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Well, so much for those halcyon days of Spain getting a “bailout without conditions”, as Spain is forced to make a humiliating climbdown on implementing austerity, 65 billion Euros worth in fact. All that summit hope for, apparently, nothing. They haven’t managed to escape the trap of having the sovereign choked by the banking system problems, or even spare their populace more austerity to do it. Contracting the economy further would seem to almost guarantee a Spanish national bailout at some point, no matter how much liquidity the ECB provides. But “when”? Who knows.

Part of the reason for the climbdown is that Merkel is being put on the spot by her own government about what she agreed to at the summit. The Germans may give their money to the Eurosystem to prop it up, but not for free, and they’re increasingly looking askance at these summit promises that seem to guarantee that they will do so.

In other news, Greece is still out of money and is not going to get any slack from its creditors so stop hoping. But it could be worse, after all, they’re still allowed to leave, for now.
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Well, taking a week off certainly simplifies things. I didn’t have to write anything about how the latest attempts to staple together a growthsterity bailstructuring would temporarily boost the stock market when the German PM sullenly muttered something not entirely negative just to be able to have a few moments peace.

Predictably, people began running for cover from the bailstructuring deal terms almost immediately. If it wasn’t German economists throwing up in their own mouths, or Merkel’s own coalition partners freaking out, it was Finland once again demanding collateral for the money being wasted on Spain. Oh, right, funding has to come from the ESM. Someone ought to finish ratifying that so they can spend it.

Also, strange things are afoot in banking regulation. First the former head of Bankia is dragged into court over his bank’s terrible balance sheet shenanigans, as the ECB decided to stop paying a deposit rate on all the mounds of cash that have been idly deposited there and the British are freaking out over the can of worms that has been opened with the LIBOR scam probe. All of these things are fairly surprising. Not the events themselves, but the fact that the authorities involved are actually, er, appearing to do their jobs. This is strange and new, and certainly exciting – the one thing that hasn’t been tried yet is to stop rewarding banks for behavior that’s, if not outright criminal, certainly not useful.

Also, Denmark implemented an explicit negative interest rate policy to discourage deposits piling up. There’s been a ton of talk about implementing negative interest rates among central banks, but this seems to be the first one to actually do it. Even if it’s only -0.2%, it’s still a guaranteed loss to deposit with the Danes. Unless of course you think the alternatives are worse…

Meanwhile, Bulgaria gets away with just promising not to beat the central bank with a stick until next March. Apparently all you need to do to get the IMF to cave in these days is promise you won’t explode things right this very minute. How novel.

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Waiting, waiting, waiting for the acknowledgement that this latest summit probably won’t amount to anything whatsoever. Germany still demands fiscal union and surrender of sovereignty to Brussels if Europe wants German money. The French Finance Minister expressed enthusiasm, but do they really understand what this will entail? If the French want a German backstop for their budget deficit, that line-item veto on spending might lop off wastes of money like the French nuclear weapons program.

The more the cans get gently kicked a few months into the future, the more non-centrist parties gain and the more people get fed up with the whole thing. Saving the Euro was never about saving the European people, though…

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Greece has managed to confirm a fresh new Finance Minister after the previous one resigned due to health issues. Their new Finance Minister is a technocrat from none of the parties, and is apparently considered to favor the existing loan agreements. So, er, so much for that bailout rebellion? In another development of the tragicomedy which is Greece, the new government’s ministers will need permission to leave the capitol, presumably to keep them from wandering off and getting into trouble.

Moody’s downgraded a huge swath of the Spanish banking sector late Monday, for the obvious reason that the banks still have huge unrecognized losses from the property bubble. Most will likely be downgraded further once they get the bailouts they so obviously require.

But just in case anyone thought the bailouts were somehow pushing Europe towards actually addressing the problem, Germany seemed to rule out Eurobonds entirely in the near term, and possibly ever, though this is all part of the delicate dance of nonsense that seems to lead up to each summit. The EU also put forward a 7-page position plan on their ideas for how the EU countries would surrender sovereignty to the EU government in Brussels. To be implemented over the period of a decade. Really? They have a decade to solve this? Who knew!

Real-World Economics Review brought up an interesting thought about the German opposition to the problem; Keynesians scolding Germany about their budgetary orthodoxy kind of miss the point about why the traumatic hyperinflation and then deflation happened in the first place: the impossibly, unpayably huge, treaty-bound payments imposed after WWI. Germany has been bound into a payment treaty once before. It went badly. Perhaps don’t be so quick to expect them to enter another.

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Another day, another buildup to another summit that will fail miserably due to Germany not being on board. Any kind of bond sharing has been ruled out by Germany without the surrender of national budget sovereignty. Greece’s plan to make their austerity terms less onerous is doomed before it begins, as Germany is totally uninterested in lightening the weight of reforms.

Any chance, however tiny, that Greece had of renegotiating is possibly on the ropes as Greece’s Prime Minister and Finance Minister definitely won’t make it to the summit. Not that Greece even has a Finance Minister yet.

