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Will Europe's Show of Force Stem the Slide?
Bloomberg
reports, EU
Crafts $962 Billion Show of Force to Support Euro, Halt Global Crisis:
European
policy makers unveiled an unprecedented loan package worth nearly $1
trillion and a program of securities purchases as they spearheaded a
drive to stop a sovereign-debt crisis that threatened to shatter
confidence in the euro.
Jolted into action by last week’s
slide in the currency to a 14-month low and soaring bond yields in
Portugal and Spain, governments of the 16 euro nations agreed to make
loans of as much as 750 billion euros ($962 billion) available to
countries under attack from speculators.
The ECB will also embark on “very significant operations,”
European Union Economic and Monetary Commissioner Olli Rehn told
reporters in Brussels after the 14-hour meeting. “The ECB has taken a
decision to intervene in the secondary markets of government
securities.”
Under pressure from the U.S. and Asia to stabilize
markets, the European governments gambled that the show of financial
force would prevent a sovereign-debt crisis and muffle speculation that
the 11-year-old euro might break apart.
Europe’s failure to
contain Greece’s fiscal crisis triggered a 4.1 percent drop in the euro
last week, the biggest weekly decline since the aftermath of Lehman
Brothers Holdings Inc.’s collapse. It prompted President Barack Obama to
call German Chancellor Angela Merkel and French President Nicolas
Sarkozy yesterday to urge “resolute steps” in Europe to prevent the
crisis from cascading around the world.
Under the loan package,
euro-area governments pledged to make 440 billion euros available, with
60 billion euros more from the EU’s budget and as much as 250 billion
euros from the International Monetary Fund, said Spanish Economy
Minister Elena Salgado.
“We are placing considerable sums in the
interests of stability in Europe,” Salgado told reporters after
chairing the meeting.
In my last
comment, I said European leaders will do whatever it takes to shore
up the financial system and avoid debt deflation. With this move,
they're sending a strong signal that they will do whatever it takes to
support the EMU, and curb any speculative attacks on the euro and
European sovereign debt.
Following the announcement, the Euro,
stocks and Greek bonds are surging and default
swaps are plummeting. In my opinion, European leaders didn't have a
choice. Heavy speculative attacks were threatening
their bank funding system, and had they done nothing, a run on
banks was inevitable.
As for Greece, the WSJ reports that the IMF
approved its rescue package, and urged against debt default.
Finally, the FT reports that Barroso
fires salvo at markets:
José Manuel
Barroso, European Commission president, yesterday said he would propose
placing credit rating agencies under the direct supervision of a
European securities markets authority, writes Tony Barber in
Brussels .
Speaking to the European parliament, Mr Barroso
said: "Financial market players are still in business because
regulatory authorities and democratic institutions - ultimately, the
taxpayers - stabilised the markets in the financial crisis.
"We
acted swiftly then, and precisely for that reason, we will also act
swiftly if further regulation is required."
Mr Barroso's reference
to democratic institutions under siege underlined the extreme
seriousness with which European Union policymakers have begun to view
the accumulating risks to the eurozone's stability.
The 16-nation area's public debt is expected
to rise to 88.5 per cent of gross domestic product next year, a record
in the euro's 11-year history, the Commission estimated.
Mr
Barroso reserved his strongest language for credit rating agencies.
*François Fillon, French premier, last night said speculators would
fail in any assault on the euro, writes Peggy Hollinger in Paris
.
In a televised interview on TF1, the prime minister
acknowledged that both Greece and the euro had been suffering from a
speculative attack "for several weeks, which has in recent days
intensified". But he said the attack would fail because "the eurozone
is solid. Contrary to popular thinking, the eurozone is less indebted
than any of the big global zones".
Listen
carefully to President Barroso below. The message to speculators is
clear: you no longer have free reign to mount destructive
speculative attacks on European sovereign debt or the Euro.
Even
though it's late, Europe's show of force is resolute and decisive. In my
opinion, this will have a profound impact on markets, helping shore up
confidence and it will stem the slide to deflationary depression.
»
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lol. spoken like a true American. out of interest do you have a passport?
Go back and re-read the mechanics of the Eurozone bailout, realize it's almost entirely dependant on the Fed, realize further that a Fed audit may significantly impact it's ability to hold up it's end of the bailout scheme, then reassess your comment.
