Czech

Booming in one corner, morose in the other.

And so it begins...Last Friday the Spanish government published a proposal to cut government expenditure and raise taxes to reduce the fiscal deficit by 56.4billion euros by 2015.  I have outlined why austerity will not work in Europe, but it looks like this is a lesson Europeans will have to learn for themselves--for a second time.  The writing is on the wall in Ireland, who ailed in the same ways that Spain is currently ailing, but what Lord Merkel wants, Lord Merkel gets.  The immediate malaise from these austerity measures will be large-scale social unrest, which is already being planned by many of the 50% of the country's unemployed young people.  Regardless of one's stance on the economic merit of austerity, what is indisputable is that riots are real and riots do not end well.  With nothing to lose, this round of Spanish austerity protesting has the potential to end in catastrophe.

Europe slipping into (light) ROff (and then out). Recurrent picture of Hard Core grinding tighter, Soft Core doubling down on that . Peripherals drifting wider with Italy eventually further off the 6% mark and Spain at 6.77%. Equities about unchanged after all.

BKO eventually closing on a historic -0.060% low.

Slow dragging day, if it wasn’t for the EUR jogging back and forth all the time. Something gotta move, I guess.

• San Bernadino: Another Calif. city goes bankrupt (247)... It appears Hell's Angels don't pay municipal taxes after all
• Rajoy announces 65 Billion Euros Of Cuts To Fight Crisis (Bloomberg)... And Spaniards prepare to not pay taxes
• Spain pressed to inflict losses on savers (FT)... And Spaniards prepare to sue
• Spain to Cede Bank Control (WSJ)... And Spaniards prepare to protest
• Rate Scandal Stirs Scramble for Damages (NYT)... but who do you sue: the Fed?
• Paulson Ex-Lieutenant Caught in Fund's Slide (WSJ)
• ILO warns 4.5m jobs at risk in eurozone (FT)
• Global economic crunch confirmed every day: Airbus Scraps Target of 30 A380 Sales as Demand Dwindles (BBG)
• Same old: Finland says requires collateral from Spain for bank aid (Reuters)
• Cameron and Hollande clash on tax (FT)
• Wen Says Boosting Investment Now Key to Stabilizing China Growth (Bloomberg)

• EU talks up Spanish banks package, markets skeptical (Reuters)
• China’s Import Growth Misses Estimates For June (Bloomberg)
• The monkeyhammering continues: Paulson Disadvantage Minus Fund down 7.9% in June, down 16% in 2012 (Bloomberg)
• Draghi pledges further action if needed (FT)
• JPMorgan Silence on Risk Model Spurs Calls for Disclosure (Bloomberg)
• Norway's Statoil to restart production after govt stops strike (Reuters)
• Top Fed officials set table for more easing (Reuters)
• Euro-Split Case Drives Danish Krone Appeal in Binary Bet (Bloomberg)
• Obama Intensifies Tax Fight (WSJ)
• Europe Automakers Brace for No Recovery From Crisis (Bloomberg)
• Boeing’s Air-Show Revival Leaves Airbus Nursing Neo Hangover (Bloomberg)
• Libor Woes Threaten to Turn Companies Off Syndicated Loans (Bloomberg)

A preview of the key events in the coming week (which will see more Central Banks jumping on the loose bandwagon and ease, because well, that is the only ammo the academic econ Ph.D's who run the world have left) courtesy of Goldman Sachs whose Jan Hatzius is once again calling for GDP targetting, as he did back in 2011, just so Bill Dudley can at least let him have his $750 million MBS LSAP. But more on that tomorrow.

Big Banks Are Rotten to the Core

Germany keeps being told that it must pay up to save the euro. But how much can Germany pay? No-one seems to have thought about that, but there is already concern about the possible size of bill – German bond yields rose soon after news of the Spanish bail out, even before it was announced where the money was going to come from. (And it was of course a bail out for Spain, regardless of what Spain’s prime minister says. If I borrow money and then lend it to someone else I’ve still borrowed it.) There is though a more basic question. How much does it make sense for Germany to pay? What sort of bill would it be reasonable to present to them? In fact the best approximation one can arrive at is a bill of zero. Why zero? What about all these exports that have been produced because Germany has a currency whose value is determined not just by Germany but also by less productive, higher cost, economies?  That link has artificially depressed the prices of German exports. These net exports resulting from Germany’s Eurozone membership are actually the problem.

One European think tank which has been spot on in its skepticism over the past two years, is OpenEurope. Below they share their views on the next steps for Greece.

Four months before the election. And yet, a horrendous migration across the Pacific

All you need to read.

We will get a test once again as to the effectiveness of the central bank/MoT confidence game.

With Europe now seemingly in exile from even the bravest knife-catcher value-manager, and, despite media protestation, US equities facing weak macro data and a fiscal cliff of epic proportions; it is no surprise that everyone and their mom thinks emerging markets are the place to be. However, as UBS notes today, not all EM balance sheets (whether government, corporate, or private) are the same and they break down the low, medium, and high risk balance sheets across Asia, LatAm, and EMEA. As is evident in Europe, high debt levels are detrimental to economic growth and equity returns. Solid government accounts generally reward policymakers in such markets with valuable policy flexibility, while healthy consumer balance sheets allow credit growth to be a strong domestic growth driver. In a slow and uncertain global growth environment, pillars to support growth are crucial and are market differentiators - especially if global contagion spreads as we suspect

All you need to read

Just a phase....