Spain has officially, sort of, asked for a bailout, though they’re not entirely sure how much money they’ll need yet, besides “lots”. Cyprus immediately joined them in the queue, implying that China and Russia weren’t willing to write a check to bail out the island nation’s doomed banks. Spain is rushing in new controls on cash transactions and foreign accounts, perhaps to put the squeeze on their “bank joggers”. The problem with these “tax evasion” methods is that they’re indistinguishable from the steps you would start taking to lock down the movement of money prior to a redenomination, so the more you try and fix the problem (tax evasion) the more people start sweating and bank jogging, and thus the more false positives you get (nailing people for “tax evasion” who had no intent to defraud the government, just to avoid being defrauded by the government) which makes people think that the tax is bullshit which makes it more acceptable to evade taxes which…

Is it any wonder that Switzerland is filling up with cash and gold?

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Now that the (somewhat questionable) numbers are in, Spain begins, finally, to admit, officially, to having made an aid request. To help them out a bit more, the ECB has even loosened collateral requirements to allow Spanish banks to post asset-backed securities in exchange for central bank loans, which is unfortunately like admitting that one or more Spanish banks are running out of non-awful collateral. It does raise the question then of how Spanish banks are going to produce the awesome profits necessary to limit their bailout requirement to just 62 billion Euros, if they’re running out of assets to pledge.

Squeals of protest for the ECB to do more have unfortunately run up against the fact that all the bond buying subordinates existing bondholders, regardless of what the rules actually say. That was the precedent of Greece, after all. As long as the ECB is not allowed to say “we will buy all the bonds, if necessary, to contain yields” then their bond buying cannot actually help matters except to buy more time to waste. Admittedly if they did that, it would be over Germany’s dead body, and create entirely new problems, but that’s how it goes sometimes.

The Italian Prime Minister was at a high level of hyperbole at the summit in Rome today, saying that there was a mere week to save the Euro. With great enthusiasm, a 130 billion Euro package of growth loans was proposed, and everyone pretended not to notice that 120 billion Euros of this was money they’d already planned to spend anyway. Angela Merkel of Germany was polite enough to wait until the summit was over before shooting down more open-ended rescue ideas, as has been the way of things up to now. The German central bank even snapped at the ECB for allowing bad collateral in for loans.

Everyone yells at Germany to give them money, Germany fails to do so. Maybe that can be the headline at the next summit in a week as well. Politics vs Math continues.

Meanwhile, Greece’s new government is having a bad first couple of days. The new Prime Minister managed to give the new government’s ministers a pay cut but was then hospitalized to be treated for retinal detachment. And their Finance Minister fainted and had to be taken to the hospital before he could even be sworn in. While it seems rude to point out the physical conditions of a country’s leaders, it’s impossible to escape the fact that this is a crisis situation where everyone needs to be firing on all cylinders, as it were. Also, stress is bad for your health…

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Things have returned to a slower boil in Spain, as the much-watched 10 year bonds retreated a bit further down in yield, even as higher interest rates began to infect the shorter term. Where is the central bank shenanigans necessary to kick the Spanish can down the road a little further? Still not in evidence. Audits report that the Spanish bank clean-up will require 52-61 billion euros… assuming that Spanish banks muster a profit of nearly 2/3 of their (admittedly shrunken) market capitalization which in a recessionary environment will certainly be a bit of a trick.

Greece has put together a government, with the Socialist PASOK contributing a few minor ministers despite all those reports of arguments about not having any at all, and the Democratic Left taking the Justice ministry, apparently having found a long enough pole. Now they can get on with their only real important task in the grand geopolitical scheme of things, begging Germany to cut Greece some slack. Germany still seems unmoved.

Italy is increasingly sick of Merkel’s refusal to allow central bank printing to support the Euro, and ordinary Italians are increasingly fed up with their own government’s nonsense trying to obey German diktat. This whole “technocrat” thing is only popular as long as it seems like it might work. The moment it’s revealed that it will not, in fact, result in anything other than humiliation and failure, the fact that it has no democratic legitimacy becomes painfully obvious.

This is often a cue for someone to pop up saying how Europe really needs growth. Well, yes, however, if you’re looking to the EU government to provide it, you might want to take note of the fact that the existing growth and infrastructure funding doesn’t really work out that well. There aren’t that many projects out there which obviously have sufficient economic return to justify both the loan interest and the bureaucratic hoops that have to be jumped through.

Meanwhile Germany may have to hold up Europe’s last best hope of a can-kick by trying to decide whether it’s legal or not, and the rating agency Moody’s slapped downgrades on a ton of international megabanks on the perfectly good logic that they’re all kind of screwed right now.

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Greece finally has a government, as New Democracy party leader Samaras took the oath of office. PASOK and the Democratic Left joined as minor parties and seem to have tried their best to avoid responsibility for anything that happens by not having any of their party deputies join the government as ministers, which is always the kind of vote of confidence you want to see in a new coalition. Their first objective is to try and renegotiate the austerity measures. Good luck with that.

