Wise Brexit words.
It is very surprising that so many mistakes have been made during our negotiations to exit the European Union, when you consider how many ‘experts’ we have on the subject – and I am not including any politicians in that statement.
Today, the media big boys are all very wise after the event and tell us what SHOULD have happened and HOW the negotiation should have been conducted. Yes – Nick Ferrari, Andrew Neil….and even Piers Morgan plus many others appear to have the answers.
The sad fact is that the job was left to badly-led British politicians who for some reason agreed to negotiate with an unelected EU bureaucrat. There was never going to be any REAL negotiation and so it has proved to be the case – especially bearing in mind that the EU’s Chief Negotiator is a French (Gaullist) politician whose default position is ‘Non!’ .
Here’s an example of how the present shambles is viewed abroad. This expert is Sky’s Peta Credlin. In spite of its very high cringe coefficient, it is worth watching as it delivers a very eloquent summary of the British government’s biggest cock-up since the Conservative Party’s election of Theresa May as leader.
Today’s #EU Summit – IMPORTANT!
Apparently, the #EU Summit is opened by President of the European Council , Donald Tusk who always begins the meeting with a prayer, then asks for the lights to be dimmed as he invites the spirits to join the circle. He then asks everyone present to join hands and close their eyes and recite selections from the Maastricht Treaty.
The group then attempts to contact those on the ‘Other Side’ – for instance the United Kingdom and others who have ‘crossed over’. This is followed by pre-prepared questions about all sorts of important-sounding stuff.
Then it’s lunch.
After lunch the meeting continues (This is known as the ‘Graveyard Session’). Those still sober enough to vote for something which was agreed at the previous meeting, raise their hands – or have their hands lifted for them by a flunkey.
Meanwhile, The European Commission President, Jean-Claude Juncker staggers around the table, kissing every delegate, telling them that he REALLY loves them and that they are his best friend.
Then a group photo is taken and Mr Tusk presides over the Ceremony of the Communique (written last month) as he reads out the traditional Holy Positive Words about the future of the European Union.
Then they all fly home.
The Ugly Spectre of EU Self-interest……
A recent survey has indicated that most companies based in the eurozone believe a British decision to leave the European Union would hurt the region as it struggles with a sluggish economy and a migration crisis.
79% of firms based in the eurozone said a Brexit would be bad for the area, with less than 4% saying it would have a positive impact, according to the report from accountants Grant Thornton.
“What’s abundantly clear from our research is that European business leaders overwhelmingly view a Brexit as a negative development for the EU,” Francesca Lagerberg, a senior tax partner at Grant Thornton, said.
She said business confidence was strong considering the various potential threats the region faced from low growth, high unemployment, migration and a potential Brexit.
“Any one of these flaring up over the next few months could see that optimism wobble if the economic shocks undermine business leaders’ ability to plan and invest,” she added.
The survey was based on interviews with more than 2,500 senior executives conducted in January and February.
The result is in keeping with the view of senior business leaders in Britain who are largely in favour of Britain staying in the EU. Most economists expect an exit would deal a blow to Britain’s economy in both the short- and longer-term.
The Grant Thornton report showed 68 percent of British-based firms believe Brexit would have a negative impact on Europe.
Parts of the eurozone have struggled with a debt crisis in recent years which, on the heels of the global financial crisis, has stifled growth and left many unemployed. Unfortunately, quite a high percentage of Europe’s unemployed appear to be headed for the UK.
In addition, many recent migrants to the EU stated their first choice of refuge as the UK. Many of those will be arriving here in a few years….when Germany and other states hand them EU citizenship.
The region as a whole remains at odds over how to contain the continuing flow of migrants to the region.
It is regrettable that neither the UK political leadership, nor the Brussels Commissars have any idea about Managing Change on a macro scale because the sociological change within the #EU is probably they biggest issue that will need to be addressed within the next five to ten years.
Both sides are doing their best to frighten the electorate into voting for their point of view. There has also been an attempt at what can only be described as The Blackmail of a Nation – especially by the IN camp and the leadership’s foreign banking and political friends..
The fact is that BOTH sides have valid arguments but instead of helping the average UK citizen to make a reasonable choice whilst at the same time preparing for change, BOTH sides prefer to persuade through the medium of fantasy rhetoric, insinuation and slur.
Meanwhile, mainland Europe, surrounded by the Ring of Chaos, which encompasses Ukraine, then east to Turkey and south to North Africa, sits and waits for more handouts and UK opportunities for its unemployed.
Excellent #EU insight
The question is very straightforward: Do we want to belong to a totally unaudited association of failing and near bankrupt economies, overrun by unwanted (yes!) migrants and presided over by an inward-focused, self-amplifying bureaucracy – or should we be looking outwards to the rest of the world whilst maintaining relations only with the European states we can do business with – without worrying about regulations governing what we eat or the amperage of our hairdryers and toasters!
Here is a link to Euro MP Daniel Hannan’s excellent revelations which we should all read: http://dailym.ai/1S2A0P6
Cameron’s letter to Santa.
David Cameron is about to send his Christmas EU wish-list letter to Brussels.
As he licks the stamp, he should perhaps reflect on the fact that this is the third renegotiation since Britain joined in 1973 and our second referendum on membership.
It’s not even as if the United Kingdom is negotiating from a position of strength. The rather flaky economic recovery which Osborne thinks he’s sold not only to a gullible British public but also to the EU, is looking shakier by the day.
The much-promulgated “We’ve managed to get the deficit down to 5% of GDP!” may sound good in isolation but the much-maligned Eurozone has a Deficit-to-GDP ratio of only 2.1% ! (The UK figure is actually well over 5.0%). The only three coutries with a higher Deficit-GDP ratio are Croatia, Spain and Cyprus.
If you listen very carefully to Cameron’s referendum rhetoric, you may notice that he has moved from being pro-EU to very neutral. You will also notice that he’s chosen four very flabby areas on which to “negotiate”:
- Integration: Allowing the UK to opt-out of any EU Superstate nonsense
- Benefits: Restricting access to in-work and out-of-work benefits to EU migrants.
- Sovereignty: Giving greater powers to national parliaments to block EU legislation.
- Eurozone vs the rest: Securing an explicit recognition that the euro is not the only currency of the European Union.
He has totally ignored our two biggest gripes: The £6-20 BILLION (depending on who you talk to ) net annual contribution to the EU and that obscenely inflated money-pit that is the Brussels bureaucracy. THAT is where the changes ought to be!
However, we can take comfort from the certain knowledge that WHATEVER our Prime Minister “negotiates” will be proven statistically to be a great (statistical) victory for the UK taxpayer.
We not only want our cake……….
Chancellor Osborne is off to Germany next week to outline how he wants to protect London’s financial services industry in a reformed European Union. The fear is that ever-closer integration of the eurozone could leave London sidelined in financial policymaking, affecting its banking sector. In fact, London’s status as a European financial centre has already been compromised by Cameron’s dithering and inability to put down on paper the exact changes he is (apparently) negotiating. The continuing lack of detail on his demands for new EU membership terms, is causing both frustration, bemusement and a level of confusion among EU leaders. Cameron has now had to “do a Chilcot” by promising to send them his wish-list by next week.
Euro zone corporate lending growth slows to near zero in September
Growth in lending to eurozone corporations slowed almost to a halt in September while a broader measure of money circulating in the euro zone was unchanged, the European Central Bank said on Tuesday.
Lending growth to non-financial corporations slowed to an annualised 0.1 percent in September from 0.4 percent a month before, while lending growth to households picked up to 1.1 percent in September from 1.0 percent in August.
Sparse lending to companies has dogged the struggling euro zone economy although the picture improved slightly over the summer months before September’s dip.
The ECB last week raised the prospect of providing more monetary stimulus to the euro zone economy, possibly as soon as December, to boost inflation and growth.
The M3 measure of money circulating in the euro zone, which is often an early indicator of future economic activity, grew by 4.9 percent in September, unchanged from August and missing forecasts for 5.0 percent. (Reuters)
The Greeks – they’re just like us!
First published 17th March 2015, The News Hub…. www.the-newshub.com
The relationship between the European Union, the Eurozone and Greece is no different to the relationships between many governments and their own citizens. The EU-Greece relationship is no more than a macro model of what is currently occurring, for instance, in the United Kingdom.
Let’s face it since the Greek crisis started a few years ago, in the main, the Greeks have been caricatured as lazy, workshy and the architects of their own misfortune. That naturally led to the assumption that they didn’t ‘deserve’ support from their richer European cousins unless they changed their ways.
Here in the United Kingdom, the scrounging working classes, just like the Greek nation, have really been clobbered over the last few years. They have been characterised as lazy, workshy and sitting back, as hard-working richer people fed them undeserved benefits. Government slogans such as “The workshy”, ” Abuse of the system” and “Benefits Culture” became common.
The government not only blamed them for a poorly designed welfare system by cutting benefits but humiliated the sick and disabled by forcing them to undergo questions and tests to ascertain whether they were deserving of government support.
Welfare benefits were even reduced if the State decided that they had more bedrooms than they really needed!
This was forced austerity without purpose.
The Greeks are taking the rap not just for their own economic shortcomings but for a very badly conceived and designed Eurozone. Their punishment too was humiliation through austerity.
Poor Brits had the state machinery and official interrogation to contend with whilst the Greeks were humiliated by the fiscal police known as ‘the troika’. Same principle, different scale.
The EU continues its slogan of “We want Greece to remain within the EU”, when all the evidence so far, is to the contrary.
The equivalent UK slogans are all about those ubiquitous ‘hard-working people’ and being ‘In it together’, which just like the EU – is supposed to be a club that everyone needs to belong to.
The oppressed eventually find a hate figure. The Greeks have found themselves the Nazis and poor Brits have found themselves ‘the toffs’ and the bankers. The Greeks want reparations for the damage done during WW2 and the Brits are enjoying bankers forgoing their comedy bonuses. The oppressors (real or imaginary) also need to be punished – an economic quid pro quo!
The Eurozone’s motives in not being too overt in helping the Greeks are very straightforward.
They say that they want to avoid a possible Greek exit from the Eurozone but in fact, it’s much more than that. There are other states within the European Union which are just below the radar and could potentially be in just as much trouble as the Greek economy. Spain and Portugal immediately spring to mind.
If Eurozone officials were not seen to dispense a certain amount of punishment to the Greeks before helping them, or if Greece decided to leave the Eurozone as a result of not being able to stand any more EU humiliation, others would doubtless follow . That means that Greece can only be helped by being thrown the occasional EU morsel, preceded by a public serving of abuse or austerity.
In the United Kingdom, the poor are being kept in line by also being thrown the occasional morsel such as an increase in minimum wage, a meaningless shift in tax bands or mini handouts which no doubt will be expressed by the Chancellor of the Exchequer in this week’s Budget.
It’s all about keeping the poor in check without giving others any ideas.
It’s all about keeping the poor in check without giving others any ideas.
EU urges Greece to ‘stop wasting time’ on reform
(Reuters) – The head of euro zone finance ministers has urged Greece to “stop wasting time” and buckle down to serious talks and implementation of a reform programme to secure urgently needed fresh funds from its international creditors.
“Little has been done since the last Eurogroup (meeting two weeks ago) in terms of talks, in terms of implementation,” Eurogroup chairman Jeroen Dijsselbloem said on arrival for a meeting of ministers of the 19-nation currency bloc.
“We have to stop wasting time and really start talks seriously,” he said, adding that euro zone partners stood ready to support Greece if it continued on the economic reform path.
Euro zone officials were not persuaded by a letter sent by outspoken Greek Finance Minister Yanis Varoufakis on Friday outlining seven planned measures. They said it was only a starting point and no basis for releasing frozen bailout money.
Varoufakis irritated EU partners in a weekend newspaper interview by dangling the prospect of a referendum.
Dijsselbloem said earlier the steps outlined were “far from complete”, adding that it would be very difficult to complete the reform programme during the four-month extension of Greece’s European Union/International Monetary Fund bailout that runs until end June.
Shut out of capital markets and with international loans frozen against a background of falling tax revenues, Greece could run out of cash later this month.
Hardline German Finance Minister Wolfgang Schaeuble told reporters Athens must start implementing its obligations and refrain from unilateral changes to its commitments.
Varoufakis, who wants a negotiated restructuring of Greece’s debt to official lenders, was quoted by Italy‘s Corriere della Sera on Sunday as saying the leftist-led government could call a referendum or early elections if European partners rejected its debt and growth plans.
The finance ministry later clarified that the Marxist former academic had been replying to a hypothetical question and that any referendum would “obviously regard the content of reforms and fiscal policy” and not whether to stay in the euro.
French Finance Minister Michel Sapin said on leaving Paris for the meeting that while he was not worried about a risk of Greece defaulting, “things are serious”.
A source at the European Central Bank said the cash position of Greek banks, on a drip-feed of emergency funding, appeared to be stabilising after heavy deposit outflows from December to late February. The ECB would not allow Greece to increase its issuance of short-term treasury bills because it could not allow monetary financing of the government, the source said.
A senior politician in German Chancellor Angela Merkel’s conservative bloc said Greece would be better off outside the 19-nation euro zone, suggesting that Schaeuble privately agreed.
“By leaving the euro zone, as Finance Minister Schaeuble has suggested, the country could make itself competitive again from a currency perspective with a new drachma,” former transport minister Peter Ramsauer, a member of the Bavarian Christian Social Union (CSU), wrote in Bild.
Merkel and Schaeuble have both said publicly they want to keep Greece in the currency area. But in a sign that German sentiment may be shifting, Ramsauer said a temporary “Grexit” would be a “great opportunity” for the country to boost its economy and administration “making it fit to return to the euro area from a position of strength”.
GREEKS WANT TO STAY
Seeking European support for his government’s efforts to alleviate deep hardship caused by austerity, leftist Greek Prime Minister Alexis Tsipras will meet European Commission President Jean-Claude Juncker on Friday.
A Greek official said they would discuss how Greece can use EU funds to tackle what he called the humanitarian crisis.
Juncker has been trying to mediate between the new Athens government and its EU creditors, notably Germany, but his efforts have irritated Berlin, the euro zone’s main paymaster, which is keen to avoid sending mixed messages to Greece.
German Deputy Finance Minister Steffen Kampeter said in a radio interview he did not expect substantial decisions on Greece at Monday’s Eurogroup meeting because ministers were waiting for more financial details on the reform plans.
He criticised Varoufakis’ talk of a referendum or returning to elections, saying it would only delay what needed to be done.
An opinion poll on Monday showed a large majority of Greeks want Athens to reach a compromise deal with lenders to avoid having to leave the euro.
Some 69.6 percent of Greeks say the new leftist-led government should look for an “honourable compromise” to resolve the crisis, according to a Marc survey for the newspaper Efimerida Ton Syntakton. Only 27.4 percent of those questioned wanted Greece to refuse any compromise, even if that meant having to leave the euro zone.
Tsipras won power in January promising to renegotiate the bailout package and end austerity, but was forced to accept a four-month conditional extension to avert bankruptcy.
(JAN STRUPCZEWSKI AND INGRID MELANDER with Additional reporting by Robin Emmott, Tom Koerkemeier, Renee Maltezou and Robert-Jan Bartunek in Brussels, Toby Sterling in Amsterdam, Stephen Brown and Noah Barkin in Berlin, Steven Scherer in Rome and Angeliki Koutantou in Athens; Writing by Paul Taylor Editing by Jeremy Gaunt.)
The Inequality and Iniquity of Growth.
This Christmas there will be millions of puzzled and sometimes hungry people staring at their televisions. Their hunger is easily explained – they are poor but what will confuse them will be the newsflashes showing smiling people shopping and talking about ‘Tablets’ at £500 each, Champagne, and a million other expensive items and yes…even Christmas turkeys!
Then they will see celebrity chefs cooking Brussels sprouts with pancetta, more champagne, the perennial debate about goose fat versus oil on roasties and how we’ll ALL be ‘over-indulging’ and falling asleep on the sofa! An alien world which some will have tasted but sadly, too many – especially children, will never inhabit.
This (to them) is a ‘make-believe’ world of plenty. They know it exists somewhere near them but it is like the parallel universe of science fiction….there but impossible to access.
They see shiny, smug politicians saying words about ‘the recession being over’….something the poor haven’t been too acutely aware of because what the politician calls ‘recession’ and ‘austerity’, they call “LIFE”.
‘The economy’ appears to be doing very well! …………..By the way….what is that?
The disparity between the most affluent Brits and the rest is hurting the economy. This chasm between rich and poor appears to have become an unacknowledged issue, primarily as the result of too many of the Cabinet belonging to ‘the Affs’. It is apparent that few understand that everyone (up to middle class) has seen their income stagnate, whilst wealthy households have really thrived.
Note: I propose to dispense with euphemisms such as “the well-off” and “society’s disadvantaged”. Let’s stick to rich and poor.
Bonuses, higher salaries, higher profits and exceptional stock market gains are flowing almost exclusively to the already-rich. Proportionately, however, the affluent household ‘spend’ represents much less of their money than that of low and middle-income consumers.
One of the priorities of this government should be to engineer a much broader spending base – one which encompasses the poor……allowing them to actually participate in the economy.
Currently, there is a very distorted picture of consumer spending because it is driven by the rich. The poor and the poorer are doing their best to keep up but inevitably need to borrow in order to spend – thus making themselves even poorer. Meanwhile, many rich are gaining profits from bank or lending company shares which are fueled by the poors’ accelerating poverty….but the rich have something else which the poor have never had: OPTIONS or CHOICE!
One very profitable option this year has been the stock market – but once the markets have calmed down (which they will!) and gains are no longer eye-wateringly high, the affluent (As and Bs) will stop spending or at least, cut back dramatically.
THAT will have an immediate and devastating effect on this virtual economic recovery. SO, it is in the government’s interest to sustain the recovery illusion by keeping interest rates low and Quantitative Easing flowing to the banks so that , from an investment point of view, the equity markets (stocks and shares) remain the only game in town, so that the rich retain their mega spending power for as long as possible – at least until May 2015!
That is a very dangerous game for any government to play.
