ECB in Crisis Mode: GREECE is the target!!

[bimetalaupt]

Europe's debt crisis flared up once again Monday, as Portugal's borrowing rates briefly spiked to euro-era highs amid reports Germany and France are pushing it to accept outside help to avoid contagion to other countries.
The yield on Portuguese 10-year bonds _ a key gauge of investor sentiment _ touched a potentially unsustainable 7.18 percent at one stage Monday. It then fell back to 6.94 percent on speculation that the European Central Bank was intervening by buying bonds. Yields drop as prices rise.

"I wouldn't be surprised if the ECB is trying to stabilize markets, but it's a band-aid approach," said Neil Mackinnon, global macro strategist at VTB Capital. "All it does is that it kicks the can down the road; it doesn't resolve the underlying issues."

Since the bailout of Greece in May, the ECB has taken a more active role in Europe's debt crisis by buying the bonds of the most imperiled eurozone countries. As of last week it had bought euro74 billion ($96 billion) in government bonds. It doesn't have a target or limit but withdraws that same amount of money from the economy to avoid inflation risks. The U.S. Federal Reserve, by contrast, does not withdraw any cash, meaning it effectively creates new money _ a step the ECB is still loathe to take.

Monday's early spike in yields followed a report in German newspaper Der Spiegel that France and Germany are both pressing Portugal to tap a European rescue fund to keep the crisis from spreading to much-bigger Spain.

"We have never pushed countries to take a certain step, and we will not do so in any other case," German Chancellor Angela Merkel said during a visit Monday to Malta, according to the DAPD news agency.

Portugal has not asked for help, "and it is not being pushed into it by Germany," Merkel added.

Amadeu Altafaj Tardio, the spokesman for EU Monetary Affairs Commissioner Olli Rehn, also denied that European officials were preparing a bailout for Portugal.

"There is no discussion to this effect and none is envisaged at this stage," he said.

Analysts estimate that financial assistance for Portugal, which has been dogged by low growth and rising debt levels, would be between euro50 billion and euro100 billion ($65 billion to $130 billion).

Though Portugal insists it does not need a rescue, experts say the events distinctly echo what went on with Ireland just a couple of months ago.

Before Ireland was forced to accept a rescue from its partners in the EU and the International Monetary Fund, there were numerous reports suggesting that Germany, in particular, was pushing Dublin to take the funds to contain the crisis. The Irish government also insisted it didn't need any help before eventually accepting a euro67.5 billion ($87.5 billion) bailout.

"First we have the speculation that Portugal is being pressured into taking funds in order to save the crisis from spreading to Spain," said Derek Halpenny, an analyst at the Bank of Tokyo-Mitsubishi UFJ. "Then we get the denials from Portugal."

The prevailing view in the markets is that Europe may be able to support Portugal but that a bailout of Spain would test the limits of the existing bailout fund, potentially putting the euro project itself in jeopardy if governments don't put up more cash.

Spain accounts for around 10 percent of the eurozone economy, compared with Greece, Ireland and Portugal, which account for only about 2 percent each. The yield on Spanish 10-year bonds rose to 5.5 percent Monday, while benchmark German bonds were steady at 2.9 percent. Germany's economy is healthy compared with Portugal and Spain, but it could also suffer if it has to help shore up another ailing eurozone country.

Markets have brushed off the Portuguese government's repeated claims over the past year that it doesn't need financial help. The minority government has introduced an austerity program of tax hikes and pay cuts it says will restore fiscal health.

The key to whether Portugal gets a bailout sooner rather than later could come Wednesday, when the government aims to raise euro1.25 billion ($1.62 billion) by auctioning off 3-year and 9-year bonds. Portugal needs to ask investors to lend it euro20 billion ($26 billion) this year to finance public accounts.

If it doesn't get enough investor backing or there's a consequent impact on Thursday's debt offerings from Spain and Italy, then analysts reckon a bailout could come soon after. All eyes would then turn to next week's meeting of eurozone finance ministers in Brussels.

"Perhaps more interesting is the market's attitude to Spanish and Italian paper on Thursday; this will be a truer test of whether or not contagion is getting a grip," said Jane Foley, an analyst at Rabobank International.

Portuguese officials have been trying to recruit the help of China, which has already used its huge foreign currency reserves to buy Greek and Spanish debt.

Chinese President Hu Jintao, on a state visit to Lisbon last November, promised to help Portugal out of its financial crisis, though he didn't elaborate.

Portuguese Finance Minister Fernando Teixeira dos Santos went to China twice in three months at the end of last year and said Beijing would help Lisbon with financing. He declined to provide details but local media have cited unnamed sources as saying it will amount to at least euro4 billion invested in the country's bonds.

Spanish Economy Minister Elena Salgado lent Portuguese authorities support Monday, saying Portugal won't need a bailout because it is enacting reforms that will help save the nation's economy from imploding.

"Portugal will not need any outside help," Salgado said in an interview with Spain's Cadena Ser radio. "I think Portugal will not have to resort to any plan because it is fulfilling its commitments."

She added that Portugal "has structural weaknesses, but will make the corresponding reforms."

