Suddenly, Europe's Gameplan To Save Itself Is Becoming Very Clear

Joe Weisenthal 

 Dec. 1, 2011

 7:11 AM

Image: Stephanie Jones / Flickr

The Eurozone could still end up in smoldering ruins, but now at least we have a fairly clear sense of how European leaders think they can save the whole project.
Recent reports plus Mario Draghi's speech to the European parliament make pretty clear what the game plan is.

Here are the two most important paragraphs from Draghi's speech:

What I believe our economic and monetary union needs is a new fiscal compact – a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made.

...

Other elements might follow, but the sequencing matters. And it is first and foremost important to get a commonly shared fiscal compact right. Confidence works backwards: if there is an anchor in the long term, it is easier to maintain trust in the short term. After all, investors are themselves often taking decisions with a long time horizon, especially with regard to government bonds.

Draghi's comments dovetail perfectly with reports that first started bubbling up last weekend, that Germany and France would embark on some "stability pact", wherein they would agree to strict fiscal rules, preventing overspending and overindebtedness. Now at first blush a new "pact" sounds like a snooze, but those reports also said something very important, which is that if they did this, then the ECB would be expected to take a much bigger role in financing Eurozone governments.

Now Draghi -- offering up the ECB's perspective -- is saying almost the same thing, and that key line is "other elements might follow." Gee, what "other elements" might the head of the ECB be referring to? Probably ECB intervention.
And that line "the sequencing matters" also is revealing, because it gets at a core concern of the ECB. If it is going to get in the business of backstopping governments, it doesn't want to create moral hazard by funding anyone who recklessly spends and borrows like crazy. So the deal is: European leaders agree to hard, unbreakable rules about spending, and then the ECB agrees to serve as some kind of lender of last resort.
This is the game plan right now. Whether it ever gets this far is still a gigantic quesiton mark.

STOCKS GET SMOKED, EUROPE BURNS, AND BANKS ARE STRESSED

STOCKS GET SMOKED, EUROPE BURNS, AND BANKS ARE STRESSED: Here's What You Need To Know

Sam Ro|

Image: Statefarm via Youtube Deep Fried Turkey Disaster

Europe is ruining Thanksgiving for America.

First, the scoreboard:
Dow: -236.2 pts, -2.1%
S&P 500: -26.5 pts, -2.2%
NASDAQ: -61.2 pts, -2.4%
And now, the top stories:

• Europe continues to get worse. But even the most bearish eurozone watchers were probably surprised by this morning's failed German bond auction. Germany's borrowing costs jumped, but they are nowhere near the crisis levels being experienced by Italy and Greece. Nevertheless, this reminds us that problems persist and are widespread in Europe. This morning, we also learned that September eurozone industrial orders fell 6.4%, which was much worse than the 3% expected. Another bad sign for Europe.
• Fitch and S&P joined the fray of credit rating agencies sounding alarms on France's AAA rating. French bond yields jumped along with much of the borrowing costs across the European sovereigns. 
• Even though there are much bigger fish (or turkeys) to fry in Europe, we shouldn't forget about Greece. According to a WSJ source, Greece needs bailout money with 20 days or else it will default.
• And when you thought things couldn't get any worse, China came out with some disappointing economic data. China's HSBC flash November PMI number came in at 48, which indicates contraction. Have the odds of a hard landing increased? Experts are mixed. Jim Chanos remains bearish on China, while Jim Rogers is bullish.
• U.S. economic data wasn't that great today, but there were no disasters. Initial jobless claims rose to 393k, which was higher than tht 390k expected. Durable goods orders declined 0.7%, which wasn't as bad as the 1.0% expected. But nobody really likes to see a decline. Personal income jumped 0.4%, while spending climbed just 0.1%; economists were hoping for a 0.3% increase in both figures. Also, the University of Michigan consumer sentiment figure unexpectedly declined to 64.1. Analysts were hoping the figure would rise to 64.6.
• So, with Europe deteriorating, China slowing, and the U.S. struggling to get its legs, it's no surprise that stocks sold off today.
• Banks underperformed the markets today. Sure, investors are still worried about the banks' exposures to Europe. But the sector probably took an extra hit after finding out that they would be subject to new strenuous stress tests administered by the Federal Reserve. Under the black sky scenarios, the banks being tested would have to survive GDP falling at an 8% rate in Q1 2012, the unemployment rate spiking to 13% in Q1 2013, and the Dow tumbling to 5,700 in Q3 2012 among other things. Bank of America, Citigroup, and JP Morgan each fell 4%. Morgan Stanley fell 3.6%.
• Hot tech stocks sold off like crazy today. Groupon fell 15.5% to $16.96, which is well below its IPO price. Pandora shares tumbled 11.3% today following last night's earnings announcement. Analysts weren't impressed, downgrading the stock.

