[Premium] Daily commentary: On free money for the German government

Not a lot to say today but I do have a lot of links. The stories today are all the same, which is why I don’t have a lot to add.

One story to note is that the German government is now borrowing 2-year money at zero percent. This tells you that the Germans continue to benefit from Europe while the periphery does not. The prevailing narrative as to why this is so is because the Germans are frugal and conservative and the peripherals are not

[Premium] Why Europe’s extend and pretend strategy will fail

Michael Pettis had a great write-up on the situation in Spain and Europe’s depressing prospects. While his conclusion that Spain will be forced to exit the euro zone is something I have yet to endorse, the logic he uses surrounding many of the economic and policy constraints bears remembering. In particular, his comments on Europe’s inability to extend the crisis and pretend their banks are solvent are important because the undercapitalisation of Europe’s banks lies at the heart of this crisis

[Premium] The Germans have already blinked

The talk about Greece being kicked out of the euro zone has clearly been overdone. Some have suggested that the Germans had reached their fill and that they would ‘stare the Greeks down’ in this high stakes game of chicken. I have maintained that European policy makers in Greece, in Germany and throughout the euro zone are steadfastly committed to the euro. Recent reports of discussions now ongoing support this.

Moreover, these reports show that Germany is indeed willing to compromise on core issues causing crisis in the euro area. These reports also hint at the form that euro zone compromises will take on the fiscal and growth pacts now being contemplated as the silver bullet to Europe’s sovereign debt crisis. I do not believe the compromises currently on discussion are going to be a definitive solution for Europe. I would sooner label them a variant of ‘extend and pretend’ than something definitive. Nevertheless, these talking points do demonstrate continual movement toward fiscal integration in the manner I indicated in November during the Italian crisis

Europe’s depressing prospects

By Michael Pettis Normally I don’t like to write about European prospects in the midst of a very rough patch in the market because in that case there isn’t much I can say that isn’t already being said. I find it more useful to wait for those recurring periods in which the markets recover and

[Premium] Europe is on the brink of something very big

Euro zone bond markets have come completely unhinged this morning. Spanish 10-year yields have hit the highest level this year at 6.5%. While Italian 10-year yields broke above 6% for the first time since late January. Meanwhile, German yields have moved to a record low of 1.44%. We are now back to levels of stress we last saw during the Italian crisis in November and December. However, this time policy space has narrowed considerably. In short, Europe has reached the critical breaking point

Will the Greek exit be voluntary or involuntary?

Ever more voices are talking about the possibility of Greece leaving the euro zone despite the fact that there is no formal mechanism for a euro are member country to exit the single currency. This talk, however, makes sense because Greece’s situation is untenable economically and politically. The Grexit is a question of when and how not if

Super SGP coming – ECB: “A stronger and stricter fiscal framework is required”

The long-held view in German policy circles has been that the European sovereign debt crisis is a clear indication that the stability and growth pact (SGP) was not sufficiently robust in addressing fiscal discipline. The ECB is now addressing this with a policy paper

Chart of the Day: Euro zone GDP by country

This chart was attached to a very good front page article in today’s Wall Street Journal by Marcus Walker on How a Radical Greek Rescue Plan Fell Short. The article gives a blow-by-blow account on how the Greek crisis has unfolded and a detailed view on where each of the Greek and European leaders stood on various issues involved in Greece’s debt restructuring. The chart itself demonstrates the enormous gulf between the size of the German economy and other economies in Europe, giving some sense of why the Germans (and the French) have come to dominate European policy discussions

[Premium] Marc Faber on Euro zone breakup and US and European equities

Marc Faber, publisher of the Gloom, Boom & Doom report, spoke with Bloomberg TV’s Betty Liu. The overall gist of his commentary was that a euro zone breakup would be beneficial and that he believes European peripheral equities are oversold. Take a look

[Premium] Daily commentary: On the Spanish bank bailouts

In the links today are a lot of links in both English and Spanish about the bailout of Spain’s fourth largest bank Bankia. With the partial nationalisation, Spain is moving one step closer to Ireland in committing the sovereign government to bank liabilities that have the potential to greatly increase sovereign debt

[Premium] The European Endgame is within sight

Earlier this week I wrote a post called “Europe edges closer to the endgame” in reaction to the French and Greek elections. Today I want to expand on this for the weekly members’ post.

While I think we are finally arriving at the changes which presage the endgame, I do not think the events in France and Spain are going to be the catalyst for seismic change in policy responses. More likely, the sovereign debt crisis will impose policy change upon European policy makers after markets seize up and Europe risks breaking apart. Right now, Spain and its banking sector must be the focus for analysts looking to gauge the policy responses that will determine the European endgame. This post will cover all of that ground – Greece, France, Spain – and a lot more

Europe edges closer to the endgame

Later this week, I plan to write a more comprehensive post on the European sovereign debt crisis to incorporate what we have learned since the French and Greek elections. Here’s a short preview of what I will have to say