Saturday, October 13, 2012

Greece items of interest...... endless talks with Troika discussed , endless fearmongering of Grexit mentioned......

http://www.telegraph.co.uk/finance/financialcrisis/9606390/Greece-poised-to-leave-euro-Swedish-finance-minister-says.html


12:28PM BST 13 Oct 2012
Comments77 Comments
Greece could leave the eurozone within the next six months, the Swedish finance minister Anders Borg has warned.
“It’s most probable that they will leave,” Mr Borg said, speaking from the annual meetings of the International Monetary Fund in Tokyo.
“We shouldn’t rule out this happening in the next half-year.”
His comments came before a meeting of European Union leaders in Brussels on October 18-19, to discuss strengthening economic and monetary ties in a bid to restore confidence in the single currency.
Mr Borg said a Greek exit was unlikely to have a major impact on markets because "in practice everyone already understands which way the wind is blowing.”
Posted by at 2 comments:

German burns himself too death in front of Reichstag - Germany imitates Greece ? Germans aren't buying Merkel vision for Europe or Germany for that matter...... and China is NOT going to print like Bernanke as they somehow have concerns about inflation and rising food prices.......



http://www.zerohedge.com/news/2012-10-13/german-self-immolates-front-german-reichstag


German Self-Immolates In Front Of Reichstag

Tyler Durden's picture
Submitted by Tyler Durden on 10/13/2012 14:40 -0400




When the topic of public suicides in Europe comes to mind, the natural instinct in the past several years has been to immediately think Greece, which has not only seen its suicide rate explode due to the never-ending economic depression, but witnessed a variety ofactivists take their lives in hopes, so far unmet, of enacting some form of political and social upheaval. Which is why it comes as a major surprise that the latest public self-immolation just took place not in Syntagma Square but in front of the German Reichstag.

From DPA via the Berliner Kurier:
Hundreds of tourists and Berliners on Saturday became eyewitnesses to a spectacular suicide in front of the Reichstag building.

A 32-year-old Berliner stabbed himself in the chest according to police at noon at the main entrance of the Reichstag. He then doused himself with a flammable liquid and set fire to himself. Passersby alerted the police and rescue workers. They tried in vain to resuscitate the man. He succumbed to his injuries on site yet.
Naturally the last thing Germany needs is a political suicide at a time when Angela Merkel is being booed not only in Athens but in Stuttgart, which is why the immedaite explanation was one of "personal reasons."
A political motive of his act precluded the police. In the 32-year-old a suicide note was found. The reason for the suicide lies in the personal area, it said.

Shortly before the time of the crime around 500 supporters of wind energy lobby between the Chancellery and the Reichstag building had been demonstrating.
A suicide in front of the political symbol of the nation, one which involves self-immolation, for personal reasons? Interesting. Hopefully other Germans don't get any ideas and start expressing their terminal heartbreak by burning down not only themselves in the immediate vicinity of the Reichstag but the proximal building too: because the last thing the Reichstag needs is to burn down. Again. For personal reasons or otherwise.





and.....







http://www.zerohedge.com/news/2012-10-13/after-starting-riots-greece-merkel-booed-germany-next


After Starting Riots In Greece, Merkel Booed In Germany Next

Tyler Durden's picture
Submitted by Tyler Durden on 10/13/2012 11:07 -0400



What does an iron chancellor have to do to be loved these days? After scrambling 7,000 members of the Greek police force out of an early prepaid retirement for her brief, still inexplicable 6 hour visit to Athens last Tuesday, which caused the now usual Syntagma square rioting, Merkel next took the stage in a rainy Stuttgart, in a show of support for the local mayor candidate Sebastian Turner, which promptly devolved into 14 minutes of continuous booing.
Watch below.