This is the phenomenon which has created and is sustaining the ever more bitter ‘CLASS’ debate and is in danger of feeding Populism and ultimately, major unrest.
Income Inequality and not airports or trains should be the government’s priority.
There is now little doubt that in spite of government policy, the United Kingdom’s economic growth is picking up….as it is everywhere else (Global Economy!)
NOW, while the mini-recovery lasts, would be a good time for the government to tackle the INEQUALITY OF GROWTH which is not an iniquity but the iniquity of modern times.
2014 Predictions – PART ONE
Predicting the future has always been a mug’s game. For instance, I continue to believe that the markets are all in the wrong place and overpriced and I predicted the FTSE at about 4500 – but then again, I could not have predicted the collective madness of Quantitative Easing and the real fear that politicians have of the banks. I used to understand investment…but not any more. Cheap virtual cash continues to fund the markets and to keep them artificially high.
The politicians feel that they have to please the banks first and only then the voter. Governments are no longer in control of events. Nowadays, finance drives politics and politicians have become the bankers’ lackeys.
For as long as banks and governments continue to mutually gorge themselves on virtual cash and governments do not have the courage to increase interest rates and taxes in order to join us in the real world, there is a very real possibility that the current economic situation will become the status quo.
These predictions are in no particular order.
1. The disconnect between economic data and the quality of life is fueling populism. It is also fueling right-wing extremism and anti-government sentiment. I fully expect the equivalent of the Arab Spring sometime during 2014 , in the UK and some other European states.
2. South Sudan will provide the next African bloodbath.
3. The Scots will vote “No” to independence.
4. The recently-adopted self-congratulatory air will desert both UK and European politicians as it is realised that the “virtual” economic recovery is unsustainable.
5. There will be a substantial increase in China’s birth rate (the new “one child plus” policy), contrubuting TWO MILLION children to the 2014 economy, boosting consumer motivation.
6. China will continue to build and accelerate its natural resource monopoly in Africa. (One million Chinese already live there).
7. As the West cuts its military budgets, China will continue to do exactly the opposite.
8. David Cameron will continue to tell us what MUST and SHOULD be done, one a whole range of issues.
9. Anaemic growth in the advanced economies will see government debt continue to climb.
10. The US $ will continue its decline. Instead of Quantitative Easing Infinity accelerating economic growth, its effect will be to shrink the $’s buying power.
11. The sudden (and unexpected) pick-up in UK growth, followed by the indication of a reversal in the final quarter of 2013 suggests that businesses were adding to their inventories rather than selling their goods. Expect the reversal to continue in 2014.
12. Germany currently represents approximately 30% of the Eurozone economy and will continue to enjoy the fruits of a weak euro and ramp-up exports.Germany has the world’s highest current account balance as a percentage of GDP. During 2014, Germany’s economic success will continue to accelerate and will represent over ONE THIRD of the Eurozone’s output.
13. Japan will continue to prosper. Its economic output is not 75% of China’s. although it is 4% of China’s size with 9% of China’s population. “Abenomics” has provided the “jump-leads” which Japan needed.
14. The USA will enter another recession in 2014. Currently it is still on “below-2%” growth.
15. A Populist movement will become increasingly vocal here in the UK (and in certain Eurozone countries), with sudden impetus being generated AFTER the European Parliamentary Elections when the main traditional parties will be decimated by the Left and Right.
16. In spite of the Eurozone’s economic “recovery”, unemployment will remain at current record heights (Over 12%).
17. Deflation will accelerate within the Eurozone and economic forecasts will once again be downgraded.
18. The European Court of Auditors (ECA) will publish the 2013 EU accounts and once again, confirm that the continuing “errors” in all of the EU’s spending areas have finally crossed 5%(!) of expenditure.
19. The UK government will do well to prepare for the possibility of social unrest which is driven by the rapid growth of the “have nots”. The financial hangover caused by Christmas 2013 will be far more extreme than in previous years.
20. The Federal Reserve will announce and implement the end of its massive bond-buying programme. This will have a substantial effect on the markets.
21. The full-extent of the banking industry’s Pension and Life Assurance mis-selling will become apparent.
22. There will by an explosion in Teacher Militancy as the government continues to fiddle with our childrens’ education.
23. The price of Crude Oil will fall to about $75 per barrel. The decrease will be primarily caused by oversupply as a result of new production methods.
24. The European Union will fail to deal with its members’ collective debts. Again.
25. The Global Recovery will falter.
26. On January1st, Greece will take over the Presidency of the EU – at a cost to itself of €50 MILLION. This exemplifies the madness of the European Union when a de facto bankrupt state with zero clout is allowed to be burdened such a “spend”. Prediction: Greece will make a “pig’s ear” of its Presidency. Hopefully Subway and MacDonald’s are bidding for the catering contract.
27. Twitter, Amazon etc will be recognised as part of yet another totally unsustainable bubble.
28. In the UK, there will be yet more calls for House of Lords reform. Hopefully, as more and more of their Lordships’ financial “indiscretions” come to light, the debate will snowball, eventually leading to an elected Upper House. Turkeys may well HAVE to vote for Christmas.
29. Once South Africa has recovered from Mandela’s death, there is a real danger of a return to what I can only describe as “Reverse Apartheid”. Violence.
30. Syria will continue to generate substantial profits for the world’s Arms producers as it has become increasingly apparent that there is NOT the political will to even attempt to end this butchery.
(I am NOT a Global Warming mullah but the image above shows all the world’s water and air to scale.)
Post-war German leaders have long argued German interests coincided with the greater European interests. Angela Merkel’s singular achievement, vindicated by her latest election victory, is to have kept Germany in the heart of Europe even as terrifying sovereign debt crises exposed the fissures and conflicting interests between states within the euro zone.
There is no doubt that the German economy benefited enormously from the euro-driven economic union. But when the crisis broke out, German taxpayers, understandably, did not want to bail out foreign governments and financial institutions caught in the upheaval. Merkel’s strategy was to protect the interests of her taxpayers while convincing them that the euro must be kept alive; otherwise the whole European project, the basis of the continent’s peace and prosperity, could collapse. To this end, she imposed much-criticised austerity on the hard-hit peripheral states in southern Europe while pledging support to them by committing the equivalent of Germany’s annual federal budget to various rescue funds.
Merkel preferred the step-by-step approach rather than any grand reform schemes. Euro-zone bonds to lower sovereign borrowing costs? No way. An even tighter banking union than currently planned? Forget it. She perceived that in all these big and ambitious schemes, Germany would be the one that ended up paying the most to support them, thereby putting German taxpayers on the hook.
Because of the delicate balancing act she had to pursue, she has been criticised, with reason, for dragging out the crisis rather than resolving it once and for all with a bold plan. But it’s highly doubtful that without her cautious approach, German citizens would have gone along in helping the crisis-hit states. And without German backing, no rescue plan could work. Now, finally, the euro-zone economies are showing signs of life. Most likely, they still have a long way to muddle through.
Merkel may not have saved Europe. But she deserves credit for preventing a euro-zone break-up. (SCMP)
Politicians are currently gadding about, scattering statistics like confetti and pointing everyone at figures which are not preceded by a minus sign!
It’s time we paused, drew breath and took a closer look at the figures. Before we do, let’s have a go at putting some general perspective on the numbers. In Europe, it is being reported that the E17 (Eurozone) and the E27 (EU) have “grown” by 0.3% and that the figures signal a recovery!! A few points about what 0.3% actually means.
3% means THREE parts in a HUNDRED, so 0.3% means Three parts in a THOUSAND……but there’s more! The percentage change being quoted is the change in nothing more than the PREVIOUS QUARTER (see the top of the table above). That means that even if the figure was -100 and it changed to -99.7, THAT would be a POSITIVE growth of o.3%.
However, if you look at the PERCENTAGE CHANGE COMPARED TO THE SAME QUARTER LAST YEAR (the right-hand column above), the figures remain negative ( -o.7% and -o.2%).
France returned to growth in the second quarter of 2013, boosted by stronger domestic demand, after two straight quarters of decline. However, France’s reported increase in consumer spending is largely as a result of increases in energy prices. It was not an “en-masse” dash to the shops!
Meanwhile, Germany’s economy grew 0.7% in the second quarter (compared to the previous quarter), and when annualised, it was the fastest growth of all the world’s advanced economies.
The Netherlands, whose government has been a strong supporter of austerity, reported a a second-quarter contraction of 0.2%, confirming its fourth straight quarter of negative growth. It remains in recession.
Portugal reported a quarterly growth of 1.1%, Spain -0.1% and Italy -0.2%.
Compared with the same quarter of 2012, the United Kingdom is showing a growth of 1.4%, the same as the United States.
These figures are NOT a sign of the end of the Financial Crisis. That crisis remains firmly in place, with many of the figures indicating little more than the continued recovery from a particularly bad and exceptionally long winter……………… a weather-related catch-up.
European unemployment figures are being reported with just the tiniest amount of “spin”. This is the whole story: In June 2013, Unemployment continued at record highs in the 17-nation Eurozone but there was some hope of an improvement as the numbers of those out of work fell slightly. The official Eurostat data was published yesterday. The overall Eurozone jobless rate came in at 12.1 per cent, unchanged from May. The jobless numbers, however, fell by 24,000 to 19.26 million. BTW, Europe’s population has increased by about 5 MILLION since the crisis began – perhaps THAT’S what is confusing the statistitians.
Greece: it’s never as simple as you think!
Greece has one more condition to meet to get the next 2.5 billion euro (2.15 billion pounds) sub-tranche of bailout money from the temporary euro zone bailout fund EFSF on July 29, the chairman of euro zone finance ministers Jeroen Dijsselbloem said on Wednesday.
“Greece has satisfactorily implemented the prior actions required for the release of the next disbursement under the financial assistance programme, except for one action whose adoption by the Greek Parliament needs to be completed by Thursday, 25 July,” Dijsselbloem said in the statement.
“Subject to confirmation of compliance with the last outstanding prior action, national procedures may thereafter be finalised and are expected to be completed by 29 July,” the statement said.
“Once this process has been satisfactorily concluded, the EFSF will be authorised to release the first sub-tranche of the next instalment, amounting to 2.5 billion euros,” it said. (R)
Immigrants – we NEED them!
According to the Office for Budget Responsibility (OBR), the UK needs SEVEN MILLION migrants over the next 50 years to help keep down national debt levels.
The OBR warns that the UK’s ageing population was squeezing public finances and said there was “clear evidence” that migrants, who tend to be working age, have a “positive effect on the public sector’s debt dynamics”.
The OBR has also warned that increasing pensioner numbers and a strained healthcare system means an extra £19 BILLION of spending cuts or tax increases are needed to combat an “unsustainable” pressure on the nation’s public finances.
It IS possible that while we continue to live too long and not produce enough, those much maligned immigrants could be the solution to our economic problems.
That should please UKIP!
HERE’S the Executive Summary of the OBR’s Fiscal Sustainability Report.
The risks of a Greek Collapse
While Greece seems to be engrossed in its “success story,” the country’s partners appear more concerned with its “stability story,” in other words whether or not the country will stay on an even keel. There are several reasons why this is what they are most interested in.
Portugal is on the brink of a major political crisis; Italy seems unable to find solutions to its problems, and an out-of-control collapse in Greece would complicated this already tenuous situation. There are also broader geopolitical reasons. The Americans and the Europeans are becoming quite frightened by the chaos in the Middle East, especially at a time when Israel is particularly isolated. Their stance toward Turkey has also changed as they grow more and more concerned by the instability there and Prime Minister Recep Tayyip Erdogan’s arrogant behavior. A Greek “accident” is seen as very dangerous in such a climate. Of course there are those who expect Greece to fail, but argue that even if does, it will find a way to get back on its feet. The majority of international observers and officials, however, do not take the possibility of a Greek collapse so lightly.
So what is the problem? The Greek political system and public administration are nowhere near achieving reform targets, even when these are lowered. The international community is aware that it can exert pressure on Athens until the end of the year when Greece hobbles to a primary surplus. But, as that time approaches and it feels that it only has a few more months to exert influence, the more pressure it will apply. And this is where the danger lies: Greece’s creditors may cause the crash by applying too much pressure.
In the middle of it all are the markets, either in the form of large funds willing to invest in the new low-cost Greece or in the form of lenders who would like to see the Greek bond market operate again.
Prime Minister Antonis Samaras believes that maintaining calm is the top priority. He hopes that an excellent summer in terms of tourism, public works projects due to begin imminently, the TAP pipeline and some good investment news will create a positive climate come the fall.
At the same time he is equally aware that the people are about to be hit with a cascade of taxes and that if these are not collected the fiscal gap will be hard to manage. No one can predict whether there will be a sense of positive shock or an even greater feeling of misery in the fall.
All of this, meanwhile, is taking place ahead of an anticipated clash between Berlin, the International Monetary Fund and Brussels right after the German elections over whether Greece should receive a further debt writedown and a different policy mix.
©Alexis Papachelas : Ekathimerini.com
Eurozone Risks Return to Fore
By CHARLES FORELLE and MARCUS WALKER
The recent turbulence rattling global bond markets is unmasking an unpleasant notion in Europe: The eurozone’s problems aren’t solved.
Government bonds have recently taken a hit around the world, now that investors are preparing for the possible end of central banks’ boundless economic stimulus. And those bonds of the weakest euro-zone countries have shown some of the biggest drops.
That suggests that the bonds of Spain, Italy, Portugal and Greece might be susceptible to bigger swings in the future, as the flood of cash that has poured into financial markets recedes, leaving their economic warts more exposed, market participants say.
Thanks to the European Central Bank’s pledge to support markets—and to the ocean of cash from central banks—those bonds saw extraordinary rallies for the better part of a year. But in recent weeks, the course has shifted somewhat.
Yields on the 10-year Greek bond, which had strengthened remarkably since last summer, ended Thursday at 10.03%. That is two percentage points higher than where they stood on May 22, when the U.S. Federal Reserve signaled its giant bond-buying program might slow this year. At 6.47%, the Portuguese 10-year is more than one percentage point above its May low. Bond yields rise when their prices fall.
The 10-year Spanish bond, which was near 4% in early May, closed Thursday at 4.61%, flat on the day. The Italian 10-year, a hair stronger Thursday at 4.35%, also is off over the month. The spread—or the amount of additional yield investors demand, above that paid by benchmark Germany—also has risen for both countries over the period.
To a degree, the rising yields reflect the same tidal forces that once pulled them down: Easy money drew investors to those bonds; its possible end pushes them away. The rally was “more technical than fundamental,” says Carl Norrey, head of European rates securities at J.P. Morgan in London. “I can’t help but respect it, but I don’t see how Europe gets out of the crisis this easily.”
Behind the problem is a macroeconomic euro-zone picture that has deteriorated, not improved, during the period of falling yields.
“The liquidity dynamic is unfavorable, and you have to frame that in the context of these markets having extreme social, economic and political risk,” says Gregor Macintosh, head of global sovereign debt at Lombard Odier Investment Managers in Geneva, which has $42 billion in assets under management.
Mr. Macintosh has been paring his exposure to Europe’s weaker countries over the past month. “The reality is that the underlying fundamental situation is still gravely worrying in these countries,” he says. “In a crux, you have to be nimble.”
To be sure, the rally in weak-country bonds has been impressive, despite the slide of the past month. Last summer, Spain and Italy were facing a dire situation: so little demand for their bonds that they risked needing to turn to their euro-zone peers for help. The euro zone isn’t in that situation today, and the ECB’s summer pledge to step into markets if needed remains potent. The euro zone’s politics are still thorny—Germany holds elections in the fall, which have stirred up anti-euro sentiment—but the bloc’s crisis management is improved.
“German elections aside, things are far less bad than they’ve looked for some time,” says Bill Street, head of investments for Europe, the Middle East and Africa at asset manager State Street. He points to signs that trade imbalances are righting themselves and a possible plateau in the euro zone’s lofty unemployment rates. The debt of a weaker euro-zone country, with its extra yield, he says, “still holds a place in a diversified portfolio.”
But economic pressures, especially gross domestic product that has fallen faster than expected, have heightened concerns about the countries’ debt burdens. Debt that grows too fast, relative to the economy, is the principal risk for most of Europe’s weaker states—and for their bond investors.
“With Spain and Portugal, if you look at debt-sustainability models, you are going to need much higher growth,” Mr. Street says.
Italy, Portugal and Greece all have especially high ratios of debt to GDP. Spain, which began the crisis as a low-debt country, is on its way to being a high-debt one. By next year, Italy’s debt-to-GDP ratio will reach 132%, while Spain’s will hit 97%, according to the European Commission. That compares with 127% and 84% in 2012.
Arresting the rise is exceptionally hard in a shrinking economy, and European authorities have begun to reckon with this by slowing the pace of fiscal cuts, in the hopes of supporting economic growth.
But a larger problem may be looming: In order to restore their economic viability, weaker countries must improve their industries’ competitiveness by pushing down wages and other costs, relative to Germany and other northern countries. But the German economy appears to have settled into a pattern of low growth and low inflation.
That means Italy, Spain and the others need more of this so-called internal devaluation. And devaluation makes it harder to pay down debt.
Spain and Italy “need prices to rise less rapidly than in Germany to rebuild competitiveness, but they need a measure of inflation to ensure debt sustainability,” says Simon Tilford, chief economist at the Center for European Reform, a nonpartisan London think tank. “Something has to give.”
Many economists say the solution will have to take the form of higher demand and inflation in Germany, large-scale debt restructuring in southern Europe, or sharing debts at the European level. But the euro zone’s creditor countries reject all of those options, leaving no clear way out of the debt crisis.
A version of this article appeared June 14, 2013, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: “Rising Bond Yields Rekindle Euro Fears.”
Eurozone recovery proves elusive
By PAN PYLAS
LONDON (AP) – Several economic figures for the 17 EU countries that use the euro all showed the same thing Wednesday – there’s no sign of a recovery from recession.
Eurostat, the European Union’s statistics office, confirmed that the eurozone’s economy as a whole shrank 0.2 percent in the first quarter of the year from the previous three-month period, with most sectors declining. Both companies and consumers have shown little willingness to invest and spend as they struggle with high debt, tight credit markets and record unemployment of 12.2 percent across the eurozone. As a result, the bloc’s economy has shrunk for six straight quarters.
