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Italy’s Banking Crisis Is Even Worse Than We Thought

Italy’s Banking Crisis Is Even Worse Than We Thought

The insider blame game has begun.

In this late winter of generalized discontent, it is not easy to pinpoint just where the biggest threat to Europe’s increasingly flimsy union lies, so intense is the competition. One obvious contender is the Eurozone’s third largest economy, Italy, which faces a banking crisis, an economic crisis, a debt crisis, and a political crisis all at the same time.

The country’s Five Star Movement is gaining momentum both in the polls and in its efforts to call for a referendum on euro membership. In the meantime, Italy’s newly installed government wants — indeed, needs — to bail out a growing number of banks but has neither the money nor the political capital to do so.

Things had gotten so bad that the country’s two bad banks (Atlante I and Atlante II), ostensibly created to stabilize the financial system, were themselves on the verge of collapse. Turns out that things are even worse than we had thought, following a blistering tirade on Tuesday from Italy’s bad banker-in-chief, Alessandro Penati.

“There is no clear vision of the problem and no strategy,” Penati told a financial conference in Milan, according to Reuters. He said he was virtually working alone on rescues that had revealed “horror stories” within some banks.

In short, the insider blame game has begun.

Penati, whose boutique asset management firm, Quaestio Capital Management, was chosen to oversee the supervision of Atlante in late 2015, directed much of his ire at the banks themselves, in particular Italy’s two largest financial institutions, UniCredit and Intesa Sao Paolo. Atlante’s investors had, he said, shown “zero long-sightedness,” after declining to invest more in the fund, which has used 80% of its money to rescue two mid-sized banks in northeast Italy — Veneto Banca and Banca Popolare di Vicenza. Both these lenders now need more capital.

…click on the above link to read the rest of the article…

Meet The New, “Safe” Synthetic CDO’s That Could Spell Disaster For The European Banking System

Meet The New, “Safe” Synthetic CDO’s That Could Spell Disaster For The European Banking System

So what do you do if you’re a European banking regulator faced with the task of maintaining a safe, sustainable financial system amid a concerning growth in bank leverage.  Well, if you said sell down risk assets then you’re just being silly or completely ignoring your implicit obligation to engineer higher banking profitability at all costs.

If we can get serious for a moment, like in the early 2000’s, when all else fails you turn to synthetic CDO’s which, courtesy of some magical, if completely incomprehensible, math, slashes the risk of bank balance sheets while having a negligible impact on profitability.  It’s called the Synthetic Collateralized Loan Obligation and it’s all the rage in Europe.

Here’s how it works:

In a synthetic securitisation a bank buys credit protection on a portfolio of loans from an investor. This means that when a loan in the portfolio defaults, the investor reimburses the bank for the losses incurred on loans in that portfolio up to a maximum, which is the amount invested. This amount therefore provides credit protection for a slice of the portfolio, which is often called the ‘first loss tranche’. The size of this tranche is typically chosen in a way to cover at least the expected losses on the portfolio as well as a share of unexpected losses. The bank usually retains the rest of the risk, which is called the ‘senior tranche’.

Before closing, the bank and the investor agree on the terms of the transaction, such as the amount the investor is at risk for, the duration of the contract and the loans that are eligible for inclusion in the portfolio.

…click on the above link to read the rest of the article…

Things Just Got Serious in Europe’s War on Cash

Things Just Got Serious in Europe’s War on Cash

The central authorities in Europe just launched their most important offensive to date in their multiyear War on Cash. The new move comes directly from the European Union’s executive branch, the European Commission, which just announced its intention to “explore the relevance of potential upper limits to cash payments,” with a view to implementing cross-regional measures in 2018.

Maximum limits on cash transactions already exist in most European countries, and the general trend is downward. Last year, Spain joined France in placing a €1,000 maximum on cash payments. Greece went one better, dropping its cap for cash transactions from €1,500 to €500. In simple terms, any legalpurchase of a good or service over €500 will need to be done with plastic or mobile money.

