| Merkel Promises "Vision" by End of Month; US Futures Surge, Asia Flat, China Down Again Posted: 09 Oct 2011 09:27 PM PDT On news that Merkel and Sarkozy agree to agree (with details provided at the end of the month), US futures are in the green. Asia is pretty much flat. China is the interesting market. The Chinese stock market had been closed for a week-long holiday. In that period there were significant rallies in Europe, US, and in general Asia-Pacific. China had some catching up to do. Instead it hit a new low for the move. Asia Pacific Equities click on chart for sharper imageAll eyes are on Europe (as they should be) but China is slowing much more than anyone thinks for this reaction to take place. Merkel Promises Plan by the "End of the Month"Please consider Merkel, Sarkozy Pledge Bank RecapitalizationAngela Merkel and Nicolas Sarkozy, racing to stamp out the euro debt crisis threatening to engulf the financial system, gave themselves three weeks to devise a plan to recapitalize banks, get Greece on the right track and fix Europe's economic governance.
"By the end of the month, we will have responded to the crisis issue and to the vision issue," the French president said in Berlin yesterday at a joint briefing with the German chancellor before they dined at her office. Why the market would do anything but spit in Merkel's face over this silly announcement is somewhat a mystery. Regardless of the reason, (and most likely it is still technical), it's just another in a long series of patches that will not solve a thing. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Dexia Not Isolated Problem; Qatar No White Knight Savior; How Long will the EFSF Last? Posted: 09 Oct 2011 09:48 AM PDT The rumor mill is running this weekend, however Belgium and France still have not come to an agreement on exactly how to split the Dexia problem. The latest rumor is the Mideast country of Qatar is interested in buying Dexia. It's certainly possible Qatar invests in some small piece of Dexia. However, neither Qatar nor China, nor any other country is going to save the insolvent European banking system. Dexia is a symptom of a much larger problem. Moreover, on top of Belgium-France Dexia bickering, Germany and France are still bickering about how to use the EFSF. It takes all 17 Eurozone nations all to agree on major changes, yet countries are still bickering over relatively minor issues. Complex Problem Leads to Complex BickeringLet's start this roundup with a look at Dexia Board Meets as France, Belgium Tussle Over Troubled AssetsDexia SA (DEXB)'s board meets today to study options to dismantle the French-Belgian bank that has brought Europe's sovereign debt crisis to the heart of the region's financial system.
While France and Belgium have rushed to protect their local units, hurdles to an agreement remain as they wrestle over responsibility for assets hit by the crisis that has caused the bank's short-term funding to evaporate. Dexia's troubled assets are being folded into a "bad bank" and could amount to as much as 190 billion euros ($254 billion).
Dexia's balance sheet, with total assets of about 518 billion euros at the end of June, is about the size of the entire banking system in Greece and larger than the combined assets of financial institutions bailed out in Ireland in the last 2 1/2 years.
The board meeting, scheduled to start at 3 p.m. in Brussels, will be the third in less than a month, after those on Sept. 27 and Oct. 3. Among sticking points for Belgium and France may be which assets to put in the bad bank and what share of the lender's borrowings each government should guarantee.
"The situation is more complex than one where you have one bank, one country, one regulator," said Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank International with a "reduce" recommendation on Dexia. "The process will probably take longer than expected and I don't know if they'll be able to reach a solution this weekend."
Dexia said on Oct. 6 that an investor is interested in its profitable retail and private banking unit in Luxembourg. Belgian daily L'Echo reported that a Qatari sovereign wealth fund was in discussions to buy the unit, Dexia Banque Internationale a Luxembourg, for 900 million euros, without saying where it got the information.
That announcement set off concern that Dexia's most valuable assets will be sold at fire-sale prices to international buyers in response to a temporary funding squeeze.
Groep Arco, Dexia's second-biggest Belgian shareholder, said on Oct. 6 that it "opposes a forced sale of good units of the group at very low prices to foreign entities." Qatar No White Knight SaviorReuters reports Qatar unlikely to be white knight for Europe banksHopes may be disappointed for an influx of money from Qatar and other rich Gulf states into battered European banks, since Gulf investors are likely to see many of the banks as too risky and out of line with their investment strategies.
As Europe's banking system has weakened over the last several months, financial markets have been abuzz with rumors and media reports about possible investments from the Gulf -- particularly from cash-rich Qatar, which has been on an international acquisitions spree.