More pictures from the same rally, where people apparently were not too keen on WWIII:

Don't worry though - as was reported yesterday, despite violent protests everywhere that the heads of the European oligarchy go, the Nobel peach prize committee saw it fit to reward the continent, where the democratic process has been usurped in every country and replaced with banker imposed technocratic puppets, with this year's peace price. The reasoning, according to Thorbjørn Jagland, head of the Nobel committee, is that Europe shrugged off the euro's woes and said the EU had been a force for peace both after the second world war, binding Germany and France together, and following the bloody slaughter of the 1990s in the Balkans. Too bad Yugoslavia is neither part of the EU nor, of the Eurozone, but details. He added: "The main message is that we need to keep in mind what we have achieved on this continent, and not let the continent go into disintegration again." The collapse of the EU could lead to a resurgence of the "extremism and nationalism" that had led to so many "awful wars", he warned bluntly." Maybe he is referring to the surge of nationalism now seen in Greece, where the neo-nazi Golden Dawn is now the third most popular political power and rapidly rising, soon to be followed by like nationalistic "successes" in other countries, where secession referenda are next on the agenda.
The truth is that a vast majority of Europe's people now want the grand experiment, which merely enriches a small subset of participants while impoverishing everyone else, over and done with:it is this endless pursuit of power and money at all costs that starts wars - not whether Germany and France share a fake currency, that is the cause of the endless bloodshed in Europe. The only reason why wars not only in Europe, but in the world, were avoided for the past several decades, is due to the incursion of gloalbization which merely allowed the encumberance of every global assets with layers upon layers of additional debt, creating money in the process and keeping the oligarchy happy. But it is this oligarchic 'subset' that calls the shots, and the same subset is now realizing the ability to create debt out of thin air in Europe has now ended. And it will gladly take Europe to the edge of war if it means, well, "avoiding war", at least in the Nobel committee's naive version of the world, in the future.


and is not likely to make Merkel more popular at home ......


http://www.telegraph.co.uk/finance/financialcrisis/9606061/EC-boss-risks-Berlin-row-over-eurobonds.html


11:20PM BST 12 Oct 2012
Comments121 Comments
Ahead of next week’s European Union summit, Mr Van Rompuy unveiled a report which called for the examination of “the pooling of some short-term sovereign funding instruments, for example, treasury bills, on a limited and conditional basis”.
The report was commissioned by the European Council and is designed – once it is finished in December – to be a “time-bound road map to the achievement of a genuine economic and monetary union”.
Mr Van Rompuy – who said the EU was the “biggest peacemaking institution ever created in world history” as it was awarded the Nobel Peace Prize – also called for a banking union, with a single supervisory body and a common resolution framework. But, in a move that will be welcomed by the UK, Mr Van Rompuy also said the new regime should be “fully consistent with the single market” and work to “preserve the level playing field across the EU”.
The call came amid reports that Greece has “caved in” to demands by the troika to impose €9bn (£7.2bn) of austerity measures next year, rather than the €7.8bn set out in the country’s draft budget.
Despite that – and new figures showing the unemployment rate reaching a record 25.1pc – Germany hit out at calls from Christine Lagarde, head of the International Monetary Fund, for Greece and Spain to be given more time to reduce their deficits.




and as for China - China Central Bank says no printing for now....





http://www.zerohedge.com/news/2012-10-13/china-central-bank-refuses-join-global-print-fest-warns-about-inflation-risks


China Central Bank Refuses To Join Global Print Fest, Warns About Inflation Risks

Tyler Durden's picture
Submitted by Tyler Durden on 10/13/2012 10:17 -0400



While the entire 'developed' world is now openly engaged in destroying the balance sheet of its assorted central banks - the sole means to devalue local currencies, a liability, by accepting ever more toxic 'assets' as currency collateral - thereby pursuing strategies which until now were strictly relegated to the banana republic playbook, there are some countries who see what is coming over the horizon, and refuse to join the printing frenzy. One such place is China, for whom, as we have repeatedly shown the threat of a fast onset of inflation is far greater (3x more bank deposits as a % of GDP than in the US, means a soaring capital market as a result of inflation will benefit far less while a deposit exodus will cause hyperinflationary havoc in minutes) than any other developed world country. And with the inability to hide "non-core" CPI as a result of food and energy being such a greater portion of overall inflationary bean counting than in the US, it means that despite the demands of Tim Geithner for immediate more easing by China, the PBOC is now stuck waiting to import everyone else's inflation: this includes the Fed, ECB, BOE, BOJ, Korea, Australia and all other bank engaged in adding liquidity, while its own hands are quite tied. Because recall that it was only last year that the NYT said that: "Inflation in China Poses Big Threat to Global Trade." Now we are told that lack of inflation poses the same threat, when in reality what they mean is that with the world tapped out, one more source of marginal liquidity is needed. Judging by overnight comments from the PBOC's head Zhou Xiaochuan that liquidity, suddenly so very needed to keep the game of musical chairs going, is not going to come from China just as we have warned for months on end.

