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The Great Greek Fudge
The Great Greek Fudge
A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the preciselocation in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two weeks before the 20th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.
If indeed there is no deal, Greece is likely to request a second so-called “bridge loan” to allow it to pay the ECB, firmly within the Eurozone tradition of the creditor providing the debtor cash in order to pay back the creditor. France, which is most eager to keep Greece inside the Eurozone, is afraid that bilateral bridge loans from Eurozone countries wouldn’t be approved by the more critical member states, as this would risk France having to foot this bill on its own, perhaps with Italy. Not exactly a rosy prospect for socialist French President Hollande, who’s already struggling to contain the far right anti-euro formation Front National.
The only European fund practically available to provide a bridge loan is the European Financial Stabilisation Mechanism (EFSM), a fund created in May 2010, which has been raising 60 billion euro on the markets, with the EU’s €1 trillion Budget as collateral. The EFSM belongs not just to Eurozone member states, but to all EU member states.
…click on the above link to read the rest of the article…
Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”
Italy Youth Unemployment Hits Record High 44.2%, Concerns Rising “Recession Exit May Be Unsustainable”
Earlier today, Eurostat released the two most important data points for Europe: inflation and unemployment. On the former, there was no surprise at the headline level which remained at 0.2% for the another month, in line with expectations, but core CPI excluding energy, food, alcohol and tobacco, rose to 1.0%, the highest print in 2015 and one which pushed Bund prices well lower.
But it was the unemployment number which showed something unexpected. While the overall unemployment rate for the Eurozone also stayed unchanged at 11.1%, fractionally worse then the consensus estimate of a decline to 11.0%…
… it was renewed concern about what is going on in Italy, where unemployment rose from 12.5% to 12.7%, proving consensus expectations about a strong improvement to 12.3% dead wrong…
… and posing a question just what is going on in the country with the biggest debt load in Europe, and more importantly how is it that Rome is still unable to benefit from the ECB’s QE which has pushed Italian yields far below those of the US despite an economy which is suddenly taking on water.
And nowhere was this more visible than in Italy’s youth unemployment rate, which surprisingly jumped by nearly 2% to 44.2%, a record level, and one which is starting to rival some of Europe’s most troubled nations, such as Spain and of course Greece.
As Bloomberg put it, “Italy’s jobless rate unexpectedly rose in June as businesses continue to dismiss workers amid concerns that the country’s exit from recession may not be sustainable. Youth unemployment jumped to a record-high 44.2 percent.
Unemployment increased to 12.7 percent from a revised 12.5 percent in May, statistics agency Istat said in a preliminary report in Rome on Friday. The median estimate in a survey of nine analysts called for a rate of 12.3 percent.Youth unemployment in June rose to the highest rate since the series began in 2004, from 42.4 percent in May. Employment dropped for a second month in a row, with about 22,000 jobs lost in June alone, according to the report.
…click on the above link to read the rest of the article…
Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare
Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare
The subject of bail-ins and bank resolutions is back in the news this month as every eurocrat in Brussels scrambles to determine the best way to recapitalize Greece’s ailing banking sector, which, you’re reminded, is sinking further into insolvency with each passing day thanks to the unyielding upward pressure on NPLs that’s part and parcel the country’s outright economic collapse.
And while you could be forgiven for focusing squarely on the trainwreck that’s occurring in Athens, it would be a mistake to ignore the fact that just a few months back, a black swan landed in Austria when a €7.6 billion capital hole was “discovered” in Heta Asset Resolution, the vehicle set up to resolve the now defunct lender Hypo Alpe-Adria-Bank.
In short, the bad bank went bad, and when it became clear that no further state support was forthcoming, Heta Asset Resolution was itself put into resolution and a moratorium on bond payments was declared.
The debacle raised a number of troubling issues not the least of which involves the beautifully picturesquesouthern Austrian province of Carinthia, which had guaranteed some €10 billion worth of Heta debt despite the rather inconvenient fact that annual provincial revenues only amount to around €2.3 billion.
…click on the above link to read the rest of the article…
Eurozone Debt Just Keeps Rising—–What Austerity?
Eurozone Debt Just Keeps Rising—–What Austerity?
The eurozone is supposedly in a state of recovery. However, in spite of that recovery, public debt and debt-to GGP levels are still rising. Austerity is difficult to find in any realistic sense.
Please consider Eurozone Borrowing Rises to Record as Recovery Remains Weak.
The European Central Bank’s programme of quantitative easing has pushed down interest rates to ultra low levels, encouraging governments to borrow more in the early part of this year, despite turmoil in Greece.
