[Premium] Daily commentary: On Facebook’s IPO, JPMorgan’s losses, Spain’s bank run and Greece’s exit

As always, I have a lot of links on Monday. Three or four stories have dominated the news in each market for the past week. In the US, it is about either JPMorgan Chase’s escalating losses, Facebook’s IPO or the general aimlessness of the market. In Europe, the dual stories are Greece and Spain. In Greece, the talk is of an imminent exit from the eurozone, while in Spain the question revolves around Spanish bank insolvency. Other news outside of the G8 has been pushed to the side

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

Spain: Double Barrel Disappointment

The fact that Spanish bank shares have rallied today (3.1% at pixel time) and have easily outperformed the market (IBEX up 0.3%) following Moody’s downgrade of 16 Spanish banks should be understood as a bit of a fluke. Some observers will use this price action as evidence that rating agencies are laggards. While there can be little doubt that the epithet is true, it is also true that today’s correction comes despite some other bad news as well. This was in the form of the Bank of Spain’s latest assessment that bad loans in the banking system rose in March to 8.37%

[Premium] Spain’s nationalisation plan won’t work as the banking system is insolvent

The Spanish banking system is insolvent and the Spanish government simply does not have the wherewithal to clean it up. This is the problem in Spain that has come to a head, particularly now after the rescue of Bankia, Spain’s fourth largest bank. Unless the European Union come to Spain’s rescue, there will be runs on Spanish banks, with contagion rippling outward.

Chart of the day: The German-Spanish 10 Year Spread is at an all time high

Spanish bond yields are spiking with no obvious reason to believe they will come down anytime soon. That puts the Spanish-German 10-year spread at an all time high

[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

Spain: EU estimates for contraction now considerably deeper

This is not a good day for Spain. The day began with the EU Commission revising its estimates for the Spanish economy. The contraction is now expected to be considerably deeper. Spain unveiled its new efforts to address the banking problems. It is the fourth one since the crisis began and the second one since Rajoy became PM. Spain is forcing the banks to boost their loan loss provisions on real estate loans by 30 bln euros. They have already put aside about 54 bln euros. The Center for European Policy Studies warns that bank losses could be as high as 380 bln euros. Moody’s estimates Spanish bank losses could be around 305 bln euros

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] On Europe’s advancing preparations for the Grexit

The evidence is becoming increasingly clear that German policy makers are prepared for Greece to exit the euro zone. Knowing this changes how one should view the likely policy responses in Europe. In the short term, this means allowing more time to meet the Maastricht hurdle and setting up a EuroTARP that banks can access for recapitalisation. Over the medium-term, we will see treaty changes for enhanced fiscal rules including a growth compact, penalties, oversight and specific mechanisms for a euro zone exit

[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

The Denial on Housing in Spain

This post highlights a brilliant piece of journalism by Bloomberg reporters Sharon Smyth, Neil Callanan and Dara Doyle. The story takes us to Spain and Ireland and the former’s denial with regards its housing market. A passage that was particularly staggering was the comments by Miguel Angel Garcia Nieto, mayor of Avila (a town showcased in the article), that this is just an interim soft spot as a result of the crisis and that oversupply and overcapacity will eventually be absorbed. Hope, as they say, springs eternal