European Central Bank

“Converting a state bailout into a speculator bailout” and other acidic confrontations in the escalating disaster of disagreements in Germany

• Looks like the troops won't be steamrolled: JPMorgan Blaming Marks On Traders Baffles Ex-Employees (Bloomberg)
• The Goldman "Huddle" goes to Blackrock - Surveys Give Big Investors an Early View From Analysts (NYT)
• At least housing has bottomed: London House Prices Plunge As Supply Rise Adds To Lull (Bloomberg)
• Christine Lagarde and Nicolas Sarkozy embroiled in new corruption inquiry (Telegraph)- at least that fraud they created: Others helped them create it.
• Heat Leaves Ranchers a Stark Option: Sell (NYT)
• Merkel Gives No Ground on Demands for Oversight in Debt Crisis (Bloomberg)
• The euro skeptics have the best lines again (FT)
• Wen Says China’s Economic Recovery yet to Show Momentum (Bloomberg)
• Europe’s Banks Face Tougher Demands (FT)
• Madrid Region To Sell 100 Office Buildings Amid Austerity (Bloomberg)
• China eases taxes for foreign companies (FT)

Greece's Eurozone exit is almost done.

With record low Treasury yields it is clear that the bond markets think we are about to embark upon a difficult journey while the equity markets are still regaling in the quarters past. The bond markets have read the charts and looked at the weather ahead more correctly he fears and the length of our European journey changes nothing about the difficulty of the upcoming passage. Having been asked so many times and by so many people over the last couple of years how to fix Europe that the question is now commonplace in Grant's thinking, here is the must-read reality short version. The main issues bended about in a number of significant ways would be the total and uncompromising loss of all of the nations’ sovereign status. There would be virtually no more Spain, France, Italy et al. Every nation and their cost of funding and their standard of living would have to merge at some average or mean. So we ask Europe; are you prepared for this? Do you want this? Are you willing to pay the price for this because if you are not then we suggest you end the charade and protect your own interests before you fall down the rabbit hole that you have created by your own political and economic deceit!
 

It seems every week there are new acronyms or catchy-phrases for Europe's Rescue and Fiscal Progress decisions. Goldman Sachs provides a quick primer on everything from ELA to EFSM and from Two-Pack (not Tupac) to the Four Presidents' Report.

• Euro zone fragmenting faster than EU can act (Reuters)
• Wall Streeters Lose $2 Billion in 401(k) Bet on Own Firms (Bloomberg)
• Eurozone crisis will last for 20 years (FT)
• Chuckie Evans: "Please suh, can I have some moah" (Reuters)
• Quote stuffing and book sales: Amazon ‘robo-pricing’ sparks fears (FT)
• Situation in Egypt getting worse by the minute: Egypt parliament set to meet, defying army (Reuters)
• Chinese goalseek-o-tron speaks: China’s inflation eased to a 29-month low (Bloomberg)
• A contrarian view: "Barclays and the BoE have probably saved the financial system" (FT)
• Flawed analysis: Dealers Declining Bernanke Twist Invitation (BBG) - Actually as shown here, ST Bond holdings have soared as dealers buy what Fed sells: more here
• Obama team targets Romney over taxes, Republicans cry foul (Reuters)
• And all shall be well: Brussels to act over Libor scandal (FT)
• Bank of England's Tucker to testify on rate rigging row (Reuters)

Merkel and Weidermann’s points here are crucial. There is no way that either can OK giving German funds (ultimately Germany is the real backstop for the EFSF and ESM) without conditions. Why should Germany risk its AAA status to prop up countries that have proven to be unwilling to implement any meaningful reforms and whom actually lie openly to Germany’s face time and again?