____
AGAIN: QE HAS NOT WORKED IN THE PAST.. LOOK AT THE RESULTS FROM JAPAN..JUST A THOUGHT, Bi Metal Au Pt[/img]

Attachments:

[Virgil Showlion]

"Portugal will not need any outside help," Salgado said in an interview with Spain's Cadena Ser radio. "I think Portugal will not have to resort to any plan because it is fulfilling its commitments."

This is Ireland the redux, and Greece the redux redux.

I wonder if these politicians know that not even their own parents could believe their claims at this point.

[scaredshirtless]

That's a great question Virgil!!!

[bimetalaupt]

Please respect FT.com's ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email [e-mail] to buy additional rights or use this link to reference the article - www.ft.com/cms/s/0/34dd4d8c-1cfc-11e0-8c86-00144feab49a.html#ixzz1AghyGYtj

CB intervenes as debt crisis deepens

By David Oakley in London, Gerrit Wiesmann in Berlin and Peter Wise in Lisbon

Published: January 10 2011 21:17 | Last updated: January 10 2011 21:17

The European Central Bank intervened to prop up the eurozone bond markets on Monday as political leaders and bankers warned the debt crisis was deepening amid fears Portugal was edging closer to an international bail-out.

Although European Union officials denied they were talking about a bail-out for Portugal, the ECB had to buy the country’s government bonds to stop the market selling off steeply before important debt auctions in Lisbon on Wednesday.
EDITOR’S CHOICE
In depth: Eurozone in crisis - Dec-21
Concerns over Belgian debt levels grow - Jan-10
Lex: Portugal - Jan-10
Eurozone worries stymie bull run - Jan-10
Short View: Contagion risk if Lisbon defaults - Jan-10
Europe woes put debt shake-up back on agenda - Jan-10

Investor attention is also turning towards Belgium, which has the third highest public debt-to-GDP ratio in the eurozone. The king of Belgium asked the country’s caretaker prime minister to draw up a tighter budget for 2011 than the one already agreed with the EU to ease market concerns over his country’s debt.

Alan Wilde, head of fixed income and currency at Baring Asset Management, said: “The crisis is reaching another key phase with debt auctions this week. It seems unlikely that Portugal can avoid a bail-out.”

Portugal’s cost of borrowing jumped to 7.18 per cent for 10-year debt, close to euro-era highs at one point before intervention by the ECB saw yields fall back to close at 7.01 per cent. This is significant as officials in Lisbon have admitted that yields above 7 per cent are unsustainable.

The euro fell to four-month lows against the dollar, sterling and the yen, and a key gauge of sentiment among eurozone banks that measures the cost to insure debt rose to the highest levels since March 2009. Increasing worries about the eurozone prompted Josef Ackermann, Deutsche Bank chief executive, to call on eurozone governments to use the debt crisis as an opportunity to lead the bloc towards greater economic integration.

“The time has come to deepen economic and currency union,” Germany’s most influential banker said in a speech in Berlin late on Monday. “For this renewed push towards integration we need strong political leadership.”

In Brussels, Amadeau Altafaj-Tardio, the EU spokesman for economic and monetary issues, referring to a potential Portuguese bail-out, said: “There is no discussion to this effect. And none is envisaged at this stage.”

In Portugal, political rhetoric in campaigning for Lisbon’s presidential election on January 23 is adding to pressures on the government, with the main opposition party calling on José Sócrates, the prime minister, to resign if he has to ask the international community for help.

The centre-right Social Democrats (PSD) had earlier backed his deficit-cutting measures.

Pedro Passos Coelho, the PSD leader, said Mr Sócrates would be responsible for a “serious political failure” if Portugal had to ask for outside help and would “no longer be in a position to govern”.

In a further blow to Mr Sócrates, António Bagão Félix, a respected former finance minister and rightwing politician, said on Monday that it was no longer a question of “if” Portugal would have to turn to the European financial stability facility, the EU bail-out fund, for help, but “when”.

The cost to the country of high bond yields was increasing every day, he said. “The situation is unsustainable.”

EU officials have expressed concern over the potential adverse impact on investors of the heated rhetoric leading up to the presidential election, in which Aníbal Cavaco Silva, the candidate supported by the PSD, is expected to be re-elected for a second five-year term.

But Mr Passos Coelho, who has given his party a strong lead in national opinion polls, said it was necessary to “turn the page” and elect a new government with better policies to create jobs and stimulate economic growth.

The PSD has grown increasingly critical of Mr Sócrates’s handling of the debt crisis, accusing him of “merely pretending” to cut government spending.

[decoy409]

Bruce, I added this eve some great stuff on this.