In some countries, the maximum cash limit is significantly higher. For example, in Europe’s biggest economy, Germany, recent attempts by the government to set a threshold of €5,000 triggered a fierce public backlash. The German tabloid Bild published a scathing open letter titled “Hands Off Our Cash,” while a broad spectrum of political parties condemned the proposed measures as an attack on data protection and privacy.

“Cash allows us to remain anonymous during day-to-day transactions. In a constitutional democracy, that is a freedom that has to be defended,” tweeted the Green MP Konstantin von Notz. Even Bunderbank President Jens Weidmann criticized the government’s proposals, telling Bild (emphasis added): “It would be fatal if citizens got the impression that cash is being gradually taken away from them.”

Germany’s neighbor to the south, Austria, has similar reservations about the EU’s plans to suppress cash. The Deputy Economy Minister Harald Mahrer said that Austrians should have the constitutional right to protect their privacy.

…click on the above link to read the rest of the article…

The Great “Fake News” Scare of 1530

Fake news has always been around for humor purposes, but the real “fake news” scares happen when the establishment is so used to getting away with lying, that any alternate narrative is demonized as factually false, irresponsible, and dangerous.

“The Onion” was next to “The Economist” in the newspaper stands for almost two decades. “Weekly World News”, which one-ups most British tabloids with regular Elvis sightings and vivid descriptions of two-mile fish orbiting in the rings of Jupiter, is still next to “Foreign Policy” in the same newspaper stands. This was never considered problematic in the slightest. Why, then, is a unified establishment screaming bloody murder about “fake news” all of a sudden?

To see the pattern here, it helps to know a little history – let’s look at the great “Fake News” scare of 1530. It has a lot of elements similar to ours today.

“The statements that make [established] people mad are the ones they worry might be believed. […] If Galileo had said that people in Padua were ten feet tall, he would have been regarded as a harmless eccentric. Saying the earth orbited the sun was another matter. The church knew this would set people thinking.” — Paul Graham

After the Black Death hit Europe hard around 1350, the monasteries were chronically short on manpower. The families that had used to send a child or two to become monks or nuns simply needed all their kids to work in the fields, to ensure food production, before such luxuries as manning the monasteries could even be considered. Therefore, any work that required involving monasteries became increasingly steep or scarce for the coming century.

This is relevant as those monasteries were the only places that produced books, all of which were in Latin, and all of which were in complete synchronization with the messages of the Catholic Church, the owner of the monasteries and therefore the owner of all mass media at the time.

…click on the above link to read the rest of the article…

Kremlin Warns Of Response To Latest US Sanctions, Says “Almost All Communication With US Is Frozen”

Kremlin Warns Of Response To Latest US Sanctions, Says “Almost All Communication With US Is Frozen”

In response to the latest imposition of US sanctions on Russia, the Kremlin said on Wednesday that the new sanctions would further damage relations between the two countries and that Moscow would respond with its own measures. “We regret that Washington is continuing on this destructive path,” Kremlin spokesman Dmitry Peskov told reporters on a conference call.

As a reminder, on Tuesday the United States widened sanctions against Russian businessmen and companies adopted after Russia’s annexation of Crimea in 2014 and the conflict in Ukraine.

“We believe this damages bilateral relations … Russia will take commensurate measures.”

Kremlin spokesman Dmitry Peskov

Then again, it is difficult to see how sanctions between the two administration could be any more “damaged”: also on Wednesday, the Kremlin said it did not expect the incoming U.S. administration to reject NATO enlargement overnight and that almost all communications channels between Russia and the United States were frozen, the RIA news agency reported.

Almost every level of dialogue with the United States is frozen. We don’t communicate with one another, or (if we do) we do so minimally,” Peskov said.

Additionally, RIA said that according to Peskov “he did not know whether President Vladimir Putin would seek re-election in 2018.”

“Everyone’s heads are aching because of work and with projects and nobody is thinking or talking about elections,” Peskov said.

