1. This chart accompanies the podcast recorded
November 2nd, 2011
A REFERENDUM? Bombs ..or Bonds Away!
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2. This chart accompanies the podcast recorded
November 2nd, 2011
A REFERENDUM? = UNCERTAINTY!
"The announcement has surprised the whole of
Europe. Giving the people a way to express
themselves is always legitimate, but the solidarity of
all the euro-zone countries cannot be exercised
unless everyone agrees to make the necessary
efforts. France wants to stress that the plan agreed
last Thursday unanimously by the 17 states of the
euro zone is the only possible path to solve the
Greek debt problem.“
French President Nicolas Sarkozy
Mr. Papandreou's move risks having unintended consequences on France's domestic politics ahead of a
presidential election, set for next year, in which Mr. Sarkozy is widely expected to run. Only five days ago, Mr.
Sarkozy explained in a primetime television interview the complex negotiations behind the deal to save
Greece, and how the "crucial" Brussels summit, driven by the Franco-German pair, had avoided a global financial
"catastrophe.“
"Europe has acted too late and too softly on the financial front, too harshly on the economic front," said François
Hollande, the Socialist presidential candidate.
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3. This chart accompanies the podcast recorded
November 2nd, 2011
A REFERENDUM? = UNCERTAINTY!
"We trust citizens, we believe in their judgment, we believe in their
decision," he told ruling Socialist party deputies. "In a few weeks the
(EU) agreement will be a new loan contract ... we must spell out if we
are accepting it or if we are rejecting it.“
•Mr. Papandreou didn't consult or inform other European leaders or even
cabinet colleagues, including his finance minister, before proposing a
referendum, according to people familiar with the matter.
•The revolt within Mr. Papandreou's ruling Socialist party left the premier with
just enough support in Parliament to survive in office, for now—but with too
little support to launch his plebiscite. Under Greek law, Parliament must
approve a proposal for a referendum.
•"The referendum call is basically dead," said one senior Socialist party official.
The important question to be resolved is whether the present government will be replaced by an interim national
unity government for several months ratifying in parliament the Eurogroup decisions of last week and then
proceeding with elections, or else whether national elections will be immediately announced with probable dates
the 4th or 11th of December.
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4. This chart accompanies the podcast recorded
November 2nd, 2011
INTERNATIONAL REACTION
European leaders intended to •Less than a week after euro-zone
convey a message that their 11th- leaders agreed on a "comprehensive
hour agreement last week to package" of measures to keep Greece
avoid a messy Greek afloat, reassure financial markets and
default, boost their bailout fund stabilize the region, the outcome of
Europe's debt crisis is more uncertain
and stabilize the region's banks than ever.
had kept catastrophe at bay.
•"We want to convey to the Greeks
The focus for Cannes was to that there is no alternative to the
discuss what the rest of the world existing package of measures that we
could now do to stimulate global agreed in Brussels," a European official
familiar with the situation said. "We
growth. While officials stress the need quick clarification of the Greek
summit isn't meant to be a government's mandate; we cannot
pledging session, Europe's wait until January."
decision to partly back its
expanded rescue fund with •White House Press Secretary Jay
investment from countries with Carney said the call for a referendum
"just reinforces the notion" that the
large foreign-exchange reserves euro zone needs to implement the
such as China and Japan had been bailout plan rapidly.
set to dominate much of the
meeting.
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5. This chart accompanies the podcast recorded
November 2nd, 2011
A REFERENDUM?
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6. This chart accompanies the podcast recorded
November 2nd, 2011
MF GLOBAL
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November 2nd, 2011
G20 IMBLANCES & GROWTH
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8. This chart accompanies the podcast recorded
November 2nd, 2011
A REFERENDUM?
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Notas del editor
There are big doubts whether Greeks will back the bailout. A survey carried out on Saturday showed that nearly 60 percent viewed the agreement on the bailout package as negative or probably negative.A senior member of German Chancellor Angela Merkel's center-right coalition said on Tuesday he was "irritated" by Papandreou's announcement. "This sounds to me like someone is trying to wriggle out of what one has agreed to," Rainer Brüderle, parliamentary floor leader for Merkel's junior coalition partners, the Free Democrats, told Deutschlandfunk radio.The new uncertainty is likely to be an embarrassment for EU leaders ahead of the G-20 summit of top industrial and emerging economies in France on Nov. 3 and 4. They had hoped to use the gathering to persuade nations such as China and Brazil to commit funding to the enhanced euro zone rescue fund, or European Financial Stability Facility, to help ailing nations get through the crisis.Conservative leader Antonis Samaras, head of the New Democracy party has demanded new elections in the wake of Papandreou's announcement. "Elections are a national necessity," he said.Greek newspapers also harshly criticised Papandreou. "More uncertainty is the last thing that Greece needs right now," said conservative newspaper Kathimeriniin its lead editorial, according to Reuters. "The country will certainly paralyse amid endless debates -- the government, the state apparatus and institutions won't work," the newspaper added.
