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Summit full life: One week. Literally. Last Friday morning speculation that Germany had "caved" to Mario Monti, somehow allowing beggars to be choosers, and would allow an unconditional and IMF-free rescue of Spain and Italy while the seniority of the ESM was eliminated, sending the Spanish 10 Year yield to under 6.2%. The same security is now back over 7%, where it was just before the summit, as Finland and Holland (or half of Europe's AAA-rated countries), and even Germany, made it quite clear, as we said all along, that stripping seniority of a piece of debt is far more complex than saying one wants to do it in a Memorandum of Understanding. The other thing pushing Spanish spreads wider was German FinMin spokesman Kotthaus saying that no decision on Spain can be taken on Monday as there is no Troika report on Spain bank aid yet, and that the European bailout activation, which was supposed to begin on July 9th, may be delayed until July 20. At that point it will likely be delayed again, only this time GSPGs may be trading wider than their lifetime highs of 7.285%. Finally, adding insult to Mario Monti "victory" is that Merkel's popularity rating just hit a multi-year high. So: who was last week's summit "winner" again?

After two days of solid gains, European equities continue the upward trend and are seen higher at the North American crossover, with the Basic Materials sector leading the way, followed by financials. The moves in equities follow overnight reports from Chinese press, once again calling for the PBOC to slash their RRR, as well as expectations that this Thursday both the ECB and the BoE will conduct monetary easing, possibly boosting future commodity demand. In the fixed income markets, the European 2s/30s curve continues to see bear-steepening following last night’s announcement from the Dutch Central Bank that has changed Dutch insurers’ Solvency II interest rate curve; modifying the maturities in which the firms must hold assets towards the longer-end. Today also saw official confirmation from the Irish debt agency that they are to return to capital markets with T-bill issuance on July 5th, their first return to the market since 2010. Investor reaction to this news is evident in the shorter-end of the Irish yield curve, where the 2-yr bond yield spread against their German counterpart is firmly indicating the risk of returning to the market; currently wider by around 20bps.

Consequently, the real question is: “when does Germany and the rest of the EU stop picking up the tab for Greece?” Judging from the above survey in which even the French and Italians now think Greece should leave the EU if it doesn’t start paying its bills, it won’t be long: Greece will need another €16 billion in financing if the EU accepts its request for another extension (yes, this would be the third bailout).

In an excellent summary of the world's interconnected nature, reliance on everyone else to solve their problems, and Europe's epicentric catastrophe, Nouriel Roubini joined Bloomberg TV's Tom Keene for some serious truthiness and doomsaying. From the 'slowdown/recession becoming a depression' to 1930s CreditAnstalt comparisons and Germany's lack of trust that a few years of abstinence will regain peripheral Europe's virginity, the original Dr. Doom along with Ian 'G-Zero' Bremmer offer much food for thought as to the various scenarios as investors anxiously await an expected central bank response to the 19th failed summit and how "we will be lucky if we end up like Japan" as he concludes: "It’s getting worse, there’s already a sovereign debt crisis, a banking crisis, a balance of payment crisis, an economic crisis and all of those things together are getting worse."

We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.

Update: they are making it up as they go along:

TURKISH PM SAYS HAS NO FIRM INFORMATION ON ANY APOLOGY FROM SYRIA, WILL MAKE FURTHER STATEMENT AFTER SECURITY MEETING
TURKISH PM SAYS CANNOT SAY WHETHER TURKISH WARPLANE SHOT DOWN OR CRASHED, NO NEWS ON PILOTS - TURKISH TV

Looks like everyone is trying to position appropriately.

Update from Al Jazeera: Turkish PM says cannot say whether Turkish warplane shot down or crashed, no news on pilots.

Just when the geopolitical tensions in the middle east appeared to be abating, and Brent was on a gentle glideslope to whatever price will greenlight the NEW QE now that fears of an Iran war have been very much silenced, things change. Reuters reports that Syria shot down a Turkish warplane on Friday, according to Lebanon's al-Manar television reported, "risking a new crisis between Middle Eastern neighbours already at bitter odds over a 16-month-old revolt against Syrian President Bashar al-Assad." "Syrian security sources confirmed to a Manar correspondent in Damascus that Syrian defence forces shot down the Turkish fighter jet," the Hezbollah-owned channel said." Here is the rub: Turkey is a NATO member, and by definition the alliance will have to come to Turkey's aid if requested. Syria, however is not just any country as has been made quite clear over the past several months of UN impotence: it is a critical staging ground for both Russia (which has a very critical regional naval base in the city of Tartus) and China, and according to the Jerusalem Post, the three countries are in preparation to conduct the "largest ever" war game. As such Syria, already gripped by fierce local fighting, where just like in Egypt and Libya the presence of US-based flipflop on the ground can be smelt from across the Atlantic, is merely a symbol. The real implication is how far can little escalations push until finally the showdown begins, with NATO on one side and Russia and China on the other?

