The world piles pressure on a weary eurozone

[Doktor]

That was the presumption behind EEZ in the first place.

[snapper]

Tell Tarek...

[snapper]

I swear these peeps are reading WAB. Long ago (it seems now) I gave the "clattering train" (Who is in charge of the clattering train?
The axles creak and the couplings strain, etc) analogy to the EU here and guess what?

They's getting there but I wish they'd come clean and be wabbits as we normal people are. I know for a fact that some Tory MPs watch our discussions so brave up you spineless erks and let us all have a moan at you.

[tankie]

/\

Not bad but he aint no Nigel (for pm ) Farage :wors: n u aint too bad neither snapps ;)

[snapper]

Spain's Economy Minister Luis de Guindos has told Reuters that the country will "absolutely not" need a full scale bail-out. Well when I got this quote flashed up on my phone I looked why he might even be talking about such a thing (as it's never going to happen right?). So Spanish 10 yr bonds are now trading at 7.5% and 2 year paper at 6.74%!!!!

In the face of adversity and all evidence to the contrary... lie!

[tankie]

'Hold your holidays, we'll be back in August' - Nigel Farage - YouTube

Brill as usual .

[Franker65]

Spain's Economy Minister Luis de Guindos has told Reuters that the country will "absolutely not" need a full scale bail-out.

I'm very sure the Greek, Irish and Portugese finance ministers/prime ministers all said the same thing, and then it happened. They lie to keep everyone and especially the markets calm.

[Versus]

I swear these peeps are reading WAB. Long ago (it seems now) I gave the "clattering train" (Who is in charge of the clattering train?
The axles creak and the couplings strain, etc) analogy to the EU here and guess what?

They's getting there but I wish they'd come clean and be wabbits as we normal people are. I know for a fact that some Tory MPs watch our discussions so brave up you spineless erks and let us all have a moan at you.

Well, there are a couple of problems here. Yes it is true that there is no one in the engine and that train is running out of control. But antoher problem is that the train is running towards a collapsted bridge.

[snapper]

Greek Deal

Have had a brief look at this... For once it actually seems to have some sense! :danc:

Who got it wrong?

For starters the time targets have been set back: Greece was supposed to have 120% of debt to GDP ratio by 2020... Well this wasn't going to happen as the debt to GDP ratio has actually been rising and not falling as had been forecast. Alot of the arguments behind the scenes have (I have been told) been about who's to blame for 'getting it wrong'. The 'troika' it will be remembered consists of the EU, the ECB an the IMF and they had all expected that 120% of GDP ratio by 2020 could and would be reached; they were all wrong but most importantly the IMF actually 'owned up' and said that they had got the 'quantifier' wrong. It had always been thought if you make 1% of government cuts you reduce economic growth 0.5%. The sheer imbecility of using such a 'rule of thumb' in all cases and without regard to other circumstances (for example whether the economy is growing might be relevant one might think) was clearly wrong and in Greece it turned out that the 'quantifier' was more like 1.4% so that is why they all got the numbers wrong but pff don't expect resignations.

So because ALL the 'troika' were using this IMF 'rule of thumb' they all got their calculations wrong on Greece. Hence they have extended the time line. The new plan foresees Greek debt rising to 175% in 2016 and then falling to 124% in 2020. The EU and ECB will then be responsible for overseeing a further fall to below 110% by 2022. "I welcome the commitment by European partners to bring back Greece's debt to substantially below 110pc of GDP by 2022, conditional on full implementation of the programme by Greece," said Mrs Lagarde. In other words the IMF are washing their hands of it after 2020. Well this is some sense as extra time and another 4% leeway are written into future expectations.

So the next €34.4 billion of loans will be payed and another three installments of €9.3 billion will be handed over in the first three months of next year. :hug:

Of course the devil is in the detail and here's the rub. The IMF and EU actually disagree about the best way forward; the IMF say Greece actually need some of the debts 'written off' but who's going to lose their money? Obviously the IMF wants the EU/ECB to pay and they want the IMF to stump up; the Germans insist it would be 'illegal' for them to accept a loss. It seems the IMF has won this one as the eurozone has agreed to lower interest rates to Greece by 100 bps on the original €110 billion lent to the country, to extend all loan maturities by 15 years and to defer interest payments on euro bailout fund loans by 10 years. There is also to be some sort of buy back of Greek bonds scheme (presumably by the ECB from Greek banks). A further €11 billion of interest payments (made by Greece on the loans it has to the ECB) will be repayed to Greece. Only after the EU/ECB have done all this will the IMF stump up it's part in the next bailouts. However taken as whole this is estimated to 'cut' Greek debt by 20% between now and 2020. Of course it doesn't actually cut Greek debt (which the Germans say is 'illegal' anyway) but does mean they have about 20% less to pay between now and 2020 if the calculations are right... The Greek economy is predicted to make a primary surplus (ie the Greek Government gets more back from the economy than it puts in) by 2016 and this may be wishful thinking. The real extensions are in the lessening of the interest that Greeks have to pay (100 base points) and 10 and 15 extensions on maturities and interest payments.

