European “breakthrough” rounds out a solid week for Obama?

posted at 12:01 pm on June 29, 2012 by Erika Johnsen

I say “breakthrough,” because I’m taking it with an extremely large grain of salt, but it does appear as if at least some sort of definitive action — good or bad — is going down in the EU. Overnight, European leaders reached a deal to ease the recapitalization of their ailing banks, a move that’s ostensibly going to help bring them back from the brink:

Under the deal, European leaders agreed to create a single supervisory body to oversee the eurozone’s banks which could use the single currency area’s rescue funds, the European Financial Stability Facility or European Stability Mechanism, to aid banks directly without adding to governments’ debt.

European Union leaders are hoping for implementation of the agreement by July 9, an EU statement said.

The deal means Spain’s formal request this week for eurozone bailout funds to recapitalize its troubled banking sector will not add to its sovereign debt. Madrid had feared the increased debt load would send its borrowing costs even higher.Ireland, which hopes to rework the terms of its bailout deal, and Italy, which like Spain is battling with spiraling government borrowing costs, could also benefit from the new deal.

I’m not at all convinced that reshuffling your debt and securities around and essentially just promising more bailouts of one form or another is supposed to solve any real problems. The undeniable fact remains that you’ve all spent yourselves into oblivion, and nobody seems to have any actual money on hand, and everybody just ganged up on poor Germany — the last semi-sane country left over there (for a much more specialized opinion than mine, ZeroHedge is also wildly skeptical, to say the least). But hey, a lot of the mainstream headlines are saying this is progress (so it must be true, right?), and the markets seem to be rallying:

Stocks opened sharply higher, joining a global rally, as a euro-zone agreement to aid struggling banks eased fears about a further lack of progress in addressing the region’s debt crisis.

The Dow Jones Industrial Average jumped 190 points, or 1.5%, to 12793 in the minutes after the opening bell. The gains came on the final day of a solidly down quarter for U.S. stocks, largely due to a steep decline in May.

The Standard & Poor’s 500 advanced 21 points, or 1.6% to 1350, while the Nasdaq Composite rose 52 points, or 1.8%, to 2901.

It goes without saying that the stock market is a fickle thing, but for now at least, any signs of life from Europe — which habitually demonstrates just about the level of willpower it takes to roll over and die — is helpful in registering a blip on the global economy’s lifeline. The global financial crisis is a huge impediment to Obama’s reelection gambit, and Obama needs the global economy to at least look like it’s doing something and reverse the trend of merely terrible economic news.

So, while it was largely agreed upon that President Obama had a terrible few previous weeks, one of Team Obama’s biggest hurdles — ObamaCare’s constitutionality — is finally resolved with the Supreme Court’s left-field ruling on the individual mandate. Adding a strengthening European heartbeat (as misplaced and short-term as that optimism may be) to the week’s political developments is just gravy. Blergh.


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…at least she’s waving…and it’s not the finger!

KOOLAID2 on June 29, 2012 at 12:04 PM

Well, it wouldn’t be the next EU decision to rearrange the deck chairs if it weren’t being overhyped as the Biggest Seismic Shifting Breakthrough EVER In The Whole, Absolutely Completely Entire History Of The Universe.

J.E. Dyer on June 29, 2012 at 12:05 PM

…if JugEars is having a good week…our’s is bad!

KOOLAID2 on June 29, 2012 at 12:05 PM

Adding a strengthening European heartbeat (as misplaced and short-term as that optimism may be) to the week’s political developments is just gravy. Blergh.

That sounds an awful lot like you’re rooting against Europe’s recovery.

tneloms on June 29, 2012 at 12:05 PM

Just vote and stop counting on silver bullets to make it all well.

rob verdi on June 29, 2012 at 12:06 PM

So now Europe will be prolonging their pain.

I have no idea how people so stupid and unable to read history get elected. None. Germany just screwed themselves. I have no idea what “Pressure” Merkel is feeling. Germany should just wave the finger and go back to the Mark. They would recover so much faster than everyone else – including us.

Very frustrating.

Ca97 on June 29, 2012 at 12:06 PM

What happened to the Sheikh and his photo-ops in Colorado today ?
That would be an even gooder event for him , right ?

burrata on June 29, 2012 at 12:07 PM

The Europeans couldn’t break through a wet paper bag with a knife. It’s like they are looking forward to seeing what happens when most of a continent collapses.

platypus on June 29, 2012 at 12:07 PM

Uh yeah. NO. Spain and Italy told Germany to acquiesce to their demands or they would simply block any attempt to do anything. This is beyond shuffling the deck chairs on the Titanic, this is running to the stern of the ship as the water submerges everything in front of you. Soon enough there will be nowhere left to run.

Bishop on June 29, 2012 at 12:07 PM

Holder contempt of Congress Vote and F&F buried by Supreme Court news…
All fingers are pointing to Obama with F&F. Obama is sweating that one.

albill on June 29, 2012 at 12:07 PM

The stocks will come crashing down next week when they see the June jobs report and none of the following months will be anything to brag about thanks to O-tax.

gsherin on June 29, 2012 at 12:08 PM

The alternative headline should be “Progressives agreed to postpone the inevitable blowup until Romney’s term”.

Archivarix on June 29, 2012 at 12:09 PM

That sounds an awful lot like you’re rooting against Europe’s recovery.

Europe’s not going to recover, because what’s ailing Europe is math, and math can’t be repealed. Rooting against Potemkin bailout packages that are cynically designed not to solve the problem but merely to kick the can just a bit further down the road is completely appropriate.

Fabozz on June 29, 2012 at 12:09 PM

Just a band-aid for a gaping wound.

changer1701 on June 29, 2012 at 12:13 PM

by all means, when socialism fails just agree to add even more socialism and give control of your assets to yet another entity.
idiots.

dmacleo on June 29, 2012 at 12:15 PM

what’s ailing Europe is math, and math can’t be repealed.
 
Fabozz on June 29, 2012 at 12:09 PM

 
Well put.

rogerb on June 29, 2012 at 12:15 PM

Why does this give him a good week when every European leader is telling him to mind his own business and fix him own economy?

hawkdriver on June 29, 2012 at 12:16 PM

Breakthrough? I think not.

Because Spain & Italy threw a hissy fit and threatened to take their ball & go…like a particular party we know.

What has been “fixed” here exactly? This did nothing but postpone the inevitable.

ICanSeeNovFromMyHouse on June 29, 2012 at 12:17 PM

That’ll solve their problems alright, yet another brand new unaccountable unelected layer of bureaucrats on top of the already existing unelected bureaucracy.

Don’t count on that working out well for anyone.

Brian1972 on June 29, 2012 at 12:17 PM

That’s what they said with their bailout 6 months ago.

tommyboy on June 29, 2012 at 12:18 PM

The “good news” is that it won’t last. Europe’s problem isn’t debt, it’s solvency. Germany isn’t going to subsidize Greece, Spain, Ireland, Italy, Portugal, et. al. Germany has already been through that exercise with German re-unification, and saving the Euro is an order of magnitude worse. Germany also understands the moral hazard of bailouts, much better than any of the Eurocrats.

There will be a short euphoria, then the train wreck will resume.

NeighborhoodCatLady on June 29, 2012 at 12:22 PM

which habitually demonstrates just about the level of willpower it takes to roll over and die

Nice. I like your style, Erika.

As I read this on the CNN and Telegraph sites, it sounds like they’re just giving these countries free money. I couldn’t even tell if they’d be required to pay it back. Yeah, that won’t destabilize the euro (and by extension, world economies) any further. Not at all.

mrsknightley on June 29, 2012 at 12:23 PM

European “breakthrough” rounds out a solid week for Obama?

Sorry, but having a sitting AG held in contempt of Congress can not be overlooked by a sham display of European unity and problem solving. Obama has had a couple of good days but his problems are far from over. Obamatax remains as unpopular as ever. He will ultimately have to deal with his AG problem and F&F. The US economy is not likely to improve what with the massive Obamatax and taxaggedon looming on the horizon.

Happy Nomad on June 29, 2012 at 12:24 PM

Blergh.

I prefer happy (for us) posts where you can end your post with “Bazinga!”

bluealice on June 29, 2012 at 12:24 PM

Well the USA has more debt than any other country in the world and it happened under bho in less than four years!

I think we NEED to take care of our Republic’s economy before bho sticks his nose in the worlds economy?
L

letget on June 29, 2012 at 12:26 PM

Germany’s excellence in engineering and manufacturing large tracked vehicles with frightening firepower may yet come into play. Again. Sometimes the old ways are the only ways.

a capella on June 29, 2012 at 12:26 PM

Please…spare me…creating more debt to paper over bad bank loans, bank runs and sovereign debt is not a solution…not even close. How many times have we seen this play in the last 3 years. A “deal is reached”, Wall Street goes nuts for two days and then realizes it’s all bullshit..

PatriotRider on June 29, 2012 at 12:26 PM

More can-kicking. They’ll need another “breakthrough” in a couple of weeks.

http://www.fiscalwars.wordpress.com

stout77 on June 29, 2012 at 12:28 PM

Intensive militarization and annexation of a few disputed territories and the whole problem goes away.///

swinia sutki on June 29, 2012 at 12:30 PM

Germany’s excellence in engineering and manufacturing large tracked vehicles with frightening firepower may yet come into play. Again. Sometimes the old ways are the only ways.

a capella on June 29, 2012 at 12:26 PM

That won’t happen. The Leopard II is indeed a class A+ tank, on par with the Abrams, but there is no cultural or political will in that nation to use it for much of anything but parades and NATO exercises.

German troops in Afghanistan were not allowed to participate in combat operations outside the wire, if I remember correctly.

Their politicians kept their NATO obligations by sending troops, but prevented them from being useful to anyone for anything.

This is modern Europe.

Brian1972 on June 29, 2012 at 12:31 PM

New money that does not become actual debt? That is PURE inflation. I did not see this coming…

The first thing I did after reading this post is go to kitco.com. Gold up $44. I actually thought the Euro would break up and give the dollar a boost then gold gets crushed and scares people off while the US spends big on the temporary dollar high. This will cause big time inflation before the election. Obama is too stupid to understand the death of the Euro would help him get reelected as the reorganization would keep the dollar high and gas low… Oh well. I’ll take my cash and buy some more silver now…

Theworldisnotenough on June 29, 2012 at 12:31 PM

Germany is going to throw even more good money after bad and it is good?

Buy Ammo, my friends.

jukin3 on June 29, 2012 at 12:32 PM

I hate it when that happens.

You must be a “racist”.

Bernanke and the European dummies will print money from now until the election.

Send them all packing.

The entire system is fraudulant.

Otherwise, join the party or starve them, completely.

Schadenfreude on June 29, 2012 at 12:32 PM

The horror that hundreds of millions of people might not be thrown into economic turmoil!

The horror of laid off cancer surviving neighbors getting afforadable health care!

Sadness, despair, regret….

tommyhawk on June 29, 2012 at 12:32 PM

Germany should just wave the finger and go back to the Mark. They would recover so much faster than everyone else – including us.

Very frustrating.

Ca97 on June 29, 2012 at 12:06 PM

Germany would recover almost instantly. All they would have to do is honor all their old Deutschmarks. Of which there are billions still unaccounted for probably under mattresses and in safety deposit boxes.

Theworldisnotenough on June 29, 2012 at 12:35 PM

This is painting over black mold with finger paint.

The markets are still in their “hope rally” mode and desperately grab anything that hints at hope.

This does not fix the unemployment and recession issues in Europe.

This does not fix the debt issues. Are they going to just start printing Euros?

This does not fix an exploding welfare state that can’t meet its bills.

But it’s a shiny object, so Wall Street loves it. Today.

PastorJon on June 29, 2012 at 12:40 PM

And, tommyhawk the troll, there already is economic turmoil in Europe.

a) Or did you miss the 50% youth unemployment in Spain?
b) Socialized medicine to provide healthcare for everyone in Greece — except they can’t afford to buy anyone medicine and are THREE YEARS in arrears on their existing pharmaceutical bills?
c) That all the talk of austerity and spending still hasn’t gone down in the UK?
d) No structural reforms exist?
e) All these problems despite massive deficit spending, no defense spending, and cradle-to-grave welfare benefits?

Hmm.

= But let’s apply more of the same medicine – debt-driven artificial spending and malinvestment – that created the problem initially.

= But by all means, cheer that middle class taxpayers across the continent will be ponying up more Euros or guaranteeing more debt so huge amounts can go into bailing out bank bondholders.

Yeah! More malinvestment and protection for the moneyed class that has bought up all politicians! (sarcasm off)

For everyone else, if you want the truth about the Eurozone, read Shedlock. Here is his latest Euro post:

http://globaleconomicanalysis.blogspot.com/2012/06/laughable-text-of-eu-memorandum-of.html

Posts 3-5 times a day, always excellent.

PrincetonAl on June 29, 2012 at 12:41 PM

ONE CURRENCY, with one strongman at the helm is the only thing that could save Europe at this point.

…..but who could that be?

PappyD61 on June 29, 2012 at 12:42 PM

Stock mkt is indeed a fickle thing,
but Dow up is a good thing – right?
Though I guess with the ‘good news is bad news’ angle of this post, it might be cause for frustration.
But as I’ve pointed out before, look on the bright side –
the GOPs 90′s health care initiative just got a the thumbs up from SCOTUS.

verbaluce on June 29, 2012 at 12:48 PM

This does not fix the debt issues. Are they going to just start printing Euros?

Oh, they’ll print. They’ll print like Gutenberg on bath salts. This particular agreement doesn’t involve printing, because they’re still pretending that the ESM is funded (it’s not) and that the EFSF is large enough to cover the entire Spanish banking sector (it’s not). But the precedent for capitulation to PIIGish demands has now been set, so, inevitably, “the printer is coming”, as Ned Stark might say. The only open question now is whether the northern citizenry will just placidly accept their savings being destroyed, or whether they’ll rise up and force their countries out of the euro.

Fabozz on June 29, 2012 at 12:49 PM

More smoke and mirrors. More delaying the pain. More dragging the few economies that aren’t totally in the tank further down in the tank with the rest of them. More never letting a good crisis go to waste.
I always thought the gold hoarders were out of their mind, but its starting to look like they’re onto something. You can’t just wave a wand and erase $100B in debt or get a few trillion in chinese loans and not think there’s going to be a day of reckoning.

smfic on June 29, 2012 at 12:50 PM

It’s a great deal for the EU until Tuesday when someone will say that this deal sucks and then the market tanks again.

crazywater on June 29, 2012 at 1:00 PM

It’s a breakthrough day for a dealer when he gives the junkie another fix.

Because Europe’s crisis is now over, just like it was last month, right?

Right?

MNHawk on June 29, 2012 at 1:03 PM

It’s a great deal for the EU until Tuesday when someone will say that this deal sucks and then the market tanks again.

But in the interim, it gives the banksters a few more chances to find a “greater fool” to offload their worthless paper onto, so mission accomplished! They ought to make can-kicking an Olympic sport… except these guys are all professionals at it, so they’d be ineligible to compete.

Fabozz on June 29, 2012 at 1:03 PM

That sounds an awful lot like you’re rooting against Europe’s recovery.

tneloms on June 29, 2012 at 12:05 PM

This isn’t going to help Europe recover. They’ve run out of other peoples money to spend. Reshuffling the cards isn’t going to make a difference.

chemman on June 29, 2012 at 1:10 PM

smfic on June 29, 2012 at 12:50 PM

Until the government makes it illegal to have gold. It’s not like it hasn’t happened before.

chemman on June 29, 2012 at 1:12 PM

When you add in Supreme Court victories on Stolen Valor, juvenile death penalty, the reinstatement of UVA’s president in defiance of billionaire hedge fund managers who think they know how to run higher education, Obama DREAM Act polic, the successful blockage of attempts to skewer the Camnden Campus at Rutgers University in New Jersey, Pentagon celebrating gay pride and a complete failure of Fast and Furious or contempt hearings to stop an upward tick in polls for Obama (leading by 1 in Rasmussen) its been:

-A gangbusters month for liberalism/Democrats
-A partial win for progressives
-A nightmare for conservatives

I don’t see July being any different.

libfreeordie on June 29, 2012 at 1:13 PM

I’m not a registered Democrat, I don’t particularly like Democrats, I don’t think you’ll see me on this board defending the Democratic party anywhere.
 
libfreeordie on January 13, 2012 at 11:20 AM

rogerb on June 29, 2012 at 1:22 PM

The horror that hundreds of millions of people might not be thrown into economic turmoil!
Sadness, despair, regret….
tommyhawk on June 29, 2012 at 12:32 PM

The horror that millions of Europeans might have to start working for a living.

The horror they might have to survive on 3 instead of 6 paid vacations per year.

The horror they might actually have to wipe their own butts.

Such austerity is just horrible.

tommyboy on June 29, 2012 at 1:23 PM

You know when I saw the headline of Italy and Spain forcing Germany to do something I thought to myself… So how long before Germany runs out of money? I mean this honestly can’t last much longer.

MobileVideoEngineer on June 29, 2012 at 1:27 PM

“The deal means Spain’s formal request this week for eurozone bailout funds to recapitalize its troubled banking sector will not add to its sovereign debt. Madrid had feared the increased debt load would send its borrowing costs even higher.

Say what? has Merkle decided(the only nation in the EU that has the money)to gift Spain the money through the ESF? I cannot see that going over too well with the average housefrau. If its not a gift it can only be a loan no matter what the Eurocrats in Brussels want to call it.

Sounds like more rearranging of the deck chairs to me, I’off to Zerohedge to get their take.

Archimedes on June 29, 2012 at 1:31 PM

This isn’t going to do much good for The One. Half the fools who vote for him don’t even follow what he does at home, let alone overseas. The other half aren’t bright enough to grasp the issue, period (if they were, they wouldn’t vote for him).

natasha333 on June 29, 2012 at 1:31 PM

To Hell with Obama and Merkel!

Schadenfreude on June 29, 2012 at 1:34 PM

Let’s break this down in the near, medium and long term for ease of discussion.

Near term:

Today is the last trading day of the month and the quarter.

EVERYBODY has been having a godawful quarter. Up until this piece of propaganda was cooked up, the leading headline for Asian trading today was:

“Japan’s industrial production contracts by the largest amount since March 2011 quake/tsunami due to European dropping demand for exports .”

Go try to find someone highlighting that bit of news. It would have ended the quarter with all global markets DOWN.

Instead, the financial media are whooping up news that can be more accurately headlined this way:

“Merkel gets migraine – Agrees to memo promising ONE bucket of money for ALL the beggars … IF German parliament, High Court and President agree to it by July 9th.”

But they are getting the rally they need today so they can cook their books for reporting season.

Medium term:

The only government in all of Europe that is not obviously insolvent (Germany) has all the beggar nations who are about to find their countries are being foreclosed on by the their banks asking Germany to “lend them uncollateralized, unsecured and undocumented loans to buy out their loans” so they can continue to buy German products.

Read that again and think about what it means. I’ll wait.

This would be the equivalent of giving everyone in an underwater mortgage position here in the United States all the money they owe to pay off their bank but not requiring them to use their house as collateral for the “payoff” loan and not having to show whether they had any second, third or fourth mortgages.

Supposedly, Germany agreed to do just that in the middle of the night.

Does anyone think this “deal” is going to last past today?
If you do, Bernie Madoff has a new investment scheme he wants to sell you.

Long term:

The European Union and the euro are toast. Don’t take my word for it. George Soros (he who made billions shorting the British pound in the 90′s) a couple of weeks back gave the EU till Labor Day to fix the problem before the whole thing came apart at the seams.
No, this new “deal” does not remotely meet the criteria he set that they would have to form a United States of Europe (U.S.E.) and surrender national sovereignty.

You may have heard about Grexit – Greece leaving the EU/euro – not going to happen.

Germany is now being blackmailed by the same folks with whom it is supposed to form the U.S.E. “any day now”.

RIGHT.

Best move for Germany: Leave the EU/euro and issue a new Deutchemark. The euro will be worth half as much against other currencies the day they do it.

Downside: Germany gets blamed for a global depression which is forming anyway.

Upside: They don’t end up reliving the glorious days of the Weimar Republic.

PolAgnostic on June 29, 2012 at 1:55 PM

It shows that the world learned important lessons from the 2008 meltdown: Now matter what, keep the banks capitalized and the credit markets working. Without that, no other economic recovery is possible. Will this be enough to get them out of their troubles? By itself, no … but it is an important piece of the puzzle. Markets, which have been keenly focused on Europe for some time now, are applauding loudly – Dow up well over 200 pts, and once again 13K is in sight. Will the rally continue? Time will tell, but we’re definitely more confident than just a couple of months ago. Stay bullish.

TouchdownBuddha on June 29, 2012 at 2:21 PM

Zero may think he’s had a good week. Myriad others disagree.

No bounce from Back door Amnesty.

Republicans and 21 Democrats voting to hold Holder in contempt.

4 million plus in donations to Romney since Thursday morning.

No projected bounce at all from Roberts’ Revolting Rubric that initiated Mitt’s surprising Money Bomb.

Yeah, that’s a good week. In Bizarro World!

Jack Deth on June 29, 2012 at 2:23 PM

Funny everyone is having to rely on Germany, the one country who nationalized their banks after the crash and did everything republicans here would have flipped a fuse over if we’d tried it.

Boomer_Sooner on June 29, 2012 at 2:38 PM

That sounds an awful lot like you’re rooting against Europe’s recovery.

tneloms on June 29, 2012 at 12:05 PM

Kicking the can down the road isn’t a recovery. It’s just prolonging the inevitable.

Throat Wobbler Mangrove on June 29, 2012 at 3:04 PM

Funny everyone is having to rely on Germany, the one country who nationalized their banks after the crash and did everything republicans here would have flipped a fuse over if we’d tried it.

Boomer_Sooner on June 29, 2012 at 2:38 PM

What color is the sky in your world? German bank nationalization didn’t solve a damn thing.

Mike Honcho on June 29, 2012 at 3:09 PM

This is what is known as a “relief rally” – after a period of declining markets, the slightest perception of good news sets off a wave of buying from those who have been on the sidelines waiting for a chance to jump back in.

But it is based on nothing at all. NONE of the funds they are speaking of will be available until next year, and the total amounts have not been increased and aren’t close to adequate to cover the various crises. They will not require the bank bailouts to be listed as government debt in the particular countries, and in theory not to have seniority over other debt as in previous “bailouts” (which increases yields [=costs] because it increases risk to buyers of regular government debt), and imposes no strict austerity requirements.

But Merkel lacks the authority to do all this, she must return to her own government which is not about to approve it. And the bailout money may not have formal “seniority” but the effect has been the same in Greece, at least.

Short answer: instead of doing nothing, the EU meeting put a Sponge Bob band-aid on the problem. It should last at least until Monday.

Adjoran on June 29, 2012 at 3:11 PM

May Merkel lose and may she be replaced by a German Hollande.

The fools deserve them.

Schadenfreude on June 29, 2012 at 3:18 PM

“Don’t worry, we’ve just paid the Mastercard…with the Visa card.”

What could possibly go wrong?

krome on June 29, 2012 at 3:51 PM

I’d be real surprised if it isn’t our money* financing this “breakthrough” — timing very suspect.

*that we don’t have

erp on June 29, 2012 at 6:43 PM