Brexit – Summary , so far……
Cameron’s ‘in crowd’ has expanded offshore to include the foreign senior banking community. Here in the UK, the ‘IN’ conspiracy has now recruited some senior corporate ‘suits’.
Meanwhile, Boris is looking increasingly shambolic and isolated plus, he does not appear to be appealing to the great unwashed.
The two main messages are either “Watch out for hordes of migrants and we could do it alone if we wanted to” or, more worryingly: “The UK is effectively imprisoned within the #EU with no way out without damaging EVERYTHING!”
Both messages are negative – especially now that it would appear that the Cameron camp has admitted that even if we wanted to leave – we can’t. We’re trapped!
Today it was the turn of Spain’s 800,000 permatanned British residents to have the fear of God put into them…..as if the Spanish economy would even think about risking the loss of such a vast slice of revenue!
The one aspect of the debate I cannot agree with and that is the perceived danger from millions of low-level migrants. Once the UK economy collapses, no-one will want to come here.
Now it’s just a matter of waiting for the ECB’s Mario Draghi to pontificate.
Lagarde, Brexit & Panic
It was the IMF’s Christine Lagarde’s turn today.
She says that Brexit would have “assez mauvais to très , très mauvais” consequences but was not particularly specific.
“Pretty bad to very, very bad” is once again a judgement and not a prediction….and if she wants to see “very, very bad”, she should keep a closer eye on Greece’s problems!
Make no mistake, just like Mark Carney before her, prior to issuing her predictable statement, she would have been on the phone to Chancellor Gideon or David Cameron for approval of this latest piece of the well-choreographed scaremongering pro-EU referendum jigsaw. So WHO is next to have been recruited by the ‘IN’ camp?
One suspects that either this weekend or possibly on Monday, it will be the turn of the ECB’s Mario (il Papa) Draghi to instil a bit of ‘panico’ among us gullible Brits!
It started with Obama and they’re travelling East……..
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………
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 email@example.com
To contact the editor responsible for this story: James Hertling at firstname.lastname@example.org
EU official: Greece needs extra $20 billion
BRUSSELS (AP) — Greece needs about an extra euro15 billion ($20 billion) to get its debt down to manageable levels — and the rest of 17-country eurozone is being asked to help foot the bill.
Debt-ridden Greece is close to a deal with private investors to reduce its debt burden by about euro100 billion and that — plus an agreement to enact deep spending cuts — could pave the way for a euro130 billion bailout from its European partners and the International Monetary Fund. But on Thursday a European Union official said this plan was not enough to help fix Greece’s problems, which are getting worse as the effects of the recession take hold.
In order to bring Greece’s debt burden to a sustainable level — 120 per cent of its economic output in eight years’ time — the country’s international debt inspectors calculate that Greece needs an additional euro15 billion — a shortfall it believes should be made up by the rest of the 17-country eurozone, the European official. The official spoke on condition of anonymity because of the sensitivity of the matter
The extra money, in theory, could come either from the other euro countries or by having the European Central bank, its national counterparts and state-owned banks like France’s Caisse de Depots taking a loss on their Greek bond holdings, the official said. Analysts estimate that the European Central Bank holds euro50 billion to euro55 billion in Greek bonds by face value but it can’t simply write them down without breaking the EU treaty, which prohibits the bank from financing governments. Writing off a debt would be, in effect, transferring money directly to a government.
The new push for Greece’s public and government creditors to take a cut on their investments — dubbed the official sector involvement, or OSI — is a new front in the battle to save the country from a potentially devastating default. So far the eurozone and the International Monetary Fund have given billions in bailout loans to the struggling country, but they haven’t been asked to take losses.
It is also an acknowledgment that Greece’s economy is in such a dire state that the country’s debt inspectors — the so-called troika of the Commission, the European Central Bank and the IMF — are having a hard time finding more ways in which Athens can save money.
Greece has been at the heart of Europe’s debt crisis since it revealed in 2009 that its debt was far larger than its official estimates. It piled on the debt during a decade in which the government overspent and its economy was growing. Those fortunes turned when the world went into recession in 2008.
