After Cyprus Bailout Deal, Europe's Problems Worse Than Ever

Cyprus may have been saved from disaster, but don't be fooled: Europe is still a hot mess.

In the middle of the night on the continent, officials managed to hastily stitch together a plan to rescue Cyprus and keep it from leaving the eurozone. The deal came just hours before a European Central Bank deadline that could have left Cyprus cut off from short-term capital, beginning the potential unraveling of the entire currency union. It also came just about one week after another hastily stitched-together bailout deal sparked outrage in Cyprus and around the region and created the need for desperate last-minute talks in the first place.

To paraphrase Winston Churchill, European policymakers always do the right thing, but only after exhausting every available alternative. As Quartz's Simone Foxman points out, this is no way to run a currency union, which together makes up the world's second-largest economy. And there are reasons to suspect this won't be the last bungled bailout.

The Cyprus debacle came about in part because the European Commission and the International Monetary Fund weren't on the same page about what to do with Cyprus from the start, the Financial Times reports -- an echo of their disagreements over helping Greece last year. This incident has left their relationship more fraught than ever, and it means we could very well get a repeat of the botched Cyprus bailout soon -- in Slovenia, or Italy, or who knows where else. Read more >>

European Union has confiscated 10% of private Cyprus Bank Accounts

While this kind of 'wealth tax' has been predicted, as we noted yesterday, this stunning move in Cyprus is likely only the beginning of this process (which seems only stoppable by social unrest now). To get a sense of both what just happened and what its implications are, RBS has put toegther an excellent summary of everything you need to know about what the Europeans did, why they did it, what the short- and medium-term market reaction is likely to be, and the big picture of this "toxic policy error."

As RBS summarizes, "the deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date." And so we await Europe's open and what to expect as the rest of the PIIGSy Banks get plundered. Read more >>

Greek Youth Unemployment Tops 60%

Optimism it seems is all that matters (or is all that is allowed) as we are battered by dismal data left, right, and center. Of course, a reflection on the markets tells any 'smart' person that it all must get better - or why would stocks or sovereigns, or EURUSD be where it is?

However, the 6 out of 10 15-24 year olds in Greece (61.7% to be exact) would beg to differ with that view of the world (as their economy grinds to a halt) - and with Spain reaching new highs at 55.6% (as well as the Euro-zone over 24%), all the bureaucratic lip-service in the world won't stop the revolt that is coming we fear. Read more >>

Spain's recession exposed - unemployment at 26 percent

Spain’s scars from the slump that overshadowed Prime Minister Mariano Rajoy’s first year in office will emerge this week as data show the toll on economic output that may have kept as many as 6 million people out of work.

Spanish exports fell 0.6 percent in November from the same month the previous year, when they had risen 7.4 percent, the Economy Ministry said today. House-price data tomorrow will show if the property market endured a fourth year of declines. The Bank of Spain may also release its estimate for fourth-quarter gross domestic product, and the data will culminate in jobs figures on Jan. 24, forecast by economists to show a record 26 percent of Spaniards unemployed.

Officials predict the euro-area’s fourth-biggest economy faces a further slump this year at a time when the government will struggle to meet its budget goals. Such a backdrop hasn’t deterred investors, with the prospect of a European Central Bank backstop in the event of a bailout enabling the Treasury to fast-track higher 2013 funding needs, selling 16 billion euros ($21 billion) at its first three auctions at lower costs.
Read more >>

Morgan Stanley's Recession Doom Scenario

The global economy is likely to be stuck in the "twilight zone" of sluggish growth in 2013, Morgan Stanley has warned, but if policymakers fail to act, it could get a lot worse.

The bank's economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent.

"More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks," Morgan Stanley said in a report.

Under the bank's more gloomy scenario, the U.S. would go over the "fiscal cliff" leading to a contraction in U.S. GDP for the first three quarters of 2013. In Europe, the bank's pessimistic scenario assumes a failure of the European Central Bank (ECB) in cutting rates and a delay of its bond-buying program.

But the bank says investors should also be nimble, in case policy action is "convincing and decisive," leading to a big uptick in growth.

"Importantly, investors should keep an open mind and be prepared to switch between the scenarios as policy developments unfold." Read More >>

One Quarter Of All Spanish Workers Without A Job: Female Unemployment In Ceuta Region Hits 57%

One in four Spaniards are now officially out of work - well over double the euro-area's average 11.4% rate. This is the highest rate of unemployment since the Franco dictatorship ended in the mid-1970s as 5.8 million now stand idle.

Perhaps more stunning is the fact that eight of the bailout-nation's regions have higher unemployment rates than the national average with Cueta at a stunning 41.03% (with women's unemployment rate in that region an almost incomprehensible 56.92%)!!