Debt on top of even more debt, this will end very very bad sometime in the future. Guess were back to the Sunday night pump parade. Next time it will be 2 trillion.
The real issue here is the Federal Reserve audit, this european stuff is just a side show.
It wouldn't have been much worse than what will eventually come, it just would have come a bit sooner.
put thro the bullshit translator means:
yep, good plan.
it's bought them a few more months IMO, you cannot "threaten" free market forces any more than you can have an effective "war against terror".
ultimately the free market will always win.
silly silly politicians.
Every politico involved here has signed his own professional death warrant.
It's a scary situation when the creators of the financial crisis are still allowed free reign to 'fix' the problems, which ultimately means throwing money they don't have, at failed investmnents or monetary choices.
Continuing down this path just tells everyone that their practices were sound- speculators are the problem here. It's not actually a show of force; more a show of fear and arrogance from flawed decision makers who didn't see the crisis coming and underestimated its severity.
GFORCE,
And what if European leaders did nothing? Would the world be better off? I read some comments here and I ask myself, "so what would be the alternative?". To do nothing would have ensured a run on banks and caused human suffering, crippling European and global economies. It's nice to say "they're arrogant", but the real arrogance came from speculators taking massive one way bets, essentially betting on a collapse of the EMU and Euro.
The alternative is what should have been done to begin with, two years ago when this was all completely obvious - Swedish solution, bank shareholders wiped, bank debtholders take the scalping of a lifetime, debt written down. History has no degrees of freedom, so it's impossible to know whether the citizenry would've been better off than their current 20% UE. I can tell you, we'd be two years closer to done with it.
As far as the non-rentier general populace, central banks have so far managed to reflate only the things that either don't matter or are positively harmful. Wages, home prices, real property values certainly haven't reflated. The only reflation we've seen is in the price of things that serve as a tax - energy, food, materials.
Is the population better off this morning with oil up 4%, another $0.12 per gallon of gasoline? What's the knock-on effect of that, versus just not having printed in the first place? Doesn't that, in the end, destroy as many jobs as failing to print would have in the first place?
Finally, the "arrogance of speculators" absolutely does not justify $50b of US involvement via its 17% IMF funding. Europe should have no worries; after all, it's already threatened "speculators" with jackbooted thuggery via its intelligence services should anyone have the temerity to trade against them. I suppose capitalism really *does* proceed from the barrel of a gun.
the debt just created can never be repaid.
They will make believe it can with their fiscal projections and tax increases, but the public sector is simply too big to be supported by the private sector.
If the public sector were a corporation (and it should be viewed as such for analysis purposes), there would be paring back across the board and allocation to the most necessary expenditures.
The only question is "Will this debt ever really come due?"
TPTB are clearly betting that it will not ever come due because they are certainly intelligent enough to know that it can NEVER be repaid.
Move to France they dude, get all the Egalitay and Fraternitay you can.....you're gonna get plenty with all the tax you'll be paying. They are definitely ahead of the US in one area for sure, thats getting into Massive Debt while having a Massive Taxation Program, proving that spreading capital around through taxes will not grow your country for shit, squeezing individuals and business alike. The rest of us will be stuck in the US.....years behind the french and their utopia of govt hand-outs, who needs innovation like computers or the space shuttle or stuff like that when you can live in France, they've got it all figured out.
During the 2008 / 2009 portion of the economic crisis does anyone know what the total costs of the European bank bailouts were?
Just another Lehman 2.0 weekend.
meh.
So what happens when the PTB figure out it wasn't speculators but their own pension funds fleeing for cover causing all this and the PTB just nuked 'em?
Uh-oh.
this was a Bear Stearns weekend
the earth quake tore a hole in the earth , 5 miles by 2 miles . but the authorities are monitoring it closely.
any more ripping of the earth , a warn.......
A wise sage once said...
"It doesn't matter what you think, we will all know the truth and what is correct in the end !"