LCH.Clearnet now stands at the fulcrum of the price action in Europe as the critical 450bps spread to Bunds on European sovereign debt - which will trigger considerable rises in margin requirements - is being aggressively defended thanks to the ECB. What is both evident and troublesome is the confluence of the rally in Bunds (as Greece implodes) and what is now basically unhedgeable risks in ITALIAN bonds …. which means relatively aggressive buying in ITALIAN bonds is doing little to improve spreads.UPDATE: There is some wiggle room in here and instead of using what seems 'obvious' as a benchmark (Bunds), LCH uses a blended AAA sovereign benchmark (consisting of Germany, France, and Holland). This makes a significant difference, obviously, and with Bunds massively outperforming today (now 86bps tighter than this archaic benchmark), ITA 10Y bonds ended the day at a spread of 355bps (not 440bps). So as long they keep France or Holland 'weak' then ITA margin calls should be safe for now.The benchmark used by LCH is increasingly lacking any sense of reality when judged against the only true AAA (for now) nation in Europe. This leads to a notably lower ITA bond spreadItaly needs to refinance about 310b euros of debt in 2012. The average interest rate they are paying on this maturing debt is 2.7% (short term rates collapsed in ’09-’10). With an average debt maturity of 7 years, Italy may be paying 6%+ on the refinancing. Assuming a 350 bps additional cost times the 310b euros of maturing debt, this adds 10.9b euros of interest expense to the 54b euros of interest payments scheduled to be made in 2012. At the same time, Italy’s 2T economy is expected to grow REAL GDP.1% in 2012 and nominal around 3%. Thus, nominally 60b euros will be added to their economy with all of the incremental gain thus going to service interest expense. This also doesn’t take into account any new debt Italy has to take on over and above what is maturing. Over time, just to tread water, any country needs to generate nominal GDP growth equal to its financing costs. In the 10 years prior to the sharp ’08-’09 economic contraction, Italy saw nominal GDP growth of 3.7% (REAL averaged 1.3%), near its financing costs over that time period. A continuation of nominal GDP growth of 3.5-4% (now mostly consisting of inflation) will no longer cut it for Italy with funding costs at current levels.”
CORE ITALIAN ISSUEOne single variable encapsulates the depth of Italy's economic problems: GDP per capita is lower today than it was a decade ago – "one of the worst performances among advanced economies” in the IMF’s words.The real issue is Italy's incredibly low productivity growth (see top right-hand chart above). Hence, having been in excess of 2% yoy in the late 1990s, Italy's trend GDP growth rate is now barely positiveEven if Italy can right its bloated debt issue, they are unlikely to grow their way out of this debt crisis any time soon. In fact, given the austerity measures the odds of them achieving their growth targets are remote. ClearlyEurope underestimates the gravity of the situation here. They have to be realistic not poltical. In order to resolve this crisis you must eliminate the solvency issue at the sovereign level. The only fast way to achieve this is via a fiscal union or the re-implementation of the old single currencies. The latter would likely involve the partial or complete destruction of the Euro and would, in my opinion, be a disastrous situation for Europe and the global economy. The former, unfortunately, involves choosing Euro national pride over individual country pride. Easier said than done….Unfortunately, the Germans are in the driver’s seat hoping the situation will fix itself so they can go along their merry way with record low unemployment and decent relative growth. What they don’t seem to understand is that the wheels are coming off of the car they’re driving and if they don’t act soon the car is certain to crash. SEE THE NEXT CHART SMario Draghi, an Italian, is taking over the ECB. Of all the people in charge, we should hope that he would be able to convince the Germans that the ECB bazooka must be picked up and fired straight into the heart of this crisis….Read more: http://pragcap.com/the-ugly-math-behind-italys-sovereign-debt-crisis#ixzz1cXtgmQgs
THREE OF THE WORLDS FOUR LARGEST ECONOMIES ARE CREDITORS: China, Germany and JapanSEE MERVYN KING’S SPEECH CLIP > High levels of ConsumptionWRONGIrresponsible Fiscal Policies Irresponsible Private Lending $ BorrowingSELF DEFEATINGTighten Fiscal Policy is self defeatingDESTABILIZINGAn EU external surplus through resolving internal imbalances would worsen global ones