From Reuters:
China's central bank governor has warned that quantitative easing policies worldwide could cause inflationary risks, state news agency Xinhua said on Saturday.

The remarks by People's Bank of China (PBOC) Governor Zhou Xiaochuan come even as analysts credit policy easing from G4 central banks - the U.S. Federal Reserve, the European Central Bank (ECB), the Bank of Japan and the Bank of England - in the third quarter of the year as underpinning business confidence.
Ironically, unlike before when the West benefited from Chinese easing during periods of stress such as in the Lehman aftermath, this time around it is China who is sowing the fruits of others' relentless easing tactics. Only last night China reported that its trade surplus came well ahead of expectations, at $27.7 billion versus a consensus of $20.5 billion, with exports coming coming nearly double the expected 5.5%.
Chinese data on Saturday offered a sign that G4 policy easing was being felt in the world's second biggest economy, with trade numbers showing exports grew at roughly twice the rate expected in September while imports returned to the path of expansion.

"The data shows both imports and exports are improving - especially a rebound in export growth reflects a rising confidence after the U.S. and European countries launched further easing policies last month," said Xue Hexiang, an analyst at Guotai Junan Securities in Shanghai, after the trade numbers were released.
In other words, China is now perfectly happy with the status quo, and is delighted that for once it does not have to be marginal provider of global growth impetus. Instead, it will continue resorting to ultra short-term liquidity intervention strategies such as a reverse repos, which it has been doing for the past several months, and will do no RRR or rate cuts for as long as the threat exists that some other bank will do it for them.
Across Asia, central banks are wary about the potential inflationary impact of the Fed's latest quantitative easing, dubbed QE3, as well as policy stimulus unveiled by the ECB.

Central banks "should consider draining excessive liquidity injected into the market and eliminate inflationary pressure in the long-term", Zhou was quoted as saying by Xinhua, which cited the Journal of Public Research, a magazine published by the People's Bank of China.

China's central bank said in September that it would "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

The bottom line is that those waiting for China to come in and provide that last bit of momentum to take the S&P to its all time highs, will be waiting, and waiting, as such an intervention will not come. Why? Thank the Chairman, whose open-ended easing has effectively taken out an even great short-term stock market growth driver, China, out of the picture. And judging by the recent market move, in which the entire QE3 jump has now been faded and then some, Bernanke better have some more magic up his sleeve, ironically, magic which will make any additional "developed world" easing that much less likely.
And just as the permabulls were hoping for once they would be right with their 1650 year end S&P forecasts...
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Doug Noland Friday Essay " The Myth Of Deleveraging " Additionally , note Global Credit Watch and Germany Watch segments....

