I thought this would be a quiet weekend.
http://krugman.blogs.nytimes.com/2012/05/25/the-antichrist-cometh/
The Antichrist Cometh
Watch out, Britain! I’m on my way, and the Telegraph says that I’m a “false Messiah” with “Satanic intent”.
I wonder if someone will try sprinkling me with holy water, to see if I disappear in a cloud of acrid smoke. Also, I’m going to propose creating a new course at Princeton: Economics 666.
Oh, on the substance: every objection the article raises is, of course, already answered in End This Depression Now!
I notice that the article ends up citing Raghuram Rajan as an authority for the case that the problem is structural. I answered that one too.
So, should I change my beard style, and go for a goatee?"
I wonder if someone will try sprinkling me with holy water, to see if I disappear in a cloud of acrid smoke. Also, I’m going to propose creating a new course at Princeton: Economics 666.
Oh, on the substance: every objection the article raises is, of course, already answered in End This Depression Now!
I notice that the article ends up citing Raghuram Rajan as an authority for the case that the problem is structural. I answered that one too.
So, should I change my beard style, and go for a goatee?"
http://www.telegraph.co.uk/finance/financialcrisis/
It's time to lift the foot from the economy's windpipe
25 May 2012
| 7 Comments Lagarde: Greeks should 'pay their taxes' to get out of crisis
25 May 2012
| 25 Comments Spanish woes continue as Bankia asks for €19bn from taxpayers
25 May 2012
| 53 Comments Fear over bail-out rises as Catalonia seeks help
25 May 2012
| 5 Comments Debt crisis: as it happened May 25, 2012
25 May 2012
| 709 Comments Abolition of the nation state is Europe's crisis
A return to national currencies is the only hope, says Bruce Anderson.25 May 2012
| 239 Comments Greece faces German future as euro exit looms
Germany has reportedly drawn up a six-point plan to rescue Greece and the eurozone’s other failed economies in the same way East Germany was rebuilt after the fall of the Berlin Wall.25 May 2012
| 129 Comments Catalonia calls for help from central government to pay debts
European stock markets tumbled and Spain's borrowing costs shot up as the country's wealthiest autonomous region, Catalonia, called for assistance from central government to pay its bills.25 May 2012
| 310 Comments UK economy could shrink by 2pc if Greece exits euro
The UK economy could be plunged even deeper into recession with a GDP contraction of up to 2pc if Greece is forced into a disorderly exit from the eurozone.25 May 2012
| 19 Comments Bankia 'to ask Spain for more than €15bn'
Spanish lender Bankia will reportedly ask the state for more than €15bn to bail it out when its new management team presents a restructuring plan on Friday.25 May 2012
| 31 Comments Debt crisis: as it happened, May 24, 2012
ECB head Mario Draghi rejects criticism of the central bank's cheap three-year lending plan and calls for governments to take a 'courageous leap' of political imagination to save the eurozone.24 May 2012
| 508 Comments http://www.telegraph.co.uk/finance/financialcrisis/9291187/Greece-faces-German-future-as-euro-exit-looms.html
"Chancellor Angela Merkel wants to revitalise the eurozone’s weaker countries with a package of privatisations, according to German weekly Der Spiegel. This would be overseen by an agency modelled on the Treuhand or “trust agency” which sold off most of the East’s state-owned businesses.
Berlin also wants to relax employment laws to bring them in line with the German model and to set up special economic zones to lure investors with tax incentives and less red tape.
The proposals are likely to prove controversial with electorates who will be unwilling to be effectively told to follow a more German way of life.
The plans emerged as Germany dug its heels in deeper over the issue of eurobonds. Berlin is resisting the idea of pooling eurozone debt unless there is closer fiscal integration first.
“The pooling of debt is just one side of a coin where federalism is the other. Governments who are in favour (of eurobonds) fail to point this out,” said German central bank chief Jens Weidmann.
The comments came amid rumours – detailed by the bank of Tokyo Mitsubishi-UFJ – that a Greek exit is now imminent. The bank said there was speculation that a “planned departure” would take place over the weekend of June 2 and 3.
The left-wing party that opposes Greece’s austerity agreements has extended its lead ahead of next month’s election, according to a new poll.
If Greeks do vote for politicians who are against the cuts and reforms on which its bail-out packages depend, its international lenders are expected to cut off funding, prompting its eurozone exit.
