European Bank crisis

[Lord Beria3]

I agree that the ECB can print just print funny money to solve a purely financial banking issue.

The bit we should worry about is the politics.

Should a anti-Euro party get into power in Italy, that could lead to a renewed political and inevitably a economic crisis of the eurozone.

My take on it.

[johnhemming2]

By the time the ECB decides to fire up the printing press

Electronic money.

[raspberry-blower]

More interesting reading over at Wolf Street

First, Don Quijones: Big European Banks try to block Contagion from Italian bank crises

Meanwhile, things have gotten so bad at Italy’s third biggest bank, Monte dei Paschi, that it was just removed from the Euro Stoxx 600 after getting top honors in the ECB’s stress test. Under a stress scenario its Common Equity Tier 1 (CET1) slumps to negative 2.44%. In other words, the world’s oldest bank is not just insolvent in an adverse scenario; it’s insolvent right now.

This realization prompted yet another stampede out of Italy’s banking equities. On Thursday, Italy’s government responded by issuing blanket denials in an almost slapstick attempt at damage control.

This highlights one of the major difficulties in the proscribed ECB way of bank bail-ins and converting some of the debt to equity. This is based on the assumption that investors are rational and would sit tight. There are times when this does not ring true and instead there is an ensuing rush to the exits that make the situation worse. Which is what is highly likely to happen with any Italian banks after a recapitalisation.

Then Wolf Richter asks a really pertinent question:
Who benefits the most from Italy's banking crises?

Some familiar names crop up - as for the size of the fees paid thus far by just one bank:

But it would only be the latest installment. In 2015, Monte dei Paschi paid €130 million in fees to a group of investment banks for raising €3 billion in fresh capital, according to Thomson Reuters data. And in 2014, it paid €304 million in fees for its €5 billion capital infusion. So €434 million in total. Those deals were orchestrated by UBS.

With the current fees, the total rises to €984 million ($1.09 billion at today’s exchange rate). With a little extra effort they could hit the €1 billion mark.

[raspberry-blower]

Golem XIV: A Note on Deutsche Bank

So if Deutsche is not going to be declared “no longer viable” what are the alternatives?

One option is the UniCredit route. UniCredit was a trillion euro bank. It was Italy’s flag carrier. It had bought Bavaria’s banks and some of Austria’s as well. And yet it’s share price was always paltry. Just 7.6 Euros at the market top in May ’07. And since then it has been a hollow and enfeebled giant. Lumbering and ineffectual. It has been the laughing stock of European banks. But Italy doesn’t seem to mind. They seem content to let UniCredit be the quintessential Zombie bank. Would Germany be as sanguine to leave Deutsche to go the same way? This would, I suggest, be almost as injurious to German pride and industrial policy as letting Deutsche go down completely.

But if Germany decided it could not face the financial consequences of obeying the letter of the resolution law nor leave the bank to be a bloated and useless zombie then the alternatives bring in their train even greater political upheavals. Imagine the German government decides that not bailing out Deutsche just inflicts too much damage on Germany – potentially reducing Germany from the front rank of globally significant nations to something lesser. It becomes a matter of national pride if not of survival.

The options open to Deutsche Bank - none of them are good

[emordnilap]

Golem XIV: A Note on Deutsche Bank

So if Deutsche is not going to be declared “no longer viable” what are the alternatives?

One option is the UniCredit route. UniCredit was a trillion euro bank. It was Italy’s flag carrier. It had bought Bavaria’s banks and some of Austria’s as well. And yet it’s share price was always paltry. Just 7.6 Euros at the market top in May ’07. And since then it has been a hollow and enfeebled giant. Lumbering and ineffectual. It has been the laughing stock of European banks. But Italy doesn’t seem to mind. They seem content to let UniCredit be the quintessential Zombie bank. Would Germany be as sanguine to leave Deutsche to go the same way? This would, I suggest, be almost as injurious to German pride and industrial policy as letting Deutsche go down completely.

But if Germany decided it could not face the financial consequences of obeying the letter of the resolution law nor leave the bank to be a bloated and useless zombie then the alternatives bring in their train even greater political upheavals. Imagine the German government decides that not bailing out Deutsche just inflicts too much damage on Germany – potentially reducing Germany from the front rank of globally significant nations to something lesser. It becomes a matter of national pride if not of survival.

The options open to Deutsche Bank - none of them are good

Yeah, great article, as always.

[Lord Beria3]

This is starting to look serious.

Serious analysts are talking about a worse than Lehman moment if DB goes down.

Apparently the bank has around 60 trillion derivatives on its books. This is HUGE.

[emordnilap]

The usual story. If it's too big to fail, it's too big. No-one learns.

[Little John]

What is going to be really interesting to watch is how Merkel deals with it. If she intervenes to shore up the German banking system and, more importantly, the German economy, in a way that she and other Northern European leaders have pointedly refused to allow with the Southern European states, this will finish the EU project stone dead in its tracks. It will be over. I think this is what is going to happen. I think this is what was always going to happen. Which was one of my main motivations for voting Leave. That is to say, before the shooting starts.