http://prudentbear.com/index.php/creditbubblebulletinview?art_id=10718


The Myth Of Deleveraging

  • by Doug Noland
    •  
  • October 12, 2012
A Bloomberg headline from earlier in the week caught my attention: “U.S. Downgrade Seen as Upgrade as $4 Trillion Debt Dissolved.” As someone that analyzes the data closely – and disputes the entire notion of deleveraging – I had to read on: 
“U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.  Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago… Private-sector borrowing is down by $4 trillion to $40.2 trillion.  Reduced borrowing means there is less competition for the U.S. Treasury Department as it sells debt to fund spending programs to help the nation recover from the worst financial crisis since the Great Depression. Credit-rating firms are discounting the improvement even as debt, equity and currency markets suggest the U.S. is more creditworthy than before Standard & Poor’s stripped the nation of its AAA grade in 2011.  Deleveraging in the private sector may allow households to boost spending, which accounts for about 70% of the economy, and increase their capacity to pay taxes.”
The data and Macro Credit Analysis always pose challenges, so I figured it was worth a deeper dive.  This requires going directly to the Federal Reserve’s own Z.1 data.
Total system Credit Market Debt Outstanding ended Q2 2012 at a record $55.031 TN.  As a percentage of GDP, this was 352.6%, down from 371.6% at the end of 2008.  I’ll attempt to explain why this actually does not reflect system debt deleveraging.
Total system-wide Credit Market Debt combines Total Non-Financial Market Debt along with Financial Sector Credit Market Debt (FSCMD).  Total Non-Financial Market Debt ended Q2 at a record $38.924 TN - and 249% of GDP.  This compares to Q4 2008 total Non-Financial debt of $34.479 TN - and 240% of GDP.  The post-2008 decline in total debt and the improvement in the ratio of total debt/GDP are predominantly explained by the contraction in Financial Sector Credit Market borrowings.  Total FSCMD peaked at $17.123 TN during Q4 2008, or 119% of GDP.  Total FSCMD ended Q2 2012 at $13.838 TN, down $3.285 TN to 89% of GDP.  There are crucial Credit Dynamics at work here worth exploring.
Combining Non-Financial and Financial Sector debt incorporates an element of double counting.  Say a new homeowner takes out a $100,000 mortgage to buy a new home.  This would add $100,000 to Household Mortgage debt (a component, along with Corporate and Governmental borrowings, of Non-Financial debt).  If this mortgage was then securitized and sold into the marketplace, this would as well add $100,000 to Financial Sector (MBS or ABS) Market liabilities/debt. 
Perhaps there’s still some value in using Total System Credit, despite the double counting.  Yet it has become a flawed aggregate for the purpose of supporting the “deleveraging” thesis.  Interestingly, during the Mortgage Finance Bubble, most analysts were content to proclaim “double counting!” – and then conveniently disregard myriad ramifications of an unprecedented financial sector expansion.  In fact, the combination of Non-Financial and Financial proved among the best indicators of mounting systemic fragilities.  Why?  Because it captured the “double the risk” dynamic associated with aggressively (I’m being kind here) intermediating Bubble-period Credit risk.  Indeed, the total debt aggregate went parabolic right along with systemic risks during the “terminal” phase of Mortgage Finance Bubble excess.   
Importantly, the doubling of FSCMD between 2001 and 2007 reflected the intensive risk intermediation required to transform increasing quantities of risky mortgage debt into instruments perceived as safe and liquid (“money”-like) stores of value in the marketplace.  Even poor quality mortgage loans were pooled and structured into mostly top-rated marketable securities.  Indeed, “Wall Street Alchemy” and the “Moneyness of Credit” were instrumental in creating the capacity for the Credit system to easily double mortgage debt during the Bubble.  And from the Financial Sector perspective, this dynamic was fundamental to the near doubling of FSCMD during this period, largely through the expansion of MBS, ABS, GSE obligations, and sophisticated Wall Street off-balance sheet “special purpose vehicles” and such.
Financial Sector Credit Market Debt ended year 2000 at $8.168 TN.  GSE issues (agency debt and MBS) and Asset-Backed Securities (ABS) ended 2000 at $4.320 TN and $1.504 TN, respectively.  The market debt of Depository Institutions, Finance Companies and REITs combined for $1.506 TN, while Brokers & Dealers, Holding Companies, and Wall Street Funding Corps ended at a combined $831bn.
Let’s fast-forward to December 31, 2008, after mortgage Credit had more than doubled.  FSCMD ended the year at $17.123 TN, up 110% in eight years of historic “Wall Street Alchemy.”  The process of transforming increasingly risky debt into beloved instruments (specially-made for leveraged speculation) saw GSE debt/MBS jump 89% to $8.142 TN.  ABS, largely “private-label” Wall Street mortgage-backed securities, ballooned 174% to $4.123 TN.   Depository Institutions, Finance Companies and REITs saw their combined Market Debt increase 70% to $2.227 TN.  Meanwhile, at the heart of the “alchemy,” Brokers & Dealers, Holding Companies, and Wall Street Funding Corps combined for Market Debt of $2.204 TN, an increase of 165% in eight years. 
