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Joseph Stiglitz over at The Guardian writes three possible explanations for why the European Central Bank is pushing for a 50% voluntary cut, that will not be considered a “Credit Event” so no insurance will be paid out.

1. ECB knows/suspects that the affected banks have not bought insurance.

2. ECB fears that the lack of transparency could make an involuntary default lead to a credit market freeze (think Lehman in 2008).

3. ECB is trying to protect the insurers.

He argues that number three is the only one that puts forth the interests of the public first, as the other two if true have very clear beneficiaries. If banks were not insured against a Greek default a voluntary haircut with a guaranteed restructuring would be a good outcome. Likewise if the a vast majority of the banks are insured. The banks who issued the insurance might benefit from the restructuring being a non credit-event. Of course not all three alternatives have to be mutually exclusive and that is the root of the ECB’s current dilemma.

The ECB wants to avoid contagion. With Portugal, Spain and Italy the countries whose debt will be harder hit if Greece does not reach an agreement the incentive for the ECB to avoid a credit default is paramount as both the bond holders and the insurers are all in this mess together.

German employers are finally agreeing to workers’ demands for higher pay after more than a decade of only modest increases.
Despite the initial demands for pay raise by more than 6 percent, the settlements average in the 3-4 percent range this year. This is, according to economists, considerably higher compared to 2010 and 2011, yet not high enough to set off a wage-driven inflation.
Wage increase gives workers a greater share of Germany’s economic revival. The country’s gross domestic product has grown [...]

Chinese Premier Wen Jiabao’s pledge to focus more on bolstering growth spurred speculation the government will step up efforts to combat a slowdown in the world’s second-largest economy.
Wen called for “putting stabilizing growth in a more important position” and didn’t mention concern about inflation in remarks published yesterday by the official Xinhua News Agency. China may announce stimulus actions in the near term, according to a front-page commentary today in the China Securities Journal, which is published by Xinhua.
The [...]

Asian bourses have ended trading, hitting four-month lows as weaker US data added to rising worries over Europe. Commodities and their currency sensitive pairings are not immune to the surround sound of contagion fears. Gold has been able to dig itself out of Monday’s bear market trap, ending on a high, and in the black. The same cannot be said for the Aussie, usually a strong yellow metal supporter, which is seen as higher risk because of the country’s commodity [...]

Canada looks like a safe bet to be the first amongst the G8 members to hike rates. Last month’s inflation figures were a tad stronger than expected, topping Governor Carney’s +2% inflation target. Despite the small breach, no CBank in this stuttering economic environment would be rushing to raise rates. Canada’s outperforming metrics, employment, housing and manufacturing data still have to combat specific external headwinds that scream for extending domestic accommodative policies. The BoC has been very vocal about being [...]

The collapse of efforts to form a Greek government this week has reinforced, for many, the bullish outlook for the big dollar. The run-up to Greek parliamentary elections on June 17 will be marked by continued concerns about a disorderly exit from monetary union. The market currently sees contagion fears making inroads with other periphery economies. Moody’s downgraded sixteen Spanish banks by one to three notches and they still have another eleven EU members to vet by next month. The [...]

World shares slid and German borrowing costs hit record lows on Friday as a deepening Spanish banking crisis, uncertainty about Greece’s future in the euro zone and lacklustre U.S. data bolstered safe-haven assets.
World stocks, as measured by the MSCI index, dropped 0.7 percent and are now below where they began the year, having relinquished all the first-quarter gains fuelled by the European Central Bank’s injection of more than a trillion euros of three-year money.
That rally is now a distant memory [...]

U.S. banks increased sales of protection against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the last quarter of 2011 as the European debt crisis escalated.
Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose 10 percent from the previous quarter to $567 billion, according to the most recent data from the Bank for International Settlements. Those guarantees refer to credit-default swaps written on bonds.
JP Morgan and Goldman Sachs [...]

Gold gained for a second day in New York as concern Europe’s sovereign-debt crisis is worsening spurs demand for the metal as a protection of wealth.
The euro reached a four-month low versus the dollar after Fitch Ratings downgraded Greece’s long-term credit rating, citing heightened risk that the nation may not be able to sustain membership in the monetary union. Bullion jumped 2.5 percent yesterday, the most since October, as a U.S. report showed manufacturing in the Philadelphia region unexpectedly shrank [...]

The third largest IPO in corporate history, the largest in tech, is about to make a few specs very wealthy today. Frantic Facebook Friday’s enthusiasm does not seem to be spilling over to disrupt the dour mood of FX. The 50% of Americans who believe that Facebook is a fad, will not be allowed to gatecrash today’s party. The EUR bull thought they caught a break with yesterday’s dismal US data potentially opening the Q3 flood gates. That euphoric feeling [...]

This market needs to catch its breath after the selling pressure across currencies and the blood bath in equities this week. It can be rather monotonous to listen to the euphoric rants of the EUR bear. To date, it has been an unfair playing field. They have all the negative ammunition. For the bulls, it seems they have to wait for that squeeze going just a wee bit too far to the left. Risk markets, especially commodities, are very oversold [...]