Though the performance is not uniform across the eurozone and was slightly better than the previous quarter’s 0.6 percent contraction, Eurostat confirmed that nine of the region’s 17 members have seen their economies shrink for at least two quarters, the common definition of a recession. They are Cyprus, Finland, France, Greece, Italy, the Netherlands, Portugal, Slovenia and Spain.
The economy is not likely to improve much in the current quarter, either. In a separate survey, Eurostat said eurozone retail sales fell by 0.5 percent in April. That’s the third straight monthly drop in a sector that is key to economic growth.
Separately, a monthly survey of business activity from financial information company Markit pointed to a further drop during May. Though its composite purchasing managers’ index of the manufacturing and services sector rose to 47.7 points from April’s 46.6, the number is still below the 50 mark that would indicate expansion.
The figures paint a grim picture just as the European Central Bank’s governing council prepares to discuss what to do to get the eurozone economy growing again. It is not, however, expected to announce major new measures at the end of its meeting Thursday. Last month, the ECB cut its main interest rate to a record low of 0.5 percent.
“There is little in the latest batch of data to suggest that the eurozone economy is about to pull decisively out of its prolonged recession,” said Jonathan Loynes, chief European economist at Capital Economics. “Indeed, while our forecast of a 2 percent drop in GDP this year may prove a bit too pessimistic, we still think that the consensus forecast of a 0.5 percent contraction is significantly too optimistic.”
Though the eurozone’s current recession is not nearly as deep as the one it suffered in 2008-9, which ran for five quarters, it is now the longest in the 14-year history of the euro.
Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
The imaginary Eurozone recovery remains just that….so the only question this week is by how much the ECB will cut interest rates. Luckily, as there’s no clear definition and because we must NOT “upset the markets”….. the phrase “Economic Depression” will not be used. However, in spite of politicians’ warm words and wonderfully creative statistics and extrapolations, that is exactly what many people are feeling.
(Reuters) – Five years after the onset of the global financial crisis, the world economy is in such a chronic condition that the European Central Bank might cut interest rates this week and the Federal Reserve is likely to indicate no let-up in the stimulus it is providing the U.S. economy…. http://reut.rs/Y6R8sk
Economic Recovery: Fact or Faith?
Whenever man has struggled with solutions to big problems, he has turned to his God, who has consistently said that if man endures deprivations and suffering on this Earth, he will get his just reward in Heaven.
The weird thing is that here we are in the Year 5PL (Post Lehman) and our politicians are behaving just like those prophets of old. WITHOUT any proof and relying solely on faith, they say “Endure the austerity and soon you will be transported to the economic heaven.” Meanwhile they (the prophets) search for “signs”. For instance, a small statistical variation in economic data is seized upon as a “sign” that all will soon be well. (Chancellor Osborne did it again yesterday when he announced “encouraging signs that the economy is healing” HERE In fact, he repeats the holy phrase.)
Is that true? Have we been offered any proof? Do we have to accept the words of the prophets without question or are we being heretical and behaving like Doubting Thomases?
If the New Religion is true, then we have been witnessing the longest Resurrection ever!
There is much talk of “positive sentiment” and Central Bankers accept gifts and many sacrifices from the people and prophets….but, is there really room for faith in economic thinking?
Currently, it would appear that it is all we have.
(As you listen to the Chancellor, notice the total lack of numbers and dates in the affirmation of his faith)
What’s happened to PROPER Investment Banking?
As recently as 2009, banks’ investment fees were higher in Europe than in the United States. Nowadays, Europe is delivering only about a quarter of total investment activity, with the corresponding collapse in fee income.
Mergers and Acquisitions (M&A) used to be the investment banker’s bread and butter but nowadays, European bankers appear to be either dozing at the wheel or they’ve left the building! Or perhaps they’ve forgotten how to do it!
In the last year American acquisitions were up by about a third whereas in Europe, they appeared to be too busy sitting on their cash, playing the markets and endlessly “rebuilding balance sheets”.
Before the 2007 crisis, the European dealmaking level was about three times as high as today. In the last year, only about $750 billion in deals was announced. Six years ago, it was over 2 TRILLION!
Europe’s global share of M&A activity is now less than one third – the lowest in 10 years. In fact NINE OUT OF TEN of the largest deals in the last 12 months have been executed by US teams.
Equity Capital Markets are showing the same trend.
In EMEA (Europe Middle East and Africa), issuance (offering securities in order to raise funds) over the last 12 months has been about $145 billion. That is well down on last year. Compare that to an increase of nearly 50% in the USA!
Even Asia has overtaken EMEA which is now delivering only about 20% of global issuance. As recently as five years ago, it was nearly 40%.
The conclusion? European Corporates are waiting (they do have cash) and the banks have become lazy and preoccupied with their political debt games.
So what are the politicians doing to make the banks on this side of the Atlantic more profitable? Very little.
Unsurprisingly, subsidiarisation (breaking up or threatening to break up banks), “ringfencing”, bonus caps and financial transaction taxes are all serving to make Europe a structurally much less profitable region.
You see, the banks too are being made to suffer their own kind of austerity by the politicians.
Add to all that the 2013 craze of blatantly robbing bank depositors and the outlook continues to feel depressingly negative.
The Eurocrisis isn’t just Financial.
The Eurozone crisis has managed to morph from a plain old currency crisis to a debt crisis, an economic crisis and now, a full-blown political crisis – although no-one seems to have noticed…….. and it’s not just the Eurozone:
In the United Kingdom, people are making increasingly indiscreet noises about the Prime Minister’s leadership capabilities and the Chancellor’s questionable competence, as the cold hand of political instability makes a (so far) half-hearted grab for No 10. Currently it looks as if there is already a swing to the right. Nigel Farage and UKIP no longer look like a bunch of extremist Right-wing loonies and as they gain respectability and seats, they will pose a genuine threat to the status quo.
Here’s a quick Grand Tour:
Greece’s political problems are well-documented and this is where the recent polarisation of national politics began with the success and increasing support of the right-wing Golden Dawn Party. Greece is on its knees.
In France there’s the scandal of a Minister and his secret Swiss Bank account with the consequent investigation of all Ministers – shades of the UK’s MP expenses outrage. President Hollande is keeping a very low profile because , let’s face it….he came to the table without any ideas. His mere presence has allowed Marine le Pen and her Right-wingers to re-emerge blinking into the sunlight, ready to build on her father’s legacy.
Germany’s Bundeskanzlerin Merkel is no longer odds-on to win her autumn election and so, in order to placate her detractors, countries such as Cyprus are being put through the debt-wringer and effectively having to bail themselves out! All in the cause of extra Brownie points for the Merkelator.
Many are anticipating more resignations from within the Cypriot government. Michalis Sarris, the Cypriot finance minister who negotiated Cyprus’s bailout agreement with international creditors has already gone.
Portugal’s Constitutional Court has kicked into touch some of the austerity measures imposed on the country by the Eurozone moneylenders. Now the politicians are wondering about how to plug the fiscal gap and Prime Minister Coelho may resign.
Belgium took 535 days to form a government after its last election and now has a 6-party Cabinet.
Italy is struggling to form a government and will most likely hold another election after President Napolitano comes to the end of his tenure as Head of State on May 15th. Goodness only knows what the reaction of not only the Eurozone but of the Markets would be should Silvio Berlusconi (again) rise from the dead! Italy’s political scene has become so surreal that ONE QUARTER of the vote in the recent election went to a protest movement headed-up by Beppe Grillo – a comedian!
Spain’s politicians, including its Prime Minister are mired in corruption scandals – and now there are anti-Royalist demonstrations as a direct result of the king’s daughter being implicated in a government financial rip-off. Mind you, affluent Spaniards have already pulled about $100 billion out of their Spanish bank accounts. They started running early. It’s only a matter of time before the Basques and Catalans start to make their separatist noises.
The difficulty is that one would normally expect the emergence of the Right to be counterbalanced by a strong showing from the political Left. But what Europe has are weak governments , compounded by even weaker oppositions. No European political party in government has over 50% of the vote……. and the less said about the European Union’s politicians, the better! They seem to have elevated ineptitude into an art form.
Currently, Britain’s Left is being driven by Ed Miliband and the New-Old-New-Who-Knows-Who-Cares Labour Party. They earn their salaries through the medium of being critical. They have shown themselves to be totally bereft of a coherent, cohesive strategy and will be directly responsible for the future success of UKIP.
Leadership (or a lack of it) within Germany’s Social Democratic Party will be the main factor which could give Merkel another few years of power. If that happens, the rest of the Eurozone should begin to consider itself as no more than a motley collection of Vassal States……there to do Germany’s bidding. Unless of course, Germany accepts George Soros’ advice and leaves the Euro.
France does not enjoy having a Socialist President and it is right to be sceptical. President Hollande is now totally ignored by Merkel and is doing what he does best – he keeps out of the way as Germany tightens its stranglehold.
Hollande could have been the Eurozone’s great hope but unfortunately is way out of his depth. France now has a negative bond rating by all three rating services and has lost much of its international respect. It’s precarious banking system is just waiting (like many others) to go “pop!”
The Main Event this year will be Merkel’s re-election so the Eurozone states must not expect any major policy changes until then – and when she wins? More of the same – but without the compassion!
What of Europe’s medium to long-term future? Without some sort of political quantum leap, it will inevitably descend into a collection of Third World states but with running water, TV and a banking system totally independent of its economy and probably with its own flag.
Equity Euphoria. Why?
The Markets are in the wrong place. For about two years, I have been suggesting that market sentiment bears absolutely no relation to what is really happening in the real economy.
Yesterday’s Markit manufacturing figures clearly show that Europe’s manufacturing sector is in a mess. At 12% , Eurozone unemployment is at an all time high with further austerity measures to follow.
In spite of all that and with increasing hand-wringing from economists, the markets are buoyant at near-record and record highs, the euro is showing only modest losses and for Bond investors it’s business as usual!
What is going on?
One thing that we can see from the manufacturing figures is that there is quite a marked divergence between Germany and the rest. Although manufacturing activity is shrinking to 5-6 month lows, the so-called “financial fragmentation” across the Eurozone has become increasingly obvious. The Eurozone does NOT have a uniform monetary policy which means that Italian and Spanish banks, for instance, pay much higher funding costs than Germany. That means that certain manufacturers are paying much more than German ones for their cash. On the face of it, that seems to be anti-competitive – but that unfortunately is just one of the many anomalies of the Eurozone – in fact of the entire European Union.
“The poorer you are, the more you pay for your heating fuel.”
This is the backdrop to a largely blinkered , almost “autistic” equities market where we appear to have reached the stage of self-amplification where , because of the abysmally low bank rates, EQUITIES is the only game in town. Self-amplifying? Yes – as more and more investors pile into stocks – mainly because they don’t want to lose out on a rally which they themselves are now fuelling.
The only cautionary note should be for investors who are only just coming into the market to ask themselves “What is the real likelihood of me making a profit?”
When will it stop? History shows us that rallies such as the current one can stop pretty suddenly!
There will come a point at which traders, especially those with short positions will decide “Enough!” – in spite of the fact that currently, there is no obvious level at which to climb out and possibly take a loss.
Once one jumps, the rest are sure to follow.
We could go down so fast that you’ll get a nose bleed!
European stock markets slumped and the euro dropped under $1.28 for the first time in four months Wednesday owing to concerns over fallout from the Cyprus bailout and a disappointing bond sale in Italy, analysts said.
London’s FTSE 100 (FTSE: ^FTSE – news) index of leading companies fell 0.69 percent to stand at 6,355.10 points in afternoon deals, as Frankfurt’s DAX 30 (Xetra: ^GDAXI – news) shed 1.44 percent to 7,766.11 points and in Paris the CAC 40 (Paris: ^FCHI – news) slumped 1.46 percent to 3,693.95 points.
Madrid tumbled 1.90 percent and Milan lost 1.59 percent. The Athens stock exchange, a low volume market, plunged 6.83 percent.
Italian borrowing rates fell slightly in a 10-year debt auction on Wednesday, but borrowing rates were higher for five-year debt and demand was weak amid concerns of political deadlock in the recession-hit country following inconclusive elections.
Stock indices were falling “as the ongoing issues in Cyprus continue to weigh on sentiment,” said Alpari trading group analyst Craig Erlam.
Gold prices slipped to $1,591 an ounce from $1,598 Tuesday on the London Bullion Market.
Troubled eurozone nation Cyprus on Wednesday scrambled to finalise capital controls to avert a run on banks, a day before they are due to reopen after a nearly two-week lockdown while the island secured a huge bailout.
Meanwhile there are fears that the controversial terms of the bailout could be mirrored in any future financial rescues of indebted eurozone members.
Nicosia early Monday agreed a last-minute deal with its international lenders that will see it receive a $13 billion rescue package to help pay its bills.
And while the decision to tax bank savings above 100,000 euros raised fears of a similar move in future rescues — reinforced by comments from the head of the Eurogroup of finance ministers — officials have since insisted that Cyprus is a special case.
“The negative sentiment is also enhanced by rumours that this format will be adopted as a template for any further bailout schemes,” said Currencies Direct trader Amir Khan.
“Although top officials deny any such move in the future, markets are still wary that this format will leave the banks with fewer deposits and in turn will allow them to lend less, shrinking growth.”
Elsewhere on Wednesday, in indebted eurozone member Italy there was weak demand at an auction of 5- and 10-year bonds, with bid-to-cover ratios of 1.2 and 1.3.
Ratios of above 2.0, where submitted bids are double those accepted, are considered strong.
The Italian treasury took in 3.91 billion euros at a rate of 3.65 percent, a five-month high.
However the yield on 10-year bonds dipped 4.66 percent, compared with 4.83 percent at the last similar auction on February 27, with three billion euros raised.
The European Commission meanwhile said its key business and consumer confidence index for the eurozone fell 1.1 points in March to 90 points, reflecting a downturn in the manufacturing and service sectors while consumer sentiment was steady overall.
Amid the gloom in Europe, US stocks moved lower Wednesday in early trading.
The Dow Jones Industrial Average gave up 0.33 percent, the broad-based S&P 500 sank 0.36 percent, while the tech-rich Nasdaq Composite Index dropped 0.26 percent.
The retreat followed strong gains Tuesday that resulted in a record high for the Dow and a near-all-time high to the S&P 500.
“Follow-through has been lacking this morning for reasons that are both convenient and clear,” Patrick O’Hare of Briefing.com wrote. “Headlines out of Europe are largely to blame.”
— Dow Jones Newswires contributed to this report —
CYPRUS: Help me to understand this : Bank Depositors are clobbered in one bank but not the other. Then, cross-border money movement is restricted as are withdrawals from individuals’ own accounts. Finally, a large swathe of the population is condemned to many years of unemployment and grinding economic austerity. My question is this: Why is it called “Monetary Union” ? Herman Van Rompuy believes that the Eurocrisis has been averted. IT HAS JUST STARTED.
Cyprus: A blessing in disguise?
The United States, the Eurozone and even our own administration here in the United Kingdom have shown us that we are fast approaching the time for a major rethink of the Democratic Model.
The Global Economy is becoming permanently unstable and far too technical to be in the hands of gifted amateurs. Or, in the case of the United Kingdom: the “Gentleman Politician”.
By all means, allow the Elected Ones to fanny about with the politics but sharp-end economics should now be in the hands of professionals who do not constantly keep one eye on the opinion polls and the other on their next election.
There have already been attempts to install Technocrats, e.g. Italy and Greece – but these were no more than economists dressed as politicians, who were then expected to play politics. Inevitably, they crashed and burned.
Cyprus is the latest to demonstrate that politics (of any flavour) coupled with an absolute inability to Manage at Macro level is slowly killing economies.
Some may repeat the “But it’s those bankers” mantra…. and to a certain extent they are correct. However, the Root Cause is the politicians’ inability and unwillingness to manage the banks, themselves and the economy.
Cyprus should not only be a very loud wake-up call but also a watershed moment for Western politics.
For 24 hours, the world has been focused on the Cypriot small savers who are likely to lose a slice of their cash to the god Euro. However, there are others who may lose a lot more.
According to Moody’s, the Cyprus debt crisis has endangered many Russian banks who work with companies owned by Russian oligarchs who are registered in Cyprus. They stand to lose BILLIONS if the Cypriot government defaults.
HERE’S what Spiegel said about all this last November.
As usual, Eurozone politicians have allowed a drama to develop into a potential tragedy.
Banking Reform – A Lack of Will?
When will groups such as The Parliamentary Commission on Banking Standards wake up and realise that this government has NO real intention of reorganising the banks.
The talk has moved from buffers to firewalls, ring-fencing, electrified ringfencing , shocks and any number of excruciatingly bad metaphors. As the Commission must have realised by now, the government is cherry-picking its recommendations in order to mollify the Banking Lobby – which is probably the most influential in Westminster.
Today the Banking Reform Bill is being debated in the Commons, no doubt with the ultimate objective of yet more procrastination by a government which seems unable to either manage or take those “tough decisions” which it is always banging-on about. Unless , of course those tough decisions are aimed at and affect the less privileged.
Andrew Tyrie, the Chairman of the PCBS says “”The government rejected a number of important recommendations. We have concluded that the government’s arguments are insubstantial.”
He added: “There remains much more work to be done to improve the bill.”
JUST what the Chancellor and Prime Minister wanted to hear…..and just as long as the argument can continue until at least May 2015.
Banking reform is in the future – and that is exactly where the government intends to let it stay. Indefinitely.
The Nature of Modern Democracy
The concept of political power crystalised as a left/right divide is in its death throws. UK Political Parties constantly confirm this by this by the politicians’ constant playground squabbles over the political “centre- ground”. Beppe Grillo’s recent success in the Italian elections also suggests that perhaps electors are looking for something concerned more with themselves rather than belonging to one of the “ancient” political herds.
In the UK, the search for a distinction between the two main parties, has returned us to the Class War which we all thought had burned itself out in Margaret Thatcher’s and John Major’s day. It certainly wasn’t apparent during Tony Blair’s tenure at No 10 Downing Street.
