European Central Bank

Leo Kolivakis's picture

Chen Zhao of BCA Research says the intense debt-deflation pressure being felt in Europe has many similarities to the post-crash environment in Japan in the early 1990s. Deflation pressures are building all around the world but U.S. bond traders are still not convinced. Given the choice between the lesser of two evils, it's clear the Fed and other central bankers would rather err on the side of mild inflation. What will ultimately prevail?

In The Worst Possible Moment, Fitch Downgrades Greece's Largest Banks To BBB, Bund Spread Jumps 10 Bps To 325

And just as Greece was about to launch its 10 year bond offering... Where is Papandreou to claim that Fitch was bought by all the accounts (who may or may not invest in the €5 billion issue) to make the price even better. Because the spread to Bunds just jumped by about 10 bps to 325 following the news. Fitch notes: "The rating actions reflect Fitch's view that the banks' already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability." In the US, where any news is good news, equities jump following the headline.

Recreating Mercantilism In Europe, Europe's Deflationary Torture, And The L-Shaped Recession

Ambrose Evans-Pritchard is outstanding in his expose on Europe's increasingly more evident deflationist cul-de-sac, and the ever more obvious L-shaped "recovery" facing Europe. While it has taken fans of the euro currency a mere two short months to not just diametrically change their exposure vis-a-vis the "long" currency of choice, but to allow speculators to build record euro short positions, the question of how America (and China by virtue of its dollar peg) will deal with euro currency that has no choice but to go lower, becomes an increasingly thorny issue. And to further confound deficit worries, recent overtures by the Fed in the form a discount rate hike make it all too obvious that the bond market will likely soon demand a much more substantial "pound of flesh" to fund America's burgeoning deficit. In this context, the threat of increasing rates, coupled with a euro that could reach $1.25 according to Morgan Stanley, and hit a low of $1.10 according to Albert Edwards, makes the policy prospects before the Federal Reserve so much more daunting.

Greek (Dis)Information Update: No Greek Bond Offering This Week

As we head into a new week, one of the bigger development expected out of Europe will be "imminent" launch of a €5 billion Greek bond issue, to prefund some of the nearly €20 billion in maturities expected over the next 3 months. However, bulls who expect this "good news" to force short covering may have to put the champagne on ice. Dow Jones previously quoted the former Public Debt Management Agency head Spiros Papanikolaou (who was replaced by former Goldman operative Petros Christodoulou), "There will be another syndication, most likely 10 years. We will go for EUR3 billion to EUR5 billion and depending on the market reaction it could be more, although a 10-year bond is a bit more difficult" to make their case that the new auction is imminent. Yet it is this very same Papanikolaou, who when quoted by Debtwire, pours cold water all over the bulls plans: "Reports about us imminent issuing a ten-year bond auction are totally inaccurate - there is no truth in it at all." And so the great Greek disinformation sopa opera continues.

* Bundesbank President Axel "I'm German, That's All You Need Know" Weber
* Portugal's Central Bank Governor Vitor "Policy Wonk" Constancio
* Italy's Mario "What the Hell Are You Laughing at?" Draghi
* Greece's George "But, I've Been in The Lion's Den" Provopoulos
* There's Going to be a Euro Next Year?

Econophile's picture

Here is a recent conversation (argument) that I, the not-famous Econophile, had with the famous Martin Wolf, the much lauded and highly awarded dean of economics writers and chief economics correspondent for the Financial Times. This time I take him on for what I thought was a pointless article about Germany and the Greeks. Win, lose, or draw?

Coming To America: The Greek Sovereign Debt Crisis

Yesterday we presented our views on why Europe's decision to tip over the first of the bailout dominoes will be inherently a catastrophic one in the long term, and will ultimately transfer the peripheral liquidity risk into funding, and ultimately, solvency (and once again, liquidity) risk to the very core. Today, Niall Ferguson joins in, in this latest Op-Ed in the Financial Times. "It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate." In other words, Marc Faber 1, CNBC talking heads, 0... as usual.

Rally Killer? German Report Says "EMU States Can't Guarantee Other States' Debt"

Confusion reigns day 2, only this time add a pinch of political dissent. Germany's ruling coalition of the Free Democratic Party and the Christian Democratic Union has commissioned a parliamentary report which concludes that "member states may not guarantee the debts of another member state" reports daily Handelsblatt.

More Info On Moral Hazard, Global Edition, Via FT Germany

Now that there is no more risk, anywhere, here are the preliminary thoughts on how kicking the can down the road has just taken on a whole new meaning, courtesy of the FT Deutschland. We are certain that citizens of Germany and France will be ecstatic to see their tax money used to first save Greece, then Spain, the Portugal, then Italy, then Lithuania, then Bulgaria, etc.