The challenge now is reducing the debt at a time when the economy is shrinking. Spending cuts, tax increases and the general uncertainty of the crisis have already pushed Greece into a deep recession, which in turn has eliminated many of the gains from the austerity measures.
Asking private creditors like banks and investment funds to share the burden of saving Greece was the first reaction to this problem; getting the public sector creditors involved is the next.
The official said a deal with private creditors to take losses on their holdings will have to be announced before the end of the week to make sure it can be implemented before Athens has to pay back euro14.5 billion in bonds on March 20.
Experts from national finance ministries will examine the details of the deal on the so-called private sector involvement — or PSI — on Friday, and will likely also discuss how the euro15 billion gap can be closed, the official said.
People familiar with the tentative deal have said it would see investors take losses of more than 70 percent of their holdings. On top of having to accept a 50 percent cut in the face value of their bonds, investors will also receive lower interest rates of between 3.5 per cent and 4.5 per cent and give Greece 30 years to pay back the debt.
If agreed, the deal would end negotiations with bondholders that started this summer and have become increasingly tenuous in recent weeks.
Getting public creditors like central banks or sovereign wealth funds to take a hit may be even more controversial, since any losses or foregone profits ultimately come out of taxpayers’ pockets. Germany, the strongest economy in the eurozone, is also one of the strongest opponents of OSI.
Germany’s finance minister, Wolfgang Schaeuble, said on n-tv television Thursday that he didn’t see the need for “any extra contributions from the public sector; we’re carrying everything anyway.”
Schaeuble didn’t address the issue of the euro15 billion funding gap.
The majority of the ECB’s Greek bonds were bought at a discount in the summer of 2010, when the central bank was trying to stabilize their prices. Even though it is bound by the rules of the EU treaty, it could find a way to give up the substantial profit it would earn by holding the bonds to maturity. It could do that by selling the bonds to the eurozone bailout fund or to Greece at the knockdown prices it bought them for.
However, the ECB has so far given no indication that it is willing to do so, with some of its governing board members saying that giving up on profits would clash with the bank’s ban.
Alternatively, eurozone states could boost their bailout loans beyond the promised euro130 billion, or provide some, more-limited, relief by further lowering interest rates on these loans.
Analyst Carsten Brzeski at ING in Brussels said the ECB and President Mario Draghi might be open to giving up the profits on the bonds. But the bank will wait to take action so it does not appear to be acting at the request of politicians.
The bank is legally independent and the EU treaty forbids it to take instructions from government officials.
“I think Draghi could live with it, but they will not bow very easily,” said Brzeski. “It has to look like it is their own idea, their own initiative.”
While officials have stressed the need for Greece’s financing to be set before the bailout goes through, the main players have been flexible before and “it’s not as hardball as it looks.”
On the official side, “someone will have to bite the bullet, or everyone,” he said. European officials are trying “to have everyone take part in the burden sharing and thereby get the ECB involved.”
The euro130 billion second bailout package also still depends on labor market reforms that the EU and IMF are asking Greece to implement. Unions and employers resumed talks on Thursday over troika demands to lower wage costs in the private sector and possibly lower the minimum wage.
AP Business Writer David McHugh contributed from Frankfurt.
Copyright © 2012 The Associated Press. All rights reserved.
Central Bankers – The Fifth Estate.
Nowadays, the bank to government to Central Bank and back to bank cross-border flows of money (both real and imaginary), the constant borrowing and re-borrowing , the bond auctions etc. appear to be behaving as if controlled by a separate, non-governmental , non-economic entity.
Sovereign bond auctions have now become a weekly sport, generating the sort of interest formerly reserved only for TV soap operas.
European banks gather around the European Central Bank like pigeons at feeding time.
Rather worryingly, this new pseudo-economic essence behaves as if it is more-or-less dislocated from what we call “the Global Economy”.
It is the Macro Banking System. The FIFTH ESTATE.**
It is behaving as a totally separate, self-perpetuating, high-level mutant economy which exists for its own sake and is presided over by senior bankers and financiers with politicians merely fetching and carrying.
One of the symptoms which we are currently witnessing is the demise of democratically-elected officials. Their status seems to be diminishing day-by-day, to the extent that their job is simply to row the boat according to the drumbeat set by very senior bankers – the New Rulers.