In the current “model”, it is usual for two major political herds to constantly battle whilst the smaller factions watch with puny impotence.
So where do the “little ones” glean their support? In the UK, smaller parties such as the Liberal Democrats can do no more than feed off the scraps of those at either end of the rapidly- shrinking political spectrum.
The Left- Right nonsense continues to have ‘legs’ primarily as a result of the efforts of the media ‘opinion-formers’ . Their prejudices and fixed views ensure that the Class War continues to simmer.
Instead of a contrast between the Working Classes and the Upper Classes, the modern argument is between the ‘haves’ and the ‘have nots’ – which nowadays is a subtly different distinction. Nowadays you cannot really spot a ‘have not’ because they may be wearing the uniform and displaying the behaviour of a ‘have’.
We need to find a new set of values……and quickly!
Let’s forget flat-caps, whippets, bowler hats and black rolled umbrellas but at the same time, let’s accept that there are several components which we would ALL like to be included in our new thinking.
Our current political ‘values’ have their roots in past tradition.
We need political values to be in accordance with the one thing which tends to be the MAJOR STUMBLING BLOCK in any political system.
HUMAN NATURE ……married to our basic instinct – not of ‘Community’ but of selfishness. We do it for OURSELVES and NOT our neighbours. That’s why Communism failed.
These are three components which are non- negotiable:
1. FREEDOM 2.SOCIAL JUSTICE 3. EGALITARIANISM.
These basic components do NOT need to be overlaid by a PARTY POLITICAL system because these are ABSOLUTES.
In order to achieve the three components above we need to include an element of both Personal and National WEALTH CREATION.
We therefore also need to promote the dynamic of the BUSINESS ETHOS.
Unfortunately, the word ‘BUSINESS’ has become a bit of an emotive topic BECAUSE of the old (present) LEFT- RIGHT Political system and Feudal thinking.
Business is all about trade, vocation, craft, employment, industry, enterprise, commerce, bank transaction, negotiation, merchandising, making and most important of all – work and employment.
Unfortunately, because of the L-R divide, business has come to mean bosses, workers, management, greed, oppression and profit.
We need to generate a pretty major adjustment in perception and from that, a new ideology.
Capitalism, Communism, Socialism, Democracy etc are not concepts which have been around for ever. However, they do appear to be running out of steam.
Currently we assume that these labels are the only ones which work or have worked. Unfortunately, human experience tells us otherwise.
Imagine existing Political Parties in say 100 years time. They will still be confronting each other in that theatrical way we have come to love. Left and Right hacks will still be stoking the fires of discontent because that’s their job. The Left- wingers will continue to highlight the Politics of envy whilst the Right will continue to be disrespectful to everyone.
Here in the UK, we have a change of administration every 5 years but all that happens is that The Elected Ones merely continue the ‘blame game’ and the playground bickering.
There are visionless “little” people who ALL suffer from politically-induced Tunnel-Myopia. In the grand scheme of things, they are insignificant.
Meanwhile, whilst the puny jousts and rhetoric continue, the interests of the ordinary voter are sacrificed on the twin altars of blind political and corporate interest.
As the politicians become more and more irrelevant to the irreversible arrow of ‘progress’, democracy is being diminished daily.
Unfortunately the politicians’ self- serving vanity and an over- developed sense of belonging (to a Party) continues to cloud their already flaky judgement.
New thinking is needed. It needs a new METHODOLOGY – one based on expertise plus knowledge and NOT in the combative ‘here today- gone tomorrow’ nonsense of partisan politics.
Rhetoric must give way to implementation of scientifically and rationally-derived policies which are untainted by political dogma.
It is most definitely NOT about economics. Economics, as the main divider of political thinking does not, for instance, have anything to say about human nature or morality or human values – which are the factors which destroy every Economic Theory.
The mathematical formulae and conjectures of the economists are no longer enough.
We do need Capitalism. We need a form of Welfare Capitalism but we need it with a healthy dose of Sociology and Anthropology but with its roots embedded firmly in pragmatism rather than the economics-derived abstract thought and conjecture.
The New Thinking needs to start now- especially since five years ago, when capitalism was effectively destroyed by the Rentier Capitalism Kleptocracy of the United States – which is now becoming increasingly apparent in Europe. Spain is the last economy to fall to Rentier Capitalism.
What we considered to be a benign form of Capitalism has been infected by its malign cousin and currently no-one has a cure. The cause remains while politicians and bankers continue to attempt to cure some of the symptoms with what appears to be the wrong medicine in ever-increasing volumes. For example, the latest craze of Quantitative Earning.
Quack economic cures will soon have to give way to nothing less than major surgery, followed by a totally uncompromising cure.
An example of the “compromises” which highlight the schizophrenia of the current Party-based political and economic system is clearly demonstrated by the double-think of Thatcherism.
The Thatcher years are remembered for two apparently opposing concepts: The dismantling of many State controls running alongside increased State control.
Nationalised organisations were privatised, thus removing them from State control. State aid was removed from dying industries. Prices and incomes as well as Financial Services Regulation were no longer State controlled and many State organisations were encouraged (forced) to ‘contract out’ many of their functions to the Private Sector, (NHS, Education etc).
At the same time State control was tightened in other areas. Education and Local Government became more centrally controlled, as did the Police. State power was used to control the Unions and State power was used to prevent price- fixing in private industry and commerce.
This sort of Political Schizophrenia continues to this day and clearly demonstrates a lack of ideological coherence.
In fact, it also highlights the traditional view of the two main parties. The intellectual social dogmatism of Labour versus the Conservative avoidance of any real systematic political theory.
Hence the Conservatives’ preference of viewing themselves as the ‘party of common sense’- a phrase one often hears from its leadership.
‘Freedom’ is another often-quoted concept. But is it a REAL concept or maybe just empty rhetoric?
America is (some may argue) the MOST Capitalistic country in the world. It has awarded itself the sobriquet ‘The land of the free’. In fact, there is little understanding of the word.
People do NOT feel ‘free’ because they are told that they are free.
Therefore any new political theory need to examine questions of Social Ethics as well as peoples’ psychological needs.
TRUE democracy HAS to be DIRECT. Modern democracy has dissipated the individuals voice in favour of its citizens handing their voice to someone they may or may NOT have elected.
The Eurozone Crisis has clearly demonstrated that you can have too much Democracy – especially if it generates intransigence because Left and Right views plus upcoming Elections cloud economic judgment.
The changes we need are NOT economic – they need to be a root and branch rethink of the Nature of Democracy and what really underpins it.
ECONOMIC CHAOS ?
The piece below is over 2000 words long and I have just completed it for a client .
It is about the random nature of an economic system.
Have you ever wondered why ALL economic predictions are wrong? Have you noticed that in spite of a proven record of error, economists and politicians continue to bang their heads against the forecast-wall and refuse to do anything else but continue to predict outcomes which by now, they must realise will be incorrect?
They certainly use all the latest computer models which have been empirically derived and used for many years.
So, are there any incorrect assumptions about “fundamentals”?
Is the economic process Stochastic (a sequence of random variables)? Or is it Deterministic (when the output of a system is totally dependent on its initial state and subsequent inputs – and therefore, predictable)?
(Mind you, to add to the confusion, deterministic systems may occasionally produce random and therefore unpredictable results. )
Is economics a question of Stochasticity v Determinism?
Why do I ask the question? Because there appears to be a total absence the ‘stable equilibrium’ predicted by classical economists.
On the contrary, Market Economics behaves like a collection of dynamically unstable systems. The instability is attributed to external ‘shocks’ rather that any fault in the basic concept. There is what can only be described as ‘non lineality’.
One solution to this ‘non-lineality’ is CHAOS THEORY!
So far, no real evidence has been produced of ‘low – dimensional’ Chaos in economic processes but there are definitely discrepancies between the ‘expected’ according to classic economic models and the ‘observed’. Just look at any economic prediction within your memory. It was probably incorrect.
We still have a ‘mechanistic’ view of the world and economics as a ‘hangover’ from 18th century SCIENCE.
Scientific thinking is very simple: ‘Measure, predict and adjust until you no longer have any more surprises. Then keep measuring to confirm that what you measured in the first place can be replicated’.
Economics was conceived on that same principle . It was established as a ‘science’. That’s where the Determinism crept in.
It was at this time that man first considered the possibility of his own intellect being so unconstrained that he would eventually understand the ‘Universe and everything’ through the medium of scientific reasoning.
This principle was applied to all sorts of activities and thinking – including economics.
The so-called ‘Enlightenment Policy’ would help man in his pursuit of happiness. Especially in the sciences. Science was cool and now in the early 21st Century it is enjoying a bit of a revival.
Of all the subjects on offer, Physics became the admired Paragon for Enlightenment and so it continues.
The way Physics works is simple: Carefully describe an environment and you should be able to predict the outcomes of any experiment conducted within that environment.
Likewise in Economics: Know the initial environment and you should be able to predict outcomes based on subsequent inputs.
The belief stemming from that philosophy is that EVERYTHING is governed by ‘NATURAL LAWS’ which are a set of ‘cause-effect’ regularities. That means that everything can be predicted.
These same principles have been applied to Economics.
A simple scientific rule is that ‘The state of any system is a consequence of what it was in the preceding moment…..and so on.’
In the beginning, random occurrences had no place in such linear thinking. Everything was governed by Mathematics and Laws.
However, there is one major flaw in the way that we ‘do’ science: That is our ignorance of the CAUSES which generate phenomena and events.
For instance, we know the effects of gravity – which we can measure but we don’t really know the CAUSE.
However, in spite of our ignorance of the exact causes of events added to the imperfection of our analyses, we still cannot have 100% certainty about the vast majority of phenomena.
Economists also appear to have forgotten both the imperfection of analysis and their ignorance or (at best) of the exact CAUSES of events.
What is the solution? What is to be done about our comparative blindness?
Our ‘crutch’ is the science of probability. Chance.
Current economic thinking is a throwback. In economics, the world is still viewed as totally deterministic.
‘STOCHASTIC’ is non-existent – as is uncertainty because uncertainty is treated as ignorance or a failure to understand the deterministic rules of a very complex system.
Yet, with ALL our processing power, no-one has yet been able to establish those rules which should predict outcomes.
So, as Chaucer wondered in The Nonnes Priest Tale – Travelling from A to B: Freewill or Predestination?
Looking at the unpredictability of economic outcome, we move from linear to non-linear dynamics, from certainty to probability, from Economic Theory to Chaos Theory.
Theories of economics have been shaped by the assumption of ‘Rational Man’ who behaves in accordance with a known set of rules.
The evolution of economics into a science was ‘booted’ into becoming a science when it was ‘mathematicised’. Formulae arrived and suddenly, it became a bona fide branch of Applied Mathematics.
Many of the original people who translated economics into a mathematical form were physicists, engineers and mathematicians…… and it still shows. At that time, their view of the world was ‘linear’.
Does that work in economics? The short answer is ‘no’. That is why economists are struggling, interpreting and making excuses.
Marshall in his ‘PRICIPLES’ compared the study of economics to the study of tides. The number of variables affecting tides means it is impossible to create a consistent dynamic picture.
Even nowadays, there isn’t enough processing power to generate an accurate picture of such a dynamic system, especially as the number of variables affecting such a system is, for all intents and purposes – infinite.
Imagine random stones being thrown into the sea or small outcrops of rock or variations in the seabed. They all have an effect on the ‘shape’ and speed of the tide.
And so it is with an economic system: lots of rocks, stones and other variables.
It is not possible to formulate or predict a picture of such an infinitely dynamic system.
Currently, economic theory appears to predict that any shock to such a dynamic system will (obviously) have an effect on the system but that it will ultimately converge-to or seek either a new equilibrium or ‘tend’ towards its original equilibrium because, after all – that’s what ‘systems’ are supposed to do!
Economic Theory assumes a tendency towards stability and equilibrium with certain ‘oscillatory happenings’ on the way.
So we have a situation where economic thought was (and still is, in most cases) linear, deterministic and quasi-dynamic. That is to say, the ‘set-in-concrete’ notions of certainty, invariant economic laws and sameness……………..rather than approximation, probability and infinite variety.
For instance, the Bank of England predicts an inflation rate one year ahead, based more on hope than fact or perceived fact. But when such predictions are (always!) wrong, there is no revisiting of the thought process, merely another prediction with little or no basis in anything-in-particular.
Often, both ‘inputs’ and predicted outcomes are decided by committee and vote!
All predictions appear to be based on an assumption of an ultimate convergence of economic process to stability, via those periodic cycles which, although not understood are treated with a certain sense of fatalism.
Chancellors are so locked into predictions based on erroneous facts that they will even massage their outcomes in order to land somewhere near the expected landing point – purely in order to retain credibility not only for themselves but also for ‘the system’.
What cannot possibly be countenanced are the random fluctuations of what is most likely a permanently unstable economic system. We don’t do that sort of thing because it may suggest a lack of control!
Let’s have a look at non-linear Economic Dynamics.
Actual (REAL) economic results indicate little resonance with the symmetry and regularity suggested by a linear mechanistic dynamic system. (Something that moves predictably along a pre-determined path).
On the contrary, fluctuations and movements are totally unpredictable. That means that regular Deterministic Laws cannot apply.
If we look at an economic situation in say, the Eurozone at a particular point in time, we may try to predict an outcome in say, 10 years’ time.
However, a small variant or an incorrect assumption in our analysis of the initial economic situation will have an effect on the ultimate outcome. The earlier that variation occurs, the more devastating will the effect be.
For instance Greece’s hidden debt at the time of its accession to the Eurozone, undetected at the time, is having a huge effect on the Eurozone’s economic outcome.
Meanwhile, the economists, bankers and politicians crave and need the comfort of ‘stability’. They know that the further the Eurozone travels from the initial conditions at Greece’s entry into the Euro, the more anomalies“The Greek Effect” will generate. It’s a self-amplifying issue.
Consequently, the bulk of the work of Eurozone politicians is now concentrated on creating a series of ‘faux’ stabilities.
It is the fallout from Stochasticity which is causing fear with Determinism being their comfort and shelter.
It was only 60 years-or-so ago that stochastic considerations were appended to classical economic theory.
But the so-called New Classical Macroeconomics was no more than a compromise. “Let’s introduce a Factor X because we can no longer ignore it.”
Yet, the economists still needed their ‘models’ – because deep down they were still the mathematicians and physicists of old.
A formula was devised (SLUTSKY) which took the linear dynamic business cycle model and added random (not necessarily economic) terms which attempted to explain the real ‘actualités’!
At last, an attempt had been made to explain ‘exogenous shocks’ to an economic system by the introduction of nothing more than random error terms.
But what was REALLY missing in classical economic reasoning was the concept of NON-LINEARITY.
So, the battle was between a Linear Model with a Stochastic Term (a fiddle factor) versus a pure Non-Linear Model.
Obviously by now – 200 years from the beginning, we have to assume that the evidence for linearity in economics has been overestimated!
So, if we agree that we do need a new non-linear model of econonomics, what are we searching for? What are the other ingredients and how do we ‘work them in’?
Do we want a synthesis of economics, psychology, politics and sociology? Or do we simply stick to the notion of determinism?
Human evolution is viewed as a random process (although the way it is often expressed makes it seem as if scientists view it an ‘inevitable linear’).
The evolution of an economic system is also pretty random, except that, applying psychology, politics and sociology, it can never be a system that can develop naturally. (For example, Survival of the Economically Fittest).
Mind you, economists have already had several attempts at introducing the concept of non-linear economics.
Followers of Keynes developed theories which generated Real Business Cycle Theory but any exogenous shocks to the new non-linear system were considered as merely ad hoc disturbances.
Economists could NOT break away from LINEAR THINKING. Linear thinking was being applied in an attempt to imprison a loose and free system, which tended to CHAOS.
The result? More economic models that you can shake a stick at!
It is only fair to say that our understanding of economic phenomena has been greatly enhanced by all these models and formulae…… but still no cigar. No General Theory of Economics. No equivalent of E =mc2….+εe
So Chianella, Pun, Goodwin, Kaldor, Baldrin, Woodford, Barmal, Benhabib etc have all done their bit but we’re still NOT QUITE there.
Unfortunately, for all intents and purposes, many of the models did no more than introduce the concept of economic ‘white-noise’.
Chaotic systems generate their own randomness without need for external input. Therefore in a chaotic system, predictions can ONLY be very short term and even if there were deterministic rules within such a chaotic system, an inability or failure to 100% ‘book’ the initial conditions of the system will always yield forecasting errors.
This all suggests that economic forecasting (except that on a very short time-scale) is a nonsense. PLUS – the bigger the system, the bigger the CHAOS.
That would suggest that a proposal such as a EUROPEAN ECONOMY is a flawed concept because there is very likely to be an exponential amplification of Chaos.
The dynamic of a mega-economy is very different to a housewife balancing the books at home – although economists are still applying the same principles to both.
Unfortunately so far, classical economists continue to resist economic chaotic concepts.
The reason for this apparent intransigence is simple: it is very difficult to extract evidence of chaotic dynamics from economic data – especially on a meaningful scale. Especially if another dose of chaos is injected into the ‘mix’ by erroneous or spurious data.
In order to predict in a chaotic system a VAST (infinite) amount of data is required – far more than is normally available and so far, the search for Chaos in economics has not been successful.
Meanwhile it is Chaos which is making long-term economic forecasting totally impossible and increasingly sophisticated and precise measurement of ‘initial conditions’ incredibly difficult and potentially prohibitively costly.
If we imagine an economy to be like a cloud – subject to all those forces that clouds are subject to, we can see the impossibility of a mathematical model which can predict the size, shape and exact direction of the cloud or even its shape and volume as it travels.
Its ultimate shape will always remain a mystery.
Politicians, bankers and economists ought to be able to say ‘I don’t know’ without us constantly expecting magic answers which do not exist.
For example: ‘Mr Chancellor or Mr Banker – what will be the effect on the economy of billions in Quantitative Easing?’ Correct answer? ‘We don’t know.’
“The initial conditions of a system are always uncertain, while Chaos guarantees that these uncertainties make prediction impossible.” (Heisenberg)
THAT is the essence of Chaos within an Economics System.