Across countries that use the euro, average debt to gross domestic product reached 92.9 per cent in the first quarter of 2015, up from 92 per cent in the previous quarter and 91.9 per cent in the same period last year, according to figures from Eurostat, the EU’s statistical agency.
Greece remains the EU’s most indebted nation, with debt equal to 169 per cent of annual GDP, but Italy, Belgium, Cyprus and Portugal also carry government debt that exceeds 100 per cent of economic output.
The rise in debt comes despite a pickup in the pace of recovery in the eurozone, with the region’s economy expanding 0.4 per cent in the first quarter of this year — while the US saw a contraction.
Targets vs. Reality
The “Growth and Stability” pact on which the Eurozone was founded limits debt to 60% of GDP and deficits at no more than 3%.
Average Debt-to-GDP is 92.9% and rising.
Eurostat Data shows Ireland, Greece, Spain, France, Cyprus, Portugal, Belgium, Slovenia, and Finland all exceeded 3% budget deficit requirement in 2014.
France and Spain have been given warnings and extensions on numerous occasions.
Greece Sideshow
By any realistic measure, Greece is just a sideshow for what is to come.
Pater Tenebrarum at the Acting Man blog pinged me with this comment: “The true reason for the bust of Greece and other countries – apart from their truly atrocious socialist policies and abominable corruption – isfractional reserve banking. The euro has of course enabled an even bigger credit boom and bust than would have been the case otherwise, but it is not the fixed exchange rate that is at fault, it is the underlying economic policies and the monetary system as such.”
…click on the above link to read the rest of the article…
Citi Predicts Greek Hyperinflation Breaks Out In Two Years
Citi Predicts Greek Hyperinflation Breaks Out In Two Years
Earlier, we showed that according to Citigroup (among many) for Greece to have any hope of surviving, it needs a masive debt haircut: the bigger, the better, with Citi tossing out numbers as high as €130 billion. Still, even if Greece does get debt relief, as long as it remains in the Eurozone, its economy has nothing but hell to look forward to.
Here is how Citi previews the next few years:
From an economic and financial sector angle, the success or failure of a third programme will depend on i) the strength of a possible economic recovery in coming quarters, following an overhaul of the Greek banking system, and on ii) whether debt re-profiling discussions look likely and take place as envisaged. On the first item, the degree of fiscal austerity and outright reforms to be implemented in a short period of time is likely to result in a prolongation of economic recession in coming quarters. And we need to factor in the economic costs from the (very likely) persistence of stringent capital controls and the lack of liquidity in the economy. We recently updated our real GDP growth forecasts and now expect the Greek economy to contract by at least 2.4% YY in 2015 (compared with -0.2% YY projected in June), with the economy likely to remain in recession at least until Q1 2016. Such a poor performance in terms of economic activity would mean a higher risk that Greek economic and fiscal performance would undershoot its programme targets, which could likely challenge its membership in the Eurozone. In addition, debt re-profiling is likely to be deferred, conditional and tranched, and is unlikely to boost the government’s fiscal space for public spending increases or tax cuts. Failure by the Greek authorities to lift capital controls in a meaningful way and a further increase in unemployment (we forecast that the jobless rate will rise from 27% in 2015 to 29% in 2016) could also increase social tensions, in our view.
…click on the above link to read the rest of the article…
The President Of France Wants Eurozone Members To Transfer Their Sovereignty To A United States Of Europe
The President Of France Wants Eurozone Members To Transfer Their Sovereignty To A United States Of Europe
The President of France has come up with a very creative way of solving the European debt crisis. On Sunday, a piece authored by French President Francois Hollande suggested that the ultimate solution to the problems currently plaguing Europe would be for every member of the eurozone to transfer all of their sovereignty to a newly created federal government. In other words, it would essentially be a “United States of Europe”. This federal government would have a prime minister, a parliament, a federal budget and a federal treasury. Presumably, the current national governments in Europe would continue to function much like state governments in the U.S. do. In the end, there may be some benefits to such a union – particularly for the weaker members of the eurozone. But at what cost would those benefits come?
When I first learned that French President Francois Hollande had proposed that the members of the eurozone should create their own version of a federal government, I was quite stunned. But I shouldn’t have been surprised. For the global elite, the answer to just about any problem is more centralization. The following comes from a Bloomberg article that was posted on Sunday…
French President Francois Hollande said that the 19 countries using the euro need their own government complete with a budget and parliament to cooperate better and overcome the Greek crisis.
“Circumstances are leading us to accelerate,” Hollande said in an opinion piece published by the Journal du Dimanche on Sunday. “What threatens us is not too much Europe, but a lack of it.”