I dare say everyone else will also have noticed the government have quietly backtracked on reducing the deficit and debt and now have no target set. May also knows what is coming and is doing away with targets that are now going to be utterly unachievable in the context of the storm that is heading this way. However, she is also a pragmatist and knows we are as likely, if not more likely, to fare better outside of the EU as in it when the shit hits the fan (that and the fact there is a very real risk of riots in this country if there is any significant backsliding on Brexit). Which, I would guess, will be sometime in the next 12 months

[Lord Beria3]

http://www.telegraph.co.uk/business/201 ... ied-benea/

The International Monetary Fund warned in July that Italy faces a second Lost Decade lasting into the mid-2020s. With public debt already at 133pc of GDP, it has “very little room to cope with shocks”. It is this stagnation that is incubating a populist revolt. The EMU establishment lost the Right long ago. The Lega Nord’s Matteo Salvini – running at 13pc in the polls – told me the euro is a “crime against humanity” no less.

Now they face a bigger threat from the new “Left”. The Five Star movement is shaking the system with an openly eurosceptic platform. It might well come first in an election. That would give the party an extra “premium” of seats under the current electoral law, allowing it to form a government on its own.

Whether or not Five Star would try to force a referendum on the euro –technically illegal – its radical plans to repeal labour reform, to hold down energy and transport costs, and to pursue anti-capitalist policies in industry and banking without apology, amount to the same thing. The markets would react instantly.

Debate rages in Italy over what exactly will happen if Mr Renzi loses the referendum. What is clear either way is that Italy’s predicament is intolerable and eventually something will snap.

A weak cyclical recovery, cheap energy, and QE have disguised the festering pathologies. But little has changed and those tailwinds have been replaced by the Trump bond shock. The eurozone remains dysfunctional. There is no fiscal union, shared debt, or genuine banking union. Even its founding economist Otmar Issing has disowned it. “One day, the house of cards will collapse,” he said.

Italy is where it will probably happen.

Looks like Italy is the next EU country to face its own national version of a populist explosion.

How much longer can the EU survive these multiple challenges?

The French presidential elections are looking and only a fool would dismiss Le Pen's chances of winning the elections.

[snow hope]

It is a very sad situation we have arrived at.

The concept of general European Union was such a good idea, ruined by politics, or more specifically by those seeking power through the politicising and then monetising of the EU.

Obviously now, a fatally failed project.

The 4th of December is looking more and more like a critical date for the system...

[raspberry-blower]

Something for Snow:

F. William Engdahl: The Euro is Murdering Europe

The Euro is murdering the nations and economies of the EU quite literally. Since the fixed currency regime came into effect, replacing national currencies in transactions in 2002, the fixed exchange rate regime has devastated industry in the periphery states of the 19 Euro members while giving disproportionate benefit to Germany. The consequence has been a little-noted industrial contraction and lack of possibility to deal with resulting banking crises. The Euro is a monetarist disaster and the EU dissolution is now pre-programmed as just one consequence.

The Euro was designed to fail by its poor design. Trying to fit 19 disparate economies into a one-size-fits-all economic system which is overseen by a remote apparatchik is a recipe for disaster.

Italy'is the country to watch - Beppe Grillo's 5 Star Movement is publically stated to Leave the Euro ASAP

[raspberry-blower]

Zero Hedge (citing The Independent): Italian Bank Warns 30 times for bailout if No camp wins

The No camp won. Renzi has quit.
Big question now: will it be a bailout or a bail-in?
The financial crisis will probably front run the political one - if it is the other way round and Beppe Grillo is in charge of a coalition I would expct the banks to "F*** off!!!"

[Lord Beria3]

A few interesting articles in the likely collapse of the eurozone;

http://uk.businessinsider.com/joseph-st ... uro-2016-8

Europe is heading towards a "cataclysmic event" that could lead to the collapse of the euro and the end of the European project as we know it, according to Nobel prize-winning economist Joseph Stiglitz.

In an interview with Business Insider following the launch of his latest book "The Euro: How A Common Currency Threatens the Future of Europe" — which argues that the European single currency will inevitably cease to be at some point in the future unless drastic changes are made — Stiglitz said that a "disastrous" political event similar to the United Kingdom's decision to leave the European Union could trigger such a collapse.

The problems in Italy's banking system, Stiglitz argues, are endemic of the unnecessary rigidity within the eurozone's rules. "It illustrates one of themes of my book, namely that having a single currency that works well given the diversity of Europe is really hard. And you have to have rules and regulations and politicians that are sensitive to this diversity. The fact is that in most countries the holders of the bonds are sophisticated people who have made returns in excess of the safe rate that represents the risk.

"Italy represents a case where for a variety of historical reasons — and perhaps marketing — among the bondholders there appear to be a lot of ordinary individuals. If that is the case, which it appears to be, when you make them bear the cost you are really going after depositors, like happened in Cyprus, which I think the consensus was was a bad idea.

"A rule that works most of the time, that you ought to let the bondholders bear the cost looks like it may not be the right rule for Italy."