The very people who created this financial crisis four years ago have gradually created a brand-new debt-fuelled edifice which has become anchored both in the economy as well as in our collective psyche. We have come to see the Debt Mountain as our Saviour with Central Bankers in the role of its High Priests.
The concept has become so embedded, that we have grown to believe that only they (the High Priests) can save us.
This new entity appears divorced from the old-fashioned concepts of growth, production and distribution and now only needs sovereign economies to feed it occasionally.
This gradual power-shift has only occurred in the last year-or-so and so, imperceptibly, we have entered an age where politicians have finally become subservient to the bankers.
The jury is still out as to whether the development of this new ruling financial class is good or bad or even sinister. The Conspiracy Theorists have notions of Bilderbergers, a New World Order and all sorts of other conspiracies – I do NOT subscribe to that view.
Politicians have shown that they do not have the intellectual or technical capacities to deal with a multi-causal, multi-faceted, vastly complicated economic crisis, borne more out of greed-conceived chaos, rather than the usual rules of Keynesian economics.
We have to take a leaf out of the politicians’ book.
Heads bowed, we wait.
** First Estate – Clergy. Second Estate – Nobility. Third Estate – Commoners. Fourth Estate – the Press.
EFSF Accounting Gymnastics.
Last night , Eurozone finance ministers (sort of) agreed a deal to increase the firepower of the European Financial Stability Facility (EFSF).
Unfortunately, this time it really IS a case of too little too late or perhaps, someone didn’t get his sums quite right. Some of the €440 which the EFSF has to play with has already been allocated to help Portugal and Ireland. There is also the small matter of the EFSF contribution to the next Greek bailout.
Nevertheless, it was agreed that the EFSF will guarantee 20 to 30% of the value of any bond issued by a Eurozone member, allowing the fund’s “assets” to be “leveraged”. That, in effect means that say, €1 billion of EFSF assets can underwrite about €3 billions’ worth of Eurobonds. A dangerous game – especially as the EFSF’s real apacity is so limited.
In reality the EFSF’s capacity might only be between €500 and €700 billion, which is not really even big enough to bailout Italy and Spain. Meanwhile, Greece will run out of cash in two weeks’ time and is already standing in the wings, hands out, awaiting its next €8 billion bailout.
Also embedded in the backdrop to all this accounting wizardry, is a secret Euro report which states that Italy will need to beef-up its austerity measures , otherwise it will soon become insolvent.
The ECB has its own issues, centering around its difficulty in securing support from banks in respect of balancing its sovereign bond purchases. Because banks are so unsure of what is going to hit them next, they wish to maintain liquidity. That means that they are no too keen on even depositing short-term money with the ECB.
When agreeing such initiatives, it is quite normal to “test the water” by soliciting the views of investors. Chris Frankel CFO and Deputy CEO of EFSF said ‘Following extensive discussions with investors covering all types and geographical regions, “a number of them” have given their positive views and signalled their willingness to participate.’
That simply means that institutions which are already government-underwritten will invest in lower-risk bonds as a result of centralised underwriting. Consequently, they will be willing (in theory) to accept lower bond yields.
All of the above is being promulgated as a “done deal” but others believe that the whole arrangement is far to complex and too difficult to understand. It certainly smacks of desperation.
What is really needed is a fund which can operate quickly and simply.
In spite of very strong opposition from Germany, it would seem that the only eventual way forward will be not-only for the ECB to start printing Euros. but to become European lender of last resort.
One thing is definite – the whole thing is hanging by a thread and just one more “Eurosurprise” would be devastating.
And the IMF? Another statement declared: “The 17 Euro Finance Ministers have agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility.” Make of that what you will.
One thing is for sure, everything MUST be done to boost the EFSF’s effectiveness and for the “stop-gap accords” to stop. So far, all the temporary “fixes” and retro-crisis-management have failed to protect Italy and Spain from surging bond yields and both Standard and Poors as well as increasingly cynical investors now have France in the crosshairs.
Today is a big day for the Eurozone.
