EU brainstorming

Markets are on another roller coaster this morning driven by comments in Europe on a banking union, direct ESM recaps of banks, a story that the ECB won’t support giving Spanish banks debt that they then can repo to the ECB but on the other hand another story that this is not true and “the ECB stands ready to give advice on the development of such plans.” At 7am est in particular, markets in Europe came off their lows on the story that the ESM might be able to directly recap banks instead of giving money to individual sovereign gov’ts who in turn would recap banks. If the case, the ESM would be the official TARP of Europe with the Germans kicking and screaming as they should. Cross border sugar daddy money transfers just buy time. Debt writedowns/restructurings however messy is the only long term solution. Italy sold a 10 yr note at a yield of 6.03%, well above one sold at 5.66% just two weeks ago. They also sold a 5 yr at a yield of 5.66%. Spanish yields are at another euro high and CDS is as well but off the mornings highs. Euro zone economic confidence in May fell to the lowest since Oct ’09. In response to the continued malaise in Europe, the US 10 yr yield is at a record low.

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