The "end" alluded to is approaching rapidly. Money is a tool to keep the engine of economic progress lubricated. There is a limit to the amount of liquidity that can be injected into the world market without leading to hyperinflation. The BIS is aware of this fact and are monitoring things closely.
paper vs paper . i will see your 900 billion and raise 1.4 trillion , your move
leo, I can't imagine how you could cheer this. The EU will QE its way out of trouble with money from the Fed? As I said over the weekend, this will just create mor Vol. You like this Vol because the arrows are green. Yes this crisis has been avoided. But for how long?
Bruce,
You wrote about Sarkozy getting "stuffed", and you believe that speculators serve a mostly benign function in taming fiscal imprudence. I wrote that speculators are no match for the Fed and ECB, and over the weekend, European leaders sent them a strong message: F*ck off, you're not going to kill our economies.
I would have done the exact same thing. To do nothing would have been a disaster. The huge moves you're seeing in the markets this morning proves that the short sellers got greedy, and now they're scrambling to cover.
The Euros did a pretty good job of destroying their own economies, like the US, through profligate spending and bad credit policy. To blame speculators is like blaming a doctor if he tells you you have cancer.
And what if some of the specs getting hosed are prop desks in TBTF banks? Do they get a bailout if their losses threaten the viability of their institution?
Blaming speculators is a strawman argument. That's like blaming camels for lack of rain.
I am not blaming speculators for corruption and fiscal imprudence, but let's be clear, speculators do not always serve a benign function of providing liquidity to markets. When they act in unison, basically like financial parasites, then their reckless actions must be curbed. This is what happened here. European leaders sent them a strong message that they'll do whatever it takes to support their banking system and avoid a funding crisis.
I infer you are fine with herding behavior as long it is creating some sort of asset bubble.
This showed to the American nattering nabobs of negativism that Europeans are serious about defending the euro. For 20 years Americans have been saying one or more of the following: "Euro can't happen, if happens, cannot last, cannot reach parity ever again, too high for Germany, too high for Club Med, will disintegrate any minute now, blah blah blah..."
Maybe it is just too insulting for Americans to have Europeans finally gotten their shit together and actually doing more or less fine and even challenging US alpha dogs in many areas.
Defend the euro by printing more? Good one.
As for getting their shit together, isn't this the opposite? No one will do austerity, no one will curb risk. It's a free-for-all until the whole thing explodes.
Who as speculators? FED, ECB are themselves speculators.
That is just speculators fighting other speculators.
Diverting bout but that still remains speculation.
Sports-guy-chest-bump.
It buys people a little extra to time to organise themselves for the total vanishing trick the global economy will do.
Will we see the guilotine resurected in France in order to give thanks to sundry bankers. Surely they will be the first against the 'wall' when the revolution begins.
So according to you, Leo, moral hazard is preferable to some hedge funds making money? As Tyler says in his latest, there is no more risk. Similarly, there is no incentive whatsoever to be anything short of wildly reckless. The Fed has everybody's downnside. Reckless everyone will be. Wait and see.
During the best of times nobody followed the Maastricht rules. Now they are disbanding them, at least in terms of debt ceiling. You think anybody believes there is any price to pay for violating this latest set of penciled in covenants?
Frankly, I prefer to see the Cohens and Bacons of the world get rich rather than the porkfest that is going to result from this.
The banking crisis was supposedly solved with more debt, but all it did was exacerbate a sovereign crisis and leave the world worse off. The "solution" has made the eventual collapse even bigger. We simply lack the discipline to accept paying the price for our collective malfeasance and profligacy. Trouble is, the hammer is waiting to fall, and there is nothing anyone can do about it. This latest pacifier will have a half life far less than the last one, as the number of apostates is growing.
This will end horribly.
There is no more risks. And?
Reduction of risks is sought after when looking for profits.
Facts that Indians were no risk for the US army did not mean the reward was not there.
Basic point in the extortion business: keeping the easiest to extort in the position of the extorted (reduction of risk to its optimum)
There is no more risks so what?
+1 Euro
EURO SENTIMENT:
http://williambanzai7.blogspot.com/2010/05/euro-market-sentiment-gauge.html
"and curb any speculative attacks on the euro and European sovereign debt."
and hedge funds remember we have plenty more from the same pile .. if need be .
manure can be produced from all over the kingdoms..
we have this process called horse shit
I've uploaded a DOW chart.
http://www.zerohedge.com/forum/latest-market-outlook-0
http://stockmarket618.wordpress.com
Right, any woof on how to respond to the 'continuing' deficit..? no.. perhaps that's why this is a crisis of so-called Democracy.
