Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of KathyLien.com and FX360.com. You can readthe full article on her blog.

View the full EURUSD chart at Wikinvest

Moody’s has put Portugal on review for downgrade sparking fears that there will now be TWO countries poised for same downward spiral as Greece.

Fear is an aggressive behavior especially when it seeps into the core of the financial markets. Part of the reason whycurrencies are so trending is because when uncertainties grow, investors won’t hesitate to sell. However realistically, the risk of rating agencies downgrading Spanish and Portuguese debt to junk is minimal. Spain and Portugal do not have the same funding problems as Greece. The premium that investors demand to hold 10 year Greek debt overGerman bonds hit a record high of 700bp while the premium for Portuguese debt is 280bp and 121bp for Spanish debt, far below Greek levels. Yet these facts are not be enough to sooth investors who are preparing for the worst and will cringe at even a one notch downgrade.

There are still Unanswered Questions:

1. Will all Governments approve the package
2. Greek public unrest likely to continue /worsen
3. Will it work / does it solve the underlying problem ( probably not)
4. Contagion to other euro zone members.

As a result, its worthwhile to take a look at the next support levels in the euro. Here’s a weekly technical chart illustrating the strong possibility of the euro falling to 1.25.

Technical Chart of the EUR/USD currency pair

Today’s Daily Angle comes from Wikinvest Wire member Yves Smith of Naked Capitalism. You can read the full article on NakedCapitalism.com

A war of words has broken out between the Treasury Department and the EU over proposed EU financial servicesregulations. The first salvo in this dispute occurred earlier this week, when, as reported in the Guardian, American banks were excluded from the sovereign bond market, which means new issues (they obviously cannot be prohibited from making secondary trades in an OTC market). This is seen as punishment for their role in helping various states evade EU rules on deficit spending via using currency swaps. But as the Guardian noted, the EU increasingly has broader concerns about the appropriateness of an Anglo Saxon finance model that looks predatory:

“Governments do not have the confidence that the excessive risk-taking culture of the big Wall Street banks has changed and they still cannot be trusted to put the stability of the financial system before profit,” said Arlene McCarthy, vice chair of the European parliament’s economic and monetary affairs committee. “It is no surprise therefore that governments are reluctant to do business with banks that have failed to learn the lesson of the crisis. The banks need to acknowledge the mistakes that were made and behave in an ethical way to regain the trust and confidence of governments.”

Yves here. Now despite the howls from the US (more on that shortly) this is not as unreasonable as it sounds to people conditioned to think that regulators have no business… regulating. For instance, it is standard operating procedure that when a defense contractor has violated certain rules, that it will be frozen out of the contracting process for a while, the length of exclusion depending on the seriousness of the misconduct. Similarly, foreign regulators have taken much more serious actions against US miscreants in the past (Citi was forced to shut down its private banking operations in Japan, which had a major focus of their business in that country, as a result of serious regulatory violations and resulting termination of licenses. That’s not a bug, that goes with the terrain in any regulated businesses). These firms operate with the sufferance of the state, and the state reserves the right to intervene if it does not like the behavior that results. Now there is an implicit obligation on the part of the state not to intervene capriciously, otherwise no one would take up these franchises to begin with.

The other reason this action is not as unreasonable as it is being seen in the US is that the EU operates on a principles based system, while our legal system is rules based. We have a peculiar notion here that if a business manages to weave its way through a legal thicket, or better yet, tear down rules that constrain behavior, then all is fair, no matter how fraudulent or predatory the behavior is by any common sense standard. That sort of posture does not go over very well in a principles based regime.

So now go back and re-read the excerpt above. The right response, from the EU perspective, is for the US firms to roll over and show their bellies, which means apologize in public and private, and make at least vague, better yet specific, promises not to do certain bad things again.

But Ed Harrison called correctly what the likely response would be, namely to escalate:

I would expect the U.S. bank lobby to pressure the Obama Administration into developing demarche communiqués at the State and Commerce Departments condemning this as a protectionist move. This is the type of work that State and Commerce does regularly on behalf of companies like Chiquita Brands International. The bank lobby is much more powerful. So, one should expect this to rise to an Ambassador-level talking point.