In June, Spanish bank Santander (SAN.MC) denied a report that it was in talks on Qatar buying a stake in it. Last month, France's BNP Paribas (BNPP.PA) denied a similar report. The latest speculation centers on assets of financial group Dexia (DEXI.BR); the prime ministers of France and Belgium were meeting on Sunday to discuss breaking up the group.
Analysts and bankers said it was possible that Qatar would make relatively small investments, perhaps of several hundred million euros, in European financial firms. Some European media reports last week said Qatar was part of an international consortium discussing a purchase of Dexia's Luxembourg arm, valued at some 900 million euros ($1.2 billion).
But analysts said Qatar and other Gulf states were unlikely to invest aggressively enough to make much difference to big European financial institutions.
"Not even Qatar's pockets are deep enough to really throw meaningful capital at the European financial system. They could participate in some of the capital raising that banks are doing, but ultimately, public multilateral support is needed," said Rachel Ziemba, director at Roubini Global Economics in London.
Sovereign wealth funds in the Mideast were burnt badly investing in Citigroup and other US banks at the height of the global financial crisis. I doubt they do much here except show signs of support. Merkel, Sarkozy tackle differences over euro crisisPlease consider Merkel, Sarkozy tackle differences over euro crisisGerman Chancellor Angela Merkel will thrash out differences with French President Nicolas Sarkozy on Sunday over how to use the euro zone's financial firepower to counter a sovereign debt crisis threatening the global economy.
Sarkozy is due to arrive in Berlin late on Sunday afternoon and hold a meeting with Merkel followed by a working dinner. A news conference will take place at 1530 GMT.
Talks are continuing over a vital aid tranche for Greece, which could run out of cash as soon as mid-November. European finance ministers are considering making banks take bigger losses on Greek debt -- an issue that could be discussed at the Merkel-Sarkozy meeting.
"It is possible that we assumed in July a level of debt reduction that was too low," German Finance Minister Wolfgang Schaeuble was cited as saying by a newspaper on Sunday.
Germany and France have so far been split over how to recapitalize Europe's banks, which Ireland estimated on Saturday may need more than 100 billion euros ($135 billion) to withstand the sovereign debt crisis, while the International Monetary Fund (IMF) has said the banks need 200 billion in additional funds.
Paris wants to tap the euro zone's 440 billion European Financial Stability Facility (EFSF) to recapitalize its own banks, while Berlin is insisting the fund should be used as a last resort.
Another key dispute is how to use the EFSF to buy sovereign debt to prevent contagion of the crisis, particularly crucial if Greece fails to secure its next aid tranche.
France does not want to set guidelines for the EFSF on the matter, whereas Germany wants to limit the sum used for each member state and set a time limit for bond purchasing.
"Given that the EFSF is limited overall, it makes sense also to limit the purchases on the secondary market for each country," Michael Meister, deputy parliamentary leader of Merkel's conservatives, told Reuters.
There was a danger, otherwise, the funds could be quickly used up, he said. Picture Says 1000 Words
 French President Nicolas Sarkozy and German Chancellor Angela Merkel gesture as they address a news conference at the Chancellery in Berlin, June 17, 2011. Credit: Reuters/Fabrizio Bensch/Files Does that look like "pleased cooperation" or does it look like "my foreign counterpart is clueless"? Danger EFSF Used Up Too QuicklyFrance wants to use the EFSF right away to bail out the banks. Note that this would be throwing more taxpayer dollars right at undeserving bondholders who should be punished for making poor investment decisions. Moreover, the EFSF is limited to 440 billion euros, and for Sarkozy to get his way, on top of more loans for Greece, Spain, and Portugal (or simply Spain and Portugal after Greece defaults), would quickly drain the fund. How long the EFSF lasts depends on who wins the Merkel-Sarkozy Feud and to what extent taxpayers bail out bondholders yet again. Of course treasury secretary Tim Geithner wants to come out with guns blazing and use the whole thing with leverage to recapitalize banks. In that scenario, the money will be gone in a month and German Finance Minister Wolfgang Schaeuble would then start begging for more. Breakup Talks Underway?It is difficult to know for certain what talk is happening in closed circles behind the scenes, but if Germany is not discussing how to break away from the Eurozone (perhaps with Austria, the Netherlands, Finland, and a consortium of Northern Europe), they are making a huge mistake. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Confusing Array of Conflicting Same-Day Headlines About Greece, Troika, Defaults Posted: 09 Oct 2011 12:03 AM PDT Inquiring minds are amused over headlines regarding the mess in Greece, all from Saturday. Significant progress recorded on Friday Saturday October 8, 2011 (13:14)
Finance Minister Evangelos Venizelos is having a new meeting with the troika on Saturday after significant progress was recorded in their talks on Friday evening, according to ministry sources. The troika criticizes the lack of determination to implement the cuts Greek8/10/2011 - 17:43
Members of the group of experts to examine the settings of Greece to continue receiving financial assistance have criticized the lack of determination to Athens for the haircuts, today moved the German newspaper Welt am Sonntag.
