Jew World Order

17.14 The IMF added that the Spanish bank bail-out would take
government debt to 97pc of GDP by 2015, from 68.5pc in 2011. On Spain’s
new austerity measures, the IMF said:

Staff expects the new fiscal consolidation measures to have a significant
impact on growth, especially in 2013. While the large role of indirect taxes
should lead to a relatively low multiplier, preliminary estimates suggest
that the level of output would be lowered by about 1 percent by 2014.
Unemployment would also increase, although this might be mitigated by the
effect of lower social security contributions and unemployment benefits, as
well as the recent labor market reform. The VAT increase, combined with
electricity price increases, will also lead to temporarily higher inflation.

16.58 Spain’s fate rests on its ability to implement austerity measures
and steps being taken at the European Union level to calm bond markets, the
IMF has concluded in its latest report on the Spanish economy. In its 86
page report, the IMF said:

All in all, the Spanish authorities have been proactive in the adoption of
measures throughout the crisis, with a significant intensification in recent
months […] Nevertheless, ultimate success will hinge also on continued
progress at the European level in strengthening the currency union and in
reducing stress in sovereign debt markets.

16.01 Will Hedden at IG Index comments on today’s market movers:

After a stellar performance yesterday, we have seen further gains for
equities across Europe. Rumours that were kick started in the French press
that the ECB was getting active in the Spanish and Italian bond markets, and
also that Messrs Hollande and Merkel were effectively backing up Mario
Draghi’s comments from yesterday, have lifted us into the weekend. Once
again we have seen strong rhetoric from the main cast of Eurozone
characters, and once again the market jumps in hope of action resulting from
words. Many will take the opportunity to cover shorts and reposition ready
for another move back down to the bottom of the range.

Attention has understandably turned to the festivities surrounding London’s
Olympic party starter this evening. The financial district had an eerie calm
about it this morning, reminiscent of the usual summer slowdown we
experience in August or at Christmas. With this reduced workforce comes
reduced volume and the increase in volatility that logically follows. This
week has been a tricky one, with the sharp falls early on edging up the fear
factor and reminding many of the start of August last year. So far mass
panic has been halted, but there is still plenty to be nervous about when
economic fundamentals (like today’s 24.6% Spanish unemployment release)
remind us that “that Friday feeling” can be somewhat superficial.

15.15 Today’s award for the amount of times you can deny you need a
bail-out in two sentences goes to Spanish government spokeswoman Soraya
Saenz de Santamaria:

There is not going to be a bailout and a bailout is not an option […] The
option of a bailout is ruled out [even though] much has been written in
recent weeks about the subject of a bailout and outside intervention.

15.05 Despite the caveats, stock markets are climbing again. The IBEX
35 is up 3.6pc, while the FTSE Mib is up 3pc. The FTSE 100
in London has ticked up 0.6pc today.

In America, the Dow Jones Industrial Average is trading slightly
higher, at 12,969.70.

14.40 Note that they reiterated Wolfgang Schaeuble’s earlier
comments that “Member States must fulfill their obligations to this end”
(see 12.09).

14.26 German Chancellor Angela Merkel and French President Francois
Hollande are singing from the same hymn sheet as Mario Draghi.

Following a teleconference between the two leaders, they said in a statement:

France and Germany are fundamentally tied to the integrity of the euro
area. They are determined to do everything to protect it.

Member States must fulfill their obligations to this end, as must the
European institutions, according to their prerogatives, .

They reaffirm the need for rapid implementation of European Council
conclusions of 28 and 29 June.

13.45 Here’s some reaction from economists (courtesy of Reuters):

Peter Cardillo, Rockwell Global Capital:

The number is a bit better-than-expected, but still the consumption is
weak. This number may not prompt the Fed to take action next week, but the
economy is quite weak, muddling along growth levels. So next week, there may
be no action. If the economic data next week continues (to be weak), then
probably the market can keep their hopes up that Fed would eventually resort
to more stimulus.

Brian Kim at RBS Securities:

The outlook for U.S. economy looks challenging based on the data. The
revisions to GDP data are relatively small and, overall, the report doesn’t
change core expectations that the Federal Reserve will do a further round of
easing.

13.31 BREAKING

The US economy grew by 1.5pc in the three months to June, its
slowest rate of growth in a year, according to the US Commerce department.

This follows a revised 2pc (from 1.9pc) expansion during the first three
months of the year.

Although the reading was better than the 1.4pc expansion forecast by
economists surveyed by Bloomberg, it was dragged down by a sharp
slowdown in household spending, which accounts for 70pc of US GDP.