Now, let’s update the data for the post-Mortgage Finance Bubble backdrop.  As noted above, Total FSCMD ended Q2 2012 at $13.838 TN, a decline of $3.285 TN since the conclusion of 2008.  GSE debt/MBS declined $626bn, or 8%, to $7.517 TN, a rather modest contraction considering their dismal financial circumstances.  Notably, ABS dropped $2.267 TN, or 55%, to $1.856 TN.
The three Trillion-plus contraction in FSCMD did reduce Total System Market Debt – in the process seemingly improving debt-to-GDP ratios.  It is not, however, indicative of true system deleveraging and surely doesn’t reflect an improvement in our nation’s overall Credit standing.  Far from it.  From a Macro Credit Analysis perspective, the decline in FSCMD is instead reflective of fundamental changes in both the type of debt now fueling the boom and the corresponding nature of system risk intermediation.
First of all, mortgage debt is about to wrap up its fourth straight year of post-Bubble contraction.  Problem loan charge-offs have played a significant role, as have individuals using lower debt service costs (and near-zero returns on savings!) to speed the repayment of outstanding mortgages.  And, importantly, the decline in home values and the steep drop in transaction volumes have reduced demand for new mortgage debt – hence the need to intermediate mortgage Credit.  That said, the biggest factor behind the drop in FSCMD has been the activist Federal Reserve.
The Fed’s balance sheet is separate from the Financial Sector.  Federal Reserve Assets ended 2007 at $951bn.  Fed holdings ended Q2 2012 at $2.882 TN, up $1.931 TN, or 203%, in 18 quarters.  The Fed essentially transferred $2 TN of Financial Sector liabilities to a secure new home on its balance sheet.  Some may refer to this as “deleveraging,” but I won’t.
Importantly, the Fed’s moves to collapse interest rates and monetize debt (in conjunction with mortgage assistance programs) incited a major wave of mortgage refinancing.  And through the refi process, large quantities of private-label mortgages (previously included in FSCMD as ABS) were essentially transformed into sparkling new GSE-backed mortgage securities – and many then conveniently found their way onto the Federal Reserve’s rapidly inflating balance sheet.  This provided critical liquidity that allowed highly-leveraged Wall Street proprietary trading desks, hedge funds and banks to de-risk/de-leverage.  This bailout accommodated deleveraging for the financial speculators, yet for the real economy the boom in Non-Financial debt ran unabated.
As noted above, Total Non-Financial Market debt ended this year’s second quarter at $38.924 TN and 249% of GDP – both all-time records.  Garnering all the focus from the deleveraging crowd, Total Household Debt has indeed declined since 2008 – having dropped $787bn, or 5.8%, to $12.896 TN.  At the same time, Federal debt has increased $4.689 TN to $11.050 TN.  Non-Financial Corporate debt increased $434bn since ’08 to end Q2 2012 at a record $11.990 TN.  State & Local debt has expanded $101bn since ’08, ending Q2 at about $3.0 TN.   The data is the data - and Deleveraging is a Myth.
A 100% increase in Federal debt and 200% growth in the Federal Reserve’s balance sheet are surely not indicative of system de-leveraging.  Such extraordinary Credit developments do, however, have profound effects throughout the markets and real economy. The ongoing Credit expansion has inflated incomes, spending, corporate earnings and securities prices, in the process sustaining for now the U.S. economy’s Bubble structure.  And I would argue strongly that the data support the thesis that our system remains dominated by Bubble Dynamics. 
Also keep in mind that, in contrast to risky mortgage debt, federal debt requires little intermediation.  The marketplace absolutely loves it just the way it is, conspicuous warts and all.  For now, at least, it is “money” and shares money’s dangerous attribute of enjoying virtually insatiable demand.  The only alchemy necessary is to keep those electronic “printing presses” running 24/7.  It is, after all, the massive inflation of federal debt that is inflating incomes, cash-flows and profits, equities and fixed-income securities prices, and government tax receipts and expenditures – in the process validating the “moneyness” of the ever-expanding level of system debt (Ponzi Finance). 
The history of money is a sad state of affairs.  Failing to learn from a litany of previous monetary fiascos, “money” is these days being abusively over-issued.  And when the marketplace inevitably decides that over-issuance (in conjunction with only deeper structural maladjustment) has sufficiently impaired the “moneyness” of federal and related debt, there will be no one to step in to backstop Washington’s Creditworthiness.  There will be no entity left with the wherewithal for backstopping system “moneyness,” as the Treasury and Federal Reserve have done for Trillions of intermediated mortgage debt since the bursting of the previous Bubble.  Moreover, in the meantime, outrageous fiscal and monetary policies will continue to foment uncertainties that will impinge the type of sound investment and wealth creation necessary to get our economy on sounder footing.

