Category Archives: Europe

Today’s #EU Summit – IMPORTANT!

jean-claude-juncker

 

Apparently, the #EU Summit is opened by President of the European Council , Donald Tusk who always begins the meeting with a prayer, then asks for the lights to be dimmed as he invites the spirits to join the circle. He then asks everyone present to join hands and close their eyes and recite selections from the Maastricht Treaty.

The group then attempts to contact those on the ‘Other Side’ – for instance the United Kingdom and others who have ‘crossed over’. This is followed by pre-prepared questions about all sorts of important-sounding stuff.

Then it’s lunch.

After lunch the meeting continues (This is known as the ‘Graveyard Session’). Those still sober enough to vote for something which was agreed at the previous meeting, raise their hands – or have their hands lifted for them by a flunkey.

Meanwhile, The European Commission President, Jean-Claude Juncker staggers around the table, kissing every delegate, telling them that he REALLY loves them and that they are his best friend.

Then a group photo is taken and Mr Tusk presides over the Ceremony of the Communique (written last month) as he reads out the traditional Holy Positive Words about the future of the European Union.

Then they all fly home.

 

Darwinism and EU Economic Theory

The European Union is languishing in a perpetual economic autumn whilst bankers, with the connivance of politicians, apply rudimentary quack remedies such as Quantitative Easing in the vain hope that somehow they’ll skip a couple of seasons and as if by miracle, an economic  summer will materialise out of the murk.

Last year I wrote that modern global economics owes as much to Chaos Theory as it does to Keynes and has mutated beyond the competence of mere politicians. Economic evolution has overtaken the ability of those who traditionally administer the remedies when economic sickness hits.

The mechanisms which are needed to be put in place to even begin to have any effect on economies are so diverse and complex as to make present economic theory, especially that tainted by political dogma, almost redundant. The best that a politician and his advisers can do is to prod a small corner of the economic matrix in the hope that eventually a positive effect is somehow brought-about.

It is fair to say that politicians are no longer shapers of an economy but have now been diminished to mere observers.

The post-war years have seen such an incredible acceleration in all the factors which affect us – from technology to global financing, that it is only now becoming apparent that old solutions will NOT cure new problems. Sometime in the not-too-distant past, the “butterfly effect” became the wing-flap of the American Eagle – until the eagle itself became subject to bouts of economic coma .

Now it is probably the hot-breath of the Chinese dragon which will burn economies.

It has been universally established (even by China and Russia) that Capitalism is the way forward. However, it is no longer the gung-ho, asset-and-natural-resource-stripping capitalism of the past. A democratic and more ethically accountable flavour of capitalism is now needed.

For instance,  “business” ought to be an activity which strives to maximise market share and commercial efficiency, i.e  it should be inwardly-focused with profits as the essential by-product which is then used to  disseminate wealth.

What we currently have is a business model where the rationale  is primarily concerned with the maximisation of shareholder profits which concentrates wealth into  comparatively few hands. Hence the 21st century craze for moving money in order to generate money without the added old-fashioned complication of production. A virtual world generates virtual money with a virtual value.

“Ah!” you’re thinking. Socialist!! Nothing could be further from the truth.

Let’s keep it simple and look at the two extremes.

The Left (Socialism, Labour, U.S. Democrats, EU) dreams of public or community ownership and what you might call “forced distribution” which unfortunately needs to be underpinned by bureaucratic control and masses of public expenditure.

The Right (Conservatives, Republicans) dreams of privatisation. That has absolutely nothing to do with the individual. It is to do with corporate power.

So, at one extreme, we have unsustainable and forever expanding bureaucracy and on the other we have unacceptable (to the individual) accelerating corporate power.

Western political systems have now become nothing more than a tension between those two extremes. For instance, witness the “Punch and Judy” politics of America and the United Kingdom, as currently exemplified by the quality of the United Kingdom’s EU referendum debate and the  antagonistically offensive quality of the USA’s 2016 Presidential campaign.

Currently, there isn’t a better example of extreme corporate power than that exhibited by the banking system. A debt-fuelled crisis, which was accidentally engineered by the banking system ………aided and abetted by politicians  who continue to have absolutely NO idea how to deal with it, except by assuming that the problem has gone away.  They have adopted the “rabbit-staring -into-headlights” technique and have even been reduced to appealing to the bankers better nature, by inviting central banks into the economic driving seat!!

Paradoxically, the only people who will be able to clean-up the financial mess are financiers. Unfortunately, the type of financier that is needed is not the traditional self-serving, avaricious, unprincipled type which we have all come to love.

It is an as yet undiscovered species. The socially responsible financier who, with the assistance of the politician can generate new ideas which will, in turn, evolve into a NEW Capitalism which places the individual and not the corporation at its nucleus.

The financial crisis happened in spite of politics  and will eventually cure itself  in spite of politics. Chaos has its own mysterious mechanisms.

It is obvious though that the Darwinian aspects of world economics have outstripped the development of both our politicians and our economic theories.

…..and as China is demonstrating….it is the Survival of the Fittest…..and as the #EU is clearly demonstrating, the answers do not lie in organisational chaos, bureaucracy and huddling for political and economic warmth with people you wouldn’t normally invite into your home.

EU lies? Like S***to a Blanket……..