What the whole 'package' amounts to is firstly an admission that the 'troika' got it very wrong in the first place and secondly an admission that the Greeks could NOT pay back all the loans as soon as had been expected. They are thus being given more time without the debts being 'written off', which as Mr Schaeuble says is arguably 'illegal' under EU law. Even more encouraging is Mr Schaeuble's statement that "When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt" ie. that if this second 'calculation' of Greek economic recovery is also astray some further slack might be given.

I am usually one of the harshest critics of 'troika'/EU/ECB policy and I still believe that it would be cheaper and cause less hardship for Greece to return to the drachma but this deal is at least recognition that you cannot get money out of a bankrupt. The bankrupt has been asked to pay less in the short term and given an extension on his loans so for once a small glimmer of reality hit the European Debt Union. Thank God for small mercies.

[snapper]

So a week on and it begins to unravel... Just to recap on the deal agreed: The IMF will only stump up if the bond buy back goes through. Well a week ago it wasn't clear who's bonds were meant to be bought back but now it seems the Greek banks are supposed to buy back the privately held bonds for 30 -35% of the face value. Well we've been here before... the same lenders (or some of them) took the 'haircut' a year or so ago when they effectively wrote off around 70% of their investment. So now these same investors are being asked to do the same. However not ALL investors accepted the 'haircut' and ironically the interest payments due to them have been payed. Seeing this is it likely that those who accepted 'inferiority' to the ECB/IMF investments (which have NOT accepted a 'haircut' nor will accept a 35% buy back) in the 'haircut' deal will accept a further write down of their investments? Seems unlikely to me when it has been proved that if you hold out and do not accept a haircut or write down you get your interest payments as normal.

Cue a desperate scramble to show how the bond buyback scheme has been such a 'success'; shouldn't be a problem as of course the Greeks and EU have a good record at 'Greek accounting'.

[snapper]

Greek Deal done and 'Banking Union':

So first the 'Greek deal'. So it seems more money is going to be loaned to Greece "Eurozone finance ministers and the IMF welcomed the results of a buyback of debt by Greece and released more aid for the country... The Eurogroup approved on Thursday the second disbursement of aid for Greece, worth a total of 49.1 billion euros ($63.8 billion)... The aid will be paid in several tranches, with 34.3 billion euros to be paid out to Greece in the following days and the rest in the first quarter of next year." Greek bond buyback successful; 'Grexit' issue dead? | Emerging Markets

So remember the IMF proviso? The IMF would only release more money is the bond buyback worked. "The International Monetary Fund said on Thursday that it would not disburse funds under its part of the EU-IMF package unless the eurozone delivers on a bond "buy-back" scheme, which is supposed to cut Greece’s burden by 10pc of GDP and is deemed crucial for restoring long-term viability." Greek deal frays as IMF threatens walk-out on debt buy-back impasse - Telegraph So it must have been a roaring success right? Nope... So exactly what went on? Ok well the origional plan was that 10 billion Euros of were allocated to buy back just over 30 billion Euros worth of credit, roughly a 70% write down from those holdings that already took one 53% 'haircut'. Hardly surprising then that the Institute of International Finance (IIF) said it would be an outraged if its members are forced to take further losses; "Debt restructuring was clearly explained to investors as a one-off, as unique, not to be repeated. If they do restructure again, their own credibility is at risk," said the IIF's Hung Tran. Anyway this was the plan and the 10 billion euros buyback cheques were signed on European Financial Stability Facility (EFSF) credit notes for 6 months. "Greece offered holders of its restructured bonds up to €10bn worth of six-month bills issued by the European Financial Stability Facility in return for Greek bonds with a face value of about €30bn."