[bimetalaupt]

The Federal Reserve increased the swap to the ECB last year.. Looking at the future.. Some idea as to what the swap does for the ECB.. It also makes a lot of money for the FRBS..Bi metal Au Pt.. From NYFRB..on swaps
1. Introduction
I
n the decade prior to the financial crisis, the dollar-
denominated assets of foreign banks, especially institutions
in Europe, increased dramatically. But with the onset of the
crisis in 2007, these banks saw their access to dollar funding
come under tremendous stress—with potentially dire
consequences for financial markets and real activity associated
with banking.
The progression of market stresses led the Federal Reserve in
December 2007 to establish central bank (CB) dollar swaps:
reciprocal currency arrangements with several foreign central
banks that were designed to ameliorate dollar funding stresses
overseas. These arrangements expanded as the crisis continued
throughout 2008 and they remained in place through the end
of 2009, becoming an important part of global policy
cooperation.
In this article, we provide an overview of the CB dollar swap
facilities, discuss the changes in breadth and volume as funding
conditions (both in the market and through the facilities)
evolved, and assess the economic research documenting the
efficacy of the swaps. We conclude that the CB dollar swap
facilities are an important tool for dealing with or minimizing
systemic liquidity disruptions, as demonstrated in the
reintroduction of the swaps in May 2010.
We begin in Section 2 by describing the dollar funding needs
of foreign banks and examining the private cost of dollars
before, during, and after the crisis. Two measures are used to
Linda S. Goldberg is a vice president, Craig Kennedy an assistant economist,
and Jason Miu a senior trader/analyst at the Federal Reserve Bank of New York.
Correspondence: [e-mail]
show the increased cost of dollar funds in private markets
during the crisis. The first is the spread between the London
interbank offered rate (Libor) and the overnight index swap
(OIS) rate. The second measure is the foreign exchange (FX)
swap implied basis spread, which reflects the cost of funding
dollar positions by borrowing foreign currency and converting
it into dollars through an FX swap.
Additional evidence of disruptions to dollar markets is
drawn from the intraday federal funds market. We compare the
average price of federal funds during morning hours with the
average price during afternoon trading. The differential in cost
was normally close to zero in the precrisis period through
August 2007 and thereafter evolved to reflect a substantial
premium paid for federal funds acquired in morning trading.
This “morning premium” persisted through December 2008,
reaching elevated levels following the bankruptcy of Lehman
Brothers. Among the explanations is the view that this spread
can be interpreted partially as a “European premium” that
evolved over the course of the crisis as a result of dollar demand
by European banks lacking a natural dollar deposit base for
meeting dollar funding needs.
In Section 3, we provide a history of the CB dollar swap
facilities. After starting in 2007, the Federal Reserve’s program
for providing dollars to foreign markets evolved extensively
with respect to both the number of countries with swap
agreements and the amount of dollars made available abroad.
The tenor of funds made available through the dollar auctions
also evolved over time, increasing from up to one month

[decoy409]

and point (or continue article please). But so far all I see is the old FIAT note looking like a large rubber band that has been stretched to the point of snap due to SEVERE incoming. Or better yet, 'The designed 'unexpected'" as in the dreaded K-wave.

[bimetalaupt]

It was c&p from the Research : Capital markets on NYFRB site... Yes it a bit old but the point was about the vote in the emergancy Phone meeting of the FOMC.. In Decemember.. There was something up..
www.newyorkfed.org/research/capital_markets/index.html
Central Bank Dollar Swap
Lines and Overseas Dollar
Funding Costs

Central Bank Dollar Swap Lines and Overseas Dollar Funding Costs
This paper presents the developments in the dollar swap facilities through the end of 2009.
By Linda Goldberg, Craig Kennedy, and Jason Miu, Economic Policy Review, Forthcoming
n December 2007, the Federal Reserve established temporary
reciprocal currency arrangements with the European Central
Bank (ECB) and the Swiss National Bank that allowed for the
two institutions to draw up to $20 billion and $4 billion,
respectively. The initial auctions were fully subscribed. Despite
an easing of pressures in early 2008, funding pressures and use
of the swap lines again escalated in March 2008 as Bear Stearns
neared its acquisition by JPMorgan.
Table 1 describes the sequence of events in the Federal
Reserve’s swap facilities with foreign central banks. Expansion
of the dollars made available through the swap facilities
proceeded in stages, first through increases in the size of the
lines and then through extensions, through July 2008, of the
tenors for auctions held by the European Central Bank and the
Swiss National Bank.
Ultimately, fourteen foreign central banks entered into swap
arrangements with the Federal Reserve. From an initial
aggregate of $24 billion in December 2007, the amount
authorized grew to nearly $620 billion following the bank-
ruptcy of Lehman Brothers. The quantity was soon “uncapped”
for several central bank swap counterparties on October 13,
2008, as markets experienced extreme pressures. The dramatic
move to uncapped, full-allotment auction formats was made
by the European Central Bank, the Swiss National Bank, the
Bank of Japan, and the Bank of England. Under the full-
allotment auction format, the Federal Reserve made dollars
available to these four central banks in quantities not subject to
prespecified limits. The foreign central banks, in turn, made
dollar loans to financial institutions within their jurisdictions
and took on the related collateral and counterparty risks,
although the Federal Reserve engaged in swap transactions
only with the foreign central banks. The swap lines were a
coordinated effort among central banks to address elevated
pressures in global short-term U.S. dollar funding markets
and to maintain overall market stability.
Chart 4 shows the contributions of various central banks to
the overall size of swaps outstanding by the Federal Reserve.
Clearly, the European Central Bank, the Bank of Japan, and the
Bank of England consistently made up the majority of draw-
downs on the reciprocal currency arrangements. According
to monthly balances published by the Federal Reserve, peak
CB dollar swap balances reached $291 billion for the European
Central Bank (December 2008), $122 billion for the Bank
of Japan (December 2008), and $74 billion for the Bank of
England (October 2008). Overall use of the swap lines climbed
rapidly in October 2008, peaked in December 2008, and
declined dramatically through the first half of 2009.
Chart 4
Central Bank Dollar Swap Amounts Outstanding
Billions of U.S. dollars
600
500
400
300
200
BM
BoK
SNB
SR
RBA
ECB
NB
DN
BoJ
BoE
100
0
2008
2009
Source: Board of Governors of the Federal Reserve System, “Credit and
Liquidity Programs and the Balance Sheet.”
Note: BM is Banco de México, BoK is Bank of Korea, SNB is Swiss
National Bank, SR is Sveriges Riksbank, RBA is Reserve Bank of Australia,
ECB is European Central Bank, NB is Norges Bank, DN is Danmarks
Nationalbank, BoJ is Bank of Japan, BoE is Bank of England.
While the CB dollar swaps with foreign central banks
differed primarily in size, the auctions conducted by the foreign
central banks differed in the formats used for distributing the
U.S. dollars. Each central bank worked closely with the Federal
Reserve to structure auctions used for distributing the dollars
to domestic institutions. Structuring these auctions took into
account a variety of factors, including the central banks’ in-
depth knowledge of their own domestic funding markets and
financial institutions as well as their operating guidelines with
respect to accessing their liquidity facilities and establishing
acceptable collateral.
Box 1 broadly defines the various possible choices for the
auction structures. For example, auctions can be competitive
or noncompetitive. Within the competitive auction
classifications, pricing can be either at a single common price
or at multiple prices, depending on the structure of bids.
Though the noncompetitive, fixed-rate auctions are fully
allotted, the use of a higher spread to OIS and potential
constraints on banks’ availability of collateral may limit the
demand for dollars.
Table 2 presents details on the dollar auctions conducted by
foreign central banks. On the quantity side, as we observed, four
central banks after October 2008 did not have prespecified limits
on the amounts that could be drawn, while ten other countries
were authorized to access up to $15 billion or $30 billion from
the Federal Reserve. With the move to uncapped quantities in

