I think Krugman is on to something very important - in the event of a breakup, there is a danger that everyone gets really prudent with their purses and launch austerity and anti-inflationary measures to establish "credibility" to scare away the bond vigilantes. The problem with this is that a serious recession would follow, leading to negative feedback loop. I hope the politicians will understand that there are many ways to establish credibility, but given their track record they will probably do more of the same, leading to a catastrophic scenario.
An evening post and on tomorrow a Weekender and Best of coming up. Have a good weekend,
- MoreLiver
News (Fri morning) – BTH
Danske Daily – Danske Bank (pdf)
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
Morning Briefing – BNY Mellon
The past twenty four hours have provided just the smallest degree of positive news out of Greece
Outlining scenarios for the ECB’s bond buying – alphaville / FT
Nomura’s research. The ECB steps up its bond purchase amounts temporarily; but remain ready to step back (60%), the ECB explicitly pre-commits to buying a nominal amount of bonds over a set period (30% probability) or The ECB commits to a significant balance sheet expansion through a proper QE operation (10% probability).
We Must Crush Ambrose Evans-Pritchard, Nouriel Roubini, Martin Wolf, the Army of Krugmanites into Submission; Reflections on "Dangerous and Insane" – Mish’s
Legends of the Fail – Krugman / NYT
The euro crisis, then, says nothing about the sustainability of the welfare state… austerity has been a failure everywhere it has been tried.
The euro crisis, then, says nothing about the sustainability of the welfare state… austerity has been a failure everywhere it has been tried.
The Euros Zone – The Aleph Blog
It is time to undo the Eurozone in entire, but we will keep the Euro, or rather, Euros. This would have to be done quickly or it would not work well. When those in the Eurozone wake up one morning, they find that they do not have Euros any longer, but Greeks have Greek Euros, Germans have German Euros, etc., and they do not trade at parity.
Ahead of New Rules, Europe’s Banks Go on a Selling Spree – DealBook / NYT
Banco Santander, Deutsche Bank and others are trying to sell assets and loan portfolios to reduce their exposure to worrisome private and sovereign debt as part of a broad strategy to refocus on their home markets and comply with new regulatory requirements.
Banco Santander, Deutsche Bank and others are trying to sell assets and loan portfolios to reduce their exposure to worrisome private and sovereign debt as part of a broad strategy to refocus on their home markets and comply with new regulatory requirements.
For nearly two decades Prime Minister Silvio Berlusconi inspired voters with his enthusiasm, but he brought no reform to Italy. Now his likely successor and the European Central Bank are setting out with a host of reform.s, but have no enthusiasm to get them passed.
No amount of faith in the European integration is going to hide the flaws any longer. A comprehensive rescue by the ECB—which must stand ready to buy ALL member state debt at a price to ensure debt service costs below 3%–plus the creation of a central fiscal mechanism of a size appropriate to the needs of the European Union is the only way out.