12.47 The plot thickens.

Rumours of a full-scale Spanish bail-out have resurfaced this
afternoon, with sources telling Reuters that the country may need a
€300bn rescue if borrowing costs remain elevated.

Luis de Guindos, Spain’s economy minister, was said to have
mooted the idea at a meeting last week with German counterpart Wolfgang
Schaeuble. The EU official said:

De Guindos was talking about €300bn for a full programme, but
Germany was not comfortable with the idea of a bail-out now.

The idea of a Spanish bail-out beyond the recapitalisation of its
battered banks was first
reported by Spanish daily elEconomista, which said that the rescue
would initially come in the form of a €100bn loan from the eurozone’s
temporary bail-out pot, the European Financial Stability Facility (EFSF).
The rest would become available once the European Stability Mechanism
(ESM) came into effect, the paper said.

12.09 Wolfgang Schaeuble, Germany’s finance minister, has also endorsed Mario
Draghi’s comments – but only if governments hold up their end of the
bargain. He said in a statement:

The precondition [for Draghi’s vow] is that politicians also take
and implement the necessary measures to overcome the financial and
confidence crisis.

He also praised Ireland’s return to the debt market, and Spain
and Italy’s efforts to put their public finances in order.

11.56 The comments by the German government have reversed most
of this morning’s sell-off. The IBEX is now flat, while the FTSE Mib is up
by 1pc.

11.38 French president Francois Hollande has confirmed that he
will talk to German Chancellor Angela Merkel about help for Spain at
noon today.

French
daily Le Monde reported this morning that the talks would include ECB
bond buying of Spanish and Italian debt.

11.25 Meanwhile, German finance ministry spokeswoman Marianne
Kothe highlighted that the eurozone’s temporary bail-out pot, or European
Financial Stability Facility (EFSF) was available to buy the sovereign
bonds of its members.

11.15 The Bundesbank may not be in the most generous of moods
this morning, but the German government is doing its best to keep
positive sentiment flowing through the markets.

Georg Streiter, deputy chief government spokesman, told reporters that Germany
would do “everything that is politically needed” to help the
euro. He said:

The president of the ECB said the ECB will do all that is necessary to
maintain the euro and the German government will do all that is politically
needed to maintain the euro […] The ECB makes its contribution and the
German government makes its contribution.

10.56 Stock markets may have fallen, but Draghi’s comments are
still having some effect on the bond market. Spanish ten year
borrowing costs aren’t as low as they were this morning, but they’re still
below 7pc, at 6.93pc.

I’ll keep you updated.

10.51 So, the rally has come to an end. The IBEX 35 in Madrid
has fallen 1.8pc, while Germany’s DAX is down 0.8pc.

The question now for the markets is: who do they believe? Super
Mario saying that the ECB will do “whatever it takes” to preserve
the euro? Or the finger wagging Bundesbank which has always
hated the prospect of the ECB hoovering up more peripheral debt?

10.32 The Bundesbank also poured cold water over any idea of the
eurozone’s permanent rescue fund – or European Stability Mechanism (ESM)
– getting
a banking licence so it could tap central bank funds. It said:

A banking licence for the bailout fund would factually mean state financing
via the printing press and would be a fatal route, which therefore is
prohibited by the EU treaty.

10.26 More from the Bundesbank. A spokesman said:

There haven’t been any changes in our positions on bond purchases of the
Eurosystem, bond purchases by the EFSF, or giving a banking licence to the
ESM […] The Bundesbank has repeatedly expressed in the past that it views
bond purchases critically because they blur the line between monetary and
fiscal policy.

10.08 Italian borrowing costs have eased at a short term debt auction
this morning. The country sold €8.5bn of six-month debt at average yields of
2.454pc, compared with 2.957pc at an auction last month.

The number of bidders per bond on offer remained steady, at 1.61.

10.04 The Bundesbank has also stuck its oar in. A spokeswoman
told Bloomberg this morning that Germany’s central bank hadn’t
changed its stance on bond purchases by the ECB. Another spokesman
told Reuters:

The Bundesbank continues to view the SMP in a critical fashion.

Jens Weidmann, Bundesbank President, has expressed doubts over the effectiveness
of bond purchases in the past. Earlier this year, he said that it was
not the ECB’s job to tackle Spain’s problems. He
told Reuters in an interview:

The limits of the SMP have become apparent […] At the same time, the
programme has not been ended by the ECB Council. Benoit Coeure described
that.