[bimetalaupt]

This message was deleted by the original poster.

[bimetalaupt]

Decoy409,
The point I was going to try to make was the action of the FOMC late in December was about something other then normal action with the SWAP Lines. The change in the deal was sure interesting. I do not know what you have read about the swap but I thought a general Idea would be interesting as this is a lot deeper then the press has Luddite to. The PIIOGS problem has just been delayed. Greece is not keeping it word. I added the O for the port in Belgium that has seen traffic decline by 25%. Belgium is the next in line due to huge Debt/GDP.. The Kings has called for Austerity Programs by the Government now in power at this time.. Crazy stuff!!!

Just a thought,
Bi Metal Au Pt

[decoy409]

Well here is a thought, this past springs CBO report that I posted as to 'Hold the markets at all costs' when I read the following from above,

Quote: The swap lines were a
coordinated effort among central banks to address elevated
pressures in global short-term U.S. dollar funding markets
and to maintain overall market stability.

of course I find intriguing due to the 'unprecidented' in so called 'purchases' or 'investments' action here in our country just over the past few years,

Quote: Structuring these auctions took into
account a variety of factors, including the central banks’ in-
depth knowledge of their own domestic funding markets and
financial institutions as well as their operating guidelines with
respect to accessing their liquidity facilities and establishing
acceptable collateral.

But what the heck Bruce, have to have 'collateral' of magnitude when adressing magnitude cake. As you say, 'just a thought!'

[bimetalaupt]

Decoy 409,
I think the Treasury or Luxembourg has it right.. You note the banks there rarely get into a bind. The run their operations as tight as a drum.. The Credit Union we have been working on is all about personal service like the personal service from the the Royal Bank of Luxembourg. The issue here is the EURO Bond for bail out!!!!Just a thought,
Bruce
FRANKFURT (Reuters) - The European Central Bank is considering requesting an increase in its capital to help cope with the rising costs of fighting the euro zone debt crisis, euro zone central bank sources told Reuters.

"The issue is that the ECB is worried about potential losses from its bond buying," one source said.

"At the moment we are buying very modest amounts, but what if that is increased, and what if the bonds you buy are suddenly worth 30 percent less?" the source said, referring to the risk of a writedown on a euro zone government's debt.

The central bank declined to comment.

The ECB disclosed on Monday that it had increased its purchases of euro zone government bonds to 2.667 billion euros ($3.5 billion) last week from 1.965 billion euros a week earlier. It was the biggest weekly total since June but well below levels seen at the height of the euro zone crisis.

Altogether, the ECB has bought 72 billion euros in bonds -- exclusively Greek, Irish and Portuguese, analysts believe -- since it began intervening in May to stabilise markets.

ECB policymakers have repeatedly signalled that the central bank cannot bear the brunt of fire-fighting against bond market attacks on highly indebted euro zone states, urging governments to increase reform efforts and boost EU contingency funds.

The Frankfurt-based central bank headed by Jean-Claude Trichet has greatly expanded its lending since the start of the global financial crisis in 2007. It has a subscribed capital of almost 5.8 billion euros compared to a balance sheet of 138 billion euros, according to its latest annual report.