****

Global Credit Watch:

October 8 – Dow Jones (Matina Stevis and Gabriele Steinhauser):  “Greece’s public debt may be even higher than previously feared in 2020, three senior European officials said…  The officials said debt could be as high as 150% of gross domestic product by 2020 under a distressed economic scenario, up from a projection of 146% GDP in March and way above the 120% GDP mark described as ‘sustainable’ according the International Monetary Fund's analysis…   The IMF has revised its projections of the crucial figure upwards following a worse-than-expected recession in Greece and despite a EUR100 billion ($130bn) restructuring of Greece's privately held debt earlier this year…  The IMF can’t, by statute, continue funding a program if a country’s debt isn’t deemed ‘sustainable’ based on macroeconomic analysis.” 
October 9 – Bloomberg (Ben Sills):  “The black hole in Spain’s budget has grown faster than Prime Minister Mariano Rajoy’s attempt to cut it, portending the same dynamic that has squeezed Greece.  The harshest austerity since the return to democracy in 1978 has failed to contain the deficit as the economy sinks deeper into recession. The shortfall rose in the first half of the year, as it did in the previous 12 months. Even after a sales-tax increase and health-care cuts kick in this quarter, it may still approach last year’s 9.4% of gross domestic product, said Ignacio Conde-Ruiz, an economist at the independent Applied Economic Research Foundation in Madrid.” 
October 9 – Bloomberg (Sharon Smyth and Charles Penty):  “Home foreclosures in Spain, which disproportionately affected lower-income immigrants after the real estate bubble burst, are spreading to formerly well-to-do families and businessmen as they run out of ways to pay mortgages in a deepening recession.  Spanish business people, upper middle class families and their loan guarantors, typically parents of first-time buyers, now account for 60% of foreclosures in Madrid, according to AFES, an association that advises homeowners facing repossession. Three years ago, 80% of foreclosures were on the homes of immigrants, usually the first to lose jobs and fall behind on loan payments in a souring economy. They now comprise 40% of the total… ‘Repossessions are encroaching further into the city centers, like an overflowing river,’ said Emilio Miravet, head of real estate finance at the Spanish property unit of advisory and investment firm Catella AB.”
October 9 – Wall Street Journal (Matthew Dalton):  “France, Spain and several other euro-zone governments won't hit budget deficit targets agreed to with European authorities, the International Monetary Fund said… setting the stage for a contentious debate over whether the governments should pursue more cuts or allow the targets to slip.  Governments across the European Union have been slashing spending and raising taxes to bring their deficits back in line with the bloc's budget rules, which call for deficits to remain under 3% of gross domestic product…  The IMF said in its semiannual economic outlook that it expects France’s deficit to be 4.7% of GDP this year…”
October 9 – Dow Jones (Stephen L. Bernard):  “Even if European officials begin to buy Spanish sovereign debt, the country might not avoid having to take more drastic action to alleviate stress in its bond markets, according to a new report… co-authored by a highly influential sovereign-debt lawyer who played an instrumental role in Greece's recent debt restructuring.  Spain is now likely headed for what Cleary Gottlieb attorney Lee Buchheit and G. Mitu Gulati consider the second of five options for sovereign-debt crises.  Spain is likely to be forced to seek active, official sector intervention--such as bond purchases by the European Central Bank and the region's bailout fund, the European Stability Mechanism… now that the first option--the most palatable one--is failing.  That more enticing option was for politicians and officials to verbally persuade investors Spain eventually would find financial footing and have enough faith in future budget adjustments for yields to be driven lower immediately…  Mr. Buchheit, who is the architect behind the legal strategy of Greece's debt restructuring and many other sovereign-debt restructurings over the past 20 years, said the ECB's outright-monetary-transaction program announced last month to buy short-term bonds in the secondary market likely needs to happen soon for Spain.”
October 8 – Bloomberg (James G. Neuger and Stephanie Bodoni):  “European governments set up a full-time 500 billion-euro ($648bn) fund to aid debt-swamped countries and, not for the first time in the three-year crisis, expressed confidence that the extra financial muscle won’t be needed anytime soon.  Finance ministers from the 17 euro countries declared the European Stability Mechanism operational, while saying that Spain, its biggest potential near-term customer, isn’t on the verge of tapping it. Decisions were also put off on Greece’s next aid payment and on an assistance program for Cyprus.  Creation of the ESM ‘makes the strategy of member states credible and equips the euro area with much better tools to appropriately respond to future crises,’ Luxembourg Prime Minister Jean-Claude Juncker told reporters… The ESM will replace the temporary European Financial Stability Facility, which has spent 192 billion euros of its 440 billion euros on loans to Ireland, Portugal and Greece. The two funds will run in parallel until the EFSF is phased out in mid-2013.”
October 11 – Bloomberg (Radoslav Tomek and John Glover):  “Spain’s downgrade threatens to undermine the European Stability Mechanism by accelerating the slide in collective ratings of nations backing the bailout fund.  The… debt crisis dragged the average grade almost three steps lower since the fund was given the go ahead in 2010 to the border of single A, compared with the top ranking the ESM holds. Standard & Poor’s downgraded Spain yesterday for the third time this year, with the euro area’s fourth-largest economy now at the cusp of junk.”
October 10 – Bloomberg (Sandrine Rastello and Simone Meier):  “The International Monetary Fund said European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18% from its April estimate.  Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA to Deutsche Bank AG to shrink assets, the IMF wrote… That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.  ‘There is definitely a need for deleveraging in Europe,’ said Michael Seufert, an analyst at Norddeutsche Landesbank in… Germany, with a ‘negative’ rating on the European banking sector. ‘The danger is that this produced a downward spiral as the regulation gets stricter and stricter and the global economy cools, potentially meaning more writedowns for banks. States in the periphery are hit hardest.’”

