There is a reason we think of youth unemployment as the 'scariest' thing in Europe as we have discussed here and here. After a few months of relative calm, it appears the youth are once again finding their hopes dashed and are protesting. As Reuters reports, thousands of students and bank workers protested in the Cypriot capital Nicosia today. "They've just gotten rid of all our dreams, everything we've worked for, everything we've achieved up until now, what our parents have achieved," is how one young protester exclaimed his feelings, as a bank worker added, "we are scared." It appears President Anastasiades comment that, "the agreement we reached is difficult but, under the circumstances, the best that we could achieve," is not reassuring an increasingly volatile people.
The Bank of Spain just sent a stark message. In its annual update of economic forecasts, it estimates Spain's economy will shrink 1.5% in 2013 - that is three times as bad as the official government forecast of -0.5%. As Reuters reports, this is even worse than 2012's 1.4% contraction as the bank notes that, Spaniards "remain immersed in a process of deleveraging...and families have seen a notable shrinking of income." The GDP estimate is around consensus which was roundly ignoring the Spanish government's 'lying' optimism but under the cover of the Cyprus debacle, the Spanish have been pushing to ease their deficit restrictions as the deficit is expected to reach 6% in 2013 (well above the 4.5% target set by the EU). With unemployment expected to rise over 27.1%, we suspect youth unemployment will once again take center stage as the European Union's scariest chart.
True, Germany has promised more than this in the form of its supposed contributions to various EU bailout funds, largely due to the fact that German banks are exposed to the PIIGS and other problem countries of Europe. However, at the end of the day, when it's time for ink to meet paper, Germany is unlikely to pick up the tab for this.
Here we go again:
EUROPEAN PARLIAMENT TO PUSH FOR DEPOSITORS WITH ABOVE 100,000 EUROS TO FACE BAIL-IN UNDER NEW BANK RESOLUTION LAW - EU LAWMAKER - RTRS
Basically, this is DieselBOOM ver 2.0. How long until someone scrambles to announce that this, too, was taken out of context?
Hopefully the memory of the new Eurogroup head, who in a one day lost more credibility than his admittedly lying predecessor Juncker ever had, will be jogged courtesy of this full transcript provided by Reuters and the FT of what he told two reporters - on the record - and for the whole world to read. Because, by now, we are confident everyone has had more than enough with watching the entire Eurozone rapidly and tragically turn itself into a complete and utter mythomaniac, kletpocratic circus.
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Another session in which the market continues to be "cautiously optimistic" about Europe, but is confused about Cyprus which keeps sending the wrong signals: in the aftermath of the Diesel-Boom fiasco, the announcement that the preciously announced reopening of banks was also subsequently "retracted" and pushed back to at least Thursday, did little to soothe fears that anyone in Europe has any idea what they are doing. Additional confusion comes from the fact that the Chairman of the Bank of Cyprus moments ago submitted his resignation: recall that this is the bank that is supposed to survive, unlike its unluckier Laiki competitor which was made into a sacrificial lamb. This confusion has so far prevented the arrival of the traditional post-Europe open ramp, as the EURUSD is locked in a range below its 200 DMA and it is unclear what if anything can push it higher, despite the Yen increasingly becoming the funding currency of choice.
Well, that was a fun day, eh? Spills and thrills the whole day long.
Importantly, it’s the end of the quarter and performance bonuses are on the line. So any excuse to rally is built in to conditions.
Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash. Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do. As it turns out, the Russian oligrachs this whole operation was geared to punish, may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.
That thing Diesel-BOOM very, very clearly said earlier? He did not say it. After all, can't have the market getting any ideas that reality may be slowly coming back to the basket case that is Europe:
- EU DIJSSELBLOEM SPOKESWOMAN: DIJSSELBLOEM DIDN'T SAY CYPRUS A TEMPLATE FOR BANK RESTRUCTURINGS - DOW JONES
So not only are European depositors still impairable, because sadly Dijsselbloem was dead serious in his Reuters interview, but the new Eurogroup head pulled a Juncker and confirmed "it is serious" in the process losing all credibility too.
The by-now infamous Dutch FinMin Jeroen Dijsselblom - and head of the Eurogroup of finance chiefs - made some fascinating comments this morning with Reuters and the FT that are changing the shape of European markets rapidly. From banks need to save themselves to forcing "all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realize that it may also hurt them," he is making a lot of sense - though we suspect Mr. Draghi will not be amused as his 'promise' looks like being tested. Simply put, Dijsselblom is saying that a balance sheet can be 'normalized' not only by boosting assets (courtesy of the ECB) but by collapsing liabilities (or remarking bad loans to market) - something that no one in power has admitted to date. While this is upsetting to markets - so used to the visible hand of central planning saving themfrom themselves - this is very positive step for 'real people' as taxpayers appear to be 'off the hook' and the responsible parties beginning to be punished.
Perhaps the best example of a "word out of place" comes from the new Eurogroup head, Dijsselbloem, also phonetically known as Diesel-BOOM, who just may have ushered in the next, next wave of the Eurozone crisis:
- "Cyprus a Template For EU"
Er... wasn't it a special case, inside a unique case, wrapped in a one-time case? We will ignore the rather hilarious Freudian slip, and focus on what he was explicitly talking about with Reuters, in what Cyprus allowed was the effective usurpation of democracy - the only reason the Cypriot bailout "passed" (at least so far) is because it was structured as a bank restructuring, a financial system "resolution", not a tax, and thus not in need of a parliamentary, democratic vote. Because as Cyprus also showed, votes to deprive depositors of cash, whether insured or uninsured, simply won't fly. Hence the shift.
FX, bond, and stock markets in Europe are not happy. As the EURRUB sees it biggest drop this year (Ruble buying), it appears whatever confidence-inspiring Dijsselblom believed in last night has faded rapidly as Italian and Spanish stocks plunge to the lows of last week (after opening gap higher). Italian and Spanish bank stocks are on-and-off halted. EURUSD is getting hammered. Italian and Spanish bond spreads are blowing wider from gap tighter openings. This is not good... The reason appears to be: Cyprus a Template For EU, Reuters Says, Cites Dijsselblom
While the news flow is dominated by Cyprus, it will be important to not lose sight of the developments in Italy, where we will watch the steps taken towards forming a government. The key release this week is likely to be US consumer confidence. Keep a watchful eye on the health of the consumer in the US after the tax rises in January. So far, household optimism and demand has held up better than expected. The IP data from Taiwan, Singapore, Korea, Thailand, Japan will provide a useful gauge on activity in the region and what it reflects about global activity, however Chinese New Year effects will need to be accounted for in the process.
First, it is Merkel's turn, which last week was furious at Cyprus for daring to reject the first flawed Eurogroup plan impairing insured depositors, only to praise it for now... rejecting said plan. To wit: Chancellor Angela Merkel, "as well as the government, is very happy that the troika, the euro group and Cyprus were able to reach an agreement," German government spokesman Steffen Seibert says in Berlin. He added that difficulties will arise in the short term because of measures aimed to scale back Cyprus’s banking sector, "but in the long run it will lead to a healthier” industry. That remains to be seen, especially when factoring in the Russian response. Which wont be pleasant.