15 Companies That Will Get Smashed If Europe Goes Bust

Austerity, slowing growth, and the threat of sovereign default pose major risks to companies and countries with significant exposure to Europe.

S&P 500 companies derive 14% of sales and 18% of profits from Europe, according to a report by Bank of America. We put together a list of 15 companies with the most sales exposure to Europe.
The majority of this exposure is in core Europe, with tech being particularly volatile.

#1 Coca-Cola Enterprises Inc.

Image: AP

Europe sales: 100%

Foreign sales: 100%
Coca-Cola enterprises markets, produces and distributes Coca-Cola products and is the bottler for Western Europe. Its products include Coca-Cola, Diet Coke, Sprite, Dasani, and Fanta among others.

Source: Bank of America

#2 First Solar Inc.

Europe sales: 60%

Foreign sales: 87%
First Solar manufactures solar modules with an advanced thin-film semiconductor technology.
Source: Bank of America

#3 Harman International Industries

Image: Wikimedia Commons

Europe sales: 60%

Foreign sales: 80%
Harman International Industries is an international audio and infotainment equipment company. The company sells branded auto systems to car makers like BMW, Mercedes-Benz, General Motors.

Source: Bank of America

#4 XL Capital Ltd.

Image: Wikimedia Commons

Europe sales: 48%

Foreign sales: 60%
XL Group is a financial services company headquartered in Ireland with executive offices in Bermuda. It was previously known as XL Capital Ltd. The company operates in insurance, reinsurance and life operations.

Source: Bank of America

#5 Sigma-Aldrich Corp.

Europe sales: 45%

Foreign sales: 63%
Sigma-Aldrich is a life science and high technology company which operates in 40 countries.

Source: Bank of America

#6 Priceline.com Inc.

Europe sales: 45%

Foreign sales: 45%
Priceline.com is an online travel company that offers consumers discount rates for airline tickets and hotel stays.

Source: Bank of America

#7 Accenture PLC

Image: Wikimedia Commons

Europe sales: 44%

Foreign sales: 56%
Accenture is a management consulting, technology services and outsourcing company with offices in 53 countries.

Source: Bank of America

#8 Owens-Illinois Inc.

Image: AP Photo

Europe sales: 42%

Foreign sales: 72%
Owens-Illinois manufactures packaging products and specializes in container glass products.
Source: Bank of America

#9 Philip Morris International Inc.

Europe sales: 41%

Foreign sales: 100%
International tobacco company Philip Morris spun off from Altria Group in 2008. Its most prominent brands include Marlboro, L&M, Bond Street, Red & White.

Source: Bank of America

#10 Western Union Co.

Image: Wikimedia Commons

Europe sales: 41%

Foreign sales: 71%
Financial services and communications company Wester Union is headquartered in Englewood, Colorado.

Source: Bank of America

#11 Autodesk Inc.

Image: Glassdoor

Europe sales: 40%

Foreign sales: 71%
Founded in 1982, Autodesk Inc. is an American multinational corporation that produces computer software used in architecture, engineering, manufacturing and media industries.

Source: Bank of America

#12 Dentsply International Inc.

Image: dentsply

Europe sales: 40%

Foreign sales: 62%
Dentsply International is a dental equipment maker, and producer of dental consumables like tooth whiteners.

Source: Bank of America

#13 Gilead Sciences Inc.

Image: AP

Europe sales: 40%

Foreign sales: 47%
Biopharmaceutical company Gilead Sciences largely focuses on antiviral drugs to treat people with HIV, Hepatitis B, or influenza.

