CYPRUS - The Troika Stick it to Russia

KEY: Appears to be the 'saving' of the insured depositors (crucial to avoid a pan-European bank run) and the crushing of the Russian whale' depositors

Cyprus-Troika Reach Deal 03-25-13 Zero Hedge

DEAL DESIGNED TO NOT REQUIRE CYPRUS PARLIAMENT APPROVAL - Not a Tax

There is talk that there may be no need for the government to vote for this - since it is not a 'tax' but a bank restructuring. It seems they have kept it in the bankers... the ECB (in its independent way) tells the Cypriot NCB what it should do, the Cypriot central bank then restructures its bank how it sees fit - good/bad bank and haircuts where it sees fit - this then gets around need for vote from government AND any possibility of a European Union law (on taxation) being broken...

• Cypriot MP's not held responsible
• Cypriot MP's can't reject terms

PUBLICALLY DISCLOSED DETAILS ARE EXACTLY WHAT GERMANY CALLED FOR - a deal far worse then the original on proposed by the Eurogroup last week - when the banks still existed. So let us get this straight, we have no further information on the actual terms of the deal than we did on Friday afternoon; the government (who rejected the deal last week) has no details of the deal yet; and the actual impairment for the depositors is far worse than last week's rejected deal; and the market is rallying... 

i) Laiki to be wound down;

ii) Bank of Cyprus to survive but with deposit haircuts of up to 40% for the uninsureds, and

iii) deal would see secured deposits in Laiki moved to Bank of Cyprus.

It would appear the week was spent sorting through the names of bank accounts in each bank and the one with the most ending in '-ov' is to be wound down...Laiki

A more granular breakdown of the deal's "accomplishments", but with the same result for large depositors, via Reuters:

1. Laiki will be resolved immediately - with full contribution of equity shareholders, bond holders and uninsured depositors - based on a decision by the Central Bank of Cyprus, using the newly adopted Bank Resolution Framework.
2. Laiki will be split into a good bank and a bad bank. The bad bank will be run down over time.
3. The good bank will be folded into Bank of Cyprus (BoC), using the Bank Resolution Framework, after having heard the Boards of Directors of BoC and Laiki. It will take 9 billion Euros of ELA with it. Only uninsured deposits in BoC will remain frozen until recapitalization has been effected, and may subsequently be subject to appropriate conditions.
4. The Governing Council of the ECB will provide liquidity to the BoC in line with applicable rules.
5. BoC will be recapitalized through a deposit/equity conversion of uninsured deposits with full contribution of equity shareholders and bond holders.
6. The conversion will be such that a capital ratio of 9 % is secured by the end of the program.
7. All insured depositors in all banks will be fully protected in accordance with the relevant EU legislation.
8. The program money (up to 10 billion Euros) will not be used to recapitalize Laiki and Bank of Cyprus.

As Bloomberg further clarifies, uninsured depositors, or those with over EUR100,000 in savings may be completely wiped out: "Deposits below the EU deposit-guarantee ceiling of 100,000 euros will be protected, and

• a loss of no more than 40 percent will be imposed on uninsured depositors at the Bank of Cyprus, two EU officials said.
• Uninsured depositors at Cyprus Popular would largely be wiped out, two other officials said." Farewell Russian oligrach money. We hardly knew ye.

We await final confirmation of the final terms of the final deal once the Cypriot people wake up (and don't forget the ECB 'standard of living' rules).  

JAPAN - Recap Since Shinzo Abe took power and 'Abenomics".

1. Japan is the Globes biggest debtor as a percentage of GDP both in total debt and sovereign debt. it is a magnitude larger problem than Europe,
2. QE 9 and 10 were complete failures. Lessons for the rest of the world,
3. Japan is the "New Front" in Global Currency Wars,
4. Japan is now the Global Front Runner in Outright Monetization (OMF) BOJ was pressured to 'rip up' government debt,
5. Significant Yen Devaluation and Nikkei Market Appreciation,
6. Extremely Aggressive BOJ Policy of 2% Inflation within 2 Years,
7. New BOJ Governor firmly Committed to Monetary Expansion,
8. Japan is in the Third Straight Quarter of recession at -3.5%
9. Japan experiencing first Negative Quarterly Current Account and Trade Deficits,
10. A 50% over-valued Yen has hurt confidence, investment and competitive position.