Update: BlackRock to restrict subscriptions into 2 Euro money funds

We were the first to bring news that overnight JPMorgan has halted investment in its European money market funds following the ECB's decision to cut the deposit rate to 0%. Now, it is Goldman's turn:

• GOLDMAN HALTS INVESTMENTS IN EURO GOV MONEY FUND AFTER ECB CUT
• GOLDMAN SAYS MARKET CONDITIONS WILL DETERMINE WHEN FUND REOPENS
• GOLDMAN DECISION AFFECTS EURO GOVERNMENT LIQUID RESERVES FUND

And finally the conclusion, which is rather obvious:

• GOLDMAN FUND MEMO: EUROPEAN MARKET IN `UNCHARTERED TERRITORY'

Global Crunch: Central Banks Anemic Response - A doubtful boost in investor confidence.

Those curious why peripheral European bond yields have once again resumed their levitation creep higher, it is because not only did yesterday the key Merkel coalition partner, CSU, threaten to leave Germany's ruling party hanging "if further euro zone states secure bailouts, saying there were limits to how far his party was prepared to go", but today we have gotten even more furious backtracking on Mario Monti's history "success" less than a week earlier, after on one hand German opposition SPD has said it opposed Direct ESM aid to banks, but more importantly, the German Finance Ministry itself said that the entire bailout timeline is now in question, saying that it "remains unclear if Eurozone finance ministers will decide on Spain's request for banking sector aid at their next monthly meeting on July 9." The ministry also added that a decision could only come once the report on Spain by the troika - the European Commission, the ECB and the IMF - had been finalized. In other words, that much maligned Troika, which Monti had supposedly exorcised from intervening in the economies of Spain and Italy, will, after all be very much present, which also means that all the media spin about last week's "gamechanging" and unconditional bailout summit resolution, has been for nothing, in line with all the skeptical expectations.

Two weeks ago, the ECB, which is now largely expected to cut rates by at least 25 bps imminently, announced it was aggressively expanding the eligible collateral pool of worthless "stuff" it would accept at face value in exchange for fresh EUR bills, in essence engaging in clear cut money printing with the footnote that it was really a loan. The only problem is the loan quality is absolutely worthless and the ECB knows this. Hence money for nothing. Today, the ECB has released another announcement on collateral eligibility, saying that "counterparties participating in Eurosystem credit operations should be allowed to increase current levels of own-use of government-guaranteed bank bonds subject to the ex-ante approval of the Governing Council in exceptional circumstances." However, lest it be seen as merely the latest confirmation that Europe no longer has money good assets, and the ECB is merely encouraging banks to pledge anything they can get their hands on in order to obtain a short-term liquidity injection, it also added the following rider: "[counterparties] may not submit such bonds or similar bonds issued by closely linked entities as collateral for Eurosystem credit operations in excess of the nominal value of these bonds already submitted as collateral on the day this Decision enters into force." But before someone takes this to mean that the ECB actually cares what "assets" on its balance sheet make back its now record €3+ trillion in liabilities, it added Rider B: "Governing Council may decide on derogations from the requirement laid down in paragraph 1." Translated: the free for all rehypothecation race is on, and probably in its last lap, as once any and all collateral is already pledged, the ECB's only hope will be to allow already hypothecated collateral to be rehypothecated. Something which in a non-banana republic would have cost Jon Corzine his job.

Let’s face it – Europe is a cool place. In addition to being cool, Europe is also without a doubt the most creative and imaginative place outside of Middle Earth. Its ability to  consistently baffle itself certainly warrants valuable space in IceCap’s global market outlooks. Financially speaking, Europe is broke - it no longer works. Figuratively speaking, Europe has entered its golden age. Unworkable solutions dreamt by an unworkable political system is consuming all real and electronic ink known to mankind. A day doesn’t go bye where local newspapers are not bursting with news on Greece, Spain and their Euro-cousins. This sudden love-in with Europe has surely removed America from the global spotlight. But, be patient as this will change later during the year. To demonstrate the absurdity of this place called Europe, one has to understand nothing else except the legalities behind Europe’s rules for selling cabbage to each other.

“A new breach in the dam”

Much has been speculated about who promised what at last night's summit, and who guaranteed that the ESM would do this, that and the other, as once again, just like last summer, the ESM is becoming the most universal Swiss army knife ever conceived (just pray it never has to be actually used). Here, courtesy of Reuters, are excerpts of what they all really said.