The cost of this could exceed the €1 trillion (£800bn) previously estimated by the Institute of International Finance, said its managing director. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again,” said Charles Dallara.
The impact on the UK could be a drop of around 2pc in GDP, prompting the Bank of England to expand quantitative easing by £200bn to £525bn, said analysts at Bank of America Merrill Lynch."
http://www.nytimes.com/2012/05/26/business/global/spanish-lender-seeks-state-aid-ratings-cut-on-5-banks.html?hp
The bank is nationalized. This would be a bankruptcy of Spain.
The left-wing party that opposes Greece’s austerity agreements has extended its lead ahead of next month’s election, according to a new poll.
If Greeks do vote for politicians who are against the cuts and reforms on which its bail-out packages depend, its international lenders are expected to cut off funding, prompting its eurozone exit.
The cost of this could exceed the €1 trillion (£800bn) previously estimated by the Institute of International Finance, said its managing director. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again,” said Charles Dallara.
The impact on the UK could be a drop of around 2pc in GDP, prompting the Bank of England to expand quantitative easing by £200bn to £525bn, said analysts at Bank of America Merrill Lynch."
http://www.nytimes.com/2012/05/26/business/global/spanish-lender-seeks-state-aid-ratings-cut-on-5-banks.html?hp
The bank is nationalized. This would be a bankruptcy of Spain.
Giant Lender in Spain Asks for Billions to Fend Off Collapse
By RAPHAEL MINDER
Spain is trying to avert a failure of Bankia, its biggest mortgage lender, which could threaten the Spanish banking industry and reverberate through Europe and beyond.
"MADRID — Spain’s banking crisis worsened Friday as the board of Bankia, the country’s biggest mortgage lender, warned that it would need an additional 19 billion euros ($23.88 billion), far beyond what the government estimated when it seized the bank and its portfolio of delinquent real estate loans earlier this month.
The government is trying to head off a collapse of the bank, which could threaten the Spanish banking industry and reverberate through the financial centers of Europe and beyond. The fear is that it will not have the money to save its banks, and their $1.25 trillion in deposits, and will need a rescue by the rest of Europe — even as political and financial leaders struggle to resolve Greece’s debt debacle.
Bankia’s announcement came as Standard & Poor’s, the credit ratings agency, downgraded Bankia and two other banks, Banco Popular and Bankinter, to junk status and lowered the ratings of two other Spanish banks also staggered by mounting bad loans. A junk rating could make it even harder for Bankia to borrow its way out of trouble.
The rising fear now is that the recent steady outflow of deposits from Spain’s banks, which are suffering from the bursting of Spain’s real estate bubble, to institutions outside the country could eventually turn into the sort of bank run that almost brought the financial world to its knees after the collapse of Lehman Brothers in 2008.
Spain’s debt crisis is also playing out on another front. As its banks shudder, heavily indebted regional governments are also running out of money. On Friday, the government of the Catalonia region warned that it might no longer be able to finance its debts and called on the central government for help. While other regions have also sounded budget alarms, Catalonia is the biggest so far; it represents nearly one-fifth of Spain’s economy.
The central government, facing its own mounting debt, may soon be in no position to provide help to either the banks or the regions. And with an economy in recession and unemployment at the highest level in the euro zone, Madrid is falling further behind in meeting the deficit-reduction targets it has agreed to with the European Union.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London consulting firm that assesses sovereign debt risk, said the regional governments had become the “Achilles’ heel of Spanish fiscal policy.”
He added: “Catalonia’s request for financial support from Madrid underscores the idiosyncratic risks in Spain, which make it much more difficult for the central government to enforce fiscal discipline and implement economic reforms.”
The government has also come under criticism for its failure to confine the banking problems earlier.
In February, Luís de Guindos, the Spanish economy minister, ordered banks to set aside 50 billion euros in additional provisions to cover fully their exposure to doubtful loans. This month he told them to add another 30 billion euros.
Shortly after Spain seized control of Bankia on May 9, as a first step toward recapitalizing the company, Mr. Guindos told lawmakers that the total cost of cleaning up the bank would be at least 9 billion euros. Instead, after reviewing its most recent losses, Bankia’s board estimated Friday that the total would be 23.5 billion euros — the 4.5 billion euro emergency loan previously granted to the bank and the additional 19 billion euros sought on Friday.