So precisely what would “more Europe” look like?
Hollande envisions a central government that has both a parliament and a federal budget…
…click on the above link to read the rest of the article…
Greece Is Now A Full-Blown Humanitarian Crisis – In 9 Charts
Greece Is Now A Full-Blown Humanitarian Crisis – In 9 Charts
The people of Greece are facing further years of economic hardship following a Eurozone agreement over the terms of a third bailout. The deal included more tax rises and spending cuts, despite the Syriza government coming to power promising to end what it described as the “humiliation and pain” of austerity. With the country having already endured years of economic contraction since the global downturn, The BBC asks, just how does Greece’s ordeal compare with other recessions and how have the lives of the country’s people been affected?
The long recession
It is now generally agreed that Greece has experienced an economic crisis on the scale of the US Great Depression of the 1930s.
According to the Greek government’s own figures, the economy first contracted in the final quarter of 2008 and – apart from some weak growth in 2014 – has been shrinking ever since. The recession has cut the size of the Greek economy by around a quarter, the largest contraction of an advanced economy since the 1950s.
Although the Greek recession has not been quite as deep as the Great Depression from peak to trough, it has gone on longer and many observers now believe Greek GDP will drop further in 2015.
Dwindling jobs
Jobs are increasingly difficult to come by in Greece – especially for the young. While a quarter of the population are out of work, youth unemployment is running much higher.
Half of those under 25 are out of work. In some regions of western Greece, the youth unemployment rate is well above 60%.
An ‘Austrian’ Economist’s Advice For Greece and the EU
An ‘Austrian’ Economist’s Advice For Greece and the EU
For months, now, the mass media and the financial markets have anxiously watched and waited to see the outcome of a war of words, accusations, and threats that have been fought between Greece and its Eurozone and European Union partners.
Over several decades Greek governments accumulated a fiscally unmanageable debt and have been unwilling to introduce any meaningful, long-term economic and budgetary reforms to get the country’s political-economic house in order.
Greece’s Euro and EU partners have warned that Greece may be formally or informally expelled from the common currency and, perhaps, from the economic union if the terms for a new series of loans based on domestic Greek reforms and some debt restructuring cannot be agreed upon.
However, in the whirlwind of often sensational and uncertain daily new events, it is sometimes useful and even necessary to step back and try to take a look at the wider context of things in which those current events are occurring.
Greek and European Union Crisis is the Result of Collectivism
The fiscal and other economic policy problems that are plaguing Greece are simply the highly magnified and intensified problems that are affecting many of the other European nations
Many of them have accumulated large national debts that press upon the fiscal capacities of their taxpayers. They all have highly regulated markets and restricted labor markets. They all have aging populations expecting generous government-funded pensions as the years go by. They all have costly welfare state “entitlement” programs that must be financed through taxes and deficit financing.
They also share a generally anti-capitalistic mentality. Intellectuals, politicians, many in the electorates, and most certainly the national and EU bureaucrats neither understand nor advocate the classical liberal ideal of truly free markets or the wider political philosophy of individualism and individual rights to life, liberty, and honestly acquired property.
– See more at: http://www.cobdencentre.org/2015/07/an-austrian-economists-advice-for-greece-and-the-eu/#sthash.Eg4lkJYV.dpuf
Agency to Enslave Greeks Is Established
Agency to Enslave Greeks Is Established
Late on Thursday, July 16th, German Economic News headlined “Greece: Debt Restructuring Through the Back Door,” and reported that, “The majority of Greece’s national debt is to be moved in the next three years gradually to the euro bailout fund ESM [European Stability Mechanism], so that the IMF will continue to remain as a lender. The euro zone countries will thereby provide Athens a longer grace period [a temporary postponement of payments, while the 18% annual interest-rate soars Greece’s debt even higher], and longer repayment periods.”
The super-secretive European Stability Mechanism was set up in 2012, in order to handle Greece’s anticipated virtual receivership, which it now will do.
As I reported on July 16th, the treaty that in 2012 established the ESM, as being the ultimate lending-fund, for what the EU now officially considers to be a permanent economic crisis in Europe — of Greece and other member-nations that are experiencing “severe financing problems” — establishes the ESM as being so secretive, that a precondition of employment there is “Professional secrecy,” which will apply “even after their duties have ceased” (i.e., they’ve retired). In other words: the goal is that the public will never be able to know anything that goes on there, except what the top management issue in their speeches and press releases (if any). Furthermore, the ESM is above and beyond any democratic process, and is immune to any nation’s laws. Everyone in its employ “shall be immune from legal proceedings with respect to acts performed by them in their official capacity and shall enjoy inviolability in respect of their official papers and documents.” (That’s necessary in order to ensure that no information can ever be released by the employees — only the ESM’s public statements will be.) There will be no democratic accountability, whatsoever.