GERMANY - Anti Euro AfD Party May Cost Merkel in Critical September Election

Germany's anti-euro party is a nasty shock for Angela Merkel 03-10-13 Ambrose Evans-Pritchard, Telegraph

GERMANY - The Euro Crisis Escalation over Cyprus May Politically Cripple Merkel

Germany's Rising Anti-Euro Sentiment 03-10-13 der Spiegel vai ZH

In recent days, FX desk chatter has been of rising concerns over "Germany’s New Anti-Euro Party." 'The Alternative for Germany' party is set to run in the upcoming parliamentary elections in September with a clear goal: "the dissolution of the EUR in favor of national currencies or smaller currency unions." It also demands an end to ESM payments. As evidenced by the recent vote in Italy, voting intentions in Europe are not just ultra-left or ultra-right wing anti-European, but increasingly mainstream. "Democracy is eroding. The will of the people regarding (decisions relating to the EUR) is never queried and is not represented in parliament. The government is depriving voters of a voice through disinformation..." Ultimately, as Der Spiegel notes, however, the party's success will likely have more to do with the state of the common currency as the election approaches. Should the crisis flare up, so too could anti-euro sentiment. That sentiment in Germany now has a political home.

Via Der Spiegel,

Anti-euro political parties in Europe in recent years have so far tended to be either well to the right of center or, as evidenced by the recent vote in Italy, anything but staid. But in Germany, change may be afoot. A new party is forming this spring, intent on abandoning European efforts to prop up the common currency. And its founders are a collection of some of the country's top economists and academics.

Named Alternative für Deutschland (Alternative for Germany), the group has a clear goal: "the dissolution of the euro in favor of national currencies or smaller currency unions." The party also demands an end to aid payments and the dismantling of the European Stability Mechanism bailout fund.

"Democracy is eroding," reads a statement on its website (German only). "The will of the people regarding (decisions relating to the euro) is never queried and is not represented in parliament. The government is depriving voters of a voice through disinformation, is pressuring constitutional organs, like parliament and the Constitutional Court, and is making far-reaching decisions in committees that have no democratic legitimacy."

The sentiment, of course, is hardly new. Euro-skeptics are everywhere these days, particularly in those southern European countries that have been hit hardest by the crisis that continues to plague the common currency. And even in mainstream parties, concerns about the path on which the EU currently finds itself are common. But in Germany, as elsewhere in northern Europe, the most vocal critique of the euro has tended to come from right-wing populist parties.

Prominent Supporters

Alternative for Germany appears to be different, though it has yet to produce a party manifesto. Its impressive list of prominent supporters includes a large number of conservative and economically liberal university professors. The most notable name on the list is Hans-Olaf Henkel, the former president of the Federation of German Industries, but it also includes such economists as Joachim Starbatty and Wilhelm Hankel, who were part of the group that challenged Greek bailout aid at Germany's Constitutional Court.

Main initiator Bernd Lucke, a professor of macro-economics from Hamburg, was a member of Chancellor Angela Merkel's Christian Democrats for 33 years before leaving the party in 2011 as a result of euro bailout efforts. "The current, so-called rescue policies are exclusively focused on short-term interests, primarily those of the banks," Lucke told the Frankfurter Allgemeine Zeitung this week.

Alternative for Germany has not yet formally become a political party, though it reportedly plans to do so in the middle of April. Even then, however, it is not yet certain that the party will be able to collect the requisite number of signatures in time to be included on the ballot in general elections this autumn -- a minimum of 2,000 in each of Germany's 16 states or 0.1 percent of each state's population, whichever is lower. "We will make that decision based on the support we receive," Lucke told the FAZ. "But we have been overwhelmed by the public's reaction thus far."

A Political Home

Even if the party does get on the ballot, it remains unclear whether it will attract significant support. So far, it remains a single-issue party -- and even on that single issue there is a lack of clear consensus on exactly how to proceed.

Still, with concern in Germany growing that the country has become the de-facto paymaster for the rest of the euro zone, Alternative for Germany could attract a fair number of protest votes from frustrated conservatives. Judging by the increasing difficulty Merkel has faced in pushing euro bailout packages through parliament in Berlin over the last 15 months, the level of frustration on the center-right could be growing. Indeed, Lucke has said that he is in touch with a handful of euro-skeptic parliamentarians from the Free Democrats, Merkel's business-friendly junior coalition partner.

Ultimately, however, the party's success will likely have more to do with the state of the common currency as the election approaches. Should the crisis flare up, so too could anti-euro sentiment. That sentiment in Germany now has a political home.

ADDITIONAL SOURCES:

• Is The End Of The ‘Coercive Euro Association’ Taking Shape In Germany? 03-13-13 Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter via ZH

GERMANY - Their Preoccupation with Inflation is More Than It Would Seem

Why Nothing's Getting Fixed In Europe 03-23-13 Danske Bank via BI

One aspect of the German social model is that everyone gets work, but nobody gets a raise (or at least they're small).