Then again, the sanctions may soon be history. According to a Bloomberg report, the U.S. will start easing its penalties, imposed over the showdown in Ukraine in 2014, during the next 12 months, according to 55 percent of respondents in a Bloomberg survey, up from 10 percent in an October poll. Without the restrictions, Russia’s economic growth would get a boost equivalent to 0.2 percentage point of gross domestic product next year and 0.5 percentage point in 2018, according to the median estimates in the poll.

…click on the above link to read the rest of the article…

Why Europe must end in tears

Why Europe must end in tears 

The latest consequence of economic mismanagement in Europe was the failed attempt at constitutional reform in Italy this week.

The Italian people have had enough of their government’s economic failure, and is refusing to give it more power.

The EU and the euro project have been an economic disaster for all participants, including Germany, which will eventually be forced to write off the hard-earned savings she has lent to other Eurozone members. We know, with absolute certainty, that the euro will self-destruct and the Eurozone will disintegrate.

We know this for one reason above all. The political class and the ECB are guided by economic beliefs – I cannot dignify them by calling them reasoned theory – which will guarantee this outcome. Furthermore, they insist on using statistics that are incorrect for the stated function, the best example being GDP, which I have criticised endlessly and won’t repeat here. Furthermore, the numbers are misrepresented by government statisticians, CPI and unemployment figures being prime examples.

This article takes a column written by William Hague for the Daily Telegraph published earlier this week to illustrate the depths of misunderstanding even a relatively enlightened politician suffers, with this mix of nonsense and statistical propagandai. This article also refers to a speech delivered this week in Liverpool by Mark Carney, Governor of the Bank of England, showing how out of touch with reality he is as well. Many of his and Lord Hague’s misconceptions are shared by almost everyone, so for the most part go unnoticed.

Lord Hague basically blames the euro for all Europe’s ills: “…… it has made some countries, like Italy and Greece, poorer while others get richer”, he opines, and it is certainly a common sentiment. But it is never the currency that’s to blame, but those that attempt to use it to achieve policy outcomes, and inevitably fail in their quest.

…click on the above link to read the rest of the article…

Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017

Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017

After dragging Greece kicking and screaming through a never-ending vicious cycle of fiscal adjustment and output decline, the European Commission seems to be softening in its attitude towards other struggling Eurozone economies. France, Italy, Portugal and Spain, among others, have all repeatedly been given extensions to reduce their debt and deficit levels after recurrent breaches of EU targets have gone unpunished, and the trend looks set to continue as our forecasts show that those economies will underperform again this year and next. Does this mark a shift in mindset within the Commission as to whether the Growth and Stability Pact is fit for purpose? Or rather just tactical maneuvering—or indeed resigned acceptance—in tough political times, as the EU faces unprecedented challenges to its legitimacy and survival?

Under the EU’s Growth and Stability Pact, all Eurozone countries are required to bring their deficits below 3% of GDP and to work towards reducing debt down to 60% of GDP, and any country failing to do so is subject to strict deficit reduction targets under the corrective arm of the Excessive Deficit Procedure. Certainly, widespread acknowledgement of the self-defeating Catch-22 whereby austerity lowers growth and thereby weighs further on public finances has encouraged the EU authorities to allow leniency in a number of instances, but this is only part of the explanation. The political and social crises that years of fiscal adjustment have unleashed across Europe have contributed to a wave of anti-EU populism and unprecedented electoral gains for far-right parties in some countries, and the emergence of anti-austerity far-left parties in others. The EU is therefore not in a position to rock the boat any further, as the potential political costs of taking an inflexible stance on debt and deficit reduction measures are now too high in many cases.

…click on the above link to read the rest of the article…

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

Glut Fears Spike As Europe Runs Out Of On-Land Oil Storage

Tanker

Oil has been called names (“dirty fossil fuel!”). The cartels use it as a weapon to thwart their rivals. ISIS steals it and pimps it out on some sketchy black market. Swaths of it are set on fire and used as a shield. The pipelines through which it travels to and fro are bombed or protested—nearly daily. Sometimes unscrupulous babysitters let it loose to drown in an ocean or float carelessly down the river, never to be recovered. And now, oil, at least that destined for Europe, is homeless and is not being allowed to disembark after shipment.

