Archive - May 7, 2012 - Story

• Greek pro-bailout parties lack majority, final poll results (Reuters)
• Greek Election Gridlock Raises Risk for Bailout, Euro Future (Bloomberg)
• Socialist Hollande ousts Sarkozy as French leader (Reuters)
• Merkozy End Means Franco-German Gulf; Greek Voters Rebel (Bloomberg)
• Election swing leaves Greece teetering (Kathimerini)
• Merkel's Coalition Appears to Suffer Loss in German State (WSJ)
• The Only Solution to the Eurozone Crisis (FT)
• Cameron Faces Clamour From Party Right (FT)
• Falcone’s LightSquared Said to Get Week Credit Extension (Bloomberg)
• Hungary plans three-year, 15 billion euro IMF deal: state sec (Reuters)
• Putin pledges unity on return to Kremlin (Reuters)

It was only a matter of time before the next bank bailout began despite all those promises to the contrary. Sure enough, as math always wins over rhetoric and policy, earlier this morning the shot across the Spanish bow was fired after PM Rajoy did a 180 on "no bank bailout" promises as recent as last week. From Dow Jones: "Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday, signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. "If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn't rule out injecting public funds, like all European countries have done," Rajoy said in interview with Onda Cero radio stations. The weakness of Spain's banks is weighing on the economy that contracted 0.3% in the first and fourth quarters, meeting most economists' definition of a recession. The unemployment rate is at an 18-year high 24.4%, data showed April 27. Banks have sharply reined in credit in the face of rapidly growing bad debt and problems getting finance on international markets." And explicitly we learn that Spain will inject EU7 bln of public funds via contingent-capital securities to support BFA-Bankia, El Confidencial reports, citing Economy Ministry officials it doesn’t name. It actually sounds cooler in the native: "El Estado inyectará 7.000 millones de dinero público para salvar BFA-Bankia." So it begins. Which also means that the "Bad Bank" idea is about to be launched. So far so good... The only problem is that like the EFSF, like the ESM, like the IMF, all those "deus ex machina(e)" also had to find funding of their own... and failed: it is one thing to intend to rescue the system. It is another to find the cash to do it with.

Germany's DAX is the hardest hit so far of the major European equity markets (futures) with a drop of over 2.2% (underperforming the French CAC40 -1.5% for now). The EuroSTOXX 50 is down 2% and reflects the general state of affairs in European equity markets as they open - which is a little worse than the S&P futures market's move since the European close on Friday.  European credit markets are very quiet and illiquid thanks to the UK's May-Day celebrations (and its position as hub for CDS market-making) but sovereign bonds are trading across mainland Europe and are being sold relatively hard so far. Spain, Italy, and Greece are underperforming with the former two pushing towards recent wide spreads even if yields remain off recent highs. EURUSD rallied a little off its overnight lows as Europe opens but has started to give back some of those gains. As the cash markets open there is some buying-the-dip pressure in stocks - even as govvies remain offered while financials remain under significant pressure. US equity futures and Treasuries remain in sync as ES limps a little higher off overnight lows.

With Citigroup raising the odds of a Greece exit from the Euro to between 50 and 75% in the next 12-18 months, it is perhaps worth reflecting on just what is holding them back and where Europe goes next. There has been and will continue to be much written on the faulty premise or failed-experiment of the Euro and using George Soros' recent less-than-sanguine discussion (at the INET conference as we noted here) of Europe in general (how did they get here? exactly where are they? and what are the scenarios going forward?) Gordon T Long and John Rubino expand on these thoughts in a must-watch-before-you-hit-the-BTFD-button clip this week. If there was a dummies guide to Europe's problems, this is it - plain and simple - and as this weekend's elections perhaps reflect "when you borrow too much money as a nation - you become ungovernable - as there is no painless way out."