetary Fund’s European department, said in Brussels yesterday...

...“The euphoria of 24 hours ago has passed,” Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “We are in little doubt that steps taken will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures.”...

[GRG55]

Re: Has the Europhoria ended already?

From The Baseline Scenario:

Eurozone: The Kitchen Sink Goes In – Now It’s All About Solvency

By Peter Boone and Simon Johnson


The eurozone self-rescue plan announced last night has three main elements:

1. 750bn euros in a fiscal support program, with 1/3 coming from the IMF (although this was apparently news to the IMF).
2. The European Central Bank promises to buy bonds in dysfunctional markets.
3. Swap lines with the Federal Reserve, to provide dollars.

At first pass this package might seem to be in with what we recommended a week ago and again on Thursday.

But the European central banks have come in very early – with government bond prices still high – and there is no sign yet of credible fiscal adjustment for Spain and Portugal. The eurozone apparently did not even discuss the situation in Ireland, which seems increasingly troubling.

This is a whole new level of global moral hazard – the result of an alliance of convenience between troubled governments in the south of Europe and the north European banks (and implicitly, north American banks) who enabled their debt habit. The Europeans promise to unveil a mechanism this week that will “prevent abuse” by borrowing countries, but it is hard to see how this would really work in Europe today...

[GRG55]

Re: Has the Europhoria ended already?

And the FT's Wolfgang Münchau weighs in again:

Germany pays for Merkel’s miscalculations

By Wolfgang Münchau
Published: May 10 2010 20:51 | Last updated: May 10 2010 20:51

This was an expensive weekend for Angela Merkel, financially and politically. For months she had basked in her image as Germany’s new Iron Chancellor – “Madame Non”, as the French press had come to call her. She enjoyed the adulation of the fiscally righteous in her own party. She fell ominously silent when anti-Greek xenophobia broke out across Germany. It was all a big bluff, a giant political miscalculation, costing the eurozone a cool €750bn...

...I am writing this column on a visit to Frankfurt, and from my conversations here there can be no doubt about Germany’s lack of enthusiasm for this aid package. The funny thing is that the Germans, Ms Merkel probably included, really believed in the “no bail-out” clause. They were shocked by events. They failed to see that Article 125 of the Lisbon treaty is the kind of law that is irrelevant until needed, at which point it becomes impossible to apply. Perhaps it was due to 20 years of indoctrination about stability-oriented policy, or simply an intellectual laziness that led the country’s political, economic and legal establishment to conclude that a monetary union could forever run on the basis of rules, without political management.

Here in Germany, the overwhelming view is that this package is not a solution. On this point, I agree. How can a loan guarantee solve a problem of excessive indebtedness? It surely saved the eurozone, which might otherwise have been pushed over the brink this week. But beyond this week, the benefits are less clear. At best, it provides sufficient stability to allow Spain and Portugal to press ahead with reforms. So the judgment about the success of this programme depends critically on whether the two countries can reform their labour markets, sort out their banking sectors, improve productivity and speed up fiscal adjustments. We should remember that, unlike in Greece, the issue in Spain and Portugal is not primarily fiscal, but an excessively indebted private sector. Private debts constitute large contingent liabilities for the state due to the bank guarantees – the result of another expensive European summit two years ago. So unless José Luis Zapatero, Spain’s prime minister, is going to present the mother of all economic reform packages, it is hard to see how the mother of all bail-outs is going to work...

[jk]

Re: Has the Europhoria ended already?

So the judgment about the success of this programme depends critically on whether the two countries can reform their labour markets, sort out their banking sectors, improve productivity and speed up fiscal adjustments.

hard to be optimistic about this. [but when did i ever find it easy?] the bonfire of the currencies continues. this week just happens to be the euro's turn. the dollar's day will come again. anybody else here impressed that this panic only dropped oil to 75? and today gold is hitting new nominal highs in both dollars and euros.

[Chomsky]

Re: Has the Europhoria ended already?

From The Baseline Scenario:

Eurozone: The Kitchen Sink Goes In – Now It’s All About Solvency

By Peter Boone and Simon Johnson


The eurozone self-rescue plan announced last night has three main elements:

1. 750bn euros in a fiscal support program, with 1/3 coming from the IMF (although this was apparently news to the IMF).
2. The European Central Bank promises to buy bonds in dysfunctional markets.
3. Swap lines with the Federal Reserve, to provide dollars.

At first pass this package might seem to be in with what we recommended a week ago and again on Thursday.

But the European central banks have come in very early – with government bond prices still high – and there is no sign yet of credible fiscal adjustment for Spain and Portugal. The eurozone apparently did not even discuss the situation in Ireland, which seems increasingly troubling.

This is a whole new level of global moral hazard – the result of an alliance of convenience between troubled governments in the south of Europe and the north European banks (and implicitly, north American banks) who enabled their debt habit. The Europeans promise to unveil a mechanism this week that will “prevent abuse” by borrowing countries, but it is hard to see how this would really work in Europe today...