Yves here. What he did not anticipate was how quickly temperatures have risen. As this and other blogs noted, the EU is also considering restricting the reach of private equity funds, both their ability to make investments in Europe, and the ability of EU investors to put money in US funds.

The next step was Geithner issuing a letter contending the proposed EU proposals were discriminatory. While on paper that argument might appear sensible, it deliberately obscures a bigger reality: the way these firms operate, particularly the PE firm practice of using leverage, and the consequences of leverage (if you get it wrong, firms go bankrupt more so that if they had not borrowed, leading to unemployment) runs afoul of other government policies. This is a matter of sovereignity conflicting with an ideology that more open markets are ever and always better. You cannot have both in absolute form, and the EU is deciding to trade off one versus the other in a manner different than the US does.

Needless to say, the EU is not taking this lying down, and points out that some of the actions that Geither was taking aim at in his broadly-worded letter were in fact consistent with G-20 commitments:

A spokesman for Michel Barnier, the new EU internal market commissioner who is responsible for financial services regulation and to whom Mr Geithner addressed his concerns, said that the EU decision to act on hedge funds was in line with a G20 decision to reinforce transparency in the financial system.

He added that the new commissioner wanted to “work closely” with the US, to ensure “robust standards” in financial services.

Yves again. While this is all very entertaining, the focus on the tit-for-tat misses the elephant in the room: what the hell is Geithner doing lobbying for hedge funds and PE funds?

The Volcker rule makes clear that the US does not regard these as functions integral to the operation of a healthy financial system and deserving of backstopping. The vast majority of PE and hedge funds, in terms of their staffing, are small businesses. Since when do small businesses have the Treasury secretary going to bat for them in a major international spat (this is the lead story in the Financial Times right now, lest you have any doubt).

Follow the money. Its “change” and populist pre election branding to the contrary, Obama raised more money from thefinancial services industry than any previous Presidential candidate. And the procurer-in-chief, Rahm Emanuel, concentrated his impressive fund-raising efforts on hedge funds and private equity firms (see here, here, and here). They expect a handsome return on investment, and it sure looks like they are getting it.

Today’s Daily Angle comes from Wikinvest Wire member Yves Smith of Naked Capitalism. You can read the full article on NakedCapitalism.com

The latest move in the “so what are we gonna do about Greece?” EU vs. Greece drama was that Greece was playing non-negotiable, saying it had agreed to reduce its fiscal deficit by 4% of GDP (from over 12.7% to 8.7%) and it was premature to talk about doing more at this juncture.

That posture is not going over well in Brussels. This is the key section of a recap from Bloomberg:

The ministers from the 16 nations that use the euro told Greek authorities to ready more deficit measures by March 16, in case the government fails to show sufficient progress on its budget goals in a report to the European Commission…. “We’re waiting for Greece to prove that it’s taking very seriously the commitments it has made,” Luxembourg’s Jean- Claude Juncker said late yesterday after leading a meeting of euro-area finance ministers in Brussels. Should the government’s efforts not satisfy the commission, the EU “will impose on Greece the acceptance of additional measures,” he said…

The ministers signaled that Papandreou’s plan may not be enough and told the government to prepare more measures by mid- March, including higher value-added taxes, a new levy on luxury goods, increased taxes on energy products and cuts in capital spending. It’s up to Greece to decide on the specific actions.

Yves here. One thing that strikes me as odd is various remarks from EU officials that come close to saying that Greece needs to be punished. Huh? This may simply be playing to audiences back at home, but even the deemed-to-be-inadequate 4% budget cut is going to be exceedingly painful. Deflationary debt unwinds are ugly affairs and no country that has been through one is keen to go repeat the experience. Just consult the record of Thailand and Indonesia post the Asian crisis.

Despite the current apparent loggerheads, most observers seem confident that Greece will knuckle under because it has to. Not only does Greece face the pressure of maturing debt starting in April, but the EU can also impose very hefty fines for Greece’s violation of Maastricht rules. But even though the markets seem more upbeat about the euro this morning, any resolution is likely to be a hard-fought process.