The YoY increase of almost 800,000 people unemployed leaves 1.74 million households with no members employed. As one would expect, loan delinquencies are also surging as Caixabank just almost doubled its pool of bad loans in the third quarter. While Rajoy fiddles...Read more >>

Strike to shut down Greece as EU leaders meet

The fourth such strike of the year is expected to paralyse train and ferry traffic, disrupt flights and shut down public services as unions seek to send a message to the government that they will not tolerate a third straight year of cuts. The coalition government of Prime Minister Antonis Samaras is holding delicate negotiations with Greece’s so-called ‘troika’ of creditors — the EU, IMF and European Central Bank — to secure the release of loans needed to avoid bankruptcy.

Canon PIXMA MG3120 Wireless Inkjet Photo All-In-One Printer 5289B019 (Google Affiliate Ad)

The government has been told by its creditors to jumpstart flagging economic reforms and lighten the budget by 9.2 billion euros ($12 billion) next year in order to secure a 31.5-billion-euro loan slice next month. The money is part of an overall EU-IMF bailout of 130 billion euros that is tied to Greek reform pledges, including a long-delayed privatisation drive.

Waves of prior austerity measures over the last two years managed to slash Greece’s runaway deficit by over six percent of output, at the cost of cuts to wages, pensions and benefits. One in four Greeks are officially unemployed — with the real number higher still according to unions — and the economy is in a deepening recession. Read more >>

Euro Zone Will Pay ‘Terrible Price’: Jim Rogers

A “terrible price” will be paid for the euro zone crisis eventually, whether the European Central Bank embarks on mass bond purchases or not, Jim Rogers, investor and co-founder of the Quantum Fund with George Soros, told CNBC Monday.

Rogers said: “These guys have been saying the same old garbage for a long time. It’s not a game-changer – it’s good for the market for maybe a month. The debt keeps going higher and higher and eventually we’ll all going to pay a terrible price.”

He warned that the market rally, which many have seen as an opportunity to get back into riskier assets, would only be a short-term rebound.

“It’s not an opportunity to make money for me. This is not good for the market and it’s not going to last. Every three or four months they zone politicians have a summit and they say: Ok guys, everything is ok now. The market goes up. But we’re getting a little tired of this and the market is getting a little tired of this,” Rogers argued. Read more >>

Euro Manufacturing Output Contracts - Europe Heads Toward Recession

Euro-area manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter.

A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, London-based Markit Economics said today. The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction. European manufacturers are feeling the impact of the sovereign-debt crisis and tougher austerity measures that have undermined export and consumer demand. Euro-area economic confidence fell to a three-year low and inflation accelerated to 2.6 percent in August. The jobless rate held at a record 11.3 percent in July.

“The euro-zone manufacturing sector remains firmly in contraction territory,” Rob Dobson, senior economist at Markit, said in the report. “The rate of decline was a little slower than in July, providing some heart that the manufacturing downturn may be easing, but the sector is on course to act as a drag on gross domestic product in the third quarter.” Read more >>

Greece’s Rating Outlook Lowered By S&P

Greece’s credit rating may be cut again by Standard & Poor’s on concern the debt-burdened nation will need more support from European Union lenders.

The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable, S&P said in a statement yesterday. The change reflects the risk of a downgrade if Greece is unable to obtain its next disbursement of bailout loans from the EU and International Monetary Fund rescue package, the rating company said.

Representatives from the so-called troika of the European Commission, European Central Bank and IMF return to Athens early next month to review Greece’s economic program, which will determine whether the nation will receive further funds from rescue packages, amounting to 240 billion euros ($297 billion), needed to remain in the 17-nation euro area.

Prime Minister Antonis Samaras has held meetings with the leaders of the two parties supporting his coalition government since it was formed following elections on June 17 to hash out a 11.5 billion-euro package of budget cuts demanded by the creditors for the next two years. Finance Minister Yannis Stournaras said yesterday the government is still working on identifying almost a third of the cuts. Read more >>

Spain And Italy Are Toast Unless Germany Allows The ECB To Print Trillions Of Euros

The financial chess game in Europe is still being played out, but in the end it is going to boil down to one very fundamental decision.  Is Germany going to allow the ECB to print up trillions of euros and use those euros to buy up the sovereign debt of troubled eurozone members such as Spain and Italy or not? 

Nothing short of this is going to solve the problems in Europe.  You can forget the ESM and the EFSF.  Anyone that thinks they are going to solve the problems in Europe is someone that would also take a water pistol to fight a raging wildfire.  No, the only thing that is going to keep Spain and Italy from collapsing under the weight of a mountain of debt is a financial nuke. 