"This is a case where I think the European rigidity may have very high costs both for democracy and for Italy, and for in the end, if there’s a referendum, the future of the eurozone."

Whatever the "cataclysm" that leads to the eventual collapse of the euro and the European project, right now, it looks like Italy is the most probable culprit.

https://www.ft.com/content/5726e610-dec ... fe89910bd6

Mervyn King, the former governor of the Bank of England, predicts the collapse of the eurozone in a book published this week, going further than his well-known private scepticism for the European single currency.
In extracts from The end of alchemy: banking, the global economy and the future of money, he says the burden of debts between nations in the eurozone “may become too great to remain consistent with political stability”.

Highlighting the need for the eurozone to integrate more fully, including significant debt write-offs, he says the process will probably exceed the willingness of the European people to bailout other countries.

“Monetary union has created a conflict between a centralised elite on the one hand, and the forces of democracy at the national level on the other. This is extraordinarily dangerous,” the former governor says.

http://www.independent.co.uk/news/busin ... 64826.html

The Euro currency project is unworkable in its current form and at the risk of “collapse”, its principal architect has warned.

Professor Otmar Issing, the European Central Bank’s first chief economist who helped create the single currency at the turn of the century, has warned that the Euro cannot survive in its current form.

He said the ECB had become dangerously overextended as it tries to manage the 19 economies using the single currency.

The Casey Research team have been writing some interesting reports on why they think the euro is doomed and will crash in value (will reach parity in dollars next year):

https://www.caseyresearch.com/articles/ ... ncy-crisis

Nick Giambruno, editor of Crisis Investing, thinks the euro will plunge in the coming months…

That’s because Italy, one of the EU’s most important economies, could soon abandon the euro. If this happens, Nick says the entire EU experiment could fall apart.

He explained why in the August issue of Crisis Investing:

Italy will likely return to the lira.

If Italy—the third-largest member of the eurozone—leaves, it will have the psychological effect of someone yelling “Fire!” in a crowded theater. Other countries will quickly head for the exit, and return to their national currencies.

Economic ties and integration are what hold the EU together. Think of the currency as the economic glue. Without the euro, economic ties will weaken, and the whole project could unravel.
This would obviously be bad for everyday Europeans. But savvy investors could stand to make a fortune by getting ahead of this coming crisis.

• In August, Nick encouraged his readers to short the euro…

Shorting is when you bet that an asset will fall in value. If you’re right, you make money.

Now, most people think only “sophisticated” investors short stocks and currencies. But Nick found a way to short the euro that’s as easy as buying a share of Wal-Mart (WMT).

Nick’s euro short has returned 3.8% since the ECB’s meeting yesterday. His readers are now up 15% on this trade in just four months. But they could see much bigger gains in the coming months.

• Europe is beginning to unravel…

As we all know, Great Britain voted to leave the EU on June 23. The historic decision rattled markets from Tokyo to New York, knocking more than $3 trillion from the global stock market in just two days.

At the time, most people thought things would quickly go back to normal. But as we explained on June 27, Brexit was merely “a taste of what’s to come.”

The Brexit has paved the way for other countries to leave the EU…

Shortly after news of the Brexit broke, France's National Front leader Marine Le Pen wrote: “Victory for freedom. As I've been saying for years, we must now have the same referendum in France and other EU countries."

Ms. Le Pen is the front-runner to become the president of France next year. Two weeks ago, she said “France has possibly 1,000 more reasons to want to leave the EU than the English."

Politicians in Italy and the Netherlands are also demanding “the right to choose” to leave the EU.
• Last weekend, another domino in Europe fell…

On Sunday, Matteo Renzi stepped down as Italy's prime minister after an important constitutional referendum. According to Nick, Renzi’s decision to resign could mark the beginning of the end for the EU.

He wrote in an alert to his readers on Monday:

The pro-EU Prime Minister promptly announced his resignation after the crushing defeat. A surging populist party waits in the wings. They're now likely a matter of months away from taking power, and then holding a new referendum on whether Italy should dump the euro and go back to the lira. If that happens, Italians will likely vote to leave. Without Italy, the euro currency would likely disintegrate. Without the euro, the whole European Union—the world's largest economy—would likely come unglued.
That same day, Nick said “I expect the euro to tank this week.” His call was spot-on. As we go to press, the euro has fallen 2% since Monday.

One euro will now buy you $1.05 (USD). According to Nick, the euro is now dangerously close to a critical level:

If it breaks below its March 2015 low of $1.046, it would pave the way for it to test parity with the US dollar (which hasn't happened since late 2002)

.

Conclusion - lots of political and banking insiders appear to think that the euro will not last much longer.

A collapse of the eurozone will make Brexit seem like a tea party!!

[snow hope]

Yes, I have predicted the EU won't exist in 24 months. 2017 is going to be momentous.

What is the best way to short the Euro - preferably in regard to GBP?

[Lord Beria3]

http://www.morningstar.co.uk/uk/etf/sna ... 0P0000RRVD

Agreed. I have discovered the above uk based etf that shorts the eur-usd.

This is what Casey Research recommend as the best play as the euro zone starts to implode.