…click on the above link to read the rest of the article…
Thank Goodness Everything’s Fixed
Thank Goodness Everything’s Fixed
The trick is to borrow as much as you can and leverage it to the hilt, and buy, buy, buy.
Thank goodness everything’s been fixed. Now that the bigshots in the Eurozone have given Greece the Humphrey Bogart treatment– When you’re slapped, you’ll take it and like it, Bogart’s line as he bullied Peter Lorre in The Maltese Falcon–and a chastened Greece is in line for another 17 billion, or is it 17 trillion, I’m losing track of the numbers … but anyways, it’s all fixed, and squeezing Greek pensioners was the trick needed to save Europe from itself.
Now everyone can get back to their summer vacations and the good life resumes. It doesn’t get much better than this.
That spot of bother in China’s stock market has been fixed by criminalizing negative comments about stocks, removing all the stocks that might sink further from trading and extending more margin to more banana vendors, so they can get rich quick. And since to get rich is glorious, we can anticipate thousands of banana vendors becoming millionaires and rushing to New York to buy a Manhattan cubbyhole for $2 million.
When stocks rise, everybody wins! Except those who can no longer afford to live in Manhattan, San Francisco, Los Angeles, Vancouver, etc., but hey, the path is open to them, too–just margin up to the hilt, mortgage your future and buy stocks now–the People’s Bank of China, the Federal Reserve and the European Central Bank all have your back.
Thank goodness that brief stock market swoon is over and the march higher can resume, so everybody can keep winning, forever and ever.
The deal with Iran is a win-win for everybody, too–especially consumers, who will see oil prices plummet as Iran doubles its production. Of course that will drive a knife into the heart of every other oil producer’s net income, but those sorts of adjustments are good in the long run.
Once again, everybody wins.
…click on the above link to read the rest of the article…
Greece May Not Get Bailout, Grexit “The Better Way”, Schaeuble Says
Greece May Not Get Bailout, Grexit “The Better Way”, Schaeuble Says
Last Saturday, the EU finance ministers who gathered in Brussels in a last ditch effort to keep Greece in the eurozone were forced to confront a rather inconvenient truth. A bailout for Athens would likely cost nearly €80 billion, far more than the €53 billion figure mentioned in the draft proposal submitted by Alexis Tsipras two days earlier. The revised figure included a €25 billion provision for the recapitalization of Greece’s ailing banking sector. A day earlier, we warned that the banks would need at least €10 billion and likely more – “don’t tell Merkel”, we warned.
Judging by the date on a document that began to circulate once the finance ministers began to voice their consternation at the larger figure, Germany had already assessed the possibility that the cost of a potential third program for the Greeks was likely to climb prompting the finance ministry to prepare a document outlining two alternative options for Athens. One of these options was a 5-year Greek “time-out” from the eurozone. Initially (and by “initially” we mean for perhaps a few hours after the document was first distributed) the “time-out” idea was written off as simply another manifestation of Wolfgang Schaeuble’s frustration, but by Sunday it was clear that the idea was no laughing matter – indeed, had the bloc’s sleep deprived leaders not inked a ludicrous agreement at 6am in the morning, the “soft” Grexit scenario might already be well underway.
Now that reports from both the IMF and the European Commission on Greece’s debt sustainability are public, the world is well aware that no one, anywhere, truly believes the Greeks will ever be able to return to economic prosperity if they are forced to labor under their current debt load. In short: a “re-profiling” is necessary.
…click on the above link to read the rest of the article…
The Curse Of The Euro: Money Corrupted, Democracy Busted
The Curse Of The Euro: Money Corrupted, Democracy Busted
The preposterous Gong Show in Brussels over the weekend was the financial “Ben Tre” moment for the Euro and ECB. That is, it was the moment when the Germans—–imitating the American military on that ghastly morning in February 1968——set fire to the Eurozone in order to save it.
Some day history will judge good riddance……..but that get’s ahead of the story.
According to an American soldier’s first hand recollection of the Vietnam event, it was a Major Booris who infamously told reporter Peter Arnett, “It became necessary to destroy the town to save it”.
After the massacre of Greek democracy in the wee hours Monday morning, Angela Merkel said the same thing—even if her language was a tad less graphic:
It reflects the basic principles which we’ve followed in rescuing the euro. It now hinges on step-by-step implementation of what we agreed tonight.”