The uncertainty is not helped by statements such as the one from EFSF Chief Executive Officer Klaus Regling who said “It is “impossible to give one number” for the total firepower of the EFSF because market conditions change over time.”
Or ECB President Mario Draghi saying that the ECB’s 18-month- old bond-buying program is “temporary and limited.”
In spite of all the meetings, organisational complexity and communiqués, there are still two vital ingredients missing – a coherent strategy and leadership with direction.
This weekend’s goings-on in Greece and Italy have bought maybe two or three days of calm. The usual pattern is for another crisis to surface or for another set of tragic trading figures to materialise and once again, it will be back to square one. No matter how many noughts are added to various bailout schemes, it is the structural and political issues which need to be attacked. Putting bankers and Eurowonks in charge in Greece and Italy does not guarantee anything – in fact it looks like a very high-risk strategy with as much possibility of a positive outcome as there was under the previous regimes. The basic underlying numbers are exactly the same today as they were last week.
Lagarde, IMF and Adidas.
The selection process for the next International Monetary Fund (IMF) Managing Director kicked-off yesterday and will finish on June 10th.
Coincidentally, that is exactly the same date on which the front-runner for the post, France’s Christine Lagarde will learn whether she is to be investigated for “abuse of power”. Currently, Lagarde has not yet confirmed whether she intends to compete for the job but she is already the favourite to replace Dominique Strauss-Kahn.
She has gained a reputation as a “doer” and her decision in 2007 to put a stop to a protracted legal battle could result in her being prosecuted for “abuse of power”.
The former head of Adidas, Bernard Tapie had been waging a court battle for nearly 20 years. He had accused French bank Credit Lyonnais of mishandling the 1993 sale of his company and cheating him. Christine Lagarde stepped-in and ordered that a panel of judges should investigate the case.
A year later, the judges decided in Tapie’s favour and ruled that he should receive £248 in damages.
Credit Lyonnais had gone to the wall and was being administered by a state-operated consortium. That meant that in effect, Tapie’s payout was made from public funds.
Left wing politicians and French Green MEPs have wasted no time in claiming that Lagarde behaved improperly and had exceeded her authority. They have questioned the legality of her actions and there has been suggestion that she may have been acting on orders from ther Elysee Palace. The beneficiary of the judges’ ruling, Bernard Tapie was a well-known Sarkozy supporter. It is that which lends credence to the accusation of Sarkozy having influenced Lagarde’s decision.
Christine Lagarde ought to be lauded for using common sense in ending a legal case which was not showing any sign of being concluded. As usual, it was only the lawyers who were benefiting.
Hopefully, when she is Managing Director of the IMF, she continues to demonstrate the pragmatism and common-sense of a leader and not the stuporous thinking of the average bureaucrat or the furtive back-room well-nigh masonic style of the senior banker.
What?! Mandelson for the IMF?
The Chinese have asked if Prince of Darkness, Peter Mandelson would be interested in THE job at the International Monetary Fund!
Does a Pope crap in the woods? Is the bear a Catholic?
It is difficult to understand the qualities that the Chinese admire in Western politicians. If you recall, they were great fans of President Richard Nixon, even after the Watergate bust. They’re obviously seeing something that is invisible to the Westerner.
As well as having been EU Trade Commissioner, Mandelson is our former Business Secretary and he is known as an excellent manager, administrator and shrewd political operator. So he does have (with apologies to Dominique Strauss-Kahn) previous form.
If the oleaginous Mandelson were to be handed the job ahead of sexy Christine Lagarde or bumbling Gordon Brown, many, including our own Prime Minister would be reasonably happy – after all, Mandelson, in spite of his many foibles is a very smooth international wheeler-dealer.
Mind you, ‘ la cerise sur le gâteau’ would be that not-only the French but more importantly, Gordon Brown would throw all of their toys out of the pram.
French President Sarkozy is still developing his neo-Napoleonic image by having elbowed his way to the front of the NATO queue in order to enhance his recently acquired ‘decisive international statesman’ image by bombing Gaddafi. For balance, he and his wife are expecting a child. He has literally worked his nuts off in order to create a new shiny voter-friendly image for the forthcoming 2012 French presidential election. Make no mistake, the alleged DSK-rape affair is a massive bonus to his campaign.
