Fools rush in where where Angela likes to thread !

More and more Angela Merkel is featuring in a leadership role in Europe’s debt crisis. It would appear the old order is crumbling, a shared European Union being replaced by a new order with Germany to the fore laying down the law.

This was not the European Union that drove the vision behind the euro project. It is instead a new Third Reich driven by the carrot without the stick; it would appear this is the only way to preserve the old order from disintegration.

The latest carrot offered to avoid German banks pay the piper, a bill of circa ¢1.5 trillion if the euro fails is the promise of direct funding for banks paid for out of the ESM. Notwithstanding the triumphalist hailing of this by our seiser Micks who’ve handed the country over to foreign banks and made the whole country up for grabs and seizable by our bailiffs, there are problems with the current solution proposed to solve the euro crisis.

Currently the opt in for the ESM is ¢80 bn with about ¢27 bn of this to come from Germany

http://www.thelocal.de/national/20120630-43471.html

“”What we decide today is an important step to make clear to the world that we stand by the euro, we want it as our stable currency,” Merkel said earlier in her second speech to parliament on the euro crisis in three days.

As they have done since the start of the eurozone debt crisis, members of the two main opposition parties backed Merkel who needed their support since the fiscal pact entails changes to the German constitution and thus required a two-thirds majority of lawmakers in both chambers.

Merkel also defended decisions by EU leaders which included agreeing that the EU’s new European Stability Mechanism (ESM) fund could recapitalise banks directly and that the bailout funds can buy up bonds of ailing nations.

She said any use of the bailout funds would follow agreed guidelines, calling it a “good decision, a sensible decision” and stressed any changes or new functions would have to come before the parliament first.

German Finance Minister Wolfgang Schäuble said Merkel had “defended and imposed exactly what had been German government policy for years,” namely firm conditions in exchange for aid.

“Today, with the adoption of the fiscal and ESM treaty in the Bundestag and Bundesrat, across party lines, Germany is sending an important sign,” Merkel said before the votes.

“It is a sign of unity and determination, domestically and abroad, a sign of overcoming the European debt crisis, sustainably, and a sign that, for us, Europe means our future,” she added.

Late on Friday, in the Bundesrat representing Germany’s 16 regional states, 65, out of the 69 who voted, approved both the fiscal pact and ESM.”

Clearly Germany is usurping the role of the IMF in the approach to the debt crisis.

What should be noted from the above is:

“German Finance Minister Wolfgang Schäuble said Merkel had “defended and imposed exactly what had been German government policy for years,” namely firm conditions in exchange for aid.”

Germany is setting the terms for a new order in Europe. No doubt it sees itself to the fore in Germany’s new Europe it seeks to unify under its flag. Debtor nations provide opportunity for expansion of Germany’s economic and political interest. The only question is what tune the piper wishes to be played.

Markets initially will bounce in favour of the euro followed by a crestfallen fall when its realised there may not be enough in the ESM kitty to pay for all the delinquent sovereign debts of Spain, Portugal, Greece, Ireland, Cyprus, and latterly even Italy and France. Its hoped ESM can be boosted to an ¢800 bn by turning it into a CDO type financial paper.

ECB is like super Anglo except its busted by developer sovereigns who unwisely bet everything on the euro credit bubble deregulated Tiger. ECB approved lenders who did not know what the word regulation meant.Its remit is to protect the financial services industry at expense of taxpayers across Europe.

Ireland hopes to gain from the decision to directly fund banks but its hard to see what gain there can be for Ireland. In the case of Spain, Spanish banks in the wake of a burst property bubble are underwater. That’s the reason interbank lending to Spanish banks has dried up. Fears the losses will have to be passed onto the sovereign mean lending costs for Spain precipitated the current milestone in the euro debt crisis.

Its proposed directly funding Spanish banks will save the Spanish sovereign from taking on debt as Ireland has done through its guarantee. The question of how Spanish banks will pay back debt aimed at bailing them out through direct funding from the ESM has not been addressed.

The question of how the interbank lending market will lend to Spanish banks already fed with ECB LTRO and now fed by bonds from the ESM is simply ignored.

Its simply not reasonable in the medium to long term to see how Spanish banks with piled on loans outstanding from the ESM are going to make enough money to pay back their present loans, never mind the extra burden of ESM ‘bailout’. Its a Spanish fairytale. When markets realise this, they will lose trust in the Spanish sovereign and we are back to square one.