In an article published in full this morning newspaper, said that members of the "troika" consisting of the International Monetary Fund (IMF), European Commission (EC) and European Central Bank (ECB) Hellenic openly criticize the government before completing his last report.
The head of the IMF delegation in Greece, the Dane Poul Thomsen Mathias believes that Athens should be implemented much more severe adjustment that has already executed.
"It is clear that the program will not succeed unless the authorities decide on the path of structural reforms much more strict than we have seen so far," said Thomsen, who said that "Greece is at the crossroads." The troika is optimistic about the results of examination of the Greek accounts8/10/2011 - 20:58
The troika, the creditors of Greece, estimated on Saturday that the outcome of the audit of the accounts of the country will be "positive" but "was more work to do."
"The talks continue (...) there is still work to do, but I think the result will be positive," said Poul Thomsen, head of delegation in Athens International Monetary Fund (IMF), the Greek public TV Net Thomsen [IMF Representative to Troika] warns rescue plan could fail Saturday October 8, 2011 (21:57)
"It is clear the program will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far," said Poul Thomsen, the representative of the International Monetary Fund to the troika, in an interview to German Sunday paper Welt am Sonntag. Greece must give up sovereignty to get more help 8 Oct 2011
Greece is near bankruptcy and must give up part of its sovereignty to obtain the large debt forgiveness it needs to survive, a leading conservative member of German parliament was quoted as saying on Saturday.
Michael Fuchs, a deputy parliamentary floor leader for Chancellor Angela Merkel's Christian Democrats (CDU), also told newspaper "Real News" that the debt-laden country might be better off outside the eurozone.
"You are very close to bankruptcy," Real News quoted Fuchs as saying in an interview. "We can not agree to a 'haircut' without terms and conditions and therefore, Greece must give up something, like some of its national sovereignty -- at least temporarily," added Fuchs, who is also the chair of the influential CDU small business group in parliament.
"I am personally not absolutely convinced that this (eurozone membership) is the best long-term solution for Greece to become quickly competitive," he added. Bigger haircut needed say Schaeuble, El-Erian8 Oct 2011
Europe perhaps underestimated how much it needed to reduce Greece's debt burden at its July summit, German Finance Minister Wolfgang Schaeuble was cited as saying by Frankfurter Allgemeine Sonntagszeitung.
"It is possible that we assumed in July a level of debt reduction that was too low," Schaeuble was cited as saying.
Eurozone finance ministers are reviewing the size of the private sector's involvement in a second international bailout package for Greece, the chairman of the Eurogroup ministers Jean-Claude Juncker said earlier this week.
The reassessment could undermine Greece's aid program and hasten the threat of a Greek default.
"There is a high risk that this crisis further escalates and broadens," Schaeuble said.
Greece should ask its bondholders to accept bigger losses than the 21 percent write-down currently foreseen in a deal agreed by EU leaders on July 21, Pimco's co-chief investment officer Mohamed El-Erian told a Greek paper on Saturday.
"Greece must seek a much bigger 'haircut' than 21 percent," El-Erian was quoted as saying in an interview in weekly newspaper Kathimerini. Pimco, which manages $1.2 trillion in assets, is home to the world's largest bond fund. IMF mission chief says Greece is at crossroads 8 Oct 2011
The gloomy comments suggested it was still unsure whether current talks on a vital aid tranche for Athens would conclude positively, given doubts over its willingness to reform and Greek strikes and riots.
"Greece is at a crossroads," Poul Thomsen was cited as saying by Welt am Sonntag. "It is clear the programme will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far."
The IMF on Friday dismissed a statement by the Greek government that the deal on aid was already completed. I am sure glad that's cleared up. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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