Friday, June 1, 2012

This Just In: Austerity Bites, Europe. (I Told You So) See Below for More Details

Germans ease austerity pace for Spain, markets in turmoil 

European Economic and Monetary Affairs Commissioner Olli Rehn delivers a speech during the Brussels Economic Forum conference, May 31, 2012. Europe's single currency must be supported by responsible fiscal policies and closer cooperation between countries in the euro zone to survive and prosper, Rehn said on Thursday. REUTERS/Laurent Dubrule
BERLIN/DUBLIN | Fri Jun 1, 2012 9:31am EDT
(Reuters) - EU paymaster Germany softened its drive for austerity across the euro zone on Friday (Cause it does reality), agreeing to allow Spain more time to cut its deficit while its battles a deepening bank crisis, capital flight and recession.
Irish voters appeared to have backed a European budget discipline treaty in a referendum, a widely expected result which removed one political risk for the troubled currency area but left several bigger ones.
Investors stampeded (HIT PANIC BUTTON, sell sell sell...also called that one) to safe-haven U.S. and German government bonds amid growing worries over Spain's parlous finances and debt-stricken Greece's uncertain future in the single currency area. <MKTS/GLOB>
Asked about a European Commission call to grant Spain more time to reduce its deficit, a German Finance Ministry spokesman said Berlin understood Madrid's difficulties in trying to cut its shortfall to 3 percent of gross domestic product in 2013.
"We support Spain in its efforts to implement the necessary measures. But we also recognise that because of negative economic developments it will be difficult for Spain to reach its goals," spokesman Johannes Blankenheim told a news briefing.
Asked if that meant Madrid should be given more time, he replied: "I think that's what I've been saying. (But who knows really...)
Until now, Germany has taken a hard line with countries missing agreed deficit targets (until they realized austerity bites), worried that accepting failure would weaken the commitment to consolidate and hit market confidence.
But German officials close to Merkel have told Reuters in recent weeks that there is a recognition that some budget goals now look unrealistic and need adjusting to reflect unexpected economic weakness.
New French President Francois Hollande, Italian Prime Minister Mario Monti, U.S. and IMF officials have called for an easing of the austerity (it bites, remember?) drive to refocus on efforts to get the European economy moving.
In Dublin, Irish European Affairs Minister Lucinda Creighton said she was "very, very confident", based on early counts, that Irish voters had approved the fiscal discipline compact in the only plebiscite on the treaty in the 17-nation euro area.
The pact, meant to enforce EU deficit cutting rules more strictly to prevent a repetition of the sovereign debt crisis, was set to pass by a margin of 57 to 43 percent, an official of the junior governing Labour party said. Referendum opponents conceded defeat.
Financial markets are more worried about accelerating capital flight from Spain (we went from Greece to turning back now...buckle your seat belts...until they recap: BUMPY RIDE), which is resisting pressure to seek international assistance for its banks, and about a repeat general election inGreece on June 17 that could lead to that country becoming the first to leave the euro area.
In another day of market turmoil (AKA: Shit hitting fan), German bond yields fell to all-time lows, with investors effectively paying Berlin to park their money in its coffers at negative real interest rates while the borrowing costs of Spain and Italy are again becoming prohibitive. <GVD/EUR>
The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose on Friday to its highest since the launch of the euro at 546 basis points.
Spain revealed on Thursday that investors had moved a record net 66.4 billion euros ($82 billion) out of the country in March alone, before the sudden nationalisation of ailing lender Bankia (BKIA.MC), its fourth-largest bank.
Spanish Treasury Minister Cristobal Montoro sought to sooth markets (there there) by reporting that the country's autonomous regions had balanced their budgets in the first three months and were on track to meet their 2012 deficit target of 1.5 percent of GDP.
The cabinet delayed plans (procrastination station, next stop) to adopt a new mechanism to ease their funding problems and boost their liquidity positions but Montoro said he hoped (hope springs eternal) to present the measure next week. (ha!  yeah, why do something to actually address the problem today when we can wait till next week?  May as well enjoy our weekends, after all...)
Overspending by the regions has been a big factor in the country's fiscal problems, along with mountains of debt owed to savings banks after a property bubble burst.
The European Union's top economic official said the euro zone faced a choice between degenerating or strengthening, keeping up pressure on the region's leaders to take more radical steps to overcome the debt crisis.
"We face either a gradual degeneration of the euro area or a strengthening of Europe's basis, that is the economic union," EU Economic and Monetary Affairs Commissioner Olli Rehn said in a speech in Helsinki. (AHA!  Very telling, thanks very much for clarifying.  Straight talk, compliments of EU commissioner...keeping it real...real something)
The European Commission, the European Central Bank and the International Monetary Fund have stepped up pressure on euro- zone leaders to adopt bolder steps, such as a banking union and a joint deposit guarantee, to ensure the euro zone's survival. (all good idears)
But Germany, keen to limit liabilities to its own taxpayers, has so far resisted such moves. Greater flexibility on deficit reduction targets costs Berlin nothing. (VE PAY NOTHING and WANT EVERYTHING. GOT THAT?)
Whelp, it's official shit hitting fan times two today.  Did youz heed my warning and short the shit outta the market?  If not, I bet you wish you did.  But it's not too late, cause this shit storm is only getting bigger till Europe ACTUALLY DOES SOMETHING besides speak vaguely about potential options that may or may not be implemented sometime in this lifetime.  Sooooooo....Austerity still bites.  And so does reality.  See below for more details.

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