All 27 of the European Union's national central banks contribute to the ECB's capital. The 16 countries already using the euro make up 70 percent with other EU members -- including Britain and Denmark which have opt-outs -- making up the rest.

One source said a doubling of the ECB's capital was among the options being discussed. Another said it was not clear how much the bank would ask for. Both said the request would go to euro zone member states.

CRISIS AGGRAVATED

EU leaders are due to discuss the relentless crisis at a summit on Thursday and Friday but are not expected to announce any new measures to ease concerns about the region's debt.

However, one senior EU source said intense efforts were under way behind the scenes to find ways to shield Spain from market pressure expected to mount early next year.

Two major international financial institutions said EU paymaster Germany had aggravated the crisis with talk about making bond investors pay in future, but Berlin seems set to get its way on that issue at this week's European Union summit.

The Bank for International Settlements (BIS) and the head of the European Investment Bank (EIB) both said German Chancellor Angela Merkel's drive to make private bondholders share losses in any future euro sovereign default had intensified the crisis.

"The surge in sovereign credit spreads began on October 18, when the French and German governments agreed to take steps that would make it possible to impose haircuts on bonds should a government not be able to service its debt," the Basel-based BIS said in its quarterly review.

EIB president Philippe Maystadt said Merkel was absolutely right to demand a private sector contribution to financial rescues after an emergency safety net expires in 2013, "but the way it was presented created total confusion.

EU leaders are set to approve a two-sentence amendment to the 27-nation bloc's Lisbon treaty that would create a permanent European Stabilisation Mechanism to lend to distressed member states on strict conditions.

They will also endorse a statement by euro zone finance ministers that private sector investors will be expected to contribute, on a case-by-case basis, in any sovereign debt restructuring after 2013.

But at the insistence of Berlin and Paris, they are unlikely to increase the existing rescue fund or to take any action on a proposal for common European bonds to help resolve the crisis.

EU sources said euro zone finance ministers would work in January on a more systemic response to the crisis, which has already forced Greece and Ireland to take EU/IMF bailouts and threatens to spread to Portugal, Spain and even Italy.

NO ACTION ON E-BONDS

Euro zone bond markets have entered an end-of-year lull as investors close their books, with yield premiums on peripheral debt just a touch wider on Monday. But EU officials fear another potential wave of selling early in the new year.

A German government spokesman said indications were that the summit would not take up a proposal for common euro zone bonds made by Jean-Claude Juncker, chairman of the currency area's finance ministers, and Italian Economy Minister Giulio Tremonti.

The spokesman also told a news briefing he was not aware of any examination of an extension of the existing European Financial Stability Facility, as reported by the Financial Times.

The senior EU source said experts were working on ways to make European crisis management instruments more flexible and better able to help countries before they get shut out of credit markets.

The crucial aim was to ringfence Spain, the fourth largest euro zone economy. Madrid was taking energetic measures to avoid being sucked down with the crisis, the source said.

The EU source said experts were studying how to access the EFSF's full 440 billion euros ($580 billion) if necessary, despite pledges to maintain a cash buffer given to secure a top notch AAA credit rating for the rescue fund.

Luxembourg Foreign Minister Jean Asselborn said the 'E-bond' proposal, designed to reduce the borrowing costs of troubled euro zone states and prevent speculation against their debt, had been excluded from the EU summit agen

[scaredshirtless]

You're right Bruce. That swap was different. Longer AND interest paid. VERY good catch.

That was no normal "swap".

Adding Belgium to PIIGS is also appropriate.

Pretty soon we'll be able to spell - BIG PIGS



And they're robbing their sovereign retirement funds too. Oh yeah - great sign of recovery.

Of course we reduced the employee withholding (not employer) 2% for more "stimulus".

We're now no better - we've stepped up raiding ours too!

HOW IS ALL THIS A SIGN OF - Things getting better? For who exactly?

Discouraging info for sure.

[scaredshirtless]

Wow...

Late breaking news!

Now Japan is going to join China to save Europe and buys their bonds. They want 20% they say.

But...... I have a question.

How does this get rid of debt no one can pay in the first place? Is the whole world going to play kick the can?

I'm sorry - I don't get it - someone help please?

[itstippy]

This is very odd.
Japan does not have excess cash flow; they are in no position to help anyone. Unless they sell US Treasuries and buy Eurozone bonds. They are either chasing returns, or acting as conduit for a Stealth bailout with US dollars, or both.

[decoy409]

This is called 'Creative Restructuring' boys and girls and it has taken a long time. The trick is for all ants to be broken down and in hard hurt mode with no relief of repair. Then you will see the calvary charge.
Maybe picture it as a 3-4 stage firework. When you go 'OOOO" you do it more than once. Then, there is Nothing until the wick tender lights another.

Bruce, the Fed Bond buying NEWS puts a nice cap on things hey.

[djrick]

Japan offers to buy Portugal debt (not that they have the money for it unless they spend less on UST) and yet the euro does not show favor to such a move.

[bimetalaupt]

S.S.,
Yes.. Is the second G as in GAUL.. now know as France???

Just a thought,
Bruce

[sangria]

I saw that news bit about Japan buying that debt and can't make heads or tails of it.


It may have something to do with the mysterious Japanese railroad pajama dance.

[bimetalaupt]

Who else... Germany!!!
Big Pig= Belgium Italy Germany Portugal Ireland Greece

[scaredshirtless]

Thanks for clearing that up Sangria.

And yes Bruce. Looking more like BIG PIGS!

Australia housing now cooling off - you know - the place where they lend 110% of loan value.

Now we can work on - BIG ASS PIGS!

[scaredshirtless]

Talked to a guy from Australia at dinner last night.

I scared him regarding their bubble....

Australia will persevere - they have a lot of natural resources.

We need to find Greece another planet that loves olives.

Just a thought.

[bimetalaupt]

I have been reading what Thomas Hoenig had to say about the zero interest rate to 0.25% overnight rate .. This is killing saving and starting to have an inflation driver on food prices. Bet he would have a field day with Axel Weber on bubbles!!!!! Germany is working hard to save the EU at the cost of German Workers hard earned savings.

Just a thought,
Bi Metal Au Pt

[bimetalaupt]

Jan 13, 2011 22:35:39 GMT -5 @franktheimpaler said:

ITS GETTING UGLY OVER THERE!!!

Frank,
Not good!!Spain has about 150 billion EURO in un-declared loses on their banks books. Who is next in PIIOGS.. or is that BIG PIG Belgium Italy Germany Portugal Ireland Greece
Turning into the next Depression of 1873!!! The joke was in Luxembourg of how poorly the 'Stress Test" of the German Banks was done.. Now for time three!!~!? The saw the auditors at work!!!Or was that saw them at the "German Beer Gardens" Hardly working
Bruce

PARIS — The European banking regulator said on Thursday that it would conduct another round of stress tests on lenders this spring, a move that investors hope will offer more clarity on the health of balance sheets than previous exercises.
he European stress tests will be the third such exercise conducted by the region’s regulators during the crisis. The regulator, the European Banking Authority, which was formed at the start of this year, said the tests would take place in the first half of 2011, with results expected in mid-2011.

The results of the last tests, published in July, were received with skepticism by critics who argued that they did not reveal the full extent of banks’ troubled assets, notably sovereign debt exposure. Those tests focused on the trading book, a bank’s liquid portfolio of securities, rather than the banking book, where assets are typically held to maturity.

“If they again come up with something that is manifestly fudged, it won’t impress anyone,” said Graham Bishop, an independent European financial services analyst. By the time the results are published, he said, European policy makers will have had to either substantially expand their financial support mechanisms for countries or move to restructure banking debts. He said he expected the former, which would represent a major step toward fiscal integration of the euro zone.

Last year, seven of 91 banks failed the tests — including Hypo Real Estate in Germany, the Agricultural Bank of Greece and the Diada Savings Bank of Spain. To pass, a bank’s Tier 1 capital, a measure of core capital including common equity and retained earnings, had to remain at or above 6 percent of assets in the face of a new recession and debt crisis.

But since then, Ireland has been required to turn to outside lenders as its banks have required more capital, and large question marks remain over the holdings of some Spanish lenders.

Madrid has lent its banks about 10.6 billion euros ($14.2 billion), which represents about 1 percent of gross domestic product. Citigroup estimates that Spanish banks are carrying about 150 billion euros in undeclared losses.

The European regulator said that the tests, which will be carried out in cooperation with national supervisors, the European Central Bank and the European Commission, would “cover a broadly similar group of banks as last year.” It added, “The methodology and approach taken will build on that used in the 2010 stress test.”

European finance officials met in Brussels this week and discussed the new tests. An official present, who was not permitted to speak publicly, said the process would start in March and results would be published in June. But he said the exact parameters — notably whether to include data on the banking book — had yet to be settled.

Meanwhile, the international regulators — the Basel Committee of the Bank for International Settlements — said that starting in 2013, “all classes of capital instruments,” rather than just stockholders, should fully absorb losses in the event of a bank crisis before taxpayers are exposed to losses.

“This is a pretty big development,” said Christopher Bates, a partner specializing in financial services at Clifford Chance in London. “It’s intended to facilitate the restructuring of bank debt without public money, while keeping struggling banks alive as going concerns.”

During 2008 and 2009, a number of distressed banks were rescued by states injecting funds in the form of common equity and other high quality, of Tier 1, capital. While this supported depositors, it also meant that Tier 2 capital instruments, mainly subordinated debt, “did not absorb losses incurred by certain large internationally active banks that would have failed had the public sector not provided support,” the committee said.

With several exceptions, all new noncommon Tier 1 and Tier 2 securities issued by international banks must include the option starting in 2013 of either being written off or converted into common equity.

Securities issued before that date, and that do not meet the rules, will need to be progressively phased out of banks’ capital between 2013 and 2023. The rules will need to be imposed by national legislators before going into effect.

“It affects a swath of instruments that were relied on by banks for supplementing their capital, which will have to be replaced by new debt with more demanding requirements,” Mr. Bates said.

[bimetalaupt]

Jan 13, 2011 22:35:39 GMT -5 @franktheimpaler said:

ITS GETTING UGLY OVER THERE!!!

Now the whole PIIOGS are returning to the paper.. From Ireland
Just when you thought it was safe to think things were back to normal with European banks, the recent announcement regarding new banking stress tests from the mandarins in Brussels indicate that the sovereign debt crisis is far from over.