The first comment to that article is priceless:

By now I can only laugh at how, the more this insane combination of Tower of Babel and Rube Goldberg contraption becomes unsustainable at its existing level of complexity, the more forcibly reality is pulling it in the direction of simplification with the very real force of gravity, the more the answer, even from the normally more sane and rational commentators, is to add more layers of complexity.

Rube Goldberg’s running itself to pieces? Double it!

The system’s already so overheated and turbulent the chaotic forces are smashing it to pieces? Turn up the heat! Pump more energy into the system!

You’re already busted and the dealer’s showing 21? Double down!

Most of all, no matter how deep the hole is you’re in, the answer is always to keep digging. Especially if you can use the shovel not to dig, but just to club a slave who must dig with his own bloodied hands.

By now the Bailout combines an extreme level of existentialist absurdity with an extreme level of world-historical crime. It’s definitely the worst financial crime in history, with no end in sight to the looting. Nothing short of revolution or total collapse will finally bring an end to the robbery.

Meanwhile, is it also the most clinically insane project in history? Especially from the point of view of the non-rich, i.e. all but a handful in even the “richest” countries, who must after all tolerate this crime or else it couldn’t take place, it’s hard to come up with a rival nominee.

I’m sorry to goof on Simon, but everything even the better commentators write on this, where they’re so straight and serious about it, reads like something from Lewis Carroll. (I especially like the parts about how “growth” will redeem this. I picture a bizarre musical soundtrack playing, and outlandish cartoon characters talking, while I read stuff like that.)

[ST]

Re: Has the Europhoria ended already?

Yeah, they don't see it that way though. They have advisors and economists and lobbyists telling them in France and Germany telling the powers that be that a bailout of Greece is a bailout of the French and German banking system because it may not withstand the shock if that debt defaults (in France's case anyways $35 billion Euro debt). So they just see it as a liquidity crisis - their own banking systems survive at the expense of public sector debt.

[D-Mack]

Re: Has the Europhoria ended already?

Goldman can create shorts faster than Europe can create money

poor Goldman, all that bashing

[jk]

Re: Has the Europhoria ended already?

Yeah, they don't see it that way though. They have advisors and economists and lobbyists telling them in France and Germany telling the powers that be that a bailout of Greece is a bailout of the French and German banking system because it may not withstand the shock if that debt defaults (in France's case anyways $35 billion Euro debt). So they just see it as a liquidity crisis - their own banking systems survive at the expense of public sector debt.

the initial loans to greece will be used to pay off the french, german, british and american banks, so that they will no longer be exposed. it will then be safe for greece to default.

[Fiat Currency]

Re: Has the Europhoria ended already?

the initial loans to greece will be used to pay off the french, german, british and american banks, so that they will no longer be exposed. it will then be safe for greece to default.

Of course. But this is going to ripple its way through the "smaller" countries/currencies. It will get very interesting when we get down to the final four, Japan, UK, USA & China.

I'm starting to feel like a character in a bad spy novel :cool: Perhaps it's time to start an Internet "French Underground" to see if we can take back the World Economic system. :eek:

[GRG55]

Re: Has the Europhoria ended already?

Spot the Trillion Dollar blip...

120 days

latest (May 13) 1.2587

lowest (May 13) 1.2587

highest (Dec 3) 1.512

[c1ue]

Re: Has the Europhoria ended already?

And now it appears Sarkozy threatened to shoot France if Germany didn't save them...

North Korean negotiating strategy!

http://www.theaustralian.com.au/busi...-1225866984661

FRENCH President Nicolas Sarkozy has threatened to pull his country out of the euro currency group to force Germany to help Greece with its debt crisis, El Pais newspaper reported, quoting Spanish Prime Minister Jose Luis Rodriguez Zapatero.


Mr Sarkozy made the threat at a Brussels summit of EU leaders last Friday that sealed a rescue package, Zapatero told a meeting with leaders of his Socialist Party on Wednesday, the newspaper reported today.
Germany, Europe's biggest economy, has been the most reluctant euro nation to help the Greek government. However, the French President demanded "a commitment by everyone, for everyone to help Greece, each according to his means or France would reexamine its situation in the euro," Mr Zapatero was quoted as saying.

"Sarkozy banged his fist on the table and threatened to withdraw from the euro, which twisted the arm of Angela Merkel," the German chancellor, a Socialist official who heard Zapatero's account was quoted as saying.
The Brussels summit finally agreed a €110 billion ($154.02 billion) three-year package of loans and credit guarantees for Greece, which had risked defaulting on its huge debts.

"France, Italy and Spain put up a common front against Germany and Sarkozy went so far as to threaten to break the traditional Franco-German axis," according to another person at the meeting. France and Germany are traditionally considered the central motor of EU initiatives.

Spain and Portugal also face major debt problems and Mr Zapatero announced new austerity measures on Wednesday. El Pais said the Spanish leader has used increasingly dramatic rhetoric in recent days to convince his party of the gravity of the crisis facing the euro.

front_3.jpg

Anyone know this image? :rolleyes: