Reuters has got hold of a draft copy of the Troika's latest assessment of Greece, following their recent visit.

No major shocks... international lenders concluded that Greece is on track to hit its targets this year and in 2014, but warns it will struggle to fully return to the financial markets after that date.

The Troika also chides Athens for being too slow to privatize state assets....Here's Reuters' early take: Greece is set to meet its budget targets this year and next but must step up privatizations and public sector reform, the country's international lenders said in a draft report obtained by Reuters on Monday.  The report by the European Union and the International Monetary Fund assessing the country's progress in meeting its bailout goals, said the country's privatization revenue target had been lowered for 2013 to €2bn ($2.59 billion) from €2.6bn euros.  "While progress has been made in preparing assets for privatization, the overall speed of the privatization process remains unsatisfactory," said the report.  The document adds to evidence that the debt-laden country still faces big hurdles to standing on its own feet, despite the fiscal progress made by its coalition government and about 200 billion euros in rescue loans it has obtained from the EU/IMF since mid-2010.  Even though Athens' overall debt outlook remains unchanged as it overachieves on budget cuts, Greece would take several years to fully return to capital markets once funding from the bailout program ends in 2014, the report said....But where are the hundreds of thousands of Greeks, Spanish, Cypriots .. in the streets demanding immediate exit from the euro?   Even in strike-happy Greece, SYRIZA (and far left too -- apparently), the country's second party in popularity, says that Greece's place is in the euro!  And you're complaining, are you, about the Greek/Spanish/Cypriot...-bashing when in each and every of these countries there simply are no popular parties demanding immediate exit from the common currency. I'd say, either Greeks, Spanish, Cypriots...are into masochism or the press is terribly out of tune with what these countries' peoples really want. Each of those countries that you say are bashed would still need to auction their sov. bonds, even if tomorrow they were back to their original currencies. I am certain the bashing would not stop with their their old currencies reinstated.

 

Cyprus’s central bank said lenders would remain closed until at least Tuesday amid growing speculation the Meditterranean island could become the eurozone member to exit the currency bloc.

Officials at the ECB were reported on Wednesday to be considering pulling the plug on Cypriot banks unless the country agreed to a new bailout package.

Jörge Asmussen, the ECB’s chief negotiator, warned that Cyprus’s decision to reject the terms of an €10bn (£8.6bn) bailout meant it could not guarantee support to domestic lenders for much longer.

“We can provide emergency liquidity only to solvent banks and... the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector,” said Mr Asmussen in an interview with a German newspaper.

The threat followed the unanimous voting down by the Cypriot parliament of a rescue package that would have seen the authorities levy a “tax” of up to 10pc on deposits of more than €100,000.

Senior European politicians have expressed hope that a new bailout could be organised, however some have begun to openly discuss the possibility of Cyprus exiting the euro. Austrian Chancellor, Werner Faymann, said he could not “rule anything out for Cyprus”.

German Chancellor Angela Merkel said she expected the Cypriot government to come up with a new rescue plan, but continued to insist it was fair for large depositors in Cypriot banks to face a loss on their savings.

Banks in Cyprus have remained closed since last week and on Wednesday the country’s central bank said lenders would not open their doors until next Tuesday, leaving Cypriots dependent on using ATMs for day-to-day cash.  The prolonged closure of banks has led to widespread fears among senior industry executives that it could undermine confidence in the financial system. Christian Clausen, president of the European Banking Federation, said a way had to be found to reopen Cypriot banks before it was “too late”.

“Everything needs to be solved very quickly. This is a matter of a very few days before it gets too late,” Mr Clausen told Reuters... While the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say:

Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.

UPDATE : Cyprus Popular Bank and the Bank of Cyprus would be split to create a so-called bad bank, one of the officials said.
Insured deposits -- below the European Union ceiling of 100,000 euros -- would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.

Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. hile the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say: Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing.

Russians in Cyprus are getting tired of suggestions from Germany that anyone with a Russian accent here is a Mafioso. They say that claims that the island is simply a money-laundering post for Mob cash are wide of the mark, and that the EU strategy has been purely a political one.
"Since this started happening the German, Dutch, and Scandinavian treasuries have been doing very well while the quotes for southern European ones have gone down," says Andrei Surikov, 30, a financial manager from Moscow who moved to Cyprus three years ago.
"The whole thing is just a dirty political game, and I don't think the EU has estimated the impact of what they have done. The trust has gone now in the whole system."  

 

HABEMUS PAPAM

The White House has just released this statement from President Obama:

On behalf of the American people, Michelle and I offer our warm wishes to His Holiness Pope Francis as he ascends to the Chair of Saint Peter and begins his papacy. As a champion of the poor and the most vulnerable among us, he carries forth the message of love and compassion that has inspired the world for more than two thousand years—that in each other we see the face of God.