Now he has the opportunity to install his “protégé” Christine Lagarde at the IMF. That will be yet another feather in his ‘chapeau’ plus Christine will be out of the way, charming bankers and politicians, thus removing herself from the local (French) political scene. Currently, Christine Lagarde is so popular in France that if she decided to run for the French presidency, she would doubtless win.
Gordon Brown needs a job and when interviewed, he didn’t rule himself out – after all it’s £320,000 tax-free – he just tried to sound serious and statesmanlike. He’s definitely making a low-key play for the job. For instance, he had wasted no time in flying out to South Africa, where he was launching a new High Level Panel on Education. Today’s interview had a backdrop of a classroom full of nicely polished black kids. That always goes down well with the media.
When asked about his candidature for the IMF job, he replied in his usual sparkly way “Any candidate to head the IMF needs to be appointed on merit”. When he said that, he probably didn’t realise that in that single sentence, he’d ruled himself out.
David Cameron would probably settle for anyone, as long as it wasn’t Gordon Brown – and for valid reasons. There is little doubt that Brown the Bully would try and ‘lord it’ over our Coalition Government. After all, it is barely a year since he suffered his very public humiliation. Plus he does not possess the urbanity or chic of any of the other candidates. Management by Shouting does not go down well in the IMF environment and Brown has proved more than once that he is a natural backroom boy and not a figurehead.
Nowadays, the Chinese tend to get what they want. After all, even the mighty United States is in hock to them.
Right now, the Chinese want Mandy.
This is going to be a very interesting summer.
(While we’re waiting, Greece will just have to sign a few more IOUs.)
PIGS will kill us
The Irish Prime Minister
Portugal, Ireland, Greece, Spain. PIGS. What do they have in common? Everyone of them, so far has been quite adamant that it did not need any outside help to help sort out its finances – until 24 hours before they accepted the promise of money from whoever was willing to dish it out.
Ireland has been the latest to take weeks rather than minutes to succumb. One of the great mysteries is why the “we don’t need help” phenomenon keeps on being replayed. The solution is most-likely testosterone-related. Accepting help because your economy is in the red is the same phenomenon as not having the humility to admit defeat when lost.
A man will drive round aimlessly for hours rather than stop his car, approach a local and simply say “I am lost. Can you please help me.” Why? Because asking for help suggests failure, incompetence and ultimately a small willy.
If women had been in charge in Ireland , they would have accepted outside-help months ago. The Irish cock-up didn’t happen within the last few days. They’ve known for ages that their economy had run out of steam but like the lost driver, they have been having pointless meetings and briefings in the vain hope of hitting upon some self-engineered rescue plan which, just like the lost driver, would somehow allow them to accidentally arrive at their destination.
Unfortunately, the Brussels Protectorate of Eire (formerly known as Ireland) cannot just have unconditional money. There are conditions. Firstly, austerity laws will HAVE to be introduced even before even one euro is paid over. Secondly, Ireland’s accounts are now open for Brussels to peruse at its leisure and no doubt an unelected Viceroy of Eire will be nominated by the Eurocrats just to make sure that the Irish government is dancing the right jig and singing the right song to the newly-composed Euro-tune.
The civil unrest has already begun. The Irish are a proud lot and the thought of Johny Frog and Fritz Hun running the Irish Economic Song Contest is as unpalatable as it gets. Make no mistake, the Irish economy is now in the hands of International Monetary Fund and European Union pen-pushers. The Irish Finance Minister is an observer.
The Prime Minister Brian Cowen is now regarded as “walking-dead” and it seems unlikely that his administration will last to 2012 which would have been the normal term had the economy not hit the fan. He has enemies both outside and within his own Party but so far he has managed to hang on to office. There is serious talk of an imminent vote of no confidence which, if carried would cause the government to collapse and result in a late December General Election.
That would make Ireland’s new Euromasters very nervous because at the moment they understand that after tomorrow’s announcement of a new 4-year Irish economic plan, the new policies will be signed-off in a December 7th Budget. Their Irish economic Blitzkreig will have been wasted.