Only this time its worse, because now Germany is on the hook for losses along with Spain. That ESM bailout money is headed for the drain. Similarly in regard to Ireland struggling with ¢65 bn odious debt from its banking ‘bailout’, its difficult to see how troika bailout can be bettered by switching sovereign debt into directly funding the debt of Irish banks, particularly the IBRC portion of this debt.

ITs possible a better deal to beat the promissory note ELA ¢3.1bn annual repayment scheme can be alleviated with a bond buyout of this managed through the ESM fund. But one should be particularly wary of the word ‘better’ used here.

Will this be better for German lenders, rather than Irish taxpayers? Its likely to be the former. Instead of demanding a write off of this odious debt incurred by the IBRC amounting to ¢31 bn, Irish negotiators will through a mixture of incompetence, propaganda, ignorance of economics and telling a lie often enough in the hope it will become the truth, will likely extend the maturity of the debt owed by the Irish banks.

Its probable the extension of maturity dates will be balanced by extra overall cost that will be born by coming generations of Irish people.

In return for the above Germany will extract a heavy price compromising Irish sovereignty into a new Vichy, satellite status more in common with former satellite states of the USSR than any US state.

Germany whets itself on the future possibilities of eventual annexation of sovereign states such as Ireland, Schauble’s “namely firm conditions in exchange for aid” while Irish politicians hail ESM as a breakthrough is fundamentally derisory.

Stringent conditionality attached to ESM ensure the ECJ (European Court of Justice) can be invoked if penal terms are not complied with. Germany currently fears a future Irish government may choose to go the way of Iceland and say simply, we are not going to pay up the Promissory Notes as this is odious debt, debt that should not be repaid.

Meanwhile our debt profile due to rise to 118% debt/gdp unmanageable levels next year has become focus of a vague, indeterminate promise of a switch into ESM, is hailed as a breakthrough. Its laughable. After years of negotiations, all that is proposed is that Irish debt will be examined in the light of the recent announcements above.

Once again its back to where we came from, the blind leading the blind ! As a counterbalance to all of this the original fault lines of the euro project still remain. Germany, a more productive economy, gets to sell its goods to the periphery, Germany provides loans that have now morphed into bailouts to less productive economies unable to compete with it. Fundamental imbalances between the core and the periphery that gave rise to the european debt crisis are further exacerbated.

End.

Time Running Out For Germany!

As the problems of the euro deepen Germany continues to steel itself against measures mooted to cope with the euro growing malaise. Euro bonds, mutualisation of debt, calls for banking and fiscal union and inadequate response on such measures have led to criticism that Germany has sat on the fence without taking the leadership role required to deal with the crisis.

Often criticism of Germany is confused with criticism of the role of the ECB or of political leaders across the EMU or criticism of the response of other individual sovereign governments to the crisis. Its a game of political pass-the-buck with responsibility directed away from any potential target.

In Ireland its argued that the political establishment is in bed with the banks and the Troika; the present government hasn’t grasped the full implications of taking on by guarantee the unconscionable ¢64 bn of banking debt it has foisted on taxpayers.

In response, the political establishment has referred to ongoing negotiations predicated on relief of this burden but has shown no significant success in this project.

We were pointed to the anomaly that bailout engineered by the Troika was contingent on the protection of bondholders; that we would get no ‘bailout’ were we to burn bondholders; whereas ‘bailout’, without the burning of bondholders, would only add to our burden making recovery through austerity more unlikely, and certain to fail.

Such an anomaly has meant that not only would our bailout fail, but our economy will fail in a chicken and egg form. Negotiators undoubtedly behind the scenes have used this as leverage to have our debt burden relieved.

But some commentators believe that the ECB has made a mistake; that Ireland’s debt burden is mistakenly viewed as manageable.

What if there is no mistake? What is we have a usorious relationship based on the simplistic fact of lender of last resort, Germany simply wanting its money back and very unwilling to pay to pay for the party held by the periphery. Enter austerity and severe lending conditions and refusal to burn bondholders as these bondholders are German banks!

In many ways Ireland’s debt problems are a mere microcosm of the overall debt burden of the euro and its flawed design.Take the following example of the broken relationship, unfit for purpose of the euro project expressed in debate over a possible Fiscal Transaction Tax.