This model only works in a world of little inflation, so it's understandable that Germany is so on guard against anything perceived as inflationary.

That being said, you'd think that a stronger periphery would mean stronger export markets. On the flip side, a stronger Eurozone could mean a stronger Euro, which could work against German exporters.

FRANCE - Europe's "Core" Problem

Europe Has A Crisis — And It's Much Bigger Than Cyprus 03-23-13 Markit, Danske via BI

In a way, Europe should be thrilled by the week that was because financial markets barely batted an eye at the crisis in Cyprus.

But Europe has a problem on its hands that's bigger than Cyprus: The economy stinks.

This week we got fresh proof that things are bad or getting worse.

In France, the Flash PMI report (which is a mid-month look at the combined services and manufacturing sectors of the economy) came in dismal, with the output index falling to a four year low

Meanwhile, Germany's economy is the envy of Europe, but even they are not immune to trouble.

You can see its Flash PMI jutted lower this week as well.

INVESTOR SENTIMENT - A World Wide Distrust of Financial Markets Building

BRIC Investors Lose Their Taste for Stocks 03-21-13 Bloomberg Businessweek

Indian investor Nirav Vora had 2.5 million rupees ($45,984) in the Indian stock market six years ago. Today that figure is down by 75 percent after investment losses and withdrawals. Now the 39-year-old father of two in Mumbai, who depends on investment income for his livelihood, is plowing money into government bonds. “The confidence of small investors is rock bottom,” Vora says. “They have no faith in the markets.”

Disappointing economic growth and corporate profits have stocks in the BRIC nations—Brazil, Russia, India, and China—trailing global shares for a fourth year. While the Dow Jones industrial average is trading at an all-time high, the MSCI BRIC Index (MSCI) remains 37 percent below its 2007 peak. Emerging economies “are inherently and structurally more volatile,” says Jagannadham Thunuguntla, chief strategist at New Delhi-based SMC Global Securities. Investors should “realize that bumps on the way are not the exception, they are just the norm.”

Investors in the BRIC countries are losing their appetite for equities even as U.S. households pile back into them. Trading by Brazilian individual investors has dropped to the lowest level since 1999, exchange data show, as the benchmark Bovespa index has fallen 7 percent this year. Russian mutual funds posted 16 straight months of outflows, the most since at least 1996, according to the National League of Management Companies, a trade group in Moscow. “This is a somewhat steady march to the exit,” says Michael Shaoul, the chairman of New York-based Marketfield Asset Management, which is betting that shares in Brazil, India, and China will fall.

More than 59 percent of companies in the MSCI BRIC Index reported quarterly earnings that trailed analyst estimates this year, the fourth-straight quarter of disappointing results. Local investors know that their own economies are not very strong, says John-Paul Smith, an emerging-market strategist at Deutsche Bank (DB) in London. “It’s difficult to find stocks you want to own.”

Romano Allegro, a 57-year-old restaurant owner in Salvador, in northeastern Brazil, grew disillusioned with equities because government decisions hurt his investment in state-run oil company Petroleo Brasileiro (PBR). Allegro first acquired stock in Petrobras, as the company is known, through a state asset sale in 2000 and now owns 128 common and six preferred shares. “I started selling my shares because I lost a lot of money,” Romano says. “The fundamental reasons of all this damage, not only for me but for every Petrobras investor, has a name: government intervention. It destroyed the company’s value and, most of all, scared smaller investors on the Brazilian exchange.” Petrobras common shares have lost 64 percent during the past five years, vs. 7.4 percent for the Bovespa.

Dmitry Sukhov, who runs a Moscow-based firm that advises individuals on global markets, says he stopped buying Russian stocks about 18 months ago. “The Russian economy is becoming less market-friendly,” he says. “Investors were expecting liberalization of different economic sectors, and instead we’re seeing the opposite trend. There’s a sense of disappointment.”

The Shanghai Composite Index has tumbled 31 percent since the end of 2009, the most among the BRIC equity gauges. Former Chinese Premier Wen Jiabao said on March 5 that the country lacks a sustainable growth model as he set an economic expansion target of 7.5 percent for this year, unchanged from 2012, in his final report to the National People’s Congress in Beijing before handing power to his successor, Li Keqiang. Vivian Zhang, a 29-year-old in Shanghai, withdrew 260,000 yuan ($41,828) from the stock market in December and shifted the money into a fund that invests in global commodities. “I am still cautious on stocks,” Zhang says. “The outlook for economic growth is still murky.”