Economic crises always go hand-in-hand with political crises and because of the depth of the current mess, it is almost certain that Prime Minister Cowen’s Fianna-Fail party will be out of government for the first time in over 100 years. Presently, they are in power only because of the Green Party’s parliamentary support but relations between Fianna Fail and the Greens have reached such a low-point that the Greens’ support of the forthcoming budget is conditional upon a January General Election.
The latest polls indicate that support for Fianna-Fail among the electorate is currently at a historic low of 17%. That suggests a total wipeout in any forthcoming election.
All electorates imagine that when an economy is not functioning, a simple change of leadership and administration provides an answer. It rarely does. For instance in the United Kingdom, the electorate did not so much vote for the Conservatives as vote AGAINST Labour. In Gordon Brown, they saw an inept leader who was floundering and whose own party was divided. They saw the solution in a vote against Brown. The Irish are seeing Cowen in the same light.
It was not the fault of the government that their economy collapsed. It was the banks’ fault and contrary to popular opinion, no amount of regulation would have prevented the fiscal crisis. For a bank, the system is simple: You buy-in money at a certain rate and you sell it at a higher rate. Simple economics. Alternatively, you can balance the books by lending against assets. If you lend 100,000 euros on a house valued at 100,000 euros, your books balance because you have 100,000 on both sides of your balance sheet.
However, if property values collapse and one side of you balance sheet now shows that you have lent 100,000 euros and the other shows that the asset against which you lent (the house) is only worth 50,000 euros, you have a problem – a banking crisis.
Ireland’s property market has been collapsing for months and the Irish government went from making things happen to watching things happen. Now they are at the final stage of the cycle and they’re wondering WHAT happened.
The British government has pledged a loan of £7.5 billion loan to the Irish. That seems like a lot of money until you realise that the Irish exposure of the British government-owned Royal Bank of Scotland is well over £50 billion. RBS owns the Ulster Bank where the downward spiral in property prices has effectively meant that the bank has £30 in assets for every £100 that it has lent to mortgagors. That’s the equivalent of a bank giving you a £1 million mortgage on a £300,000 house.
George “Schadenfreude” Osborne’s macho white charger is nothing more than a painted lame donkey. His £7.5 billion is “gesture politics” at its most pointless. His primary worry is RBS and to a lesser extent Lloyds (Irish exposure nearly £30 billion).
Because the markets believe that much of the RBS-owned debt will eventually be written-off, RBS shares are once again falling in value and yesterday stood at 39.4p. Less than three years ago they were over £5. Lloyds Bank is experiencing a similar drop.
RBS also has an exposure of about £15 billion in Portugal which is also employing Ireland’s macho “in denial” technique and announcing to the world that it does not need a bailout.
We’ll see. Two PIGS down with two to go.
I have been predicting the collapse of the dollar followed by the collapse of the pound sterling for about 12 months. the phrase ‘double-dip recession’ has now gone into the language but again is one of those phrases which is quite meaningless because I do not believe that we ever came out of recession.
Economically speaking, we have all been whistling in the dark.
Today the US dollar plunged to its lowest level against the Japanese yen in 15 years and fell to its lowest level against the Swiss franc in 27 years.
The world currencies which are going to do well in the next 5 to 10 years of those which belong to countries who have something to sell, that is to say countries which have minerals and metals in the ground and/or any sort of manufacturing. Australia is such a country and today the American dollar fell against the Australian dollar to its lowest-ever level.
Again about 12 months ago I predicted that gold was headed for $2000 an ounce. Today it is already at $1360 an ounce. That’s what happens when the dollar plunges and investors start to buy gold by the ton!
World governments are plugging the odd financial hole here and there but, in the grand scheme of things, they are impotent to stop the meltdown of the dollar.
Apart from accelerating the value of gold, what else is the demise of the mighty dollar achieving?
There are only THREE major asset classes. Gold, commodities and currencies. As investors dump the dollar and rush for the exits marked gold, commodities and other- currencies-as-long- as-it-isn’t- the- dollar, there are two certainties. The first is that very soon the US government will have no choice but to devalue the dollar. The second is that the dollar’s plunge has put incredible pressure on the price of food as investors rush to invest in wheat, corn, soya etc.