Germany and the inner core of the euro represented by its leading members, France, and other northern european neighbours in efforts to broker a FTT Financial Transaction Tax show the divisive rifts at the heart of the euro’s flawed design.

http://www.thenews.com.pk/Todays-News-3-116278-Germany-builds-core-group-for-transactions-tax

FTT is seen as one way to create a method to insure the financial services industry can pay for fallen banks and remove this burden from sovereigns and taxpayers.

Because of opposition from countries such as Ireland and the UK to this tax, Germany and Denmark have seen this proposal founder, but they will forge ahead with a core group of ten countries to bring about FTT.

Let’s ignore the absence from Ireland from that group but suffice it to say if FTT goes ahead it will not be sued to relieve Ireland’s debt burden.

Germany has benefited from a divided EMU. Its banks have fed the desire for vast lending from the periphery from Greece to Ireland. Countries such as Ireland and Greece who’ve taken on board the largesse and ease of access provided by cheap lending within the eurozone have in turn kept down interest rates and inflation in Germany and the EMU core making Germany’s goods cheaper and more competitive globally.

Cheaper goods, lower inflation, less competition with eg Italy unable to lower its exchange rate as it competes with Germany; Germany’s wealth, invested by banks into cheap loans to the periphery to enable them buy German goods and interest on those loans, has been a winner take all situation for Germany.

Its no wonder commentators are asking for Germany to support a rebalancing of this flawed, built to fail euro design.

In many ways the euro is a ponzi scheme. Those in at the beginning spreading the cheap euro loans in the economy saw their economies boom and bubble. Unwisely economies such as Ireland misspent such lending in Zeppelin property bubbles that were doomed from the outset.

But the EMU is not a true currency union able to cope with these problems. It is not the US FED with FIDC, FOMC and Central Bank authorities forged through the fire of the 1929 Wall Street Crash, Glass Steagal and latterly

http://en.wikipedia.org/wiki/Volcker_Rule

It cannot agree a simple FTT tax without dividing. The EMU has deep political divisions the dollar does not have. Though the dollar has enormous problems caused by debt, derivatives, floating and borrowing, the EMU is not even a currency union. It’s a mere credit union with some members expecting their profligacy to be supported by spendthrift neighbours investing in a euro project built to fail.

Many argue those involved should take their winnings and losses and leave the euro casino.

Germany wants its money back. It will not easily give up its erstwhile privileged role in the EMU.

Debt is a form of conquest. ““There are two ways to conquer and enslave a country. One is by the sword. The other is by debt.”
― John Adams.

Arguably Germany has conquered the periphery by debt. Its interests defended by the Bundestag and its own banks are becoming shrouded in dreams of political and fiscal union. The ESM (European Stability Mechanism) has invoked the ECJ (European Court of Justice) to police its debt and ensure no wavering among members of the EMU eg Ireland who might have second thoughts about the fairness of odious debt paid back through promissory notes by way of the so-called ELA (Extra Liquidity Assistance) payment system.

Germany currently is showing little mercy to its debt ridden fellow members of the European Credit Union. The concern is this debt crisis for the periphery will in the long term be fashioned into a steely opportunity of political and economic vanquishing of the periphery.

Germany in the 1930’s did not manage so well a situation of this proportion, that has many striking similarities today to the 1920/30’s in US and Europe.Perhaps the mugs in the political establishment in Ireland and Europe who are clearly wedded to a nostalgia for a clearly badly designed old euro, should remove the veil of nostalgia for the past and be prepared to cast the euro into the bin of history.

Of course Germany may still turn out to be the knight in shining armour that can mend dull criticism of the euro and put on the euro project the suit of clothes the euro should really be wearing!

But you’d need to be a mug to believe that a suit of clothes exist that can save the euro.

It is likely finding the agreement among members of the EMU on what suit should be worn and who pays for it, will be very difficult 🙂

End

Silk Purse Out Of A Sow’s Ear!

Merrill Lynch and others with the knowledge of the balance sheets of the Irish banks gave exposure of ¢6 bn from the banks only to the Irish sovereign. It was believed these were terrible losses but they could be covered by the Irish sovereign under advice from NTMA. It was a poor decision that gave no ceiling to the ‘unlimited’ nature of the guarantee that gave Irish sovereign support to the banks. People like Prof Morgan Kelly who flagged losses at ¢20/30 bn, even these were an underestimate, were ignored in the race to give the country to bankers. Banks succeeded in putting banking debt on sovereign debt and the public were conned.