As the first pope from the Americas, his selection also speaks to the strength and vitality of a region that is increasingly shaping our world, and alongside millions of Hispanic Americans, those of us in the United States share the joy of this historic day.

Stocks are up big to start 2013 but Marc Faber, Editor & Publisher of the Gloom, Boom & Doom Report, says it ends in tears.

"Either the market is going to correct more meaningfully now or we have a shallow correction and a continuously rising market until July or August," Faber told me via phone from Thailand. If stocks don't pullback soon, he says we risk a repeat of 1987 when stocks rallied 40% into summer only to collapse 41% in 2 months.

"In March of 2009 everything looked horrible, now nobody can find a reason why stocks could go down," Faber claims. "We ask that you should buy stocks when everything looks horrible, you shouldn't rush to buy them when everything looks perfect."

The problem is that it's hard to find anyone claiming the environment is perfect. Even the theme running under the reports of "the masses" buying stocks is that it's a cue to sell, not buy.

Analysts are looking for almost no corporate earnings growth in the current quarter and not much better than that for the balance of the year. The idea that Fed money printing is supporting assets may be true, but the FOMC has given clear guidelines on when the printing will stop. When inflation (as measured) rises past 2% or unemployment falls below 6.5% the Fed will raise rates.

Even if you think the Fed is wrong, there's no basis for calling them liars. A surprise end to Quantitative Easing isn't on the table. It's hard to make much of a case for ebullience beyond the fact of stocks much-hyped journey toward all-time highs.

So what's an investor to do? Faber says it's a matter of allocation and perspective. Stocks have gone very far in a relatively short amount of time. If you caught the rally, he says it's time to trim but not bail out entirely. If you're a Johnny-come-lately to stocks, you're too late as he sees it.

"If you have 100% of your money in equities and you just bought them now, maybe you should reassess your position," says Faber.

Russia's largest oil producer, state-controlled OAO Rosneft, ROSN.RS -0.31%said Monday it has raised $16.8 billion in bank loans and plans to sign a trade-finance package with two international oil traders to finance the buyout of TNK-BP BP.LN -0.01%. Rosneft is acquiring TNK-BP, Russia's number three oil producer, from BP PLC and the AAR consortium of Soviet-born billionaires in deals worth $55 billion in cash and shares that will create the world's largest listed crude producer. Under the deal, agreed to in October, the AAR tycoons will get more than $28 billion when the deal closes in the first half of 2013. BP will hold a 19.8% stake in Rosneft as part of its deal to sell out of TNK-BP.

To finance the purchase of BP's 50% stake in TNK-BP, Rosneft said it obtained a five-year loan of $4.1 billion and a two-year $12.7 billion loan from a group of international banks. Under the agreement, Rosneft said it plans to sign contracts to supply up to 67 million metric tons of crude oil in total for a period of five years, subject to a prepayment. Rosneft would use future oil exports as collateral for the trade financing from the traders. The supplies are expected to commence in 2013, the company said, but didn't provide any financial details of the deal.

If anyone thinks things are getting better then they simply don't understand how severe the problems are.

Everyone talks about the amount of CDS's that have been issued and how they could all be paid without a collapse of the entire banking system. I would expect that every financial institution that has issued CDS insurance has themselves hedged the risk with another institution that has itself hedged the risk they took and so and so on. The NET liabilities of each financial institution would therefore be far less than the CDS's they have issued. The way to do with this is by setting up of clearing house for CDS claims in the event of a default. Any thoughts on this idea, how it would work and how effective it would be? The European Central Bank admitted it had held meetings about providing emergency funding to the region's struggling banks, however City figures said a "collateral crunch" was looming. "If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank. Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding. "The system is creaking. There is a large amount of stress," said Anthony Peters, a strategist at Swissinvest, pointing to soaring inter bank lending rates. MY COMMENT IS : Since The ECB has already acted this week to help the bank liquidity crisis in Europe, bu it did not get the prominence in the media I felt it deserved but it provided 50.7 billion US dollars of 84 day liquidity, I'm publishing this on this blog of mine. Perhaps in these days of numerical inflation 50 billion isn’t what it was! This was from the central bank liquidity swaps I have been discussing for a couple of months and as the funds are in effect borrowed from the US Federal Reserve if the crisis was a western film this stage would see the arrival of the US Cavalry! Whether this will turn out to be Little Big Horn or a triumph remains to be seen."

IMF warns it could hold back bail-out cash without assurances that Greece will fulfil its commitments, but Papandreou is 'unable to give that', while EC President urges Greece to back eurozone package.