09.54 The Draghi backlash has started. And guess where it’s
coming from?

Die Welt’s Jörg
Eigendorf compares the ECB this morning to a “Trojan Horse”
(caution – via Google translate – Herr Evans-Pritchard isn’t around this
morning)

The ECB thus emerges as a Trojan horse. It is no longer for stability and
adherence to principles, but for a Europe in which the South has the final
say. The result will be borne by a gigantic redistribution of the North –
without any of the problems would be solved.

While our Brussels correspondent Bruno Waterfield highlights this in
today’s Handelsblatt:

09.40 The world’s largest economy is expected to have expanded at its
slowest pace in a year in the second quarter, as Americans cut back on
spending amid a weaker jobs market.

The US economy is expected to have expanded by 1.4pc during the three months
to June, following a 1.9pc expansion in the first quarter.

We’ll bring you the data at 1.30pm UK time.

08.51 More from SocGen:

2. Non-recourse repos: A less widely discussed possibility is that of a
non-recourse repo [where collateral alone will secure the debt]. This could
at least cosmetically alleviate some of the financial fragmentation that
Draghi referred to in his comments, allowing banks across the euro area to
buy peripheral debt and repo it, placing at least part of the credit risk on
the ECB’s balance sheet.

3. SMP with EFSF/ESM guarantees: For those looking for leverage of the
EFSF/ESM, this is one way to do it. The idea would be for the ECB to
purchase, for example, €100bn of government bonds and for the EFSF/ESM to
guarantee €20bn of first losses on this amount. In our opinion, however,
this solution would make it even harder to package the placement of
sovereign risk on the ECB’s balance sheet under the heading of securing
proper transmission of monetary policy. Moreover, such a solution would
require a change to the EFSF/ESM ‟ something that would take time. We thus
attach a low probability to this solution.

08.41 Economists have also had more time to chew on Mr Draghi’s words.
In a note today, Michala Marcussen and Anatoli Annenkov at
Societe Generale state that Mr Draghi and the ECB must put
their money where their mouth is. They outline three main ways they can do
this:

1. Re-opening the SMP: SMP was last active in early 2012 and the ECB’s
dislike of the measure is only too clear given the three well-known hurdles.

Article 123: The EU Treaty that prohibits the ECB from funding governments.
The ECB has been very careful to reference the proper transmission of
monetary policy as justification for the usage of the program language that
Draghi repeated yesterday.

Conditionality: Last summer, the ECB was thrown into a very uncomfortable
situation with Italy having to remind then Prime Minister Berlusconi of the
importance of respecting the budget targets agreed with the European
partners.

Politics: The credit risk on the government bonds held by the ECB
ultimately fall back to the individual member states through the ECB’s
capital key. If the ECB were to aggressively buy peripheral bonds in large
volume, it could be seen as circumventing the national parliaments.

08.28 Jobless rates across Spanish regions vary vastly. In
Andalucía the rate is now close to 35pc, while in the north African
enclave of Ceuta it is close to 40pc.

By contrast, the unemployment rate in País Vasco in the north of
Spain, is 14.6pc.

08.16 The unemployment rate in Spain touched a record high of
24.6pc over the second quarter, from 24.44pc in the previous quarter.

08.11 The FTSE 100 has opened up 0.2pc at 5,582.63, while the IBEX
35 in Madrid is up 0.61pc and the FTSE Mib in Milan is up 0.8pc.

Spanish borrowing costs have also fallen further this morning. Ten year
yields are hovering around the 6.7pc mark. while two year borrowing costs
are currently at 5.5pc.

Italian ten year borrowing costs have dipped back below 6pc.

08.05 It’s the morning after the night before, and so far markets have
picked up where they left off.

There was a huge rally in global markets yesterday, fuelled by Mario
Draghi‘s comments that the ECB will do “whatever it takes” to
save the euro. Ambrose
Evans-Pritchard writes that the euphoria is unlikely to last:

The euphoria is unlikely to last long unless the ECB comes through with
concrete action after its pre-holiday meeting next week. Angel Gurria, head
of the OECD, honed in on Mr Draghi’s caveat, saying the legal constraints
are the nub of problem. The ECB must “explore the flexibility of its
mandate”, he said.

Others were blunter. Marc Ostwald from Monument Securities said Mr Draghi’s
words were “cheerleading bluster”, while Gary Jenkins from
Swordfish called them “a bluff to get through the summer”.

“Spain is very close to the precipice, and its pretty much game over
already, ” said Mr Jenkins. “Today’s action was a short-covering
rally. The real trick is get bond investors to come in alongside the ECB,
and that is much harder.”

08.03 Good morning and welcome back to our live coverage of the
European debt crisis.

Debt crisis
live: archive