The Greek question. It’s all Greek.
So, what are its chances of successfully issuing the bond in the international bond markets?
Quite good! OTE is 40% owned by Deutsche Telecom – although that is NOT the only reason.
CONFIDENCE is the new Euro buzzword.
Even Greece’s Central Bank Governor Provopolous is feeling it. He says that the worst of Greece’s crisis is over because Greek 10 year bond yields have no dropped below 10%! That’s a bankers measure of “confidence!!
In spite of a falling GDP (a further contraction of 4% is expected this year) , unemployment at 26% (and rising), strikes and a very cold Greek winter, according to Mr Provopolous “There is improved confidence” and “We have turned the corner”.
The bank Governor seems to be confusing the ECB’s promise to “do what it takes” to save the Eurozone with internal “confidence”.
In fact, as a result of last year’s declaration of love for the Eurozone by Mario Draghi, ALL Eurozone bond yields have fallen. Greek economic policies have had very little to do with what so far, appears to be the “Miracle of 2013” ……..when Markets are rising and bond yields are falling. The Athens Stock Exchange (ASE) has risen by over 10% since the beginning of the year!
In reality, all the unusual market activity further reinforces that fact that the dislocation between the REAL economy and the virtual money-printing-driven economy is more-or-less complete. The Markets are performing in spite of the economy and NOT because of it.
“Confidence” is all very well…but confidence in what exactly?
Economic recovery or the ability to borrow more?
Whilst Greek politicians are pointing to the fact that Greek bank deposits are increasing, have they forgotten the 50 billion euro recapitalisation which Greece’s largest four banks are still awaiting?
Only THREE MONTHS ago (October 29th 2012), the Greek banking sub index tanked by 13.59% as a result of the unresolved recapitalisation. It remains unresolved.
The only change has been the European Union’s temporary rescue fund which has “earmarked” about 50 billion euros for the Greek banks….and there will be another delay in paying the money over. There always is. June 2013 is the latest estimate.
The “confidence” cannot possibly be related to any future growth of the Greek economy because that cannot happen until the banks have been mended.
Apart from the bank recapitalisation, there is another EU-IMF allocation of 31.5 billion euros for the banks to “restore their balance sheets” so that they can at least think about participating in Greece’s economic recovery.
Greek bankers and politicians may well be feeling “confidence” but can they honestly say when Greece’s 5-year recession (depression) will be coming to an end?
It looks as if Greece’s recovery is firmly embedded in the future . Permanently.
These are the GDP figures per quarter since Q4 2010, the time from which we can assume that the government’s policies “kicked-in”.
Q4 2010: -o.4%
Q1 2011: +0.4%
Q2 2011: +0.1%
Q3 2011: +0.6%
Q4 2011: -0.3%
Q1 2012: -0.2%
Q2 2012: -o.4%
Q3 2012: +o.9%
Q4 2012: -0.3%
If we now look at a “Moving Year”, that is to say, starting a year at Q4 2010, taking the four figures in blue and then adding them…..and then taking the next four numbers, starting with Q1 2011 etc, we have these GDP figures for the Moving Year:
+0.7% +0.8% +0.2% -o.3% zero zero
WE HAVE BEEN IN RECESSION or “FLATLINING” SINCE THE YEAR BEGINNING Q3 2011
The OECD statistics are HERE.
As you can see from the table, no matter how our government dresses-up the figures, we are the worst performing nation in this list (apart from Spain and Portugal).
The basic solution is simple. The Chancellor of the Exchequer needs to prioritise Growth ahead of Credit Rating.
Incidentally, much has been claimed by the government in respect of how many jobs they’ve created , WITHOUT any significant increase in GDP or “tax take”.
This could be the reason:
When the Coalition took power in May 2010, the number of unemployed people was 2.51 million. See HERE.
The latest figure shows that there are still 2.51 million unemployed in the United Kingdom. See HERE.
……….and no-one appears to have noticed!
All this banging-on about “THE MILLION JOBS we have created” since coming to power?
(Once again, the government appears to have been “economical with the actualité”.)
World Economy: The lunatics ARE running the Asylum!
Today, I was asked what I thought about this year’s European economic outlook. It isn’t great!
One factor which I have consistently underestimated is the ability of politicians to “wheelbarrow” a tragic set of circumstances from one meeting to another without even aiming for a holistic solution. Plus, I have always been conscious of the symbiotic relationship between politicians and bankers but, like an illicit love affair, it has grown over the years. Not into a mature loving relationship but instead, it has acquired all the charming qualities of an incestuous shotgun marriage.
I have been feeling very pessimistic about the world’s banking system for years – even before the 2007/2008 crisis. HERE!
Today, the ENTIRE financial system remains in crisis with both bankers and politicians apparently reduced to the role of observer. Their well-timed occasional “good news” is both ritualistic, orchestrated and largely illusory.
The problem is most acute in Europe where all major banks are barely managing to contain gut-busting levels of very bad government bonds.
Asian banks are at risk as Japan has begun to print and we all owe them money. Plus, we been in the habit of paying for their goods with money which they’ve lent us.
As a result of the sharp decrease in world demand, Asian economic growth has slowed very sharply.
Meanwhile, the United States was becoming addicted to the easy “fix” of Quantitative Easing, but nevertheless, in spite of the supply of virtual money, many of its institutions remain on life support.
Now we have the frightening prospect of the Fed stopping its money printing and the U.S economy having to go “cold turkey”. That won’t be a pretty sight!
Because nothing has really been done post the 2008 banking system collapse, I fear that we may be soon heading for an action replay.
The so-called “stress tests” which various governments have been performing on the banks have been less than useless as an indicator of banking “health” because the entire banking industry has been dispensing the wrong information to those who dare to try and measure what they’re doing and what they’ve got.
Bankers have only ever told us what they feel we ought to hear.
We are all aware of how badly the Rating Agencies managed to mess things up prior to 2008 and guess what…………the likelihood is that they’re still doing it! It is clear that, for instance, the Eurozone is about to suffer Cardiac Arrest but the Agencies are still telling us that everything is (more-or-less) fine!
The Rating Agencies have a history:
In a landmark 1994 study of the rating agencies, the U.S Government Accountability Office (GAO) concluded that Standard & Poor’s didn’t issue a “vulnerable” rating for one of the biggest failed companies, Fidelity Banker’s Life, until SIX DAYS before the failure … and for another, Monarch Life, until 351 days AFTER the failure! Similar instances of outright neglect were true of Moody’s as well as A.M. Best .
The Enron Failure of 2001: The New York Times reported that ratings agencies saw signs of Enron’s deteriorating finances but did little to warn investors until at least five months later – long after more problems had emerged and Enron’s slide into bankruptcy had already accelerated. It wasn’t until four days before Enron filed for Chapter 11, that the major agencies first lowered their debt ratings below investment grade!
What about the U.S mortgage meltdown of 2007 and 2008? EVERYONE now agrees that triple-A ratings on mortgage-backed securities grossly overestimated the investments’ credit quality and that this played a pivotal role in the debt crisis and that the primary factor behind their inflated ratings were multiple conflicts of interest between them and the issuers.
In the United Kingdom, the collapses or near-collapses of Northern Rock, HBOS, RBS etc were also a surprise to everyone except a few impotent accountants and auditors.
Do you remember anyone commenting on the “ratings” of the companies which had been bankrupt for months or even years? Me neither.
Nearly all ratings issued by the major agencies are paid for by the issuers — in other words, by the companies that are supposedly being rated!
In addition, the ratings agencies have often earned substantial additional consulting fees to help structure the very Securities which they rate!
To add insult to injury, it’s been proved that the major ratings agencies have often revealed their ratings formulas to issuers, helping their clients to pre-manipulate their data and “adjust” reporting in order to achieve the highest rating.
During the first phase of the financial crisis (2008), and largely because of the inherent conflicts of interest, the major ratings agencies continued to feed investors disinformation. (b******t).
For example, on the day of Bear Stearns’ failure, Moody’s maintained a rating on the company of A2 — the same rating it had published from June 1995 through to June 2003.
S&P was equally generous, giving the firm an A rating until the day of failure.
And Fitch assigned Bear Stearns an A+ rating for 18 straight years all the way up until the day it imploded!
The same basic facts apply to Lehman Brothers and all the other companies that either went belly up or were acquired for pennies.
The major ratings agencies have failed time and again to provide adequate warnings on collapses in all kinds of stocks, bonds, and even entire companies.
The scariest thing today is that European banks are now on the verge of being decimated just like Lehman, Bear Stearns and other firms were back in 2008.
The world economy is slowing from one end of the globe to the other. With massive debts piling up, unemployment rates soaring and the world’s banks still HIGHLY leveraged (overborrowed), it’s only a matter of time before the entire system blows up.
Nowhere is the crisis more acute than in Europe — and nowhere are the risks so great.
The key reason is that European banks are so HUGE relative to their home economies.
The aggregated European economy is roughly equivalent to that of the USA. However, European banks have almost THREE TIMES the assets of our American cousins. Now THAT’s disproportionate power!
That makes it all but impossible for European countries to successfully bail out their banks without jeopardizing their own credit standing and crushing their citizens under the weight of massive tax increases.
Greece, Spain, Portugal, Italy and soon France, have been lined up like fairground ducks under the jackboot of austerity by tax-starved governments.
That’s why we’re seeing sovereign credit ratings fall, bank share prices decline, and policymakers scrambling from one end of the continent to the other in a desperate attempt to find some kind of workable solution!
The problem? THERE ISN’T ONE!
The perfect recipe for an epic, global financial collapse that will sweep up major banks around the world!
50 Predictions for 2013
Last year’s predictions are HERE.
Some were right, some were nearly right whilst others were nowhere near! That’s because most forecasting is a mixture of extrapolation, conjecture, wishful-thinking and luck…………..apart, that is, political and economic divination , which also includes an unhealthy slice of blind optimism.
My interests are mainly political and economic although the list below contains a few random “fun” ones!
I have not included too much of the blindingly obvious, such as the 2013 Eurovision Song Contest in Malmö, where the United Kingdom will be in the bottom THREE and the most likely winner will be Scandinavian.
Wishful thinking has been avoided. For example I do wish that Mo Farah would stop sticking his hands on his head and doing an impression of a demented Pretzel in a vest!
Conjecture, based on past performance suggests that there will NOT be any banking reorganisation because of vested interests and political cowardice. Governments have it within their power to keep that particular pot boiling for years!
All Eurozone Crisis predictions of the last four years vastly underestimated politicians’ capacity for procrastination, ineptitude and political self-interest.
However, I do perceive that European countries with reasonably strong economies will begin to see the advantage of NOT prolonging the Euro agony and once again, striking out on their own, setting their own interest rates and returning to the Lira or Peseta!
These are my predictions:
1. Gold will skyrocket in value.
2. Brazil will finally become THE place to invest(shares and currency)….but see 41 & 42 below.
3. Germany will accelerate the sale of its Bunds, in spite of the fact that it hopes to sell about only about €250 billion Euros’ worth which is lower than in 2012.
4. As predicted last year, Silvio Berlusconi will reappear in Italian Politics – much to Frau Merkel’s chagrin.
5. Pressure will increase on Chancellor George Osborne to be replaced (It’s the ONLY way that the Coalition can move to Plan B without too much loss of face).
6. The banks will continue to rebuild their balance sheets as the value of their assets diminishes, resulting in an increase of non-bank lending. Credit Unions, peer-to-per lending, asset leasing, community finance organisations and invoice finance will all accelerate as the banking system continues its introspection.
7. United Kingdom property prices will fall by 25%.
8. Frau Merkel will be re-elected and continue as Germany’s Chancellor.
9. Italy will talk about leaving the Euro and readopting the Lira…………..and Berlusconi will be accused of blackmailing Europe.
10. People-power will win-out in Greece and it too will (finally) seriously consider leaving the Euro as its austerity programme is given a violent “thumbs down” by its people.
11. The theoretical €30 billion in French tax hikes will have a negligible effect on its tax “take”. High net worth individuals and businesses will continue the exodus which began in late 2012.
12. Greek banks will begin to totter as loan defaults by Greek borrowers (both personal and commercial) continue to accelerate.
13. The “restructuring” of Spanish banks will fail.
14. David Cameron and other members of the UK Coalition Government will continue to add 100,000 to the ” number of new jobs we have created in the Private Sector” every time they make a speech. By mid-2013, the “figure” will have swollen to over 1.5 million. Unfortunately without the associated increase in tax-take which one may be forgiven for having expected.
15. Japan printing money will result in a currency battle, primarily involving the American dollar.
16. Greek Tax authorities (in spite of all those reorganisation noises!) will still fail to collect the taxes.
17. David Cameron will realise that UKIP is a clear and present danger and will begin the fight-back by the only way possible. He will adopt their policies and reinforce that by continuing to spray copious volumes of testosterone in Brussels.
18. Mario Monti will stand for election in Italy in a last-ditch attempt to maintain the stranglehold on European politics by Goldman Sachs old boys.
19. The Euro will make its annual journey “to the brink”.
20. Protests will accelerate across Europe – into the United Kingdom….as voters wake-up to the politicians’ ineptitude, procrastination and complacency. Voting-out incompetent governments and merely replacing them with incompetent outfits of another flavour will no longer be viewed as the solution.
21. In France, Francois Hollande will continue to demonstrate why the French don’t really appreciate Presidents who are Socialist.
22. The ECB’s Mario Draghi will once again tell the world that he will do “all it takes” to keep the Euro intact…..including the ruination of millions of Euro lives.
23. Someone, somewhere will wake up to the fact that the banking system is not working and has morphed into a fat, ever-hungry cash cow which no longer executes the functions which it was designed for (to support individuals, commerce and government).
24. Youth Unemployment in Greece and Spain will approach 60%.
25. By the end of 2013,the Catalans and the Basques will decide on their self-determination.
26. There will be a massive surge in the Spanish anti-Royalist movement and the Spanish Royal family will feel “unloved” as demands are made for the abdication of King Juan-Carlos.
27.The Franco-German Euro Axis will be consigned to the poubelle of history as Frau Merkel finds herself another “favourite”.
28.There will be an exodus of high-earners from France in protest to the Socialist-style “Politics of Envy” taxes on those earning over €1 million.
29. British P.M David Cameron will continue to bang-on about “the mess that Labour left behind” – THREE years after coming to office. That will remind the electorate that in spite of the PR, the Coalition still has no idea about how to deal with the budget deficit, except to adopt the bad part of the Merkel Model.
30. Japan’s money-printing programme will drive up its inflation, to match (and exceed) that of the USA, possibly achieving “hyper” levels. Then, they’ll print some more!
31. USA: There will be no “Fiscal Cliff”. The cracks in policy will be papered over by compromise and political expediency………. as America lurches towards the next crisis.
32. In the UK, the Church of England will continue to fret about sex-related matters such as gays, gay marriage and lady bishops. Hopefully, some of them will find a bit of time for their God and congregation!
33. The winners of the X-factor and Britain’s got Talent will have no discernible…………talent. (That’s my annual, sure-fire, 24-carat banker!)
34. In Europe (as usual), neither Barroso nor Van Rompuy will say anything REMOTELY interesting or pertinent.
35. Europe will continue to TALK of fiscal and political integration………but that’s what it will remain…..TALK. Why? Because one of the by-products would have to be some form of Debt-Mutualisation which so far, remains a deal-breaker.
36. German resistance to European supervision of the banks will result in the smaller banks remaining unsupervised.
37. In Italy, Mario Monti has clearly demonstrated the usefulness of a government of Technocrats: they have pushed through economic reforms and budget cuts which a properly-elected government would have NO CHANCE of implementing. However, the honeymoon appears to be over and Italy will return to a Berlusconi-led coalition.
38. Bundeskanzlerin Merkel will strengthen her position as de facto European leader as other (weaker, male) European leaders (half of who are on their way out – including the UK administration) continue to defer to her.
39. After the German elections, Mrs Merkel’s Christian Democrats will form a new coalition with the Social Democrats.
40. Stagnation, Recession and Depression will continue in Europe. Greece will remain in depression (yes!), as will Spain and Portugal.
41. If you’re an investor, you could do worse than keep an eye on Mongolia’s mining boom which will pick up speed in 2013.
42. If you’re a gambling person, here’s an interesting “double”. Lord Patten to resign as BBC Chair . Then, invest your winnings on anything in Macau whose economy is booked to grow by about 15% in 2013.
43. The “in denial” UK Coalition Government will continue to spout meaningless statistics as the retail trade continues its slow-motion collapse and accelerating volumes of businesses go into administration and bankruptcy.
44. The Protestant Church will begin to turn more to Bible-centred Christianity – away from the airy-fairy, trendy, unleaded and flaccid Christianity of the Rowan Williams era. More “splintering”.
45. Last year I predicted a dismembering of the UK’s Coalition government but now realise that it was just wishful thinking. I underestimated how much Tory crap Nick Clegg could swallow. Last year, his capacity seemed infinite. However, for 2013, I predict that Europe will provide the catalyst for an all-out Coalition Civil War.
46. Unless the Chancellor can sell 5G, 6G and all the other “G” Futures and assuming he collects for 4G, there will be a massive government Welfare Review designed to further butcher Public Spending. ( He has no choice because of his rather stunted economic repertoire). That will finally shake the Libdems from their collective coma and fight the Tories. Otherwise…….Libdem Oblivion.
47. “Dead-tree” journalism will continue to atrophy and die with an announcement that at least one major newspaper is to go exclusively digital. (My money is on the Guardian).
48. Massive Solar storms may envelop the Earth which, according to NASA, could render the above predictions both irrelevant and obsolete. Keep an eye on www.swpc.noaa.gov
49. Andrew Mitchell MP will make a return appearance in the Cabinet after the nonsense of allowing the police to investigate themselves in what is increasingly looking like the fit-up of the year.
50. William Hague and Hillary Clinton will keep-on “condemning” the Syrian Authorities as they continue to murder with impunity. Western powers have learned that when they intervene in the Middle East – only one group ever benefits: The Construction Industry.
It’s STILL all Greek!