By the end of this year, the United States and the United Kingdom will be leading the Western world in unemployment statistics as both economies are losing jobs at a greatly accelerating rate. In 10 days time, the British Chancellor will give the British unemployment statistics even more momentum by declaring thousand more public sector job losses. In the past four weeks, the United States has declared another 95,000 job losses.
Both the Federal Reserve and the Bank of England are inking the printing presses – ready to print even more dollars and sterling. That will inevitably lead to currency devaluation which in normal circumstances would inflate an economy . However, after the United States and United Kingdom, there is a long queue of countries also wanting to down-value their currencies. That way (if such a thing were possible), they could all default on each other’s debts. Never mind, perhaps the banks will bail them out.
As recently as two days ago, both the IMF and the G20 admitted that this is not the end of the world’s economic troubles but the beginning of something truly terrifying:
It is simply a question of who blinks first and which economy can print money the fastest.
So what of the investors? They will produce what is known as a self-amplifying problem. That faster governments print money, the faster the investors will dump any currency they hold and the faster they will invest in gold and commodities. That will inevitably give rise to chronic inflation and a very unpleasant end-game.
Will all these shenanigans affect the pound or dollar in your pocket?
Before you ask that question, make sure that you still have pockets that haven’t been picked by your government.
(THIS is from just over a year ago)
“Osborne? Io sono huomo di cortelle e si tu no mascolta io te do na cortelatta.”
George Osborne has said Mr Brown’s attempts to secure a global agreement for a fiscal stimulus package have failed. It pains me to agree with the Shadow Chancellor but he is right.
Many (about 3500) fine words have emerged from last weekend’s G20 meeting. But what has really been achieved except perhaps an agreement to have another meeting in 2009? Oh yes, there was a statement that the G20 are going to “harness tax cuts to stimulate the global economy”.
As Manuel might have said: “Que??”
The good intentions of the G20 will not prevent events such as a fire-sale of stocks by Hedge Fund managers or the accelerating erosion in the value of sterling. The sheer speed of developments within the global economy may create the real danger of politicians’ status being demoted to that of observers rather than shapers of events because the provisional time for the follow-up G20 meeting is not until April 2009.
In five months’ time the global economy will be in a VERY different place but meanwhile, the flow of politicians’ platitudes will continue as more financial placebos are dished out.
Brown has always indicated a dislike of political “sound bites” but in spite of that, his speechwriters have created some gems. Like an ageing football pundit, Brown has has increasingly relied on tired and crass political soundbites and clichés.
Brown now has a “route map” and that’s about it. “Road map” would have been a better phrase but that one has been taken. “Money map”, “Fiscal map”, “Green map”, “Mouse map”, “Door map” and even “Brown map” are all still available.
“Brown paper” is also an excellent one which has not yet been spotted by Brown’s wordsmiths.
It is a shame that these phrases cannot be registered like websites. Someone could make a fortune.
There have been many fine words but they do not seem to make much sense.
“These are extraordinary times and they require extraordinary measures”. Yep – can’t disagree with that one. A fine example of both a cliché and a truism but Brown might as well have said “We are in deep s*** and we really should think about getting out of it.”
G20 made a commitment to “boost growth and reform financial markets” is not a world-shattering assertion. Mind-numbing perhaps but definitely NOT world-shattering.
“The G20 are going to strive to draw up a timetable for a new world trade deal” sounds like a fine statement but would have sounded better if he’d left out the “strive to” phrase. Is Brown’s route map time-based or not?
Gordon Brown’s pseudo-Churchillian posturing and new world-leader status is looking increasingly silly and maybe a little delusional, especially if you know that 45% of the world’s financial reserves are in the hands of the BRIC economies = Brazil, Russia, India and China. Currently they appear to be deferring to the USA, United Kingdom, Germany, France, Canada, Italy and France who collectively control less than 5% of the the world’s financial reserves.
Brown feels the hand of history on this shoulder (sorry!) and doubtless his writers are polishing a fine new set of clichés.
“Eloquent silence” would be my favourite.