It was supposed to end last Friday but guess what? The 10% of GDP or 30 billion euros worth of buy back was not forthcoming... "Last Friday’s initial buyback deadline was extended until midday on Tuesday..." Greek banks get more time on debt buyback - FT.com It seems that the Greek banks hadn't even sold all their bonds for this fop. "Yet Greece’s “big four” big banks still appeared unwilling to contribute their entire bond portfolios if it could be avoided . “We need to have some [bonds] still in hand in order to act as market makers and satisfy our own clients,” one banker said." They are now said to be "in talks with the finance ministry to recoup some of the losses through deferred taxation" according to Greek central bank chief George Provopoulos but eventually stumped up another €3bn to €4bn according to the FT. So "success" it was hailed as... wrong again; "The scheme was originally expected to cut Greek debt by 11 percentage points of gross domestic product, but the German letter showed it would only cut debt by 9.5 points." Greece's lenders call bond buyback a success, endorse aid | Reuters Why because they actually had borrow more than the origional 10 billion euros to buy back the required amount "Athens asked its foreign lenders for an extra 1.29 billion euros over the 10 billion euros initially allotted to buy back all the 31.9 billion in bonds tendered in the scheme." to buy the bonds back from their own banks!

Of course the fact that had to keep throwing money into this endless pit, even though technically the IMF target was not reached is what has operated here. If you don't release the money then Greece leaves the utopian nightmare, for that is what is has become. In effect the pension funds and banks have taken losses and the Greek debt has been 'socialised'; the IMF/ECB/EU ALL rely on eurozone taxpayers to support their credit notes. The taxpayers of Spain, Portugal and of course mostly Germany are now the ultimate guarantors of Greek debt. If and when the next lot of forecasts on Greek economic recovery prove wrong as the last 3 have and finally one of the 'institutions' has to take a 'haircut' this fall directly on the taxpayers. Of course it may be that the current forecasts are not wrong and certainly they are more realistic to me than previous ones but most 'experts' seem to believe that it merely delays matters.

So onto the banking union... which of course is hailed as another great 'success'. So first what exactly is it? Well it's a plan at the moment. "The eurozone governments want to have the legal framework for the common banking supervisor in place by 1 January 2013. The ECB will then have up to 12 months to put in place its new supervisory department, and take over active duties by 1 January 2014." BBC News - Q&A: The eurozone's banking union Under this plan basicly all the big banks (banks with assets worth more than €30bn) in the eurozone (and others who may wish to get involved) will be supervised by the ECB. They will also help support each other and act as guarantors for each other and each others depositors under three main schemes:

A common banking supervisor (or "single supervisory mechanism"): This job goes to the European Central Bank, which will be given the power to monitor the health of and the risks taken by all the major banks within the eurozone, and intervene if any gets into trouble.

A common resolution framework: If a bank anywhere in the eurozone gets into trouble, the process of bailing it out - or, in a worst case, letting it go bust - would be managed by a common "resolution authority", with the cost borne by the eurozone governments collectively.

A common deposit guarantee: Anyone who puts money in an ordinary bank account anywhere in the eurozone would have their money (up to a limit, expected to be 100,000 euros) guaranteed by a common eurozone fund. (BBC)

Well for a start the eurozone already has a European Banking Authority. It was set up only two years ago. Why couldn't this be made the supervisory authority? Well the answer of course is that a 'supervisory authority' doesn't issue banknotes nor more long term European bonds and this why the ECB's role is being built up.

Secondly the stated aim of this; "This will enable the vicious circle between banks and sovereigns – which has been a salient feature of the debt crisis in Europe – to be broken," EU nations agree to eurozone banking union - Telegraph Really? How's that work then? Why should it stop Spanish banks buying Spanish debt? If anything they can do so even more freely since they are now 'guaranteed' by banks from everywhere else! The truth is that this will do precisely the opposite of this stated intention (which is a lie anyway) and they all know it. Far from breaking the 'vicious circle' the circle is treated as 'virtuous' under these proposals; it encourages more of what claims to disdain. In a way this is a another banking type of EMU (european monetary union - eurozone). We are supposed to have a great Big Brother who watches all banks (the ECB) just like countries were not supposed to over budget when the euro started. Believe it or not they were supposed to watched too! What is the ECB going to do if the a Spanish bank invests heavily in Spanish bonds to say 120% of it's total value? Diddley squat... it doesn't have the power to intervene. Of course as it happens this is going ahead when such circumstances already exist and a large amount of particularly but not only Spanish banks are broke (with the French in line to follow soon when the property market collapses next year). This then is a method right now of good banks bailout out bad banks.

Thirdly what of this 'too to big to fail' syndrome which to any sane person it must be obvious we must escape from? Capitalism requires that bad business's fail and die; it is healthy and encourages better tax laws eventually as well new growth. Well they now wish to make the european banks 'immune' to such forces. If I run a bank and lose money it doesn't matter anymore because as long as I can show 30 billion worth of assets everyone gets bailed out anyway by good banks. Socialist banking has arrived in the European utopian nightmare.