Eurozone Ministers have arrived at a “pact” in respect of Greece. The pact allows the release of those much-needed loans that have taken up so much of the Eurozone’s time and energy. You may think that this is all very good news for the Greek people.
However, the central core of the agreement is that Greek Public Debt should fall to 124% of Gross Domestic Product by 2020 and is to be achieved via a raft of more debt-cutting steps and continuing austerity.
This “tentative” agreement should see the release of up to €44 billion in bailout funds to Athens, otherwise….. formal insolvency beckons.
Once again, we are going to be witnessing a process of German dissidence, the continued rise of the IMF, performance-related stage payments, delays etc….as the Greek funding is parsimoniously unlocked in three increasingly painful stages.
The formal decision and an agreement on how these disbursements are to be managed will me made by 13th December. One thing that we can be sure of is that each payment will involve a similar process of troika visits, meetings and procrastination.
Apart from cuts to the interest rate which Greece is having to pay on all of its loans, there will be an 15 year extension of the bilateral and EFSF loans plus a deferral of 10 years on interest payments on EFSF loans.
So what difference will all of the above make to the average Greek in the street?….NONE.
Yesterday, Bank of Greece Governor George Provopolous said that the Greek economy is expected to grow in 2014. He feels that by then, Greece’s fiscal problems will have been eliminated.
He did not specify how the country’s political, social and institutional issues will have been dealt-with.
The main effect is that the Markets will now enjoy a few more days in the Greek sunshine…….as they await the next cloud………
Germany – a non-elective dictatorship?
Today, Mario Draghi, the President of the European Central Bank is in Berlin, explaining himself to the Bundesbank. Last week European leaders agreed a timetable to create a European Banking Union but German Chancellor Angela Merkel refused to countenance measures to provide immediate support to Eurozone banks.
That was in spite of the fact that she had previously agreed (or has appeared to agree) to a proposed fund which would have given Spanish Banks immediate help. She said: “As long as there are individual national budgets, I regard the assumption of joint liability as inappropriate and from our point of view, this isn’t up for debate.”
In addition, Germany, through Frau Merkel, has also managed to postpone the creation of the new post of European Central Bank Banking supervisor until the end of 2013.
Then there was the rumour that if David Cameron persisted in his plan to veto the next Brussels Budget, Germany would seek to postpone the next European Summit.
Two weeks ago, Frau Merkel visited Greece with the sort of anticipation normally reserved for visiting Royalty. The Greek government were behaving as if “to please” Frau Merkel was the most important thing that they could achieve.
So who IS in charge? Who IS running Europe? It certainly does NOT appear to be any of the array of “Presidents” who occasionally spout meaningless Euro-rhetoric in order to justify their not-so-meagre existences.
It would seem that Europe and especially that “organisation-within-the-organisation” , known as the Eurozone had mutated into an “NON-ELECTIVE DICTATORSHIP”.
An Elective Dictatorship is simply a situation within a Democracy when the political power of the ruling Party is so strong that “what they say goes”. NO questions!
This usually occurs within a “first-past-the-post” system where the Party of Government has such a high majority that political debate becomes purely cosmetic. Whatever THEY decide is carried. Some call it “strong” government. In actual fact, it is a Dictatorship.
One may say that in the United Kingdom, we have the safeguard of the Upper House. However, the concept of an Elective Dictatorship is compounded by the Parliament Acts and the Salisbury Convention. Parliament may pass legislation on any subject it wishes and even if the House of Lords disagrees, the legislation can be bludgeoned through using the Parliament Act.
But “Ah!” I hear you say – “What about the Monarchy?” After all, any new legislation has to receive the Royal Assent which is in the gift of the monarch.
You may be interested to know that a British monarch has not refused the assent to a bill for about 300 years. It is a formality.
That means that a powerful government (in theory) could get away with whatever it damn-well pleases – with few real balances and checks.
In theory a strong government is a Dictatorship – an Elective Dictatorship.
These days, in spite of the counterbalancing weight provided in the United Kingdom by the Liberal Democrats in Coalition with the Conservative Party, the Government is behaving more and more as a Dictatorship – and that’s within the system described above. It is a manifestation of the weak in coalition with the strong and is a phenomenon reflected on modern-day Europe.
The “weak” in partnership with the “strong” (whether it is political OR economic strength), can only result in one outcome……the strong will always prevail.
What about Europe?
There is no upper house and there is no ultimate sign-off. It all has to be agreed “democratically”. But is that really what happens? Is the citizen still holding the ultimate power but more importantly, is the elected political representative still accountable to the citizen?
Firstly, the real decision-makers in Europe are non-elected. But on a macro scale, by virtue of nothing more than economic strength – an ultimate leader has emerged. A leader who has the final say with a built-in “queen” who has to give assent…….. Frau Merkel’s Germany.
Germany has NOT been elected to oversee Europe , neither has Germany been elected to dictate to other European states…….. and………the German Chancellor should not be required to grant “royal assent” to any economic or political changes within Sovereign European States……but that is exactly what is happening.
A strong non-elected entity dictating to the weak. A NON-ELECTIVE DICTATORSHIP.
“European Democracy” is fast becoming an oxymoron.
Europe: Read the small print.
European leaders have agreed a timetable during which they will produce (only) the legal framework for a Eurozone Banking Regulator.
Critical words? Timetable and Legal Framework.
NO BANKING REGULATOR.
Implementation will be “during 2013”. (Nothing AT ALL to do with the pure coincidence of the September 2013 German Elections.)
That sort of crap deserves a Nobel Prize!
Good job they managed to crank up the markets earlier this week…….
Money printing – a simple question.
Today, the Head of Germany’s Bundesbank, Jens Weidmann, has asked a very simple but critical question about Quantitative Easing and its cousin, the Unlimited Bond Purchase:
“If a central bank can create unlimited money from nothing, how can it ensure that money remains sufficiently scarce to retain its value?”
Money is a commodity and was invented when someone did not have goods or skills to trade in return for a commodity he wanted. He was able to offer “money” which could be redeemed at a later date for something that the original “seller” wanted or needed.
However, if there is a too much of a commodity, its price goes down.
So, if there is too much money, its price WILL go down.
THAT is why Central Bankers are playing a very dangerous game.
The simple answer to Herr Weidmann’s question is that a Central Bank CANNOT ensure that by increasing the money supply, it can even begin to ensure that the money will retain its value.
What they’re doing is the equivalent of fixing a stalled car engine by painting the car…..again….and again….and again…..
Eurozone: Decisions Decisions
LONDON: Global stocks and the euro dipped yesterday as investors cashed in some of last week’s sharp gains ahead of a German ruling on the euro zone’s new bailout fund, Dutch elections and potential new stimulus from the US Federal Reserve.
The European Central Bank’s statement last week, indicating that it was prepared to buy an unlimited amount of strained euro zone government bonds pushed European shares to a 13-month high and the euro to a four-month peak on hopes it could mark a turning point in the bloc’s 2-1/2 year crisis.
Investors started the week by taking some of that profit off the table. The MSCI index of top global shares was down 0.1 ahead of the opening bell on Wall Street, with the euro and stock markets in London, Paris and Frankfurt all slightly lower.
US stock index futures also pointed to a lower open on Wall Street, with futures for the S&P 500, Dow Jones and Nasdaq 100 all down just over 0.2 percent.
Europe faces another testing week, with Dutch voters going to the polls and Germany’s constitutional court set to rule on new powers for the European Stability Mechanism, the euro zone’s new bailout fund, both on Wednesday.
Since ECB President Mario Draghi first mooted the ECB’s new crisis plan on July 26, world stocks have rallied more than 8 percent, euro zone blue chips have jumped almost 20 percent and the euro has risen more than 4 percent. Analysts are wondering whether the gains can continue.
“The Draghi effect obviously helped the markets hugely, so people are likely to be a bit more hesitant this week,” said Hans Peterson, global head of investment strategy at SEB private banking.
“Risk appetite is likely to be on the way up, but we have to clear some hurdles, and the things in Europe have to go according to plan. The key issue this week is the approval of the ESM by the German constitutional court.”
Strategists at Goldman Sachs also issued an upbeat note on equities, saying that while there were worries over China’s wobbling growth, the brighter European news and signs of gradual improvement in the US were both positives.
There is still room for market rallying,” they said, citing their target for the Eurostoxx 50 to hit 2,700 points in the next 12 months. “From current levels, however, we expect further gains through to year-end, but at a slower pace,” they added.
The euro followed the downward trend, easing against the dollar, but stayed close to a near four-month high hit on Friday after below-forecast US jobs data fanned speculation the Federal Reserve may launch more monetary stimulus this week.
Hopes that powerful ECB intervention in Italian and Spanish bond markets could finally draw an end to the seemingly endless euro crisis has seen massive upward shifts across global markets, from European stocks and treasuries to commodity-reliant economies.
Spanish 10-year yields have tumbled more than two percentage points from an unsustainably high 7.8 percent to around 5.6 percent, while the reduced demand for safe-haven German debt has pushed equivalent yields up 36 bps from their record lows to stand at 1.48 percent.
Spain’s borrowing costs hit a fresh five-month low on Monday while German Bund futures bounced around in choppy conditions, supported initially by worries over Greece’s fiscal repair plans and Fed aid hopes before going into negative territory around midday.
U.S markets are waiting eagerly to see whether the latest data have convinced the Federal Reserve that more stimulus is required.
The benchmark S&P 500 index rose 2.3 percent last week, its biggest weekly gain in three months.
SEB’s Peterson said it was still uncertain whether the US central bank would act and cautioned that any new support was likely to provide a temporary rather than a long-term lift.
“What is really important here is the wider macro picture, whether the euro zone sorts itself out and what happens in China and Asia,” he added.
Fresh data from China on Monday showed exports grew at a slower pace than forecast last month while imports surprisingly fell, underlining weak domestic demand as the global economic outlook dims.
Oil markets are riding high, underpinned both by hopes that economic stimulus around the world will fuel growth and geo-political tensions in parts of the Middle East, the world’s most important oil-producing region.
Brent crude futures for October delivery were trading 46 cents higher at $114.71 per barrel by 1248 GMT, after settling up 76 cents on Friday. US crude was trading up 7 cents at $96.49 per barrel.
“Chinese data had been expected to be weak, so to some extent it has been taken into account in oil prices, but having said that, it basically caps the upside,” said Masaki Suematsu, energy team sales manager at Newedge Japan.
Copyright spygun/Reuters, 2012
ECB Mario Draghi’s Statement……….. 6th September 2012
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and by the Commission Vice-President, Mr Rehn.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. Economic growth in the euro area is expected to remain weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation.
It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area. OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.
In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building. At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective. Details of the Outright Monetary Transactions are described in a separate press release.
Furthermore, the Governing Council took decisions with a view to ensuring the availability of adequate collateral in Eurosystem refinancing operations. The details of these measures are also elaborated in a separate press release.
Let me now explain our assessment in greater detail, starting with the economic analysis. Recently published statistics indicate that euro area real GDP contracted by 0.2 percent, quarter on quarter, in the second quarter of 2012, following zero growth in the previous quarter. Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.6 percent and -0.2 percent for 2012 and between -0.4 percent and 1.4 percent for 2013. Compared with the June 2012 Eurosystem staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.
The risks surrounding the economic outlook for the euro area are assessed to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. These risks should be contained by effective action by all euro area policy-makers.
Euro area annual HICP inflation was 2.6 percent in August 2012, according to Eurostat’s flash estimate, compared with 2.4 percent in the previous month. This increase is mainly due to renewed increases in euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could turn out somewhat higher than expected a few months ago, but they should decline to below 2 percent again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.
The September 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.4 percent and 2.6 percent for 2012 and between 1.3 percent and 2.5 percent for 2013. These projection ranges are somewhat higher than those contained in the June 2012 Eurosystem staff macroeconomic projections.
Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, particularly resulting from a further intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all euro area policy-makers, such intensification has the potential to affect the balance of risks on the downside.
Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 increased to 3.8 percent in July 2012, up from 3.2 percent in June. The rise in M3 growth was mainly attributable to a higher preference for liquidity, as reflected in the further increase in the annual growth rate of the narrow monetary aggregate M1 to 4.5 percent in July, from 3.5 percent in June.
The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained weak at 0.5 percent in July (after 0.3 percent in June). Annual growth in MFI loans to both non-financial corporations and households remained subdued, at -0.2 percent and 1.1 percent respectively (both adjusted for loan sales and securitisation). To a large extent, subdued loan growth reflects a weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks continue to weigh on credit supply.
Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.
lthough good progress is being made, the need for structural and fiscal adjustment remains significant in many European countries. On the structural side, further swift and decisive product and labour market reforms are required across the euro area to improve competitiveness, increase adjustment capacities and achieve higher sustainable growth rates. These structural reforms will also complement and support fiscal consolidation and debt sustainability. On the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. In this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. Finally, pushing ahead with European institution-building with great determination is essential.
We are now at your disposal for questions.
Eurozone Meetings Merrygoround
This week, Angela Merkel meets Herman Van Rompuy, Mario Monti meets Francois Hollande who also meets David Cameron.
The new Meeting Season seems to indicate that Eurozone leaders have decided that meeting in plenary will be punctuated by the new craze of meeting in pairs.
I thought that it may be useful to compute how many meetings 0f TWO, could be managed by 20 politicians.
They are: the 17 Eurozone leaders + Van Rompuy + Barroso + Cameron = 20.
So, how many meetings would 20 politicians generate if they met in pairs?
Using the formula n!/(r!(n-r)!)……… (n = number of leaders and r = 2, as they meet in pairs)
The total number of “pair meetings” achievable by 20 politicians is 20!/(2!(20 – 2)!) = 190
We have to double that, because they each will want to meet twice so that each one has TWO meetings with every one. (One Home and one Away).
Therefore 20 politicians can generate 380 meetings – if they confine themselves to meeting TWO at a time.
That of course is on TOP of the monthly Eurozone Crisis Meetings, EU meetings and special meetings – for instance, when Spain decides to take the €500 billion we all know it needs or the next time Greece is (once again) about to go down the Grexit toilet.
We can see therefore that any attempt to solve the European Crisis would only serve to interfere with what is already a very heavy meeting schedule.
Eurozone – a new religion?
The Eurozone has gradually and imperceptibly acquired all the unsavoury aspects of a religion – and we don’t even appear to have noticed!
For instance, Greece is having to do PENANCE (austerity) as punishment for its past sins. Others are already gathering to follow the Greek example. The HOLY EURO demands it!
All believers need HOPE in order to believe. The Eurozone hope is provided by the ECB which may or may not decide to help. Sometimes it is merciful but yet on other occasions it gives the impression that perhaps Euromortals should be allowed to make their mistakes and then clear up the mess themselves. Freewill or Predestination?
Then of course, any religion worth its salt has its Unique Selling Proposition. The most simple and powerful is the promise of an afterlife or , more accurately, the choice between TWO afterlives. One where the Euro remains intact and everyone lives happily ever after (HEAVEN). The other is the threat of HELL should the Euro break up. However, the Eurozone High Priests have provided a third way – PURGATORY – where the genuinely penitent can suffer for a while so that their transgressions (SINS) may be forgiven.
(Greece is currently languishing in PURGATORY with its cilice so tight that it has begun to draw blood).
Every religion has a DOGMA. That is provided by the strong belief that Monetary Union is the only true Path of Righteousness.
The DOCTRINE is extracted from the many words which have been handed down over the years. They are true because it has been written that they are true. (See Maastricht Treaty).
There are RITUALS – every religion has its rituals. The Eurozone rituals are mysterious and enacted during the frequent MEETINGS of the High Priests with the important rituals being acted-out in THEIR own Vatican, which is in Brussels but some believe that it is in Berlin. Every such ritual generates words for the believers – but just like every other religion, the words have become repetitive and Mantra-like with little real meaning or relevance.
There has to be a MYTH. Something which , even in the face of overwhelming evidence , remains sacred. Theirs is THE HOLY EURO…..
Every religion has its DETRACTORS – those who may wish to modify or change either the beliefs or the mode of worship. There are those who would REFORM. Europe has such an enemy within – it’s own JUDAS. It is called the United Kingdom – which is sometimes viewed (by High Priestess Merkel) as the DEVIL incarnate.
It is appropriate to highlight the New Religion this week because it is the time when the new round of meetings and pilgrimages begins.
At the end of this Holy Euro Week, there will be no changes but the faith of many will be strengthened by the promises of the High Priests.
Amen. May the blessings of the Euro be with you.
Eurozone headed towards lengthy recession
Roddy Thomson (AFP) from Brussels:
The eurozone veered towards a prolonged recession with new growth figures out on Tuesday showing its economy shrinking again and analysts warning of falling output right through 2013.
Germany posted better-than-expected growth of 0.3 percent between April and June, while No. 2 economy France just about scraped zero growth — but the experts saw precious little good news ahead, with the eurozone as a whole contracting by 0.2 percent.
“The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight,” said London-based Jonathan Loynes of Capital Economics.
“The slowdown has spread from the periphery into the core,” said Tom Rogers, an analyst with Ernst & Young in London, one of many to highlight a systemic “north-south divide.”
“Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year,” Rogers added.
Italy’s economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated — a 6.2 percent contraction after shrinking 6.5 percent in the first quarter of 2012.
These were to be expected, but, said Howard Archer of IHS Global Insight, it was “notable and worrying that GDP also contracted in Belgium and Finland,” by 0.6 percent and 1.0 percent respectively.
Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said IHS forecasts thereafter “are based on the assumption that Greece leaves the eurozone around mid-2013.”
“We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013,” Archer added.
Archer said the IHS team was forecasting a 0.2 percent contraction for next year as a whole.
Daniele Antonucci at Morgan Stanley was scarcely more optimistic, saying: “We expect the eurozone economy to shrink by 0.5 percent this year and to stagnate next year.”
The most recent forecast released by the European Commission in May anticipated growth of 1.0 percent for the eurozone next year.
The IMF last month revised its 2013 projection down to 0.7 percent growth, while ratings giant S&P and Ernst & Young each last month cut their estimates for next year to 0.4 percent.
Even in the days before Tuesday’s figures, Commerzbank economists said they “expect no growth until well into next year,” tipping “stagnation,” or zero growth, for 2013 as a whole.