Oil majors in northwest Europe have booked tankers to store 9 million barrels of oil as the international supply glut grows in size, according to a ship-operator who spoke to Bloomberg.

The companies have resorted to using tankers as storage as signs emerge that onshore storage is filling up on the land-starved continent.

Next month, Northwest Europe, which includes mega-producer Norway as well as the United Kingdom, France, Germany and others, expects to load the highest number of shipments in 4.5 years.

Somewhere in between 14 to 16 medium-sized Aframax tankers have lined the ports, according to Jonathan Lee, the CEO of Tankers International. Lee, whose firm operates the biggest pool of supertankers in the world, confirmed that the lack of land space to store fuel is the likely cause of the tanker buildup.

Reuters reported on Friday that the rate to book an Aframax tanker has almost doubled from the July figure, partially due to the widespread use of ships as floating storage units.

North Sea producers have upped production as the Organization of Petroleum Exporting Countries (OPEC) prepares to finalize the term of an output freeze by the end of this month.

…click on the above link to read the rest of the article…

 

NATO mulls worst-case scenario in case Trump pulls US troops out of Europe – report

NATO mulls worst-case scenario in case Trump pulls US troops out of Europe – report

© Francois Lenoir
NATO strategists are reportedly planning for a scenario in which Trump orders US troops out of Europe, as the shock result of the US presidential election sinks in, spreading an atmosphere of uncertainty.

According to Spiegel magazine, strategists from NATO Secretary-General Jens Stoltenberg’s staff have drafted a secret report which includes a worst-case scenario in which Trump orders US troops to withdraw from Europe and fulfills his threat to make Washington less involved in European security.

“For the first time, the US exit from NATO has become a threat”which would mean the end of the bloc, a German NATO officer told the magazine.

During his campaign, Trump repeatedly slammed NATO, calling the alliance “obsolete.” He also suggested that under his administration, the US may refuse to come to the aid of NATO allies unless they“pay their bills” and “fulfill their obligations to us.”

“We are experiencing a moment of the highest and yet unprecedented uncertainty in the transatlantic relationship,” said Wolfgang Ischinger, former German ambassador in Washington and head of the prominent Munich Security Conference. By criticizing the collective defense, Trump has questioned the basic pillar of NATO as a whole, Ischinger added.

The president-elect therefore has to reassure the European allies that he remains firm on the US commitment under Article 5 of the NATO charter prior to his inauguration, the top diplomat stressed.

Earlier this week, Stoltenberg lambasted Trump’s agenda, saying: “All allies have made a solemn commitment to defend each other. This is something absolutely unconditioned.”

Fearing that Trump would not appear in Brussels even after his inauguration, NATO has re-scheduled its summit – expected to take place in early 2017 – to next summer, Spiegel said.

…click on the above link to read the rest of the article…

“The System Simply Isn’t Working” – Hugh Hendry Warns Of 1930s-Style “Dramatic Fulcrum Point” In Europe

“The System Simply Isn’t Working” – Hugh Hendry Warns Of 1930s-Style “Dramatic Fulcrum Point” In Europe

Having warned in Q1 of the possibility of a China-devaluation-driven collapse in to a “Mad Max” world, Eclectica’s Hugh Hendry lays out the next steps and catalysts for ‘change’…

Via ValueWalk.com,

We believe we are approaching a dramatic fulcrum point in public opinion in Europe which could deliver another bout of outsized positive returns from a unique Eclectica trade.

Since the Brexit referendum we have been developing our thoughts about what the Leave vote might mean, not just for the UK, but for the European project as a whole. And our main conclusion is that by doing the unthinkable and actually voting to leave, Brexit substantially increases the likelihood that other members of the European Union will also seek to break away. Remember, just two years after the UK similarly rejected the gold standard back in 1931 there were just 12 remaining members versus the 45 that had previously been committed. And the so far robust performance of the UK economy since the vote will do little to dissuade others from following suit.

So we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst.

First of all we have the still too close to call US presidential election where a Trump victory would be hailed as a triumph for the same arguments that led to Brexit. Closer to home there is the Italian referendum on constitutional reform set for the first week in December, where it looks increasingly likely the government will be defeated.

