The European Scorecard: 2 Out Of 5

There are five problems that need to be resolved within the European crisis and Credit Suisse provides a scorecard for the progress towards these 'risk factors'. The key issues are: growth, peripheral current account balances, solvency of the insolvent, ring-fencing the insolvent, and mutualization of government debt; but what is more worrisome is that while they have raised the average score to 2.0 out of 5 (from 0.6 out of 5 in Nov' 2011), it has not budged now in four months. The lack of growth, fiscal tightening, continuing insolvency concerns and excess leverage in the private sector, and de minimus deleveraging in Spain, Greece, Portugal, and Ireland leaves the vicious circle of progress on the European scorecard much harder from here.

Credit Suisse: These are the five problems that need to be resolved and we still score only 2 out of 5 on our scorecard tracking the progress on each factor.

We believe there are five factors that needed to be addressed to resolve the European crisis:

1. A return to growth. To some extent this is the most important issue. With growth, fiscal arithmetic becomes more sustainable and the political willingness to accept the pain of restructuring becomes more bearable (though clearly some pain is needed to force restructuring).
2. A current account balance in the periphery. The net borrowing of the economy as a whole is more important, we believe, than the net borrowing of the government sector. On current exchange rates we fear a 3% to 12% fall in wages will be needed to restore competitiveness and reduce the current account deficit, but with wages being half of nominal GDP that in turn makes the growth outlook worse.
3. Questions over solvency need to be addressed (Greece and Portugal)
4. Build a ring fence for the solvent. Being achieved slowly.
5. Mutualisation of debt. Mutualisation works because in aggregate Europe has lower government debt and fiscal deficits than the US; the problem is the distribution of debt, not the amount of debt.

The two most significant problems are:

1) Lack Of Growth

Euro-are PMIs are consistent with -0.5% GDP growth (at best)...

But PMI's New Orders (whole economy) has a better fit and suggests worst growth...

But fiscal tightening may lead to weaker growth stil and will be a significant headwind...

And 2) The Solvency of the Insolvent

Spain, Ireland, and Portugal have overleverage private sectors...

and so far there has been relatively little de-leveraging...in Spain, Greece, Portugal, and Ireland...

Spanish private sector deleveraging has lagged that in the US and the UK...

as declines in private sector leverage have been small compared to the aftermath of previous banking crises...

which will inevitably lead to a total-government-debt-to-GDP rising to levels associated with insolvency in Ireland, Portugal, and now Spain.

So in a nutshell Credit Suisse sees Europe 40% through the resolution of the European crisis but we suspect that the next 60% is highly convex and binary and givebn our previous note on the divergences of opinion, also unlikely.

Comments

[Ahmeexnal]

eurocollapse has now entered freefall stage.

In yet-another-you-can't-make-this-shit-up news, germany can't understand "badly translated" papers from Van Rompuy:

http://www.thelocal.de/politics/20120612-43099.html

According to a report in Tuesday's Saarbrücker Zeitung newspaper, the Bundestag has had to send over a hundred important EU documents back in this legislative period alone, because its committee members could not work out what they were supposed to say.

Some EU documents are now seen as a "consultation obstacle" – and this at a time when parliamentarians across Europe are fighting to tackle Europe's debt crisis.

The flawed translations have apparently slowed the work of the interior, finance, budgetary, economic, and defence committees in the German parliament. The paper also says that German versions of the documents are sometimes missing altogether.

And in true german fashion, a culprit has now been found: the salafists.

http://www.thelocal.de/national/20120614-43143.html

The discovery of a fake suicide vest at a Berlin flat used by an extremist Salafist Islamist rapper prompted raids of around 70 addresses across the country by more than 1,000 police officers, it emerged on Thursday.

You don't have to be a rocket surgeon to figure out that "fake vest" was "planted" by the german gestapo.

[barliman]

Unfortunately, no, not yet.

It is very European to do cross country administrative tasks as poorly as they possibly can be.

Over and over again.

The Credit Suisse scorecard is yet another example. They are 40% of the way to a solution. Wonderful ...

... if you have an infinite amount of time to get to a solution. If you don't ... well then, you'll be proper fucked now, won't you?

This is almost as amusing as the G 20 story regarding liquidity provisions - but the punch line for their liquidity provisioning is the absolute impossibility of insuring liquidity at every point in the star and chain networks which make up modern global commerce.