The solutions to date have not comprehensively solved the core weakness of the Euro. New bank stress test will not solve the problem. An idea floated late in December to issue multi-state backed Eurobonds would have been an ideal solution.

Germany balked due to the possibility that this maneuver could have jeopardized its debt rating thus raising its cost of borrowing. This failure in German leadership indicates that Berlin is not committed to a fully federal Europe and I believe that this lack of solidarity will eventually lead to a two tier Europe and a possible breakup of the Euro.

The current policy allows peripheral states fall directly under IMF/EU control without concomitant democratic checks and balances and amounts to a dictatorial solution to what ultimately is a democratic problem.

Instead of moving forward comprehensively to develop a “Euro Bond," which would be guaranteed by all member states, Brussels came up with a half-baked theoretical synthesis conceived during the Greek crisis.

Following the meltdown in Athens, the European commission set up the European Financial Stability Facility. Each member state contributes to the facility. Currently it stands at 440 billion Euro. This war chest is sufficient to rescue Greece, Ireland and Portugal. ::)However the elephant in the room is Spain. This could be the financial story of 2011.

:oSpanish regional banks are very very shaky. It is reckoned that Madrid has so far only allowed 50% of potential mortgage losses to be recognized. In the event of default, the funds needed by Spain would dwarf those soaked up by Ireland and Greece.

If the new bank stress tests really do their job the amount of losses required to be written off could push Spanish banks, reeling from property losses, over the brink, particularly if interest rates start to rise.

Inflation rates are trending out of control in England and this does not augur well for the European continent.

The mixture of crippling austerity measures, potential sovereign debt default, ballooning structural unemployment and rising interest rates indicates that 2011 will be a challenging year for the hapless Euro officials.

Here in Dublin the economy has more or less “frozen” due to economic uncertainty caused by a draconian budget introduced in December at the behest of IMF/EU officials.

The resignation of Brian Cowen as head of Fianna Fail has led to further uncertainty. The IMF/EU funding is contingent on this financial package moving successfully through the Irish Parliament.

Failure to conclude this legislative agenda would have reintroduced chaos into Euroland given its predisposition for contagion. The Irish parliament hangs on a wafer thin majority and it will be at least four weeks before this whole IMF/EU budgetary process is finally nailed down and an election is set for March 11 . Until then more surprises could be in store from Dublin.

[scaredshirtless]

Go Ireland!

I know you can do it!!!

[bimetalaupt]

Jan 24, 2011 12:10:17 GMT -5 @scaredshirtless said:

Go Ireland!

I know you can do it!!!

More on the Rescue Fund from JCT!!! This fund will be under-funded like the French Retirement fund: real soon ....The ECB stands to loose more then the 25 billion USD the Treasury could loose on the TARP.. Please do not tell Axel Weber.. He might bring a real Merkel to the next meeting.. :-XLike their double barrel 700 NE!!
Like the self sacrificing Marter in a Greek Tragedy. He wants to be the President of the ECB aft JCT leaves in Noverber!!!
Europe is still feeling the impact of the recession as two more countries struggle through their financial crises. Both Spain and Portugal face possible bailouts even after selling off some of their debt in auctions on Jan. 12 and Jan. 13.

European Central Bank President Jean-Claude Trichet is calling for an increase in the European Financial Stability Facility, which is an emergency bailout fund for the euro zone countries. Only 10 percent of the 440 billion euro (590 billion) fund has been tapped into, and that 10 percent went to Ireland.

Spain and Portugal could be next on the bailout list. So what are some options that could help ease their debts? Here are pros and cons of some of the things they can do.

Selling debt

Selling debt in Europe is the same process as in the United States. Anyone -- nations or individuals -- can buy debt, such as a Treasury bond, which will be paid back with interest by the entity selling the bond. In the short term, selling bonds is considered a good move because it can instantly give countries some cash flow in their treasuries. It does add to the debt later however, because when investors cash in, they are repaid with interest. The sellers, in this case Spain and Portugal, assume they will have more money later to repay the loan. Selling debt increases the cash flow to Spain and Portugal's treasuries. Both sales were successful and stock markets in Europe went up as a result. It was a win-win situation for Spain and Portugal's economies at that point.

The downside of selling bonds is that they will still have to be repaid in the future. Selling debt now will work to bring in money in the short term, but in order to pay for the debt, Spain and Portugal will still have to take measures to to cut their budget deficits and increase their income. Selling bonds is like taking a loan; it allows them a little extra time to figure out the more intense actions they'll have to take to decrease long-term debt.

Bailout

A eurozone bailout is another option. This would come from the European Financial Stability Facility (EFSF). Should Spain or Portugal tap into the bailout fund set aside for Euro member countries, they could be loaned billions of dollars to help them stay afloat. Plus, the European Central Bank can keep interest rates lower for the loans, making them easier to be paid off.

But each bailout agreement comes with specific regulations and requirements. There are strings attached to bailouts, of course. Ireland, which received a 67.5 billion euro bailout at the end of November, must use its own cash reserves and dilute its pension fund to help cover assistance from its neighbors. According to the AP, Ireland will contribute 17.5 billion euros toward its own bailout cause. When Greece accepted terms from the European Union for accepting the bailout, the ensuing (and required) austerity measures caused mass riots.Greece already had a 20 percent unemployment rate, and people were not happy about having to cut back on top of that.