Now no one in their right mind could think that lending another $96 billion to an utterly bankrupt country makes any sense whatsoever. After all, the Greek economy has shrunk by 30% since 2008 and is wreathing under what is objectively a $400 billion public debt already in place today.
That figure follows from the fact that on top of Greece’s acknowledged $360 billion of general government debt there’s at least another $25 billion loan embedded in the ELA advances to the Greek banking system. The latter is deeply insolvent, meaning that some considerable portion of the $100 billion ELA currently outstanding is not an advance against good collateral in any plausible banking sense of the word, but merely a backdoor fiscal transfer from the ECB to keep Greece’s financial shipwreck afloat.
Likewise, as I demonstrated Friday, given the even deeper deep hole into which the Greek economy has tumbled during the last six months, the fiscal targets extracted from Greece under this weekend’s demarche are utterly ridiculous.
…click on the above link to read the rest of the article…
UK Furious At Proposed €7 Billion Greek Ponzi-Perpetuating Bridge Loan
UK Furious At Proposed €7 Billion Greek Ponzi-Perpetuating Bridge Loan
The two most important stories out of Greece on Tuesday were: 1) the IMF’s leaked report on Greek debt sustainability, and 2) the race to secure between €7 and €12 billion in bridge financing to hold Greece over until the ESM gets off the ground.
Although a new program is in the works and should get the greenlight once Tsipras succeeds in forcing Greek lawmakers to legislate away their sovereignty and any semblance of pride they have left, Athens has bills that need paying, the most important of which comes due to the ECB (on its SMP holdings) on July 20. The Greeks must make the payment to Mario Draghi – otherwise the central would be compelled to interrupt the liquidity drip that’s keeping the Greek banking sector from collapsing altogether. There’s also the issue of public sector salaries and pension payments which Greeks would prefer to receive in euros as opposed to the IOUs suggested by German FinMin Wolfgang Schaeuble.
We outlined the options available for bridge financing on Tuesday morning, noting that all alternatives involve creditors effectively paying themselves either literally or in spirit or otherwise entail the perpetuation of some manner of ponzi scheme (i.e. allowing Greece to sell T-bills to Greek banks).
On Wednesday, the EU Commission decided to go the EFSM route and will look to tap €7 billion of the €11-12 billion that remains in the fund. The formal request by the EU Commission says the funds from the EFSM “aim to provide a bridge financing to allow Greece to face some urgent financial obligations until it starts receiving financial assistance under a new programme from the ESM [and] would safeguard financial stability in the Union and in the euro area.”
This isn’t as simple as it sounds. The EFSM was replaced by the ESM and wasn’t really supposed to be used again, so going back to the well is problematic from a political perspective. There are a number of issues here, but for the sake of brevity, here’s FT’s summary:
…click on the above link to read the rest of the article…
Deal Struck Following Total Capitulation By Tsipras: Market Awaits Greek Reaction To Draconian Deal Terms
Deal Struck Following Total Capitulation By Tsipras: Market Awaits Greek Reaction To Draconian Deal Terms
Last night, when we concluded our overnight summary state of affairs we said that “we expect some resolution around first light this morning, and while another Greek can kicking and some last-moment “hope” is surely in the cards, we know two things: Greece is officially finished – there is no way the Tsipras or any other government can politically recover after such a humiliating spectacle when half of Europe made a mockery of the Greek people; and perhaps better, we finally have seen the true face of Europe: visible only when things are finally falling apart.”
Sure enough, just around 9am CET, after a 17-hour mammoth all-night session, Greece did manage to cobble together a “deal” if one may call this latest embarrassing can-kicking that, which was nothing short of total capitulation by Tsipras: a prime minister who 8 days ago was victorious cheering the passage of a referendum that rejected a far less draconian deal.
As part of the deal, Greece “surrendered to European demands for immediate action to qualify for up to 86 billion euros ($95 billion) of aid Greece needs to stay in the euro” as Bloomberg politely put it.
We would put it as follows: Greece agreed, at the cost of ceding its sovereignty to Europe, to allow the Troika to repay itself.
Worse, there is no actual deal term sheet on the table: while the summit agreement averted a worst-case outcome for Greece, it only established the basis for negotiations on an aid package, which would also include €25 billion euros to recapitalize its weakened financial system, money which would come from Greek asset sales.
The politicians were greatly relieved, perhaps most of all to be finally able to go to bed. Here is the statement by Euro president Donald Tusk:
…click on the above link to read the rest of the article…