Sometime, likely very soon, some little entity is going to "freeze up" and pass the favor along to the next little entity who will pass it to the next ... and many little dominoes will be falling faster than the bureaucracies can keep up and ...

... and some of the supporting actors (mid size banks, businesses, etc) are going to see an opportunity to clear out some of their competitors if their competitors liquidity situation is not cleared up fast enough ...

... and then it will be like the complex systems in "Jurassic Park" failing ...

oops, the raptors are out of their pens.

barliman

[GetZeeGold]

I've got 31 bailouts on the scorecard so far......crap broke anther pencil.

Great...now I've got to start counting over again.

[OttoMBMP]

"Mutualisation of debt"
- Nice term for making Germans pay for other people's over consumption. Sounds much nicer than Versailles Treaty!
IT IS JUST INSANE. IT IS THEFT. AND IT WILL SOLVE NOTHING.

BTW, Ahmeexnal, you look like a Salafist yourself. But in true German fashion I would just call you a douche bag.

[Ahmeexnal]

complete societal breakdown in europe.

cash4gold gives way to.....cash4blood:

http://www.thelocal.de/society/20120614-43145.html

Despite a European law banning payments for blood donors, some private clinics, universities and pharmaceutical companies are known to pay donors. They pass the payments – normally around €25 – off as expenses, said DRK spokesman Friedrich-Ernst Düppe.

In the past this competition would not been too much of a concern, he said – but high unemployment and poverty levels were now making the paid donation schemes more attractive.

“€25 is three times the daily allowance that someone on unemployment benefits gets. You don't have to say anything more than that.

and as fascism regains its grip on europe, german national socialism comes out of the closet once more:

http://www.thelocal.de/money/20120613-43115.html

The historic dormitory complex at Prora, built between 1936 and 1939, sprawls nearly five kilometres along a choice stretch of Baltic Sea coastline. This month, work began to turn one of the blocks into an upmarket hotel.

Built as one of the "Strength Through Joy" camps set up by the Nazis for the party faithful, it was to sleep up to 20,000 Germans in a pioneering attempt at mass tourism 300 kilometres north of Berlin.

The drive to offer recreation and hearty exercise was coupled with a desire to build loyalty and devotion to the Nazis among the working class, with ideological teaching on site.

[Archduke]

http://www.youtube.com/watch?v=wveW9Tw2JKE

[xtop23]

I have this vision of Merkel on the TV complaining that, if Germany had had the proper Rosetta Stone, the EU could have been saved.

[stlouisray]

and the so-called smartest people in the room continue to buy euros

[q99x2]

How bout migrating all the jobs back out of China.

Idiots.

That's ok.

R. Allen Stanford, was sentenced to 110 years in prison for bilking investors out of more than $7 billion.

The Bernank, Blankfein and Dimon are going to get their time not many years from now.

"Are you now, or have you ever been, a member of the Council on Foreign Relations, the Trilateral Commission or the Bilderberg committee?"

Being that the collapse is first taking place in Europe it gives the US at least one election where politicians that support America can be elected into office. Then the collapse begins and the tide against the globalists takes place and politicians learn very quickly that if they have connections to banks they are history. And then we can arrest them.

Hard to say, the US had mccarthyism in the past.

[Yen Cross]

  The Bank of Japan gets the "Blow Hard" award!  SNB get's the "Bull Shit" award! The Fed gets the "Toilet Bowl" award!

Shall I continue?

[barliman]

You might annotate the awards for those reading your post without a scorecard.

barliman 

[Yen Cross]

Why would I " annotate", something that has been awarded? Perhaps you need some eye drops? It's just a fun game of conjecture "idiot"!

[barliman]

You're right, your incoherency speaks for itself.

barliman

[valkir]

There will be blood on the streets.Question is,which blood.99 -%ers,or banksters.

[Yen Cross]

 Effin Europeans, talking the lot, about nothing as they drag the civilized world down in their smoke filled closets!

[Spitzer]

Discredit Suisse is below its 09 lows.

[Yen Cross]

Spitzer  I have 50k eur/chf @ 1.20040, and another 150k @ 1.2080 area. since last December. The trade does have negative interest on it! I'll send Tyler a screen shot.   Shit or get off the pot SNB!