The ECB needs to have the power to print up trillions of euros and use that money to buy up massive amounts of sovereign debt in order to guarantee that Spain and Italy will be able to borrow lots more money at very low interest rates.  In fact, this is probably what European Central Bank President Mario Draghi has in mind when he says that he is going to "do whatever it takes to preserve the euro". 

However, there is one giant problem.  The ECB is not going to be able to do this unless Germany allows them to.  And after enduring the horror of hyperinflation under the Weimar Republic, Germany is not too keen on introducing trillions upon trillions of new euros into the European economy. 

If Germany allows the ECB to go down this path, Germany will end up experiencing tremendous inflation and the only benefit for Germany will be that the eurozone was kept together.  That doesn't sound like a very good deal for Germany. Read more >>

Spain Unemployment Hits New High

Spanish unemployment rate has hit record levels, with nearly one quarter of the labour force unable to find work and young people fearing the worst. The unemployment rate rose in the second quarter to 24.63 per cent and a huge 53 per cent among the young, despite the start of the tourist season, official figures showed on Friday.

The unemployment rate rose from 24.4 per cent recorded in the first quarter - already the highest in the industrial world - as Spain entered its third straight quarter of economic contraction. Among those aged 16 to 24, the rate rose to a huge 53.27 per cent from 52.01 per cent the previous quarter, reflecting the ongoing impact of Spain's double-dip recession following the collapse of a construction boom in 2008.

The number of households in which all eligible members are unemployed rose by 9,300, reaching more than 1.73 million overall. The country is in its second recession in four years, hit hard by the bursting of the property bubble that threw millions out of work and badly affected the country's banks. Read more >>

Eurozone Unemployment Hits Record High

The European Central Bank is widely expected to make an interest-rate cut this week to try to invigorate the eurozone’s ailing economy after unemployment in the region climbed to a record high and a key survey of manufacturing showed the sector to be at its weakest in three years.

Attention is back on the ECB’s role in helping the eurozone emerge from its debt crisis, after last week’s EU summit agreed that the central bank should play a role in common bank supervision. Leaders also backed the view of Mario Draghi, ECB president, that eurozone bailout funds should be offered directly to recapitalize struggling banks.

Few analysts expect the ECB to offer politicians a quid pro quo this week by giving further direct support to banks or governments such as more cheap loans or bond buying. But markets are pricing in the likelihood that the ECB will respond to worsening economic data by cutting its main policy rate to below 1 per cent for the first time – a step that should help peripheral eurozone banks that rely on central bank borrowing. Read more >>

Central Bank Money-Printing: $6 Trillion and Counting

Many more years of money printing from the world's big four central banks now looks destined to add to the $6 trillion already created since 2008 and may transform the relationship between the once fiercely-independent banks and governments. As rich economies sink deeper into a slough of debt after yet another wave of euro financial and banking stress and U.S. hiring hesitancy, everyone is looking back to the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Japan to stabilize the situation once more.

What's for sure is that quantitative easing , whereby the "Big Four" central banks have for four years effectively created new money by expanding their balance sheets and buying mostly government bonds from their banks, is back on the agenda for all their upcoming policy meetings. Government credit cards are all but maxed out and commercial banks' persistent instability, existential fears and reluctance to lend means the explosion of newly minted cash has yet to spark the broad money supply growth needed to generate more goods and services.

In other words, electronic money creation to date - whether directly through bond buying in the United States or Britain or in a more oblique form of cheap long-term lending by the ECB - is not even replacing what commercial banks are removing by shoring up their own balance sheets and winding down loan books. Global investors appear convinced more QE is in the pipe. Read more >>

Spanish Woes Continue To Deepen; Turmoil Spreads To Italy

Countries using the Euro de jure Countries and territories using the Euro de facto Countries in the EU not using the Euro (Photo credit: Wikipedia)

The euro-zone debt crisis deepened Tuesday as a sharp rise in Spanish government bond yields to their highest levels since the inception of the euro fanned speculation that the country might need a bailout of its own, just days after Spain sought a support package for its beleaguered banking system.
The market turmoil also spread to Italy, the euro-zone's third largest economy, where bond yields leapt higher ahead of a crucial bond sale later this week and weekend elections in Greece that could decide the country's fate in the common-currency region.

The deepening gloom surrounding Spain's credit-worthiness could have grave implications. A sovereign bailout for Spain will severely test the firepower of the euro area's rescue funds, hardly leaving any money in the pot if Italy were to be shut out of bond markets.

