Last week the Eurosystem performed a €442bn injection of one-year liquidity into the Euro Area banking system.  They did this at the official policy rate - the Main refinancing operations (fixed rate) - of 1.00 percent, against the usual collateral accepted for Longer Term Financing Operations, effectively anything euro-denominated, not based on derivatives and rated at least BBB-.  It was a fixed-rate tender, that is, the ECB was willing to meet any demand at the 1 percent interest rate, as long as eligible collateral was offered; 1121 banks participated in the operation.

You will not be surprised to hear that this was the largest one-day ECB/Eurosystem operation ever.  Even more remarkable than its scale are the terms on which the one-year funds were made available.  There can be no doubt that this operation represents both a subsidy and a gift from the Eurosystem to the banks that participated in the operation.  I hope to clarify the distinction between a subsidy and a gift in what follows.

Since the beginning of the crisis, national governments have ignored and short-circuited recommendations emanating from Brussels on economic issues. The union and the single currency, however, have saved certain member states from bankruptcy. Europe would be in better shape, argues El País, if governments acted in a less unilateral manner.

In the aftermath of the global banking meltdown, we should not underestimate the very important role played by the European institutions that acted as a bulwark to protect EU members from the full force of the financial crisis. The significance of their contribution to the stabilization of national economies is all too obvious when we consider the situation in countries that are not in the EU, or those that failed to join the European monetary union. However, it is a contribution that is often overlooked by national governments, to the point where we now need a rescue plan to save the EU from member states that appear to be indifferent to its policies and structures.

For a long time the country with the highest growth in the EU, Latvia finds itself staring into a financial abyss. Seeking to economise its way out of the crisis by slashing public spending, it may even have to devalue its currency.

We had no political will, we lacked economic and entrepreneurial foresight, the government was pathetic. Now we face the existential question: Will Latvia survive?

Pretty strong language - especially when you know who said it: Latvian president Valdis Zatlers. Civil servants are taking a 20% pay cut, pensions have been pruned 10%. That was the only way for Latvia to get any more money from the International Monetary Fund and the EU: money without which the government would already be going broke in July.

How could it come to this? How can it be that the same national economy that for years grew faster than any other in the EU is suddenly on the brink of a financial abyss? The answer is, in a word, debts. Nowhere else in the European Union did the banks extend so much credit, and nowhere else did that produce such an overheated economy. And because Latvia's economic boom was based almost entirely on credit, the international crisis packed a full wallop there.

First time the region has tipped into deflation for the first time since modern records began half a century ago.

The eurozone region has tipped into deflation for the first time since modern records began half a century ago. The M3 money supply has contracted over the last three months, flashing warning signs of potential trouble in six to nine months' time.

Eurostat said the consumer prices index fell 0.1pc in June from a year earlier. The inflation picture has been distorted by the delayed effects of the oil crash from the speculative peak in mid-2008. But while prices are expected to rise again later this year after the commodity rebound, the eurozone is moving uncomfortably close to the sort of trap that engulfed Japan during its "Lost Decade".

Beijing  June 30, 2009  A RECORD-BREAKING run of commodities exports to China that has sustained the Australian economy may be set to end, with Beijing officials and advisers announcing an end to "strategic" stockpiling, and massive iron ore contracts likely to expire today. A key state planning official has signalled a halt to government buying of copper, aluminium and other high-value metals because prices have risen too high.

"We don't anticipate that the country will continue to build its reserves," said Yu Dongming, the head of the metallurgical department of the National Development and Reform Commission.

China's resource buying spree helped Australia be the only significant economy to record overall export growth since the global financial crisis began. Chinese buying has more than offset precipitous falls in orders from Japan, Korea and Taiwan, and helped resources and share prices to recover.

Zhang Bin, an economist with the Government's most influential advisers, the Chinese Academy of Social Sciences, warned that Beijing was leaning against Chinese speculative buying of a range of commodities including Australia's most lucrative exports, coal and iron ore.

"The commission is acting to reduce pressure on commodities prices and discourage over-production in heavy industry, including guiding steel production and reducing the building of excess capacity," Dr Zhang told the Herald.

"Too much increase in inventories of commodities is not a good thing because the economy is still not that strong and cannot consume this level of imports of iron ore and coal."

One of the last sources of irrigation for Bernanke's "green shoots" is being cut off.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

real-economy IOUs (blue) are collapsing in amount outstanding, just this month. Actually, this is SA data, the drop is a lot less in the NSA (and adjustment may be crap these days). But the drop is all in the domestic, US, non-financial companies. Just when the rates are zero and the fed has a market support program...

The yellow curve is SIV/conduits winding down (there was a pause in the crash when the fed backstopped them). The red curve is banks winding down. Notice that the banks are back to lehman-levels. All this paper should be in money market funds. What do MMF buy these days ? or are they just winding down too ? makes sense, who would keep money in an unsecured MMF when yields net of fees are 0% at most...

I'm puzzled the renewed crash in CP of the past 2 months has been totally obfuscated. Anyone has any news ?

Pierre