Similarly, Spain has now succumbed to the banks with its ‘silk purse’ bailout of ¢100 bn. We need to know the interest rate and the term as I write, but really they don’t matter. It’s all laughable, it’s a silk purse made out of a sow’s ear. If they can’t pay back previous debt, they can’t through austerity pay back previous debt with more bailout debt piled on previous debt. Its a laughable economic policy.

Consider that Spain’s most recent trip to the markets levied an interest rate of dangerously high 6% +. Markets were factoring in the dangerous state of Spain’s exposure to banking losses similar to our our property bubble losses, but on a vaster scale.

Now consider http://www.rte.ie/news/2010/1128/imfstatement.html “Statement by International Monetary Fund Managing Director Dominique Strauss-Khan on Ireland’s bailout. The remarkable nature of this fairy tale is the implicit belief stated that the bailout will work. Given some good husbandry and resetting under austerity and efficiency of the economy, Ireland can return to markets and repay its debts.

It’s remarkable that an organisation of the stature of the IMF with its experience of its role in the Argentinian crisis circa 2000 should make the same mistake again. IMF supported the efforts to keep Argentina pegged to the dollar and bailed out Argentina in a way that destroyed the Argentinian economy in a matter of years. Other criticisms of the IMF role were also made,
http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999%E2%80%932002)#Criticism_of_the_IMF

It was only when Argentina unilaterally broke its link to the dollar and devalued its peso, that the Argentinian economy recovered. But crucially there was another factor in its recovery, it defaulted on its debt and negotiated a debt writedown with its creditors.

Both Spain and Ireland need to leave the euro. Both need to renegotiate their debt and default and renegotiate with their lenders. Spains Rajoy is touting the ‘bailout’ deal as a victory for the euro, what a laugh?

The rebubbling of Ireland, Greece, Spain, Portugal with inflationary bailout blowing out their financial services and banking systems with more debt, through austerity imposed on taxpayers, who are part of the real economy, is not a solution; inflating financial services and banks while deflating the real economy, is, to repeat and emphasize this point, is NOT a solution. Its a laughable anachronism and ponzi scam that weakens Spain and the euro and consigns Spain and Ireland to the dustbin of the market place.

This ‘bailout’ debt will destroy Ireland and Spain. It is currently destroying Ireland and our incompetent leaders in their Vichy collaborative way are doing nothing to remove the source of destructive Troika imposed ‘bailout’ on Ireland. Its interesting the current Spanish ‘bailout’ sinkhole does not appear to include the IMF as part of the arrangement. Presumably, this will be funded through the ESM.

As this blog has pointed out there are concerning and terrifying aspects of the conditionality of the ESM on sovereign constitutions not the least of which is the binding way ESM ensnares its delinquent and subservient recipients of its ‘aid’ to complex legal agreements meaning countries will not be allowed to default and haircut debt similar to Argentina.

I’m not going to speculate on a 1984 world of the future with countries such as Ireland, Spain and Greece devastated by austerity, that have become ungovernable, with special forces/ Leopard tanks sent from on behalf of our debtor banks in Germany in a repeat of the Third Reich, to solve the problem of Federal Political Union.

You can write that book yourself!

Rajoys claims of victory for the euro and for Spain in these negotiations must be seen as another episode in the delinquent political handling of European leaders in their dealings with bankers: they’ve once again been sold another pig in the poke taxpayers are expected to pay for. Those who made all the losses, bankers and developers are being bailed out by those who didn’t make the losses, taxpayers !

Ireland’s taxpayers fed by such black/white Orwellian propaganda fell for this propaganda also and voted Yes. For how long will Spain’s taxpayers agree with Rajoy’s ‘victory’ speech?

Failure by Ireland to achieve relief in its debt burden opens the scenario of default.

http://www.streettalklive.com/off-the-street/972-felix-zulaufs-market-prognosis-june-2012.html

Continuing pressure vis a vis Spain, Italy, Greece and Portugal will continue to mount, elections due in Greece this weekend 17th June.

http://www.guardian.co.uk/world/greek-election-blog-2012/2012/jun/13/greek-elections

We are looking into a crumbling euro vista in the short term. If Greece chooses to leave the euro, you can be sure market pressure to leave the euro will increase in Ireland. If we stay, continuing austerity and the weight of 120% + debt to GDP combined with Ceaucescu like austerity will mean pressure to leave will come from without and within Ireland.