"It is quite likely that Spain needs a full bailout in the near future although policymakers will try all possible options to avoid this outcome, including a revival of bond purchases by the ECB as well as another three-year liquidity operation," said Pavan Wadhwa, global head of interest rate strategy at JPMorgan. "The concern is that the more peripheral debt the official sector holds, worries over subordination mean that the private sector will be less willing to lend to these countries," he said. Read more >>

Greek Economy Keeps on Crumbling

Greece's economy shrank further in the first three months of 2012, shriveling at a yearly rate of 6.5 percent against a backdrop of painful wage cuts, tax hikes and record unemployment. The data, released on Friday, will add fodder to politicians campaigning against terms of an international bailout ahead of a June 17 parliamentary election.

Painful budget austerity has deepened Greece's economic malaise, turning voters away from mainstream political parties that backed a European Union/International Monetary Fund rescue deal. Supporters and opponents of the bailout are running neck and neck in opinion polls for the June vote, seen as crucial for the country's future in the euro zone.

The first quarter Gross Domestic Product preliminary projection was based on seasonally unadjusted data. It topped a previous -6.2 percent year-on-year flash estimate and follows a 7.5 percent year-on-year GDP decline in the last quarter of 2012, statistics service ELSTAT said. A narrower trade deficit provided some relief but was not enough to make up for sharp falls in consumer and investment spending. Read more >>

Terrified Spaniards Withdraw $82 Billion From Banks

Spaniards alarmed by the dire state of their banks are squirreling money abroad at the fastest rate since records began, figures showed on Thursday, and the credit ratings of eight regions were cut. Spain is the next country in the firing line of the euro zone's debt crisis, with spendthrift regions and shaky banks threatening to blow a hole in state finances and pushing funding costs towards levels that signal the need for a bailout.

The European Commission gave new help on Wednesday, offering direct aid from a euro zone rescue fund to recapitalize Spanish banks and more time for Madrid to reduce its budget deficit. That helped lower the risk premium investors demand to hold Spanish 10-year debt rather than the German benchmark on Thursday, but it remained close to the euro-era record, at 520 basis points.

Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago. Read more >>

Financial Armageddon Inches Closer and Closer

End of the World We Know
Mark Sircus 
Dr. Sircus' Blog

As everyone is well aware, Europe is an absolute mess. The gravity of the global debt crisis is getting worse and for sure it’s the end of the world as we have known it. EU trade commissioner Karel De Gucht recently said, “The endgame has begun, and how it will finish I do not know.” There is an implosion happening in Greece, and Spain is not far behind with Portugal and Ireland running neck and neck into the full embrace of depression and life-shattering bank runs.

Greece is a big deal and Spain is even bigger. Right now the European Central Bank (ECB) is starting to cut off funds from several Greek banks and there is a run going on at the same time. Those banks are going down the toilet into a black hole and there will be a loud sucking sound as these banks pull hard on other banks. The Titanic is going down at the bow and just because you are at the stern (in the United States), not in Spain or Greece, it does not mean the cold waters of economic calamity are not going to come to the shores of your life.

€100 Billion In Secret Funds Props Up Greek Banks

There has been no official announcement. No terms or conditions have been disclosed. But Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity provided by the country’s central bank — approved secretly by the European Central Bank in Frankfurt. If Greece were to leave the eurozone, the immediate cause might be an ECB decision to pull the plug.

Extensive use of “emergency liquidity assistance” (ELA) to help banks in the weakest economies has been one of the less-noticed features of the eurozone crisis. Separate from normal supplies of liquidity and meant originally as a temporary facility for national authorities to use when banks hit problems, ELA proved a lifesaver for the financial system Ireland and is now even more so in Greece.

As such, it has given the ECB — which has ultimate control over the facility — considerable power to determine countries’ fates. Whether that power would ever be exercised is unclear. ELA is a subject on which the ECB is deeply reluctant to provide information — even on where or when it is provided. More...

20,000 March at Frankfurt Occupy Protest Rally

At least 20,000 people held a major rally of the local Occupy movement in Frankfurt on Saturday to decry austerity measures affecting much of Europe, the dominance of banks, and what they call untamed capitalism. The protesters peacefully filled the city center of continental Europe's biggest financial hub on a warm and pleasant afternoon, said Frankfurt police spokesman Ruediger Regis. 

He said 20,000 people were there, while organizers put the number at 25,000. The protest group, named Blockupy, has called for blocking access to the European Central Bank, which is located in Frankfurt's business district.

Organizer spokesman Roland Seuss the protest is "against the Europe-wide austerity dictate by the (creditor) troika of ECB, the EU Commission and the International Monetary Fund." Last year, thousands in Germany took to the streets in rallies during the worldwide Occupy movement. But as Germany's economy is robust and unemployment at a record-low, those protests have mostly fizzled out. More...