…click on the above link to read the rest of the article…

 

Russia Accuses US Of Threatening Its National Security; Warns Of Need For Nuclear Arms For Protection

Russia Accuses US Of Threatening Its National Security; Warns Of Need For Nuclear Arms For Protection

When earlier this month, Russia suspended a treaty with Washington on cleaning up weapons grade plutonium in response to what it said were “unfriendly acts” by the United States, it was mostly an act of window dressing: there was little in execution terms left under the treaty and the announcement was mostly symbolic, hinting at the ongoing deterioration in diplomacy between the two powers. However, when it was reported on Friday that Russia had deployed nuclear-capable Iskander SS-26 missiles to Kaliningrad in immediate proximity to central Europe in response mostly to recently encroaching behavior by NATO, things got decidedly more serious and will likely leed to even further retaliation by NATO and western powers.

So to clarify Russia’s precarious position vis-a-vis the US, earlier today Russian Foreign Minister Sergei Lavrov said in an interview with Russian state TV’s First Channel that he had detected “increasing U.S. hostility towards Moscow and complained about what he said was a series of aggressive U.S. steps that threatened Russia’s national security.

The interview, which according to Reuters is likely to worsen already poor relations with Washington, Lavrov blamed the Obama administration for what he described as a sharp deterioration in U.S.-Russia ties.

“We have witnessed a fundamental change of circumstances when it comes to the aggressive Russophobia that now lies at the heart of U.S. policy towards Russia,” Lavrov told Russian state TV’s First Channel.

“It’s not just a rhetorical Russophobia, but aggressive steps that really hurt our national interests and pose a threat to our security.”

…click on the above link to read the rest of the article…

Three reasons why the banking system is rigged against you

Three reasons why the banking system is rigged against you

If there were ever any doubt about how completely RIGGED the banking system is against depositors, allow me to introduce the following:

Exhibit A: Governments are working to make banks LESS safe

Yesterday an unelected bureaucrat that no one has ever heard of made a stunning announcement that has sweeping implications for anyone with a bank account.

Dombrovskis is Europe’s top financial services official, so he controls bank regulations in the European Union.

He issued a stern warning to global bank regulators yesterday that he is prepared to reject any further plans they might have to tighten bank capital requirements.

This might sound rather dry, but it’s incredibly important.

“Bank capital” is the most critical component of any bank balance sheet.

Capital is like a bank’s rainy day fund; when things start to go bad, a bank’s capital provides a margin of safety to ensure that their depositors’ funds are safe.

Strong banks have ample capital and are able to withstand crises.

Weak banks with low levels of capital collapse. And that’s precisely what happened in 2008.

Most banks across the west had very low levels of capital. They had spent years making appallingly stupid ‘no money down’ loans with 0% teaser interest rates to borrowers with pitiful credit.

When that bubble burst, the banks lost billions of dollars. And it turned out that most of the banks at the time had razor thin levels of capital.

If you’re wondering why, the answer is quite simple: the less capital a bank maintains, the more money it can invest… so poorly capitalized banks tend to make more money.

Lehman Brothers was quite profitable.

…click on the above link to read the rest of the article…

The Natural Gas War Burning Under Syria

The Natural Gas War Burning Under Syria

Syria War

Qatar always wanted to punch above its weight. In Syria, it got the chance.

In 2009, Qatar, a leading natural gas producer, approached Syria about routing its planned 1,500 mile pipeline to the gas markets of Europe through Syria’s Aleppo province. Qatar wanted a pipeline straight to Europe as its current gas transport modes were limited to Liquefied Natural Gas (LNG) tanker, mostly to Asia with limited spot shipments to Europe or the Dolphin pipeline to the United Arab Emirates and Oman. The pipeline would head north and end in Turkey after crossing Saudi Arabia, Jordan, and Syria. Syria declined Qatar’s offer, which would have cut the European market share of its partner, Russia, and instead agreed to participate in the “Friendship Pipeline” between Iran and Iraq that was considered a “Shia Pipeline” to some and a target for the Sunni monarchies of the Gulf. Not understood, or ignored, was Syria’s longstanding support of the Iranian regime, especially during the 1980-1988 Iran-Iraq War, and its long relationship with Russia, dating from 1944, which should have been a warning of who might appear if things hotted up.