Finally let us suppose the dreadful worst which is bound to occur; that even though the banks all now have back each other up a European country, say Italy just for example where 'Super Mario' the imposed eurocrat is living his last days, leaves the wakes up and realises that nightmares only happen when you're not fully in control of your own destiny and leave the euro and defaults on all it's payments, obligations and says "sod off Brussels. You do not have authority here!". A new lira is introduced and it's value is a 1/3 of the euro... The banks in the remaining eurozone have to cut their Italian losses by 2/3rds? Maybe they could just about weather this but what if they can't? Well then the taxpayers in the form of the Governments have to bail them out. This is where the impossible meets the not doable... The value of the banks that will fall under ECB 'supervision' is approximately 300% that of the GDP of the entire eurozone. The whole house of cards would then collapse in the supreme financial folly of any utopian nightmare ever seen. You could NOT bailout this 'banking union'.

In my humble opinion this 'banking union' is another insanity heaped upon former insanities... by ANY reasonable standard the euro has failed as has common agricultural and fishing policies. It is precisely the opposite of what European Governments should be doing; breaking up these large banks and making them small enough to obey the laws of the market over which they have so much power. Get out out of corporatism and back to capitalism.

[snapper]

Greek Deal done and 'Banking Union':

So first the 'Greek deal'. So it seems more money is going to be loaned to Greece "Eurozone finance ministers and the IMF welcomed the results of a buyback of debt by Greece and released more aid for the country... The Eurogroup approved on Thursday the second disbursement of aid for Greece, worth a total of 49.1 billion euros ($63.8 billion)... The aid will be paid in several tranches, with 34.3 billion euros to be paid out to Greece in the following days and the rest in the first quarter of next year." Greek bond buyback successful; 'Grexit' issue dead? | Emerging Markets

So remember the IMF proviso? The IMF would only release more money is the bond buyback worked. "The International Monetary Fund said on Thursday that it would not disburse funds under its part of the EU-IMF package unless the eurozone delivers on a bond "buy-back" scheme, which is supposed to cut Greece’s burden by 10pc of GDP and is deemed crucial for restoring long-term viability." Greek deal frays as IMF threatens walk-out on debt buy-back impasse - Telegraph So it must have been a roaring success right? Nope... So exactly what went on? Ok well the origional plan was that 10 billion Euros of were allocated to buy back just over 30 billion Euros worth of credit, roughly a 70% write down from those holdings that already took one 53% 'haircut'. Hardly surprising then that the Institute of International Finance (IIF) said it would be an outraged if its members are forced to take further losses; "Debt restructuring was clearly explained to investors as a one-off, as unique, not to be repeated. If they do restructure again, their own credibility is at risk," said the IIF's Hung Tran. Anyway this was the plan and the 10 billion euros buyback cheques were signed on European Financial Stability Facility (EFSF) credit notes for 6 months. "Greece offered holders of its restructured bonds up to €10bn worth of six-month bills issued by the European Financial Stability Facility in return for Greek bonds with a face value of about €30bn."

It was supposed to end last Friday but guess what? The 10% of GDP or 30 billion euros worth of buy back was not forthcoming... "Last Friday’s initial buyback deadline was extended until midday on Tuesday..." Greek banks get more time on debt buyback - FT.com It seems that the Greek banks hadn't even sold all their bonds for this fop. "Yet Greece’s “big four” big banks still appeared unwilling to contribute their entire bond portfolios if it could be avoided . “We need to have some [bonds] still in hand in order to act as market makers and satisfy our own clients,” one banker said." They are now said to be "in talks with the finance ministry to recoup some of the losses through deferred taxation" according to Greek central bank chief George Provopoulos but eventually stumped up another €3bn to €4bn according to the FT. So "success" it was hailed as... wrong again; "The scheme was originally expected to cut Greek debt by 11 percentage points of gross domestic product, but the German letter showed it would only cut debt by 9.5 points." Greece's lenders call bond buyback a success, endorse aid | Reuters Why because they actually had borrow more than the origional 10 billion euros to buy back the required amount "Athens asked its foreign lenders for an extra 1.29 billion euros over the 10 billion euros initially allotted to buy back all the 31.9 billion in bonds tendered in the scheme." to buy the bonds back from their own banks!

Of course the fact that had to keep throwing money into this endless pit, even though technically the IMF target was not reached is what has operated here. If you don't release the money then Greece leaves the utopian nightmare, for that is what is has become. In effect the pension funds and banks have taken losses and the Greek debt has been 'socialised'; the IMF/ECB/EU ALL rely on eurozone taxpayers to support their credit notes. The taxpayers of Spain, Portugal and of course mostly Germany are now the ultimate guarantors of Greek debt. If and when the next lot of forecasts on Greek economic recovery prove wrong as the last 3 have and finally one of the 'institutions' has to take a 'haircut' this fall directly on the taxpayers. Of course it may be that the current forecasts are not wrong and certainly they are more realistic to me than previous ones but most 'experts' seem to believe that it merely delays matters.