A recession is commonly defined as two consecutive quarters of contracting activity.
The eurozone already posted flat growth in the first quarter of this year.
These latest flash estimates from the EU underscore how Europe is lagging well behind its main economic and trade rivals and partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.
“Only once the eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe,” said Christian Schulz of Berenberg Bank.
He highlighted Socialist-governed France, where imports now outpace exports, as the one to watch — floating in between the “north” of Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.
“In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness… France has to bring down its excessive public deficit eventually,” Schulz underlined.
French Finance Minister Pierre Moscovici, who must cut his country’s budget deficit from some 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, admitted the second-quarter result was “very weak,” but held to the government’s forecast for 0.3 percent growth in 2012.
He would not have appreciated notes figuring prominently on finance news streams from Barclays and UniCredit which pointed out that the official figure was actually rounded up to zero, whereas in reality it showed “negative” growth of 0.045 percent.
Germany held up thanks to exports and consumer spending, said Newedge Strategy analyst Annalisa Piazza, maintaining that its economy “remains relatively resilient” with only “limited” spillover from the euro crisis.
Copyright © 2012 AFP. All rights reserved
Venizelos’ Oral Plan
1. There is need for immediate actions by Greece in the period of August-September that will concern high-level contacts with the leaders of the EU member states and also the institutional partners (European Commission, European Central Bank and International Monetary Fund), and also for shielding the domestic front. The national negotiating team must be formed and the opposition called on to contribute to the effort. Venizelos said it would be a “mistake” and “insult to the country” for it to be said that it has been inert with respect to the structural changes, adding that the changes effected from 2010 to the present are “unprecedented” and the reproduction of such stereotypes at Greece’s expense must stop.
2. The country must manifest its strong determination to promote structural changes, and noted the 77 obstacles pinpointed by the Fund for privatisations, which he stressed need to be immediately eliminated through legislation.
3. The end fiscal target must immediately be confirmed, so that from a deficit of 11.5 billion euros we will go to a primary surplus, and a 2.6 percent growth rate must be achieved.
4. The fiscal adjustment period needs to be extended to 2016.
5. It is necessary to draft an updated programme for the period 2012-2016, so that the 2012 budget may be closed and a draft budget drawn up for 2013, which should be tabled in parliament in early October.
6. A proposal should be drawn up for full itemisation of the programme for 2012-2014, without across-the-board cuts that affect small and medium incomes.
7. Improvement of the macroeconomic climate which, if improved, will enable an easier implementation of the second stage of fiscal adjustment in 2014-2016.
8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction of the cost of money, as well as measures to control prices.
9. Measures must be taken to reinforce social cohesion.
10. The international communications framework that is negative towards Greece must change, in cooperation with the partners.
The “must be” phrase is the one which gives the illusion of action but in fact means absolutely nothing. It is not even a statement of intent. You will notice (in bold above) that Venizelos is using exactly the language which I outlined HERE .
Political pronouncements would carry far more gravitas if they sometimes contained dates and more definite verbs. For example, looking at just ONE of the items on Mr Venizelos’ shopping list:
See the wording of No 8 (above)…NO amount…NO date…..in fact, NOTHING definite. Here’s a slight modification:
8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction of the cost of money, as well as measures to control prices.
A modified version:
8. Directly through the Treasury, we are allocating €5 billion to be available to employers, specifically for them to hire new people. This money is available now and the employer will be paid the equivalent of six months of the new employees salary on Day 1 of that employee joining the business. This facility will be open only to those employers with an annual turnover of under €500,00 per year. All start-up businesses will be completely tax-exempt for 12 months.
(The figures are only for illustration purposes but they do shed some light on the difference between empty political words and a PLAN.)
It looks as if Mr Venizelos continues to practice exactly what Eurozone politicians have been indulging themselves in for the last FOUR years:
ORAL POLITICS : Words WITHOUT actions.
Germany reports the biggest fall in new business orders since records began, manufacturing in France is at a three-year low with Italy experiencing the fastest rise in unemployment for three years. On the other hand, Ireland’s output is beginning to increase – although they did start from a lower base.
The Eurozone’s overall manufacturing activity is at a three-year low although the markets continue their comatose drift whilst traders try to make the best of a bad job.
Expect more fine Eurowords over the next few days with a market rise towards the end of the week if Draghi manages to pull a rabbit out of the ECB hat.
Italian Prime Minister, Mario Monti is on fine form today with yet another observation on the Eurozone crisis: “It is a tunnel but … some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel.”
Never a truer word has been spoken by a Eurozone politician. They are approaching the end of the tunnel.
However, does he realise that the light at the end of the Euro tunnel is runaway train heading in their direction?
This June saw an additional 123,000 people out of work in the Eurozone. We can all agree that an unemployment rate of 11.2% across 17 countries is only acceptable to the politicians who appear to be continuing to merely observe the numbers climb.
At just under 25%, the highest Eurozone unemployment rate is in Spain.
On Thursday 2nd Auguust 2012, in order for the Eurozone to have any sort of mid-term future, the ECB’sMario Draghi has to pull something out of the hat. Because of the political procrastination and everyone else’s expectation, this cannot just be a “rabbit out of the hat”. This has to be the biggest rabbit EVER!
He continued: “What’s at stake – the stability, the strength of the Eurozone, its ability to contribute to the economic and social growth of Europe.”
The Eurozone’s Déjà vu Economics
For years, regulators have been trying to control bad banking. Governments have been failing to control bad sovereign fiscal governance. That’s the nature of the Eurozone. This flawed approach has only left one solution – at some stage, both the banks and sovereigns will have to be properly underwritten by the European Central Bank (ECB).
One day soon, the ECB will become the lender-of-last-resort.
However, possibly for reasons of either dull-wittedness or maybe just some good old-fashioned showmanship, the ECB never makes a move until there is a proper danger of a crisis. (Think Superman grabbing that train on a railway bridge just seconds before it falls into the ravine.)
Unfortunately, this economic scenario appears to be played out on a perpetual “loop”.
Déjà vu Economics.
Currently, markets are once again applying severe pressure to Eurozone public debt and Euro politicians are repeating the “We are determined” and “Whatever it takes” mantras. The markets continue to fluctuate “in vacuo” with little regard to the “real” conditions, further confusing the politicos who, for some unknown reason, believe that the solution to everything lies in greater Eurozone union and organisational changes. (Bless them! It’s all they know!)
The next stage is simple (and it began last week): a few mealy-mouthed statements from Euro leaders which attempted to shove the crisis-cursor forward a few weeks until after the end of the Summer Holidays – whilst Spain and Italy (both standing on the trapdoor) have issued “holding statements”.
The well-worn and rapidly failing policy response from the Euro Gods is those potentially explosive “Austerity Measures” – the only other technique in their repertoire. Yet another case of the cure being more painful than the disease. Ask Greece.
In 2010, the Greek Government (just before it lost access to the markets) po-pooed the idea of needing help. “We are not Latin America!” they scoffed. Now it’s Spain’s and Italy’s turn: “We are not Greece!”
Oh yes you are – only bigger, hungrier and therefore more dangerous – and remember this, when you too lose access to the markets, you will need a bailout.
Euro politicians do play with a very limited repertoire, so Spain and Italy will have yet more austerity. That will accelerate the deterioration of their economies – although their politicians will talk (a lot) about “growth”.
This (just like in Greece) will result in lower tax revenues and austerity targets being missed (although the “Troika” continues to believe that, contrary to all the evidence, an economic miracle will manifest itself . Suddenly, as if by magic, they hope that the Perpetual Spring of Eternal Economic Growth will materialise out of the ashes of Austerity!!).
Then, the banks will need yet more and we’ll end up discussing when Spain and Italy will leave the Eurozone. Then France…..
That will return the cycle to Square One with the politicians once again being “Determined” and promising to do “Whatever ir takes”.
Another dose of Déjà vu Economics.
Meanwhile, should the crisis look really dangerous, the ECB’s Marion Draghi will find a telephone box, change and fly-in to save the day. “To calm the Markets”
The banks have spent four years watching and secretly hoping that this ridiculous loop continues forever, Why? Because once the ECB steps in and protects sovereign debt, those debts will have a price. Banks will have to revalue any debt they are holding (downwards), resulting in quite a few of them going to the wall.
There will be yet more “haircuts” for private investors too!
Just like a rapidly expanding non-working retired population needs more and more support from an increasingly taxed but shrinking working population, so the Eurozone is becoming an arrangement whereby more and more non-producing and increasingly reliant countries have to be supported by a rapidly shrinking collection of fully-functioning states.
The tipping point is not too far away – the point at which there are more (economically) broken states than those in reasonable health which can continue to support them.
Meanwhile, let’s have some more Déjà vu. Again.
Whatever It Takes (WIT)
Every European politician is now resorting to the “Whatever it takes” mantra. This week they will do whatever it takes to safeguard the sacred cow that is the Eurozone. That pampered sacred cow which feeds and feeds without actually producing much in return.
The politicians don’t appear to realise that this is a nonsense phrase but they certainly DO realise that it is a phrase which excites the traders because it is code, designed to convey the fact that the ECB , the Fed and all the other usual suspects will once again indulge the banks by creating yet more cash for them to play with.
Another Central Bank Bonanza!
That is why the markets have risen today. This is how it works:
As soon as Central Banks start handing out cash, the investment banks use a proportion of that cash to purchase equities. That in turns “ups” prices. So, if investors convince themselves that next week, the banks will start splashing money like a lonely Chardonnay-fueled celibate on ebay, they also realise that NOW is the time to buy.
Anything they buy today is bound to increase in price, once the Central Banks open the Banking “All-you-can-eat” Buffet.
In fact, the banks will be buying today in anticipation of Central Bank handouts. Once again, there’s the heady whiff of “empty profit” in the air.
Last week, the ECB’s Mario Draghi said that he would do “Whatever. It. Takes”. Today it was the latest Euro double-act of Merkel and Monti who joined the W.I.T chant.
The next stage will be expressions of “confidence”, followed by “meetings”, the establishment of a “by the end of the year” deadline and then the announcement of “reforms”.
(Reforms are good because they give the illusion of progress.)
One such reform is rumoured to be the granting of banking licences to the EFSM, EFSF, ESM and any other European quango or organisation beginning with Capital “E”.
That will enable them to print yet more money to distribute among the needy….er…banks!
When they say “WHATEVER it takes” – they mean it!
This is the way that it’s going to work over the next few weeks:
The markets, in spite of the fact that they’re going up and down like a whore’s drawers, should really be DOWN (like a whore’s drawers).
However, BECAUSE the markets are way too high and will once again start to tumble, (mostly because of the €500 billion Spain needs and the Eurozone does not have), large amounts of “empty-calorie” cash will be generated by Central Bankers. (Take a bow Ben, Mario, Mervyn etc.)
They will call it QUANTITATIVE EASING – which is a nonsense phrase invented by bankers. However, they may call it something else on this occasion.
A large proportion of that cash will be used by the banks to buy stocks and increase commodity prices by investing in them, although the myth of “Rebuilding our Balance Sheets” and “Creating a Firewall” may also be deployed in order to excuse the continued silliness.
THAT will once again make everyone believe that all is OK because this “faux-euphoria” will make the markets rise, in spite of the fact that whole economies are collapsing.
However, the banking industry will continue to book huge profits which after all, is the real “name of the game”.
Que les jeux commencent!
Merkel Gives No Ground on Demands for Oversight in Debt Crisis
(Bloomberg) — Chancellor Angela Merkel gave no ground on Germany’s demands for more European control over member states in return for joint burden-sharing as she conceded that the bloc has yet to master the debt crisis.
The German leader said yesterday she hadn’t softened her stance at last month’s summit in Brussels and that a so-called banking union involving a bloc-wide financial overseer will have to include joint oversight on a “new level.” She chided member states who had sought to slow moves toward greater central control “since the first summit” in the 30-month-old crisis.
“All of these attempts will have no chance with me or with Germany,” Merkel said in an interview with broadcaster ZDF in Berlin.
Two weeks after a European Union summit aimed at bridging differences over crisis resolution, euro leaders are still squabbling over details of how to lift the bloc out of the turmoil. Merkel hardened Germany’s position that any attempt to share burdens in Europe — such as jointly issued euro bonds or common banking bodies — must first be met with greater cooperation and a handover of some sovereignty to Brussels.
The euro fell to its lowest level against the U.S. dollar in more than two years last week, sliding to as low as $1.2163 on July 13. Europe’s most credit-worthy government bonds climbed, with German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro crisis.
Diverging rates and capital outflows within the 17-member monetary union signal that the single currency is “slowly unraveling,” Stephen Gallo, senior foreign-exchange strategist at Credit Agricole SA in London, told Bloomberg Television’s “The Pulse” in a July 13 interview.
“The whole project is unraveling, that’s what’s essentially happening now,” Gallo said.
While Merkel said that Europe is on the “right course” toward putting an end to the crisis, euro-area leaders “haven’t solved the problems conclusively.”
German lawmakers will interrupt their summer vacations and return to Berlin on July 19 to vote to approve 100 billion euros ($122 billion) in rescue loans to Spain. After Spanish Prime Minister Mariano Rajoy last week announced 65 billion euros in welfare cuts and tax increases, Merkel reiterated yesterday that financial assistance would not be doled out without conditions.
“Whoever receives assistance and where liabilities are taken over, there has to be control,” Merkel told ZDF.
French President Francois Hollande, Italian Prime Minister Mario Monti and Spain’s Rajoy have pressed for faster action, including joint liabilities, while Merkel has called jointly issued debt the “wrong way” to fix the crisis. Merkel last month castigated a blueprint for the summit by EU President Herman Van Rompuy as too focused on “collectivization.”
Euro officials this month have also sparred over the timetable for establishing a euro-wide bank supervisor, a benchmark required before they implement one of the decisions from the June 28-29 summit — direct bailout funding for banks. Investors have viewed such a step as a way to sever the link between banking debt and sovereign debt.
Euro-area finance ministers will confer on Friday, July 20, to complete an agreement on Spain’s bank bailout. On July 10, the minister’s announced 30 billion euros of aid would be made available by the end of this month.
Klaus Regling, who heads the euro’s bailout funds, told Welt am Sonntag yesterday that governments could avoid liability for bank rescues under proposals for a regional supervisor. That contradicts German Finance Minister Wolfgang Schaeuble, who said July 9 that he expects governments to guarantee loans even if they go directly to banks, Welt said.
Merkel said leaders hadn’t yet reached an agreement on the terms for bank rescues.
German Bundesbank President Jens Weidmann said euro leaders had caused damage by failing to define more clearly their conclusions at the summit. He told Dutch newspaper Het Financieele Dagblad on July 14 that euro nations “should discuss giving up sovereignty with the same openness as the question of how to resolve the debt problem collectively.”
As governments in Spain and Italy struggle under the burden of higher borrowing costs, Weidmann, Germany’s chief central banker and a European Central Bank GoverningCouncil member, told Boersen-Zeitung that Italy’s higher yields don’t justify a request for bailout assistance. Euro bailout funding should be deployed only as a last resort, he said.
“If Italy stays the course on reforms, it’s on a good path,” Weidmann told the newspaper in an interview. Asked whether the euro area’s third-largest economy needs to tap the fund, he said, “No, I don’t see Italy in that situation.”
Italian Prime Minister Mario Monti has sought a “debt shield” against spillover from a Spanish banking crisis.
Euro-area leaders have given Spain an extra year, until 2014, to drive its budget deficit below the euro limit of 3 percent of gross domestic product, a concession that may foreshadow leniency for other indebted states in the bloc.
In Greece, an MRB poll published in Athens-based Real News newspaper showed that almost three-quarters of Greeks want Prime Minister Antonis Samaras’s coalition government to insist on a renegotiation of the country’s international bailout.
Seventy-four percent in the survey said the government should insist on discussing the terms even if negotiations steer toward the prospect of Greece leaving the euro; 15.5 percent said the government should stick to current conditions.
Volker Kauder, the parliamentary leader of Merkel’s Christian Democratic Union, told Welt am Sonntag that he doesn’t want to give Greece more time to meet economic targets.
Merkel, asked the same question during the ZDF interview, said she would await a report by Greece’s international creditors, known as the troika.
With assistance from Tony Czuczka in Berlin, Paul Tugwell in Athens, Guy Johnson in London and Fred Pals in Amsterdam. Editor: Dick Schumacher.
To contact the reporter on this story: Patrick Donahue in Berlin at firstname.lastname@example.org
To contact the editor responsible for this story: James Hertling at email@example.com
Νύχτα των Κρυστάλλων ?
“Greeks are lazy, Greeks are corrupt, Greeks are dishonest, Greeks refuse to obey the rules……”
Are they? Do they?
Hearing that certain countries are already thinking about “doing something” about future Greek immigration sent a shiver down my spine.
The Eurozone states and their limp politicians are beginning to treat Greeks like pariahs – in the same way that the Nazis treated the Jews in the 1930s.
What will be the the natural conclusion? Make no mistake – it could be tragic.
Is there going to be the modern equivalent of the 1938 Kristallnacht ?
Will Greek-owned shops and businesses all over Europe be vandalised because of negative anti-Greek Eurozone propaganda?
Kristallnacht was the starting point for intense economic and political persecution of Jews – with the end game being played-out during WW2. No further reminders needed.
Then, as now, it all started with an excuse. In 1938, it was the assassination of German diplomat by a Polish Jew.
The 2012 excuse is nothing more than an anticipated refusal of Greece to comply with over-strict German-inspired ” necessary” austerity rules.
Propaganda is a very powerful device. Let us hope therefore that the gradually amplifying and insidious vilification of the Greek people does not result in yet another European catastrophe.
Greek Texas Hold ‘Em
The Greek Syriza leader has the measure of the Eurozone sheep.
You may not agree with his politics but Alexis Tsipras is THE ONE that Eurozone leaders do NOT want to negotiate with.
They have been bluffing that they’re “ready” for a Greek Euro exit. It’s all talk!
They are NOT ready and Tsipras KNOWS IT . He also knows that a Greek exit (forced or otherwise ) would not-only create economic and banking havoc but that the after-shocks would be felt all around the world.
