Will Europe Last the Month?

[Macrobius]

Originally Posted by FIPS

(This) comes as pharmacists revealed the country had almost run out of (price-controlled) aspirin, as multi-billion euro austerity measures filter their way through society.

So, the 1% can afford aspirin, and the guy in the street can't.

I bet they turn cranky.

[Goosey]

only in America

[Macrobius]

And the answer is...

http://blog-imfdirect.imf.org/2012/0...eeces-program/

The creditors negotiated and cut Greece's debt by 10,000 Euros per person, more or less.

[Macrobius]

Krugman is betting, not too many more.... 'Next month' isn't March 2012... but it's not very different from March 2012 either....

http://krugman.blogs.nytimes.com/201...rodammerung-2/

Some of us have been talking it over, and here’s what we think the end game looks like:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

Tyler Durden's take, at http://www.zerohedge.com/news/if-gre...e-what-happens is not really so different....



I guess it's good to see the pundits agree for once.

[FIPS]

Some of us have been talking it over, and here’s what we think the end game looks like:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

.

Assuming that it's pre-paid life insurance and pension funds that are buying government paper, Greece, Spain and Italy could all do a demurrer on debt repayment this decade, and simply absolve the creditors of ever paying off life insurance or pensions.

Then, anyone with a brain in their head takes Euros out of the bank, and buys real estate, art, jewels, gold, antiques and collectibles. There would be no need to transfer Euros to Germany.

.

.

[Zed]

Couldn't happen to a more deserving bunch

[Macrobius]

The periphery countries have bank runs in progress -- about 1% / day of assets are being withdrawn. This will force institutional changes within a couple weeks, if it keeps up.

http://www.zerohedge.com/news/eric-s...crisis-part-ii

On Wednesday, May 16th, it was reported that Greek depositors withdrew as much as €1.2 billion from their local Greek banks on the preceding Monday and Tuesday alone, representing 0.75% of total deposits.1 Reports suggest that as much as €700 million was withdrawn the week before. Greek depositors have now withdrawn €3 billion from their banking system since the country's elections on May 6th, seemingly emptying what was left of the liquidity remaining within the Greek banking system.2 According to Reuters, the Greek banks had already collectively borrowed €73.4 billion from the ECB and €54 billion from the Bank of Greece as of the end of January 2012 - which is equivalent to approximately 77% of the Greek banking system's €165 billion in household and business deposits held at the end of March.3 The recent escalation in withdrawals has forced the Greek banks to draw on an €18 billion emergency fund (released on May 28th), which if depleted, will leave the country with a cushion of a mere €3 billion.4 It's now down to the wire. Greece is essentially €21 billion away from a complete banking collapse, or alternatively, another large-scale bailout from the European Central Bank (ECB).

The way this is unfolding probably doesn't surprise anyone, but the time it has taken for the remaining Greek depositors to withdraw their money is certainly perplexing to us. Official records suggest that the Greek banks only lost a third of their deposits between January 2010 and March 2012, which begs the question of why the Greek banks have had to borrow so much capital from the ECB in the meantime.5 Nonetheless, we are finally past the tipping point where Greek depositors have had enough, and the past two weeks have perfectly illustrated how quickly a determined bank run can propel a country back into crisis mode. The numbers above suggest there really isn't much of a banking system left in Greece at all, and at this point no sane person or corporation would willingly continue to hold deposits within a Greek bank unless they had no other choice.

The fact remains that here we are, in May 2012, and Greece is right back in the exact same predicament it was in before its March 2012 bailout. Before the bailout, Greece had approximately €368 billion of debt outstanding, and its government bond yields were trading above 35%.6 On March 9th, the authorities arranged for private investors to forgive more than €100 billion of that debt, and launched a €130 billion rescue package that prompted Nicolas Sarkozy to exclaim that the Greek debt crisis had finally been solved.7 Today, a mere two months later, Greece is back up to almost €400 billion in total debt outstanding (more than it had pre-bailout), and its sovereign bond yields are back above 29%. It's as if the March bailout never happened… and if you remember, that lauded Greek bailout back in March represented the largest sovereign restructuring in history. It is now safe to assume that that record will be surpassed in short order. It's either that, or Greece is out of the Eurozone and back on the drachma - hence the renewed bank run among Greek depositors.

That was the good news. Here's the bad....

More: http://www.zerohedge.com/news/big-re...sentation-ever

[The Libertine]

Originally Posted by Macrobius

The periphery countries have bank runs in progress -- about 1% / day of assets are being withdrawn. This will force institutional changes within a couple weeks, if it keeps up.

http://www.zerohedge.com/news/eric-s...crisis-part-ii



That was the good news. Here's the bad....

More: http://www.zerohedge.com/news/big-re...sentation-ever

Here's why it's even worse, America and Europe have been letting the big banks slide on reserve requirements as long as they keep buying sovereign debt.

Time Bomb? Banks Pressured to Buy Government Debt

US and European regulators are essentially forcing banks to buy up their own government's debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country's debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

"Captive bank demand can buy time and can help keep domestic yields low," Lorenzen wrote in an analysis for clients. "However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn't used very prudently."

"Specifically," Lorenzen adds, "having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations."

The banks, though, are caught in a "great repression" trap from which they cannot escape.

"When subjected to the mix of carrot and stick by policymakers...then everything else equal, we believe banks will keep buying," Lorenzen said.


Institutions both in the U.S. and abroad have been busy buying up their national sovereign debt for years, he found.

Spanish banks bought 90 billion euros worth while Italian firms picked up 86 billion euros just between November and March. Even in the UK, which has avoided a debt crisis as it is outside the euro zone and able to set its own monetary policy, banks have increased holdings of gilts by 100 billion pounds over the past few years.

And in the U.S., banks, though having "comparatively low holdings" of Treasurys, have bought $700 billion of American debt since 2008.

full depressing article
http://www.cnbc.com/id/47633576

[Macrobius]

When Zero Hedge and Paul Krugman agree (about the final conclusion, not the analysis that gets there), you know things are looking bad:

http://krugman.blogs.nytimes.com/201...ut-terrifying/

...
And this in turn means that overall eurozone inflation must be sufficiently high. That’s a necessary but not sufficient condition for salvation; not sufficient because a banking crisis can still blow the thing apart, but necessary because you can’t resolve the banking crisis unless there’s some plausible path back to sustainable economies.

One indicator I like to look at is the German “breakeven” — the difference between the interest rate on ordinary German bonds and on bonds indexed to inflation (which it turns out means overall eurozone inflation). This is an implicit market forecast of the inflation rates, and I’ve been arguing for a long time that it really needs to be above 2 for there to be real hope.

This graph needs to be closer to 2.0 (not 1.5, where it starts) for there to be 'hope' that the Euro can survive economically (if anyone really wants that...). It's not moving in the right direction for that:

This chart shows a euro on the verge of imploding. If the ECB can’t change this perception very, very soon — and I think it really is up to them — this goose is cooked.

[Wotan]

I'm going to give it 6 more months, under the policy of 'More Europe', before they pull it.

winky wink.