Eurozone chairman Jean-Claude Juncker is at the Cannes meeting, and he is not happy with Greece's decision to stop the bail-out process to give the public have a chance to vote. He said: "We took a decision last week as 17 (member states), we can't allow anyone to disassociate himself from that decision." But a pragmatic French official, also at the summit, said there was little chance of stopping them. The best they could hope for was to get the vote out of the way quickly. It is too late to persuade them to go back on the decision to hold a referendum. The idea is that they hold the referendum as quickly as possible and make it about being in the euro.Ben Bernanke said it was "a bit frustrating" to have to watch the Euro debacle from the sidelines and listed it in the run of "bad luck" that had held back US recovery alongside the nuclear accident in Japan and high oil prices. But he didn't give much insight into the Fed committee's thinking on the impact of European woes on the US or on what, if anything, the US can do to help the situation. Sadly he may have been silent because really there isn't much the US can do at all.The US markets seem to be having an unusually normal day. They started mildly up and have stayed there. There's almost a sense of "normalcy" as Americans like to say. No doubt there'll be a huge sell off or rally soon. For the record, the Dow Jones index is up 183 points, or 1.5%, with around half an hour to go.

Meanwhile, back in Europe, tensions are running high... A European Union official has given an interview to a small group of reporters in Cannes, appearing "angry and frustrated", according to the Wall Street Journal. The anonymous official said: I have no words to describe how I feel about Greece. Uncertainty is exactly what we don't need right now. If Greece were going to war tomorrow, they would establish national unity. Well, we are at war. The crisis is that bad. And it's time that Greece put party politics aside and demonstrate national unity. Greece as a country has to make it clear that they want to make the kind of effort that is necessary. If not, they have to bear the consequences. Papandreou, whether consciously or not, has called Europe's bluff. With a potential NO from the Greek people he could bring the European house of cards down. He is in a unique position, in my view, to renegotiate a bailout package with much more favourable terms for his people. And this is something that could benefit many other countries (Italy, Portugal etc). Truly, there can't be no growth in an economy - especially that of Greece - when what is imposed by the troika is no less than a reduction of people's real income by 1/3. Imagine what would happen to us here if the same conditions were imposed. I for one would not be able to pay my mortgage. And, what's more, the Left in Greece could play a vital role if in the end Pap's government falls (they would have to form an interim "national unity" government put together by their president). The New Democracy party (conservatives) are truly responsible for this mess in Greece and its current leader is really a laughable fellow. Let's just hope that it's the people who are favoured this time round and NOT the international markets and/or the banks.

Would Germany subscribe to euro-zone bonds ? The market is hinting at the price of Germany's commitment to Europe. The cost of insuring its debt with credit-default swaps has risen sharply during the past month-and-a-half, to the point where five-year U.K. CDS are now cheaper than equivalent German ones. Although flight-to-safety trades have supported demand for German bonds, the CDS market suggests that might not last long if Germany were to commit to backstopping a common euro-zone bond. There's a further irony in Franco-German demands that all countries in the bloc boost their competitiveness. One of the major imbalances in the single currency is the lack of competitiveness of peripheral countries relative to the core. Unless the core is willing to lose ground here, the region is at an impasse. Saying every country in the euro zone should become more competitive is like saying every child in Lake Wobegon is above-average. A nice idea but it defies the math. Instead, what the Franco-German deal seems to have created is the circumstance under which peripheral countries will be forced out of the single currency. Then again, things were probably heading in that direction anyway.

Five cajas failed Europe-wide stress tests on banks last year. The Bank of Spain has forced them into a round of mergers, reducing their number from 45 to 17 last year. High levels of bad property loans at the cajas are seen as a major risk for Spain as it slashes its budget deficit to stave off fears it will need an Irish or Greek-style rescue from the European Union and International Monetary Fund. Estimates of the cost of recapitalising the savings banks range from €17bn (£14.4bn) to €120bn, with consensus falling in the €25bn to €50bn range, according to Reuters. Economists say Spain could afford that level of rescue without seeking outside aid.The banking sector has so far set aside €88bn to cover losses on total loans of €439bn to real estate and construction. Spain's borrowing costs have soared amid worries that the sovereign debt crisis that forced Greece and Ireland to seek bailouts will spread to Portugal and then Spain. A budget deficit of 9.3% of GDP in 2010 and stagnant growth have added to the worries, though the government is hitting deficit reduction targets and pledges pension and labour reform shortly. Analysts welcomed the promise of caja recapitalisation. "This underpins hopes that Spain is now on the right track," Commerzbank strategist David Schnautz told Reuters.