Besides now being responsible for Bankia, the government could also find itself saddled with three other troubled savings banks — CatalunyaCaixa, Novacaixagalicia and Banco de Valencia — that have been put up for sale, with no buyers so far.“If nobody shows up for these auctions, the government could very well follow the same path as with Bankia,” said Juan José Toribio, a professor at the IESE Business School. Mr. Toribio said it was unclear how the government could now finance Bankia’s rescue, adding that asking for European money was a possibility.
“Spanish bank restructuring is a moving target — the deeper the downturn, the greater the scope for a further deterioration in banks’ asset quality,” Mr. Spiro said. “This is easier said than done.”
Regional governments are responsible for half of public spending in Spain — including health care and education — and many have fallen far behind in payments to their suppliers. The regions are struggling under the budgetary constraints set by Madrid and also facing debt maturities that will total nearly 36 billion euros this year. To stay afloat, Valencia, home to Spain’s third-largest city behind Madrid and Barcelona, was forced this month to issue six-month debt at the high interest rate of 7 percent.
Artur Mas, president of the Catalonian regional government, suggested Friday that regions should be allowed to issue bonds jointly to help reduce their financing cost. “We do not care which mechanism is used, as long as it yields enough funds to meet our obligations, and meet them on time, because we have bills to pay at the end of the month,” he told reporters.
Tomás Navarro, finance director of Diagnostica Longwood, a Spanish distributor of diagnostics products to state hospitals, said his company, which has annual revenue of 4 million euros, was awaiting 2 million euros in late payments, as well as sitting on 750,000 euros of bank debt. “Every company has become very worried about what will happen with our banks and the euro,” he said. “But the most pressing concern for us and so many others in Spain is not exchange rate risk but the massive shortage of liquidity.”
Bankia, whose formation was the result of a seven-way merger in 2010, was meant to be a model for the government’s effort to strengthen Spain’s savings banks, or cajas, through consolidation. But now, the increasingly costly nationalization of Bankia has prompted broader concerns among investors about how to finance the rescue of other Spanish banks. Otherwise, depositors might start pulling their money out of the country’s banks, threatening a collapse of Spain’s entire banking system.
As for Spanish individual investors, “their stress level has just soared in the last 15 days,” said Iñigo Susaeta, a managing partner of the wealth advisory firm Arcano.
While the richest Spaniards probably started diversifying their assets and currency mix two years ago, when Greece first asked for a bailout, Mr. Susaeta said second-tier wealthy individuals had much more recently started to look at every possible alternative. In many cases, he said, they are “simply opening whatever new accounts overseas and in other currencies that are easiest to have,” whether in Luxembourg, Canada or Norway."
http://blogs.reuters.com/felix-salmon
And thus, finally, we get to the big answer: what is X, the probability of Grexit toppling Obama? That is H * I, which using my off-the-top-of-my-head probabilities, works out at about 14%. But you should work this out for yourself. Come up with your own values for all these:
A: What is the probability of a Europe-wide austerity regime?
B: If we get Europe-wide austerity, what are the chances of Grexit, any time soon?
C: If we don’t get Europe-wide austerity, what are the chances of Grexit, any time soon?
D: What, then, is the probability of Grexit? This is calculated as A * B + (1-A) * C.
E: If we have Grexit, what are the chances it’ll happen before the election?
F: This is the overall probability of Grexit before the election, and is D * E.
G: If we have Grexit, what are the chances of it eliciting a credible, coordinated and constructive pan-European response?
H: This is the probability of a big European crisis before the election, it’s F * (1-G).
I: What is the probability of Obama having a narrow enough lead over Romney that it would be erased by a plunging stock market?
Put these all together, and you can finally come up with a number for:
X: The probability of Grexit toppling Obama. It’s H * I.
I’d be interested to know what results you get, but my guess is that most of them will come up with a number which is low and yet still significant. It’s something to bear in mind, but of course it’s also something which is pretty much entirely out of Obama’s control. That’s the way that crises work: individual politicians are rarely personally responsible for them, but whomever’s in power when they happen nearly always ends up getting the blame."
http://www.spiegel.de/international/europe/german-press-review-on-potential-greek-exit-from-euro-zone-a-835260.html
Press review. The German papers were not hopeful.
http://www.independent.ie/opinion/analysis/stephen-kinsella-all-we-need-is-a-nutter-in-a-balloon-to-give-perspective-3116044.html
Look out for China maybe.
Look again tomorrow.
This European mess may develop into a disaster and an emergency.
I would far rather you were this side of the water.
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