Its likely the EMU will sacrifice Ireland and Greece to the markets in an escape through the exits as the euro disintegrates. Whether the euro failed experiment will continue thereafter remains to be seen. Its unlikely the euro can withstand the forces of disintegration for very long coming from Spain.

The euro is indeed a Titanic with not enough life boats.

Can silver save Greece?

http://www.youtube.com/watch?v=DZb3AZvTZe8&feature=player_embedded

End.

Ireland QuEUing for more Bailout!

News today Wolfgang Shauble, German Finance Minister, today in telephone call with Enda Kenny, an Taoiseach, stated that giving any relief on our bank debt, would send ‘the wrong signal’. Enda had rung him to personally deliver news of our appeasement voter ‘Yes’ to the Fiscal Treaty.

It was very foolish of Enda to expect Wolfgang on hearing news of our ‘Yes’ vote to celebrate with an announcement that write down of our bank debt was in the pipeline. Sceptics such as this writer had signaled a ‘Y’ vote would send the wrong signal to Germany, that we were happy in our austerity nappy! Germany is not willing to give up its gains made through its lending to Ireland’s no brainers!

Why would Wolfgang not have announced debt writedown to odious ELA/PN of IBRC Irish casino banking malevolent debt foisted on Irish taxpayers, before the Referendum, in order to cull more ‘Y’ votes from the ‘No’s’? That is, if there was ever the remote possibility Wolfgang would require German banks to share in the losses foisted 100% upon Irish taxpayers.

Unfortunately, a litany of incompetence from Irish political leaders regarding banking matters is par for the course. Enda has been foiled and fooled again by banking interests.

We await the news of ‘growth’, ‘stability’ and ‘investment’ the totem of Enda’s ‘Yes’ campaign to come. There will be propaganda heralding every new job of 5 or more. But denial of the real facts of our meltdown is not only a political phenomenom in Ireland; it is also a feature of our economics profession in Ireland.

As a poster on Irisheconomy.ie eager to digest news on economic matters from an Irish point of view over the past 12-24 months, I contributed to many a debate on site content but have decided to move on post referendum in protest at the generally poor quality of intellectual probity displayed by many of our so-called ‘leading economists’ who’ve distinguished themselves in our referendum campaign, as fiddlers on the Irish Titanic. One should not be surprised to learn many of these economists failed to signal the dangers of our property meltdown bust.

Its hard not to come to the conclusion such economists doing very well out of our property bubble, Croke Park and membership of the euro, at all costs want the party to continue. Its time for me to move on and to follow thinking on economic matters I’ve more respect for.

I would like to give tribute to the intelligence and probity and wisdom of the No campaigners on Irisheconomy.ie who mounted a Herculean and Thermopylaean task in the face of Government propaganda throughout the Referendum campaign.

It was ironic support for the ‘No’ position came not from within Ireland eg in RTE/the media, which gave poor delivery of the issues and information people required to make an informed decision, but from abroad from Nobel prizewinning economists such as Prof Paul Krugman, Professor Joe Stiglitz, and others such as Nouriel Roubini, Martin Wolf, Professor Michael Hudson. Some eg Professor Krugman explicitly advised us to vote ‘No’. For example, Hudson in this clip demonstrates the need for debt writedown, lynch pin of Irish ‘No’ position.

http://www.youtube.com/watch?v=gX5RHhX8E2k

So, Ireland in the midst of a deep recession, with a Government intent and busy turning this country into another economically devastated European version of Latvia, the Spanish economy now on the point of collapse, Irish political class hoping a deal bailing out Spanish banks directly will retrospectively bail out Irish banks with Irish banks requiring another €5bn + bailout, its time for me to enter silent mode for the Summer months.

Financial and fiscal reform need to go hand and hand, according to Hudson; debt retructuring based on ‘ability to pay’ must be built into a post crisis resolution of a dysfunctional financial system.

GDP of Latvia has fallen 25%, massive emigration, a broken economy; Ireland has been led by an incompetent political class to join Latvia in the debt/bailout queue.

No, Enda, Germany is not going to bail out ‘the best boy in the class’, please ring Wolfgang, if you don’t believe me; or, if you want to give him a good laugh.

Oh, you bin there, already done that!

We’re done.

End