Spain celebrated by enjoying a rally in bonds with the 10-year yield reaching as low as 6.71%, instead of the “doom today” yields of 7+%. 6 point lots percent yields were making people sweat bullets just a week previous but in comparison they seem almost a relief. A plan exists, though, to buy up peripheral debt, or maybe only possibly, in a theoretical sense, and assuming Finland gets paid off. But they’re definitely at least thinking about a plan, kind of. One thing’s for sure, Europe is tired of us bugging them about it.

As some people are trying to figure out wether the program, if it happens, will make things better or worse, others are already fastening the safety helmets on and preparing for another doomsplosion like 2008. Of course there are options for solving the problems, but unfortunately all of them are impossible without someone finally bending on currently intractable resistance.

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The discussions on who will be in the Greek coalition government still continue, though really it’s less of a question of who will be in, and more of a question of what conditions the minor parties, PASOK and the Democratic Left, will try and set for the new government as regards renegotiating the bailout. Of course they don’t really have much leverage for negotiation, as almost regardless of what happens, Greece will need yet another round of bailout financing.

In other words, no matter how it goes, the ordinary Greeks are screwed. This will certainly be good news for the fascists and their supporters.

On the plus side, the Greek soccer match against Germany is the 22nd. Just a good-natured rivalry, that’s all…

Meanwhile people still don’t really understand what’s up with Britain’s “funding for lending” plan… does this mean that the Bank of England’s QE programs weren’t funding for bank lending?

In Mexico, the G20 summit proved an excellent opportunity for everyone to yell at Europe to get on with it. And for Europe to yell back that it’s all the fault of the American banks. But as the day waned rumors started to fly that once again there was a grand plan to spend more money on peripheral European debt:

FT Alphaville: Exclusive to all newspapers, EFSF/ESM bond-buying
Telegraph: Debt crisis: EU leaders set to announce 750bn Spain and Italy bailout deal
Guardian: Germany set to allow eurozone bailout fund to buy troubled countries’ debt

I could have sworn we’ve been here before. Rampant rumors that Europe is prepared to spend German money, followed by Germany going “wait, what?”, followed by some half-baked compromise nonsense that just makes everything worse.

Every day is a good day for a rumor that Germany is okay with German money being spent to prop up Spanish and Italian bankers’ bonuses. Maybe one day those rumors will actually turn out to be true. It could happen!

Meanwhile Spain is still on fire. Last year when it was Italy’s turn in the broiler, the description used was “when bill (short term bond) yields go, it’s getting close to the end”. Spain’s high yields on longer term debt are beginning to infect durations as short as one year, which was supposed to be covered by the long-term refinancing operation. But don’t worry, Spain has delayed the full results from their banking audit until September. …no, wait, actually, worry. Something will certainly change in the near future to resolve this situation, admittedly one of those possible things is a Spanish euro exit…

Of course, Italy may not be too long out of the broiler, as an anti-euro party has taken up to 20% of the vote in some areas, despite, or perhaps because of, being run by a former comedian.

The parting word, or 4000 words, is from the Athens News, spotted by the Financial Times: Live news blog, June 19 | Athens News. Their 9:45am entry is a series of pictures of the party leaders meeting each other. The body language speaks volumes. We’re talking serious trilogy material here, hardbound, with forwards by the author and detailed appendixes. The deluxe edition with a fold-out poster map of the world. It’s pretty awesome is what I’m getting at.

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Surprise news from the European elections this weekend as the Greek anti-austerity party gained an unbeatable majority in the national government and– no, wait, I’m sorry, I meant France. The fact that Hollande can now operate the government without having to bring any minor parties on board will certainly give him a freer hand when it comes to opposing the austerity measures being imposed on Europe. Unfortunately it may not give him any more German money.

Greece voted “why did we even bother” once again, or roughly the same parties but more emphatic. Once again the center-right New Democracy party must try and form a coalition with someone else. Considering ND leader Antonis Samaras broadly adheres to the bailout agreement, there is not exactly a huge amount of enthusiasm for entering into the coalition of the doomed. However, unlike the May 6th election, ND can now form a majority government with the socialist PASOK party alone. Can’t you just feel the enthusiasm for a government consisting of the exact two parties who caused the current problems?

The Syriza party in Greece secured more votes than last time, but still came in second. They would be fools to join a governing coalition. Being the leader of the opposition is the place to be; if anything, this benefits them much more than actually having to take responsibility for Greece’s future. Worrying is that the neo-fascist Golden Dawn took exactly the same voting percent as last time. A month of going “no, we’re not a protest vote party, we are seriously actually fascists” and beating their opponents on the streets and on live tv has in no way dissuaded their voters. They do make Syriza seem an even more reasonable alternative, simply by existing, though.

For some strange reason, nobody much thinks the day was saved. The catharsis moment has simply been postponed, to everyone’s detriment. Or maybe not even that much, as New Democracy has yet to seal the deal on a coalition government. Tick tock, gentlemen.

Meanwhile, Spain is in deep trouble, as bond yields pierced straight through the psychologically important 7% level. At what level does Spain lose market access entirely? Probably not seven percent… but it seems like they’ll get there eventually at this rate.

Meanwhile, Switzerland is annoyed at having to buy so many stupid Euros.

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