Source: Bank of America

#14 McDonald's Corp.

Image: Bloomberg News

Europe sales: 40%

Foreign sales: 66%
The world's largest burger chain, McDonald's is headquartered in Oak Brook, Illinois.

Source: Bank of America

#15 AON Corp

Image: AON

Europe sales: 39%

Foreign sales: 60%
American multinational company AON Corp. provides risk management services, insurance and reinsurance brokerage and consulting services.

Source: Bank of America

US, Europe clash over debt crisis

WROCLAW, Poland - The United States Friday warned Europe of "catastrophic risks" to financial markets from the failure to quickly contain the eurozone debt crisis, in debate over the way forward.

US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble disagreed sharply, with an American call to boost rescue funding running headlong into a European demand for Washington to tax financial transactions.

"We are not discussing the increase or the expansion of the EFSF (European Financial Stability Facility) with a non-member of the euro area," eurozone chief Jean-Claude Juncker said at a meeting of the 17-nation currency club's finance ministers and central bankers.

On the sidelines of the talks, Geithner urged eurozone leaders to bolster the rescue fund, but saw that demand instantly rebuffed by Germany -- which demanded Washington drop its opposition to a global financial transactions tax, "emphatically" resisted by Geithner.

Austria's Finance Minister Maria Fekter said Geithner urged Europe to increase the size of its 440-billion-euro ($607 billion) EFSF for troubled member states and take more action to shore up the financial and banking sector.

But Schaeuble insisted that taxpayers alone could not bear the burden, leaving the two sides at odds.

"What's very damaging is not just seeing the divisiveness in the debate over strategy in Europe but the ongoing conflict between countries and the 1/8European 3/8 Central Bank," Geithner said on the sidelines of the talks in Wroclaw, southwest Poland.

"Governments and central banks need to take out the catastrophic risk to markets," he said after the non-euro hosts took the rare step of inviting him to attend -- ahead of other non-euro EU states like Britain.

Later Friday the US Treasury issued a statement in Washington, downplaying reports of tension at the meeting between Geithner and Schaeuble.

"Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice. He did not advocate or oppose any specific policy prescriptions," the statement said.

Geithner's calls came after eurozone, US, Japanese, Swiss and British central banks took markets by surprise Thursday in announcing they will provide dollars to commercial banks threatened by exposure to the eurozone's debt mountain.

Banks, particularly in Europe and France, have been starved of their normal sources of finance, scared off by prospects that eurozone debt contagion could hit the financial sector.

Emerging economies have indicated they will hold talks next week on possibly buying debt issued by weak eurozone countries.

Earlier eurozone nations decided to postpone a decision on the next tranche of Greek rescue funding worth eight billion euros ($11.0 billion) until October.

Juncker reiterated that "full implementation" by Athens of austerity and modernisation commitments was crucial, and Greek Finance Minister Evangelos Venizelos insisted his country was "on track."

Greek officials have warned they will run out of funds to pay pensions and state salaries in October.

A second Greek bailout has also been mired in rows with Finland over its demand for collateral for bailout loan guarantees, and with Slovakia which has threatened to delay parliamentary ratification.

European Central Bank chief Jean-Claude Trichet said that, overall, the "problem is not words, the problem is deeds."

On the collateral issue, unhappy partners ganged up on Finland to say it would have to accept a lesser return on loans if it demanded up-front protection.

Europe needs Finland to ratify new powers for the EFSF in a hurry, but a spokesman for the Helsinki government said it wasn't giving up its demand for collateral.

"Everyone is tired of this, everyone is mixing the problems of Greece and the EFSF," said Estonia's Finance Minister Jurgen Ligi, whose country adopted the currency in January and enjoys the EU's lowest debt and regular budget surpluses.

Under questioning by reporters in Wroclaw, Austria's Fekter appeared to suggest that default for Greece could eventually prove to be the least costly outcome.

"Should there be a situation, that (the present bailout approach) suddenly becomes more expensive than an alternative, we do have to think about this alternative," she said.

Polish Finance Minister Jacek Rostowski later announced the EU was on the cusp of adopting a "six-pack" of laws that will at long last sanction states that break existing budget rules.