Leo, in your article you claim the bailout will stem the possibility of a deflationary slide.
However, in your comment you say that the PIIGS are going to have to impose austerity measures as a price of the bailout.
Aren't these conflicted positions? Austerity measures by definition will cause wages to fall, far stricker lending standards (as banks will be reluctant to lend based on future salary growth), less retail spending, and over the medium term much smaller equity:debt growth in private sector housing. Inevitably these are going to lead to greater defaults in private debt, and further pressure in prices. This says to me deflation...
And if they didn't come up with a trillion dollar stimulus, it would have been much, much worse for those countries. The austerity measures were loosened somewhat in this proposal.
The austerity measures were loosened somewhat in this proposal.
Yeah, especially for the banks.
But if it's a genuine austerity program, shouldn't banks be "austere," too?
You have to find the beauty in contradiction, and the breakdown.
and why does Europe and US get to do this and not Asia..
Asia doesn't want to do this - they are going to be the next reserve currency. I bet no one in the EU will be shaking hands or slapping backs; printing ink is real hard to wash off.
This works beautifully for Asia as it gives THEM more time to accumulate gold relatively cheap and ultimately set up a currency backed by gold. The Capitalist countries are drowning themselves in debt, while THE communist country builds up massive surpluses and has their people all buying gold?
I can't believe that I am pulling for China to get stronger, so I have a place to put my money other than corrupt western imaginary economies. As an older gulf war veteran, I thought I had seen it all. I try not to think too much about what is happening to my America.
Lets put a deal of reality in your analysis.
Gold has been extracted by humanity for 9,000 years by now.
The amount extracted from the start up to 1950 is roughly equal to the amount extracted from 1950 to nowadays (actually, a bit inferior, does not matter) Check what happened during the last five decades.
Gold total existing amount is not yet allocated but is on its way.
Gold might be currency. Currency is debt. Amassing surpluses in currency in a consumption game is highly counterproductive.
Sleep well, your capitalist nations are on the right path contrary to your communist nations. You have just to come in terms on how they put themselves on the right path.
Gold might be currency. Currency is debt. Amassing surpluses in currency in a consumption game is highly counterproductive.
Those are three really amazing sentences. Very interesting choice of words. In one fell swoop you redefine the debate:
Masterful bit of dezinformatsia.
You're usually very clear. You want to rewrite that?
this will make the elites money exit a little more orderly...but Europe will be IMF slaves soon enough...
I want to know, will Europeans regular folks respond to this differently than US sheeple did...
So, how did you respond moneybutt? Maybe we can use you as an example on how us sheeple can take effective action. Or did you limit yourself to logging in to Zerohedge and call people names?
Is this not the ultimate kick the can down the road ploy? If the ECB provides the $ 1 trillion, what true or ultimate effect will this have on the PIIGS? Will Greece deficit or debt to GDP change at all? Perhaps I am not seeing the total picture, but how does this change anything in Greece's or Spain's ability to repay their debt or at least lower it relative to their GDP? It is a bold move to provide financing and protect the currency but does nothing for the problem ie, too much spending relative to national receipts. Someone is going to have to explain this to me, I just don't see it.
The other message to fiscally irresponsible European nations is that "we bought you some time, but you must enact measures to bring down your debt and deficit". The immediate message, however, is to big speculators: "Ok boys, you had your fun, it's over. We will not jeopardize our economies so you guys can profit like pigs." (no pun intended).
It'd be nice to know: Who are these "boys" (IOW, name names)? And how are they doing it?
leo leo leo. my tax dollars are going to support a european ponzi scheme so that the riots and civil war will take place a little later than anticipated. the riots will start as soon as the greeks realize that they will wake up with a tax system that collects taxes and penalizes cheats. this new money will not help. physical gold and silver.
Are you forgetting that in speculating there are buyers and sellers.
I had the sense that this was inevitable. Say you were up $60K on short, financial covered calls which were sold on Monday. By Friday at 3:00 you then decided to cash in at 3:45, locking in the gain expecting that this would happen, that the Euro would rally.
The underlying financials should do pretty well at the open, don't you think?