After market yesterday, coming from the EU Summit, again the North/South divide is evident with Germany not cooperating with the wishes of the PIIGS (the very same reason Egan-Jones downgraded Germany last week from AA- to A+).
GERMANY WON'T ACCEPT NEW ANTI-CRISIS INSTRUMENTS - GERMAN SOURCE *DJ
However it wasn't just Germany being difficult
- EU LEADERS HAVE AGREED A GROWTH PACKAGE OF 120 BLN EUROS BUT ITALY AND SPAIN NOT PREPARED TO SIGN OFF ON IT - EU OFFICIALS - *DJ
- ITALY WON'T SIGN ONTO GROWTH PACT UNTIL BOND BUYING DEAL
In essence, as mentioned many times before, those who are in the most trouble and the biggest danger to the EU, get the best treatment. What we have above essentially is Italy and Spain refusing to accept a much needed bailout until Germany agrees to buying their bond (obviously through an EU mechanism like EFSF/ ESM or....?)
More...
"EU leaders have agreed a package to stimulate growth in their economies, but Italy and Spain have refused to sign up to it because they want Germany to approve short-term measures to ease their borrowing costs first, EU officials said.
European Council President Herman Van Rompuy announced the 120 billion euros ($149 billion) deal at a news conference, saying it would consist of more capital for the European Investment Bank and project bonds for infrastructure.
But Italy, Spain and some other countries want the euro zone to agree steps to help bring down their high borrowing costs first, including steps to buy their government bonds in order to bring down yields.
"We're in favour of the growth pact and there is a deal on the content, but before we sign it we want a comprehensive deal including short-term measures," a Spanish government official said.
Another official said that France, the strongest backer of the growth pact, had also raised concerns about a deal in part because it does not want stricter measures on budget restraint to be introduced as soon as planned."
And as usual, we get an announcement of a hollow, non-existient plan, sort of like the ESM bailout facility which still has not been ratified by Germany, until then, it is simply "An idea", that the market takes as realty, at least for a while.
Later after market...
- HOLLANDE WITHHOLDS ENDORSEMENT OF EU FISCAL PACT
- HOLLANDE SAYS MUST FIND ALTERNATIVE TO ECB IN CUTTING YIELDS
- DEBT STABILITY MEASURES NEED TO COME FIRST, HOLLANDE SAYS
- HOLLANDE SAYS GROWTH MEASURES `AREN'T ENOUGH'
- EUROPE SHOULD HAVE MORE THAN MARKET ECONOMY, HOLLANDE SAYS
- WE WILL RENEGOTIATE COUNTRY SPECIFIC RECOMMENDATIONS AND WILL ONLY IMPLEMENT WHAT WE AGREE WITH
And as was easily predicted and predictable, the era of Franco-German cooperation is OVER, no more Mer-Kozy.
Later last night....
ES headed higher last night as there was talk that the ESM loan's seniority status, which subordinated all other debt and sent Spanish yields soaring above 7%, is going to be removed (at least in the case of Spanish and Italian bank re-cap loans), but there were few details on this, however it was enough to send ES soaring.
- *EURO LEADERS RENOUNCE SENIORITY ON SPAIN LOANS
- *EURO LEADERS AGREE TO OPEN FUNDS WITHOUT AUSTERITY PROGRAMS
- *BANKS CAN RECAPPED DIRECTLY WITH AID FUNDS, VAN ROMPUY SAYS
And the conditional side...
- *MERKEL SAYS EU LEADERS TO CONTINUE WORK ON LONG-TERM MEASURES
- *JUNCKER SAYS WOULD HAVE `HOPED FOR MORE' FROM EU SUMMIT
- *EU BANK SUPERVISION IS CONDITION FOR ESM LOANS TO BANKS: RUTTE
Apparently for the subordination to be dropped, Spain will have to agree to EU banking oversight.
There is some talk of the ESM needing to be completely re-negotiated and re-ratified by member states as the creditor seniority issue is dropped. It is known that both Finland and the Netherlands must re-approve it and Germany still has not ratified the ESM.
Finally according to Monti, there are no plans to increase the size of the bailout funds from the EU summit.
Reaction in Spanish and Italian debt markets on the European session, Spanish 10-years come down from the >7% level to 6.5 and Italian just under 6%.
As mentioned, those who are in the most trouble hold all the cards. From the German perspective (Spiegel), there's this news piece...
However, he who holds the cash may laugh last. Germany was due to vote today on ratification of the ESM bailout mechanism, now there are calls to delay the vote due to the new measures and confusion "introduced at the EU summit!!! This just goes to show, any agreements can be reached or photo-op/headlines, at the end of the day all Germany has to do is say, "Nein".
In the US this a.m.
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Personal Savings Rate cam in pretty much as expected, US consumers are starting to save again as the savings rate has risen to the highest level of the year or at least since January.
After this report, Goldman Sachs who just yesterday raised their Q2 GDP estimate, lowered it this morning?!??!?!
Yesterday GS lifted its Q2 GDP forecast to 1.7% on better than expected Q1 GDP composition. As for today's data, what a difference a day makes...
"Due to the downward revisions to March and April PCE, we revised down our estimate for Q2 PCE to +1.8% (annualized) from +2.0% previously. This lowered our tracking estimate of Q2 GDP growth to +1.6% from +1.7%."
At 9:45 this a.m. Chicago PMI just barely beat
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