So onto the banking union... which of course is hailed as another great 'success'. So first what exactly is it? Well it's a plan at the moment. "The eurozone governments want to have the legal framework for the common banking supervisor in place by 1 January 2013. The ECB will then have up to 12 months to put in place its new supervisory department, and take over active duties by 1 January 2014." BBC News - Q&A: The eurozone's banking union Under this plan basicly all the big banks (banks with assets worth more than €30bn) in the eurozone (and others who may wish to get involved) will be supervised by the ECB. They will also help support each other and act as guarantors for each other and each others depositors under three main schemes:

A common banking supervisor (or "single supervisory mechanism"): This job goes to the European Central Bank, which will be given the power to monitor the health of and the risks taken by all the major banks within the eurozone, and intervene if any gets into trouble.

A common resolution framework: If a bank anywhere in the eurozone gets into trouble, the process of bailing it out - or, in a worst case, letting it go bust - would be managed by a common "resolution authority", with the cost borne by the eurozone governments collectively.

A common deposit guarantee: Anyone who puts money in an ordinary bank account anywhere in the eurozone would have their money (up to a limit, expected to be 100,000 euros) guaranteed by a common eurozone fund. (BBC)

Well for a start the eurozone already has a European Banking Authority. It was set up only two years ago. Why couldn't this be made the supervisory authority? Well the answer of course is that a 'supervisory authority' doesn't issue banknotes nor more long term European bonds and this why the ECB's role is being built up.

Secondly the stated aim of this; "This will enable the vicious circle between banks and sovereigns – which has been a salient feature of the debt crisis in Europe – to be broken," EU nations agree to eurozone banking union - Telegraph Really? How's that work then? Why should it stop Spanish banks buying Spanish debt? If anything they can do so even more freely since they are now 'guaranteed' by banks from everywhere else! The truth is that this will do precisely the opposite of this stated intention (which is a lie anyway) and they all know it. Far from breaking the 'vicious circle' the circle is treated as 'virtuous' under these proposals; it encourages more of what claims to disdain. In a way this is a another banking type of EMU (european monetary union - eurozone). We are supposed to have a great Big Brother who watches all banks (the ECB) just like countries were not supposed to over budget when the euro started. Believe it or not they were supposed to watched too! What is the ECB going to do if the a Spanish bank invests heavily in Spanish bonds to say 120% of it's total value? Diddley squat... it doesn't have the power to intervene. Of course as it happens this is going ahead when such circumstances already exist and a large amount of particularly but not only Spanish banks are broke (with the French in line to follow soon when the property market collapses next year). This then is a method right now of good banks bailout out bad banks.

Thirdly what of this 'too to big to fail' syndrome which to any sane person it must be obvious we must escape from? Capitalism requires that bad business's fail and die; it is healthy and encourages better tax laws eventually as well new growth. Well they now wish to make the european banks 'immune' to such forces. If I run a bank and lose money it doesn't matter anymore because as long as I can show 30 billion worth of assets everyone gets bailed out anyway by good banks. Socialist banking has arrived in the European utopian nightmare.

Finally let us suppose the dreadful worst which is bound to occur; that even though the banks all now have back each other up a European country, say Italy just for example where 'Super Mario' the imposed eurocrat is living his last days, leaves the wakes up and realises that nightmares only happen when you're not fully in control of your own destiny and leave the euro and defaults on all it's payments, obligations and says "sod off Brussels. You do not have authority here!". A new lira is introduced and it's value is a 1/3 of the euro... The banks in the remaining eurozone have to cut their Italian losses by 2/3rds? Maybe they could just about weather this but what if they can't? Well then the taxpayers in the form of the Governments have to bail them out. This is where the impossible meets the not doable... The value of the banks that will fall under ECB 'supervision' is approximately 300% that of the GDP of the entire eurozone. The whole house of cards would then collapse in the supreme financial folly of any utopian nightmare ever seen. You could NOT bailout this 'banking union'.

In my humble opinion this 'banking union' is another insanity heaped upon former insanities... by ANY reasonable standard the euro has failed as has common agricultural and fishing policies. It is precisely the opposite of what European Governments should be doing; breaking up these large banks and making them small enough to obey the laws of the market over which they have so much power. Get out out of corporatism and back to capitalism.