In 2010, Israel and Syria held back-channel talks that reportedly included Israel’s return of the Golan Heights to Syria in exchange for security guarantees. The talks lagged due to mutual suspicions about the other side’s ability to deliver and, by early 2011, the Arab Spring had erupted across the region and leaders’ attentions turned to more immediate concerns. At this point, America had the opportunity to strike a blow against the Islamic Republic’s ally, the Assad regime. In 2011, Turkey provided a home for the opposition Syrian National Council and, in August 2011, the U.S., its allies, and the UN were calling on Bashar Assad to step down.

…click on the above link to read the rest of the article…

Monte Paschi Rescue On The Rocks: Regulators Now “Expect Bank To Ask Italy For Bailout”

Monte Paschi Rescue On The Rocks: Regulators Now “Expect Bank To Ask Italy For Bailout” 

Ever since two months ago, when Italy’s third largest bank – and the world’s oldest – Sienna’s Monte dei Paschi, failed Europe’s latest stress test, it had scrambled, and assured markets, that it would obtain a private sector cash injection, aka bailout, amounting to roughly €5 billion in fresh capital, there was significant speculation in the Italian press that the capital raise was not going well as third party investors were uncomfortable to allocate funds to a bank whose history of failure and unprecedented bad NPL book remained a daunting obstacle. The reason why Monte Paschi was forced to seek a private sector bailout is that Germany had repeatedly shut down Italian PM Matteo Renzi’s attempts to pursue a public sector bailout. Instead, the Germans demanded that instead of a public sector bailout the bank should implement a bail-in, and impair various liabilities, which however could result in another bout of public anger, due to the substantial retail investment in the bank’s unsecured bonds, perhaps culminating with a run on the bank.

In any case, there was little news about BMPS’ ongoing bailout plan, and now we know why: according to Reuters, European regulators expect Italian bank Monte dei Paschi di Siena will have to turn to the government for support, although Rome – as expected – would strongly resist such a move if bondholders suffered losses. Making matters worse, in the first half of 2016 much of the public’s attention had focused on the infamously unstable Italian banks, of which Monte Paschi was the weakest link, and as such the reemergence of solvency concerns involving the Italian lender could potentially reignite fears about the broader banking sector even as the Italian referendum due sometime in late October or November, gets closer.

…click on the above link to read the rest of the article…

George Friedman: Italy Is the Mother of All Systemic Threats

George Friedman: Italy Is the Mother of All Systemic Threats

Italy has been in a crisis for at least eight months, though mainstream media did not recognize it until July. This crisis has nothing to do with Brexit, although opponents of Brexit will claim it does. Even if Britain had voted to stay in the EU, the Italian crisis would still have been gathering speed.

The high level of non-performing loans (NPLs) has been a problem since before Brexit. It is clear that there is nothing in the Italian economy that can reduce them. Only a dramatic improvement in the economy would make it possible to repay these loans. And Europe’s economy cannot improve drastically enough to help. We have been in crisis for quite a while.

Banks were simply carrying loans as non-performing that were actually in default and discounting the NPLs rather than writing them off. But that only hid the obvious. As much as 17 percent of Italy’s loans will not be repaid. This will crush Italian banks’ balance sheets. And this will not only be in Italy.

Italian loans are packaged and resold, and Italian banks take loans from other European banks. These banks in turn have borrowed against Italian debt. Since Italy is the fourth largest economy in Europe, this is the mother of all systemic threats.

Bail-Ins, Not Bail Outs

The only way to help is a government bailout. The problem is that Italy is not only part of the EU, but part of the eurozone. As such, its ability to print its way out of the crisis is limited. In addition, EU regulations make it difficult for governments to bail out banks.

The EU has a concept called a bail-in, which means the depositors and creditors to the bank will lose their money.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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