In the next days Greece will present her magic tricks at court and while the Dukes and Barons cheer in the wings it will be up to the Red Queen, this would be the bearer of the Holstein emblem, to decide if the tricks performed are worth the cost. There is a very good chance of the hand wave of dismissal here and then the theatrical event of the season, “Off with their Heads,” will begin. Then the savant of Madrid will be allowed in to show his wares claiming they are all of silk but coarse wool is closer to the truth. The money, if it comes, will be provided by the EFSF by the way because the ESM is not yet in existence. Then the plan is to transfer the loan to the ESM which will be senior to the holders of the Spanish sovereign debt. So this morning you must rush out and by the debt of Spain. You love to be subjugated; you delight in the masochism of the whip. Losing money is what you live for and why you breathe. Oh no; this is not you? Well then; maybe better not.

They're all Blowtards....

All you need to read.

Two days ago, when noting that Italy is on collision course with technical insolvency should its bonds remain at current levels for even one more week, we wrote that "As Italy Hints Of Subordination, Did Rome Just Request A "Semi" Bailout?" Of course, yesterday's big market moving rumor was just this - namely that "supposedly" Germany had agreed to provide the underfunded EFSF and non-existent ESM as ECB SMP replacement vehicles, and implicitly to launch the bailout of not only Spain but also Italy. This turned out to be patently untrue, as we expected, despite speculation having been accepted as fact by various UK newspaper and having taken Europe by a storm of false hope, leading peripheral spreads modestly tighter (and Germany naturally wider). Of course, even if Merkel were to allow the ESM/EFSF to effectively replace the ECB secondary market bond buying, which is what this is all about, nothing will be fixed, and in fact it would lead to even more subordination and more bond selling off of positions which are not held by the ECB or ESM. But that is for the market to digest in 4-6 weeks as it appears nobody still understands how the mechanics of the flawed European rescue mechanism works. In the meantime, now that Italy has tipped its hand, it has only one option: to push full bore demanding that someone, anyone out there buy its bonds. Sadly, Germany just said nein. Again.

All you can read.

• Greek radical leftist SYRIZA leader Tsipras says will not join coalition government (as expected)
• Egypt Islamists claim presidency as army tightens grip (Reuters)
• French Socialists vow reforms after big poll win (Reuters)
• Greeks Back European Bailout (WSJ)
• France, Socialists Win a Solid Majority (WSJ)
• Denmark Warns over Pressure on Krone (FT)
• Obama to press Putin on Syria at G20 amid skepticism (Reuters)... Putin to smile
• China Home Prices Fall in Record No. of Cities (Bloomberg)
• Europe Gets Emerging Market Crisis Ultimatum As G-20 Meet (Bloomberg)
• Wolfgang Münchau – What Happens if Angela Merkel Does Get Her Way (FT)

With all the europhoria over Greece, some may have forgotten Spain. It is time to remind them that the real "fulcrum country" of Europe has now shifted a few thousand kilometers to the West, where as also reported on Friday the pain will come primarily from more home price declines (up to another 25% lower from here), and loan loss recognitions. How much? As Market News reports, the number may be as large as €150 billion. Of course, if that full number flows through the insolvent banking sector's bottom line, and forces a comparable FROB capital infusion via any of the bailout channels, this is €50 billion more in bond subordination (because good luck raising the capital via equity) than even the worst case Spanish bailout scenario had anticipated. It also explains why as of this morning, Spanish bonds traded at all time record lows. Because, sadly, nothing continues to be fixed in Greece, Spain, or anywhere else in Europe.

The most ironic moment in the Greek denouement will come when fractional reserve lending collapses onto itself:

"Stavropoulos and her friends have a new strategy to deal with their daily expenses. "We charge everything to our credit cards," she says. If the Greek banks fail, they won't be able to collect the outstanding debts, she argues. "If they want to mess me around, I will do the same to them."

In other words, Greece is now America, where the vast majority of people also live on credit alone, and have taken up the following motto when dealing with banks: "you pretend to be solvent, we pretend to have money." At the end of the day, it is all just one big global monetary circle jerk, only this time in reverse, as the snake of fractional reserve banking has finally started to eat its own tail. With people spending money they don't have, and in debt to their eyeballs to a banking system that itself is just as insolvent, is there any wonder that nobody really panics any more over daily threats the grand reset is finally coming?