The Currency Wars Reignite

by Tyler Durden

Via Mark J. Grant, author of Out of the Box,
“Always remember, your focus determines your reality.”

                  -George Lucas

 Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. The initial reactions will be a spike in equities and a fall-off in the valuations of the Pound and the Euro to the Dollar. These, however, are first blush reactions as the color fades from the bloom.

It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the “Currency Wars” have reignited.

Keynesian Europe Will Not Muddle Through, Says German Economist

by Gary North

Europe is the poster child of Keynesianism. The southern countries ran huge government deficits for a decade. There was a boom. But that boom has ended. Mediterranean nations are in depressions. These depressions are getting worse.

Hans-Werner Sinn is a German economist. He is known as one of the most pessimistic economists in Europe. But, compared to what is facing Europe, he is a raging optimist.

He spoke at the Peterson Institute. That organization is closer to economic reality than other Establishment think tanks. It allows some bad news to be discussed. Not statistically inevitable bad news, but some bad news.

For Everyone Shocked By What Just Happened... And Why This Is Just The Beginning

Today, lots of people woke up in shock and horror to what happened in Cyprus: a forced capital reallocation mandated by political elites under the guise of an "equity investment" in insolvent banks, which is really code for a "coercive, mandatory wealth tax." If less concerned about political correctness, one could say that what just happened was daylight robbery from savers to banks and the status quo. These same people may be even more shocked to learn that today's Cypriot "resolution" is merely the first of many such coercive interventions into personal wealth, first in Europe, and then everywhere else.

Germany And IMF's Initial Deposit Haircut Demand: 40% Of Total

by Tyler Durden

 












As the President of Cyprus proclaims  to his people that "we' should all take responsibility as his historic decision will "lead to the permanent rescue of the economy," it appears that the settled-upon 9.9% haircut is a 'good deal' compared to the stunning 40% of total deposits that Germany's FinMin Schaeuble and the IMF demanded. This action, his statement notes, enables the rescue of 8,000 banking sector jobs and ensuring the liquidity of the banks, "allowing the economy to proceed decisively to a new beginning." Ekathimerini reports," this is the first time in the eurozone that a levy has been imposed not on the interest of bank accounts but on the capital itself," and was the only way to bridge most of the the gap between the EUR17bn Nicosia needed and the EUR10bn the ESM was offering, though tax on interest in Cypriot banks will also rise to 20-25%. It is the 40% haircut requirement that concerns us the most as clearly going forward that means other nations, starting Monday (or Tuesday given national holidays) see deposit outflows surge, as the willingness to take such steps is now painfully clear.

German Commerzbank Suggests Wealth Tax In Italy Next

by Tyler Durden

While some argue that Cyprus was "one of the biggest money-washing machines for Russian criminals," and others that Cyprus ex-Pat community and energy resources brough deposits (not to say their high deposit interest rates), it seems the European Union (IMF et al.) have decided that the route to crisis stabilization, just as we outlined here over a year ago and updated here, is through a wealth tax.
However, as Handelsblatt reports, the gross distortions of wealth distribution among both core and peripheral nations (evident in the chasm between 'mean' and 'median' net assets - or wealth) makes some nations more 'capable' of 'giving' and as Commerzbank's chief economist notes, median wealth in Italy is EUR164,000 (as opposed to Austria's median of around EUR76,000 and mean of around EUR265,000) meaning that in theory Italy has no debt crisis (with net assets at 173% of GDP) - significantly more than the Germans at 124% - "so it would make sense, in Italy a one-time property tax levy," he suggested.
"A tax rate of 15% on financial assets would probably be enough to push the Italian government debt to below the critical level of 100% of gross domestic product." So there you have it, the 'new deal' in Europe, as we warned, is 'wealth taxes' and testing the "capacity of Cypriots" appears to be the strawman on what the public will take before social unrest becomes intolerable.

Italian Election: Awakening Consciousness?

By John Perkins

Who would have predicted that a comedian-turned-political activist, Beppe Grillo, and the anti-austerity Five Star Movement would win the Italian election? What caused this massive rejection of Prime Minister Mario Monti's austerity policies?

U.S President Obama, German chancellor Merkel, and other European leaders who backed Mario Monti must be puzzling over these questions. The recent Italian elections support a trend I have been describing for several years: a global awakening in consciousness. Voters in Italy resoundingly rejected the two parties that had dominated, both of which advocated austerity and other measures that favor the 1% at the expense of the 99%. The electorate propelled to power the practically unheard of the Five Star Party.

Fed Injects Record $100 Billion Cash Into Foreign Banks Operating In The US In Past Week

Source: H.8

Those who have been following our exclusive series of the Fed's direct bailout of European banks (here, here, here and here), and, indirectly of Europe, will not be surprised at all to learn that in the week ended February 27, or the week in which Europe went into a however brief tailspin following the shocking defeat of Bersani in the Italian elections, and an even more shocking victory by Berlusconi and Grillo, leading to a political vacuum and a hung parliament, the Fed injected a record $99 billion of excess reserves into foreign banks. As the most recent H.8 statement makes very clear, soared from $836 billion to a near-record $936 billion, or a $99.3 billion reserve "reallocation" in the form of cash - very, very fungible cash - into foreign (read European) banks in one week.