Germany Watch:

October 10 – New York Times (Jack Ewing):  “In what could be interpreted as a subtle escalation of tension among top central bankers in the euro zone, the German Bundesbank said… that it welcomed plans by the country’s Constitutional Court to determine whether it was legal for the European Central Bank to buy government bonds.  The euro zone crisis has eased considerably since Mario Draghi, the president of the central bank, announced plans last month to hold down borrowing costs for Spain and other troubled countries by buying their bonds on the open market.  But Jens Weidmann, the president of the Bundesbank, has objected loudly…  Germany’s Federal Constitutional Court said last month that it would consider the legality of bond buying as part of a larger suit brought by citizens and some euro-skeptic members of the German Parliament. The suit challenges Germany’s participation in the euro zone rescue fund.  In an initial ruling, the court refused to block Germany’s participation in the rescue measures. But it has not ruled on the underlying constitutional issues raised by the suit.  The Bundesbank, while emphasizing that it did not ask for a ruling on bond buying, said… that it would welcome clarity.”
October 11 – Spiegel:  “Chancellor Angela Merkel had been hoping that her trip to Athens earlier this week would help demonstrate Germany's solidarity with Greece as it struggles to overcome its debt crisis. Just two days later, however, leading economic institutes in Germany have darkened the mood considerably. The institutes presented their autumn economic forecast…, and cast doubt on whether Greece would be able to remain part of the euro.  ‘We believe that Greece cannot be saved,’ said Joachim Scheide from the Kiel Institute for the World Economy, one of several top economic institutes tasked by the German government with examining the state of the country's economy twice a year.  Oliver Holtemöller, of the Halle Institute for Economic Research, was also pessimistic… He said it is unlikely that Greece will ever be able to free itself from its debt burden -- and called for a new debt haircut for the country.”
October 8 – Bloomberg (Stefan Riecher):  “German industrial production declined in August as the sovereign debt crisis damped euro-area economic growth and prompted companies to scale back investment.  Production fell 0.5% from July, when it gained 1.2%... From a year earlier, production fell 1.4%...”

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