He’s willing to call their bluff because he realises that countries such as China & Russia are standing-by and would immediately move in with investment.
German Hypocricy knows no bounds – especially in respect of Greece!
Twice during the 20th Century, Germany left Europe in a mess. Now, in the 21st Century, it is their intransigence rather than their high explosives which may once again create European chaos.
Germany had to pay reparations after WW1. However, after its defeat in WW2, reparation payments were NOT resumed. In addition, there was another outstanding debt comprising of what the German Weimar Republic had been using to pay reparations. They had to borrow to pay.
In 1953, an international conference decided that Germany could could defer some of the debt until East and West Germany were reunified – although because a reunification was though to be unlikely, this was effectively a debt write-off.
By 1980 West Germany had repaid some of the debt although the remainder (according to the 1953 agreement) would be serviced for another 20 years.
The final payment was due on 3 October 2010 which was the the 20th anniversary of German reunification.
Over 10% of this debt, about 20 million euros, has never been paid.
So please Germany, remember that Europe has shown you mercy on more than one occasion.
Time to return the compliment and defer the WHOLE of Greece’s existing debt for – what shall we say? 30 years?
….and YOU can pick up ALL the interest payments.
(THAT, my Greek friends, is how to negotiate with the Germans.)
Today’s EU letter to Van Rompuy & Barroso
The letter reproduced below is signed by 11 European leaders. It is addressed to Herman van Rompuy and José Manuel Barroso, although the real audience is the entire European Union.
As I’ve pointed out before, in Euroland, there has been a noticeable increase in the use of a very strange new language . It has been used by European leaders during their various pronouncements over the last couple of years.
The rhetoric adopted by current Euroean Commissars is frighteningly similar to the Soviet-style nonsense spouted by dead-eyed Party apparatchiks of the 1960s. It is the empty “old-school” Party-designed exhortatory language of the now-extinct Soviet official.
In common with the good old Berlin Wall days, these pre-written Euro-statements appear to promise much but actually, say nothing.
It is a very long statement of the obvious and in keeping with EU tradition , there is overuse of the word “must” rather than the word “will”.
This looks very much like a preamble to many , many meetings but it is noticeable that neither Germany nor France has signed it.
Herman van Rompuy
President of the European Council
José Manuel Barroso
President of the European Commission
20 February 2012
A PLAN FOR GROWTH IN EUROPE
We meet in Brussels at a perilous moment for economies across Europe. Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years. As many of our major competitor economies grow steadily out of the gloom of the recent global crisis, financial market turbulence and the burden of debt renders the path to recovery in Europe much harder to climb.
Europe has many fundamental economic assets. But the crisis we are facing is also a crisis of growth. The efforts that each of us are taking to put our national finances on a sustainable footing are essential. Without them, we will not lay the foundations for strong and lasting economic recovery. But action is also needed to modernise our economies, build greater competitiveness and correct macroeconomic imbalances. We need to restore confidence, among citizens, businesses and financial markets, in Europe’s ability to grow strongly and sustainably in the future and to maintain its share of global prosperity.
We discussed these issues when we last met. It is right that we discuss them again. Building on the conclusions we have previously reached, it is now time to show leadership and take bold decisions which will deliver the results that our people are demanding. We welcome the steps being taken, nationally and at the European level, to address this challenge and look forward to agreeing further concrete steps at our next meeting, with action focused on eight clear priorities to strengthen growth.
First, we must bring the single market to its next stage of development, by reinforcing governance and raising standards of implementation. The Commission’s report to the June European Council should set out clear and detailed actions needed to enhance implementation and strengthen enforcement.
Action should start in the services sector. Services now account for almost four fifths of our economy and yet there is much that needs to be done to open up services markets on the scale that is needed. We must act with urgency, nationally and at the European level, to remove the restrictions that hinder access and competition and to raise standards of implementation and enforcement to achieve mutual recognition across the single market. We look forward to the Commission report on the outcome of sectoral performance checks and call on the Commission to fulfil its obligation under the services directive to report comprehensively on efforts to open up services markets and to make recommendations for additional measures, if necessary in legislation, to fulfil the internal market in services.
Second, we must step up our efforts to create a truly digital single market by 2015. The digital economy is expanding rapidly but cross-border trade remains low and creativity is stifled by a complex web of differing national copyright regimes. Action is needed at the EU level to provide businesses and consumers with the means and the confidence to trade on-line, by simplifying licensing, building an efficient framework for copyright, providing a secure and affordable system for cross-border on-line payments, establishing on-line dispute resolution mechanisms for cross-border on-line transactions and amending the EU framework for digital signatures. We should build on the recent proposals of the Commission, without reopening the e-commerce directive, to create a system that balances the interests of consumers, businesses and rights holders, and spurs innovation, creative activity and growth. We must also continue our efforts to build modern infrastructure to provide better broadband coverage and take-up and extend and promote e-government services to simplify the start up and running of businesses and aid the mobility of workers.
Third, we must deliver on our commitment to establish a genuine, efficient and effective internal market in energy by 2014. All member States should implement fully the Third Energy Package, swiftly and in recognition of agreed deadlines. Energy interconnection should be enhanced to help underpin security of supply. Urgent action is also needed, nationally and where appropriate collectively, to remove planning and regulatory barriers to investment in infrastructure to release the potential of the single market and support green growth and a low-emissions economy. We look forward to the Commission’s forthcoming communication on the functioning of the internal market, which should include an assessment of the degree of liberalisation and energy market opening in member States. We also commit to making concrete progress towards the development of a Single European Transport Area and establishing the Connecting Europe Facility.
Fourth, we must redouble our commitment to innovation by establishing the European Research Area, creating the best possible environment for entrepreneurs and innovators to commercialise their ideas and create jobs, and putting demand-led innovation at the heart of Europe’s research and development strategy. We must also act decisively to improve investment opportunities for innovative start-ups, fast-growing companies and small businesses, by creating an effective EU-wide venture capital regime which allows venture capital funds to operate on a pan-European basis, assessing a proposal for an EU venture capital scheme building on the EIF and other financial institutions in cooperation with national operators, and agreeing a new EU-wide programme, modelled on the Small Business Innovation Research scheme, to promote more effective use of pre-commercial public procurement to support innovative and high tech businesses. Reforms to create an effective and business-friendly system of intellectual property protection remain a very high priority.
Fifth, we need decisive action to deliver open global markets. This year we should conclude free trade agreements with India, Canada, countries of the Eastern neighbourhood and a number of ASEAN partners. We should also reinforce trade relations with countries in the southern neighbourhood. Fresh impetus should be given to trade negotiations with strategic partners such as Mercosur and Japan, with negotiations with Japan launched before the summer, provided there is progress on the scope and ambition of a free trade agreement. The deals that are currently on the table could add €90 billion to EU GDP.
But we must go further too. We need to inject political momentum into deepening economic integration with the US, examining all options including that of a free trade agreement; seek to deepen trade and investment relations with Russia, following its accession to the WTO; and launch a strategic consideration of our trade and investment relationship with China, with a view to strengthening our economic ties and reinforcing commitment to rules-based trade. Recognising the benefits that open markets bring, we should continue our efforts to strengthen the multilateral system, including through the Doha Development Agenda, strive for multilateral and plurilateral agreements in priority areas and sectors, and resist protectionism and seek greater market access for our businesses in third countries. Above all, we must reject the temptation to seek self-defeating protectionism in our trade relations.
Sixth, we need to sustain and make more ambitious our programme to reduce the burden of EU regulation. We welcome the commitments made by the institutions to reduce burdens on small businesses but urge further and faster progress across the EU institutions while maintaining the integrity of the single market and the Union’s wider objectives. We should assess the scope for ambitious new EU sectoral targets and agree new steps to bring tangible benefits to industry. We should also make a very clear and visible statement of our intention to support micro-enterprises and ask the Commission to present detailed proposals to achieve this, including possible amendments to existing legislation. We also ask the Commission to publish an annual statement identifying and explaining the total net cost to business of regulatory proposals issued in the preceding year.
Seventh, we must act nationally and, respecting national competences, collectively to promote well functioning labour markets which deliver employment opportunities and, crucially, promote higher levels of labour market participation among young people, women and older workers. Special attention should also be given to vulnerable groups that have been absent from the labour market for long periods. We should foster labour mobility to create a more integrated and open European labour market, for example by advancing the acquisition and preservation of supplementary pension rights for migrating workers, while respecting the role of the social partners. We should also take further action to reduce the number of regulated professions in Europe, through the introduction of a tough new proportionality test set out in legislation. In this context, we ask the Commission to convene without delay a new forum for the mutual evaluation of national practices to help identify and bring down unjustified regulatory barriers, examine alternatives to regulation which ensure high professional standards and assess the scope for further alignment of standards to facilitate mutual recognition of professional qualifications.
Finally, we must take steps to build a robust, dynamic and competitive financial services sector that creates jobs and provides vital support to citizens and businesses. Implicit guarantees to always rescue banks, which distort the single market, should be reduced. Banks, not taxpayers, should be responsible for bearing the costs of the risks they take. While pursuing a level playing field globally, we should commit irrevocably to international binding standards for capital, liquidity and leverage with no dilution, ensuring that EU legislation adheres to Basel 3 standards to ensure financial stability and meet the financing needs of our economies. Banks should be required to hold appropriate levels and forms of capital in line with international criteria, without discrimination between private and public equities. We also call for rigorous implementation of the G20 principles on banking sector remuneration in line with existing EU legislation.
Each of us recognises that the plan we propose requires leadership and tough political decisions. But the stakes are high and action in many of these areas is long overdue. With bold and effective action and strong political will we can recover Europe’s dynamism and put our economies back on the path to economic recovery. We urge you and the European Council to answer our peoples’ call for reform and to help restore their confidence in Europe’s ability to deliver strong and sustainable growth.
We are copying this letter to colleagues on the European Council.
David Cameron, Prime Minister of the United Kingdom
Mark Rutte, Prime Minister of the Netherlands
Mario Monti, Prime Minister of Italy
Andrus Ansip, Prime Minister of Estonia
Valdis Dombrovskis, Prime Minister of Latvia
Jyrki Katainen, Prime Minister of Finland
Enda Kenny, Taoiseach, Republic of Ireland
Petr Nečas, Prime Minister of the Czech Republic
Iveta Radičová, Prime Minister of Slovakia
Mariano Rajoy, Prime Minister of Spain
Fredrik Reinfeldt, Prime Minister of Sweden
Donald Tusk, Prime Minister of Poland
Greece and the Moneylenders
Today, there appears to be a general sigh of relief in Europe. Stock Markets are climbing , driven by a new banker confidence. Positive noises are beginning to emanate from Eurozone Ministers. They are all looking forward to the approval of the latest Greek bailout. Will Monday 20th February 2012 really be the first day of the rest of our Euro lives?
Is it all over? Are we now scaling a slightly easier cliff to the upper plateau of Euro-prosperity? Will disaffected and now disenfranchised Greek people stay indoors and patiently wait 10 or 15 years while their “Neu” European Masters make things better?
Even Germany’s Finance Minister Wolfgang Schauble who finally came came blinking into the daylight a few days ago, appears to have been temporarily muzzled.
Politics are an illusion. The difficulty is in discriminating between the headlines, the expected conclusion and the most likely outcomes.
Today, it looks as if all that Greece has to do is meet the conditions imposed by Germany, Holland and Finland for its latest bailout package to be approved. Furthermore, it also looks as if they may be able to manage to agree both the bond exchange programme as well as Greece’s debt reduction in one fell swoop.
That has been the real progress. During the last week, there was talk of a two-stage approval, beginning with the most important “victims” – the bankers and hedge fund managers being dealt-with first, followed by the Greek people. Most appear to be in agreement that both aspects can now be dealt with together.
However, Germany (one imagines with the full support of the government and Angela Merkel) continues to make those unpleasant macho Teutonic noises.
For instance, Steffen Kampeter the German Deputy Finance Minister: “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”
Despite the posturing , the rhetoric and the barely-concealed German instinct to rule Europe, the 14.5 billion euro Greek bond redemption will take place on March 20th. It was always going to take place – whether the entire Greek bailout package was approved or not. Even if it meant the cap being passed round the Eurozone – and we’d probably even find the United States and others making a contribution. Not giving money to the hedge fund managers and bankers was never an issue.
The real issue and rather alarmingly, the one which appears to have become the least important to the Eurozone High Command is the welfare of the Greek people. The Euro rulers have already showed the world that they would be quite happy to destroy Greece if they decided that it was expedient to do so.
Eurozone ministers spooked themselves last week on hearing that Greece would miss its debt-reduction goals.
Last year, Greece’s debt was 160% of Gross Domestic Product. This year , after being told to butcher its economy, Greece will probably deliver a reduced debt run-rate (by 2020) of only 129% of GDP. That is quite an achievement – bearing in mind the collateral damage.
However, Euro Ministers are experiencing the vapours because the set target was 120% of GDP by 2020. So what is the answer? You’ve guessed it. More Austerity.
The other unsavoury aspect of the Greek situation is that in spite of the whole arrangement being presented as a process of great charity, profits are being made. Profits are being generated from Greece’s misery.
The first 110 billion bailout in May 2010 was charged at an average rate of 5% per annum. That’s 5 billion euros! Even that was unsustainable because just like the door-to-door moneylender, Greece would be forced to borrow more, just to repay the interest…..and so on. That rate has now been reduced to 4% per annum – but even so, it seems extortionate.
Euro moneylending is more Shylock than Mother Theresa – plus they do want their pound of flesh – unless of course, they are called Germany , Holland or Finland. They want several kilos of of the stuff.
What European Central Banks should do is simply return their ill-gotten Greek profits or at least direct them at Europe’s crisis programme. This should not be viewed as a profit opportunity.
Too many bankers and fund managers still view Greece only a profit centre.
In keeping with the Eurozone’s habit of creating rules “on the hoof”, there are discussions to fund an escrow account to guarantee that any bailout money goes to where Euroministers decide, thereby removing all management responsibility from Greece and its politicians.
There is one major issue which has not yet been ironed out – the Aladdin Solution – the “New Bonds for Old” proposal.
There are bondholders still resisting a debt-swap , so on February 21st 2012, Greece may be forced to legislate thus forcing those errant bondholders to accept a “new-for-old” arrangement.
What started a year ago as a simple bailout has now taken an unpleasant politico-bureaucratic aspect which becomes more and more complicated with time.
The Greek people are quite rightly embarrassed by the way that they have been portrayed in the word’s media but one thing which they should always remember is that in spite of the fact that all their Eurozone friends have convinced the world that they want to help Greece – they really only want to help themselves.
They are the greedy moneylenders gathering round a desperate family – having seen an excellent opportunity for profit.
I have a feeling that the happy ending will belong to Greece.
Greek party leaders seek deal as bankruptcy looms
By NICHOLAS PAPHITIS
ATHENS, Greece (AP) — Greek party leaders on Tuesday will seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.
Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new income cuts and job losses, which Greece’s eurozone partners and the International Monetary Fund are demanding to keep the country’s vital rescue loans flowing.
A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.
Police said up to 14,000 people took part in two peaceful anti-austerity demonstrations in Athens. The separate marches were to converge on central Syntagma Square, outside Parliament, which has been the focus of demonstrations over the past two years of economic pain.
On Monday, Prime Minister Lucas Papademos’ government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.
Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.
Among the measures the EU and IMF are pressing Greece for is a cut in the euro750 ($979) minimum wage to help boost the country’s competitiveness. This reduction would have a knock-on effect in the private sector – because private companies also base their salaries on the minimum wage – and even unemployment benefits. Unions and employers’ federations alike have deplored the measure as unfair and unnecessary.
“It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people,” Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.
He called on coalition parties to work more closely together.
“To save Greece … will involve a huge social cost and sacrifices,” Venizelos said. “On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices.”
“No one is as strong as Hercules on his own to face the Lernaean Hydra,” a swamp monster in Greek mythology, he said. “We must all, together, fight this battle, without petty party motives and slick moves.”
A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal.
But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc’s digital policies, said Greece’s exit wouldn’t be a disaster.
Kroes told Dutch newspaper De Volkskrant that “It’s always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true.”
Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.
As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive euro100 billion ($131.6 billion) in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.
Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.
The EU-IMF bailout will also provide an estimated euro40 billion ($52 billion) to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country’s privately-owned debt.
However, the bailout has to be secured for the deal with private investors to go ahead as about euro30 billion from the bailout will be used as the cash payment in the bond swap deal.
Greece’s coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.
The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product – about euro3.3 billion ($4.3 billion) – improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.
Creditors are also demanding spending cuts in defense, health and social security.
European Commission spokesman Amadeu Altafaj Tardio said Monday that Greece was already “beyond the deadline” to end the talks.
Also Monday German Chancellor Angela Merkel warned that “time is pressing,” and “something has to happen quickly.”
While Greece remains cut off from international bond markets – where it would have to pay interest of about 35 percent to sell 10-year issues – it maintains a market presence through regular short-term debt sales.
On Tuesday, the public debt management agency said Greek borrowing costs dropped slightly as the country raised euro812 million ($1.06 billion) in an auction of 26-week treasury bills. The coupon was 4.86 percent, compared to 4.90 percent in a similar auction last month, while the auction was 2.72 times oversubscribed.
Derek Gatopoulos in Athens and Gabriele Steinhauser in Brussels contributed to this report.
German Chancellor Angela Merkel is one of the Euro leaders who appears to be slightly too relaxed about the fact that the Greek government has not yet finalised an agreement with creditors in respect of its Sovereign Debt. Now there is the rumour of a German Government memo indicating that Eurozone Banks are just about ready and able to cope with a Greek default. If that is the case then it would seem that the Greeks have been “played” while Euro reorganisation has been taking place behind their backs. The latest wheeze is the IMF expressing dissatisfaction about Greece’s progress in implementing those draconian austerity measures. That means that Greece’s next tranche of bailout money is nowhere near being agreed. It is now possible that even if Greece does capitulate and agree to everything that the IIF demands, it is still not guaranteed a bailout. Tempus Fugit.