Italy Is Not Spain - It's Worse

With Rajoy quietly gloating at his political fraud being off the front-pages thanks to Italian elections, it seems the more we dig into Italian reality, the weaker the story becomes. The meme of the last few years has been that "at least we're not as bad as Greece" and rightly so, for as Bloomberg's Niraj Shah notes today, Greece's poverty rate is a stunning 31% (against Holland's 15.7%). However, while all eyes have been focused on Spain's dismal economy, the sad reality is that Italy is worse than Spain in that its poverty rate is a breath-taking 28.2% (relative to Spain's 27%) - even though the unemployment rates in the two nations are vastly different (Spain 26% and Italy 11.2%). Given this fact it is perhaps not surprising that the 'people' voted against austerity and furthermore, that Italy's CDS has pushed above Spain's for the first time in over a year.

by Tyler Durden

Euro-Land Banks In Trouble

by Tyler Durden

A Record Amount of Bad Loans

A recent study by Ernst & Young has revealed that euro-land banks in the aggregate now hold € 918 billion ($1.23 trn.) in non-performing loans (7.6% of all loans outstanding). E&Y sees about 15.5% of all loans in Spain and 10.2% of all loans in Italy as likely to be in NPL status (this exceeds the most recent official numbers somewhat).
In light of such staggering numbers, the idea to use the ESM for direct bank recapitalization seems somewhat ambitious. This is especially so as the idea to employ the ESM to take over the costs of already bailed out banks is being pushed by a number of euro area members. No doubt Ireland and Spain would be happy to see that (in fact, Spain is already the 'exception' as the ESM is potentially on the hook for € 100 billion for its banks – but this is structured as a loan to Spain's government, not a direct bank bailout).
The problem is that if the ESM wants to retain its AAA rating, it will have to back any financing it obtains from the markets with far higher guarantees if it rescues banks rather than governments. Given that what has been pumped into ailing euro-zone banks to date already amounts to €300 billion,  its official capacity could be quickly exceeded if these existing bailout commitments were taken over by it.

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Taxpayer-funded bank rescues in the euro area so far – the total already amounts to €300 billion, and that is not counting what might be used to bail out Cypriot banks and what may still be required in Italy and Spain (chart via Die Welt).

Europe: The Last Great Potemkin Village Where "The Rich Get Richer, And Poor Get Poorer"

From Charles Gave of GKResearch
 
On the surface, it would seem that the euro crisis has calmed. Markets have rallied since the summer and, to borrow a phrase from Herbert Hoover, “prosperity is just around the corner.” But outward appearances in Europe are like a Potemkin village. Behind the well-scrubbed facades, Southern Europe is in a death spiral. Anyone convinced that the European monetary union has come through the crisis stronger is a victim of the slickest PR campaign in history.
...
Let’s be very clear here: this is what the euro has wrought. This destruction of the non-German industrial bases has taken place with the active complicity of the European technocrats. They did not even realize that France, the EMU’s second largest economy, for example was becoming hopelessly uncompetitive.

Let's go one step further. According to the official GDP statistics the French economy since the beginning of the euro experiment has done as well as the German economy:

Labor Minister Says France Is "Totally Bankrupt"

by Tyler Durden

Things in France must not be very serious, because the French labor minister accidentally let the truth come out a little earlier today. As the Telegraph reports, France's labour minister sent the country into a state of shock on Monday after he described the nation as “totally bankrupt."

Remember: France is one of the supposedly stable countries in Europe.

"Michel Sapin made the gaffe in a radio interview, which left French President Francois Hollande battling to undo the potential reputational damage. "There is a state but it is a totally bankrupt state,” Mr Sapin said. “That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective." It appears that once one wipes out the propaganda and the smooth politico talk, things are bad and getting worse at Europe's core. "Data from Banque de France showed earlier this month that a flight of capital has already left the country amid concerns that France’s Socialist leader intends to soak the rich and businesses. The actor Gérard Depardieu has renounced his French citizenship and decamped to Russia in protest, while David Cameron said Britain will “roll out the red carpet” to attract wealthy individuals. Pierre Moscovici, the finance minister, said the comments by Mr Sapin were “inappropriate”." 

Morgan Stanley On Europe: "We're Getting Worried"

by Tyler Durden

We have noted the similarities between the current risk rally and previous years but Morgan Stanley's Laurence Mutkin is "getting worried" that investors expect the second half of this year to be different (and consistently bullish). Much of the current risk-on rally around the world was sparked by Draghi's "whatever it takes" moment theoretically reducing the downside tail-risk in Europe. Well, systemic risk in Europe is now at recent lows...




and just as in 1H12 and 1H 11, core yields are rising notably, peripheral spreads compressing, money-market curves are steepening, and 2s5s10s cheapening.