Refinancing

Refinancing is a way to stave off the maturation of a loan. Bloomberg reports many companies run by the government in Spain have loans due in four years. Refinancing with a different government loan would take the remainder of the terms of the loan and spread it out over a longer period. Spain would still have to pay back the loan but the payments would due further in the future. For the life of the refinanced loan, more interest would be paid because Spain is lengthening the loan, as opposed to paying it off, which would increase the country's debt.

The downside to refinancing is that the government's credit rating may take a hit. Should they need to take out excessive loans to stay in operation, Spain and Portugal may find it harder to get them because the interest rates will have risen.

Finance ministers met this week to discuss increasing the bailout fund and how to deal with increasing debt in the future. So far, they remain mixed. Germany and France are suggesting the euro zone doesn't need to increase the bailout fund, while others say potential bailout for Spain and Portugal could wipe it out. Finance ministers will continue to discuss the issue and hope to come to a conclusion over the coming weeks.

[bimetalaupt]

AGAIN!THE ECB IS NOT MAKING ANY PROGRESS WITH THE VERY WEAK BANKING SYSTEMS ESP THE PIIGS..THE STRESS TEST FOR THE LARGEST BANKS LATER THIS YEAR WILL BE very bad. ECB will have to cheat to get the German and French banks to pass.  Many of these are part owned by the Federal governments like RBS or German Landis Banks. Lack of lending power has produced a very weak economic period in the EU.

Bruce

BANGALORE (Reuters) - The European Central Bank will not stop sterilizing bond purchases it made at the height of the euro zone's debt crisis, a majority of euro money market traders polled by Reuters said.

The ECB bought bonds of some troubled peripheral countries through its Securities Market Programme (SMP) in an attempt to counter spiking yields as the crisis worsened.

In order to keep the money supply stable and avoid fuelling inflation, it "sterilizes" the purchases by offering deposits equal in value to the government bonds it holds.

Eighteen of 23 traders polled expected the central bank to continue doing that, while only five said it would stop.

Some economists and investors had expected the ECB to announce a halt to sterilization at last Thursday's monthly policy meeting, to boost excess liquidity in the financial system and help bring down interbank lending rates.

In the event, it left interest rates on hold and unveiled no other measures to bolster the fragile euro zone recovery, and ECB chief Mario Draghi said the benefits of not sterilizing would be "relatively limited".

The poll predicted that banks will repay 4.0 billion euros ($5.5 billion) of the ECB's three-year emergency loans next week, less than half the 11.4 billion euros they are set to return this week.
 
The euro zone's central bank pumped over a trillion euros into banks' coffers in two long-term refinancing operations in

[bimetalaupt]

CONTINUING BANKING CRISIS PORTUGAL ETC ETC ETC..

Huge Step Taken by Europe’s Bank to Abate a Crisis

FRANKFURT — The European Central Bank on Thursday took its most ambitious step yet toward easing the euro zone crisis, throwing its unlimited financial clout behind an effort to protect Spain and Italy from financial collapse.
Mario Draghi, the president of the central bank, won nearly unanimous support from the bank’s board to buy vast amounts of government bonds, a move that would relieve investor pressure on troubled countries but also effectively spread responsibility for repaying national debts to the euro zone countries as a group.

The decision propels political leaders farther down the uncertain and winding road toward a Europe with centralized control over government spending and economic policy, instead of a collection of nation states that sometimes seem to share little more than a currency and a slumping regional economy.

Mr. Draghi demonstrated once again that he may be Europe’s most powerful leader, perhaps the only one capable of brokering an accord among politicians whose national concerns and mistrust of one another have allowed the crisis to boil for two and a half years.

But there is a risk once again that monetary policy is moving faster than political leaders are able to create the institutions, such as a European bank supervisor, needed to ensure the survival of the common currency.

For the central bank itself, the pledge on Thursday to buy bonds from sovereign states, in conjunction with a fund financed by governments in the 17 European Union nations that use the euro, is a major evolution from its original narrow mandate to restrain inflation.

The bank and Mr. Draghi had the quiet support of all European leaders in taking this latest action, aimed at keeping bond speculators from driving Spain and Italy into budget-blowing borrowing costs. “The euro is irreversible,” he repeated several times Thursday.

Angela Merkel, the chancellor of Germany, voiced her approval during a visit to Spain on Thursday — a crucial victory for Mr. Draghi. But among German political leaders and citizens, widespread fear remains that they might some day wind up paying the bill if any country defaults on debt held by the central bank.

The bond-buying plan immediately reduced the financial pressure that had been building on Spain and Portugal, even though those countries have not sought protection. The effective interest rate on Spanish 10-year bonds fell below 6 percent for the first time since May, and the corresponding Italian bond fell below 5 percent for the first time since April. American and European stock indexes also rose.

[Virgil Showlion]

Mr. Draghi demonstrated once again that he may be Europe’s most powerful leader, perhaps the only one capable of brokering an accord among politicians whose national concerns and mistrust of one another have allowed the crisis to boil for two and a half years.

GO, GO, Super Mario! ...as they say on ZH.