 

Listening to many of the Brexit-related vox pop on the news, especially from the older generation makes you realise that not only are many of the interviewees a bit thick , but that many do not appear to read past the headlines…… and that is exactly what Cameron and Osborne are tapping into.

They fully realise that all they have to do is trot out a few memorable short sentences containing lots of “Could” and “Probably”, in the knowledge that all the audience will hear is “job losses”, “recession”, “lower house prices”, “self-destruct” etc with the latest suggestion being  that leaving the EU would be “immoral”.

Heavy shit! Of course, that is exactly what it is….Shit.

We are listening to two guys whose prediction record matches that of Dr. Dionysius Lardner who said in 1830: “Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia.” 

Or as recently as 1977, when Ken Olson, chairman of The Digital Equipment Corporation predicted: “There is no reason for any individual to have a computer in his home.”

Neither Cameron nor Osborne has any idea what is going to happen next month. Never mind in twelve months’ or five years’ time.

Because of their tactical rather than strategic mentality, they are predicting what they think will happen to the British economy in the year or so following Brexit.

Proper leaders would be thinking very long-term but of course Dave and Gideon only have to frighten this generation of voters and will not have to apologise to future generations who may find themselves unable to escape from the economic and sociological straitjacket of EU membership.

The fact is that neither Cameron nor Osborne is capable running the United Kingdom without the reassuring comfort of Brussels and its rapidly mushrooming and already considerable population of commissars.

We should also notice that no one who is in favour of remaining within the EU club is even attempting to describe the socialist utopia which is being created right under our noses.

Where is the talk of increased incomes, a recession-free United Kingdom, more employment, a prospering NHS – all the things which are the corollary of the doom-infused nonsense which we are being fed?

Is it because negativity, doom and ruination are not-only more memorable but stick in the mind like s*** to a blanket?

Another BREXIT myth?

cash

Always beware of any sentence uttered by a politician which contains the word “percentage” – especially if that politician is Chancellor Gideon.

The latest bit of statistical fantasy saw Osborne suggesting that if we leave the #EU, “house prices COULD fall by Up TO 18 %.” (!)

Obviously, he has a plan!

Does he intend to stop dodgy Russian oligarchs, newly-minted Chinese billionaires, corrupt African despots and tyrannical Middle Eastern potentates and politicians from driving-up UK house prices by buying up London properties and paying silly money for the United Kingdom’s historic country houses and estates?

Mind you, it’s all a great distraction from the NHS, the tanking economy and our unmeasured, out-of-control immigration.

The Ugly Spectre of EU Self-interest……

burning euro

A recent survey has indicated that most companies based in the eurozone believe a British decision to leave the European Union would hurt the region as it struggles with a sluggish economy and a migration crisis.

79%  of firms based in the eurozone said a Brexit would be bad for the area, with less than 4% saying it would have a positive impact, according to the report from accountants Grant Thornton.

“What’s abundantly clear from our research is that European business leaders overwhelmingly view a Brexit as a negative development for the EU,” Francesca Lagerberg, a senior tax partner at Grant Thornton, said.

She said business confidence was strong considering the various potential threats the region faced from low growth, high unemployment, migration and a potential Brexit.

“Any one of these flaring up over the next few months could see that optimism wobble if the economic shocks undermine business leaders’ ability to plan and invest,” she added.

The survey was based on interviews with more than 2,500 senior executives conducted in January and February.

The result is in keeping with the view of senior business leaders in Britain who are largely in favour of Britain staying in the EU. Most economists expect an exit would deal a blow to Britain’s economy in both the short- and longer-term.

The Grant Thornton report showed 68 percent of British-based firms believe Brexit would have a negative impact on Europe.

Parts of the eurozone have struggled with a debt crisis in recent years which, on the heels of the global financial crisis, has stifled growth and left many unemployed. Unfortunately, quite a high percentage of Europe’s unemployed appear to be headed for the UK.

In addition, many recent migrants to the EU stated their first choice of refuge as the UK. Many of those will be arriving here in a few years….when Germany and other states hand them EU citizenship.

The region as a whole remains at odds over how to contain the continuing flow of migrants to the region.

It is regrettable that neither the UK political leadership, nor the Brussels Commissars have any idea about Managing Change on a macro scale because the sociological change within the #EU is probably they biggest issue that will need to be addressed within the next five to ten years.

Both sides are doing their best to frighten the electorate into voting for their point of view. There has also been an attempt at what can only be described as The Blackmail of a Nation – especially by the IN camp and the leadership’s foreign banking and political friends..

The fact is that BOTH sides have valid arguments but instead of helping the average UK citizen to make a reasonable choice whilst at the same time preparing for change, BOTH sides prefer to persuade through the medium of fantasy rhetoric, insinuation and slur.

Meanwhile, mainland Europe, surrounded by the Ring of Chaos, which encompasses Ukraine, then east to Turkey and south to North Africa,  sits and waits for more handouts and UK opportunities for its unemployed.

 

Brexit – Summary , so far……

Cameron’s ‘in crowd’ has expanded offshore to include the foreign senior banking community. Here in the UK, the ‘IN’ conspiracy has now recruited some senior corporate ‘suits’.

Meanwhile, Boris is looking increasingly shambolic and isolated plus, he does not appear to be appealing to the great unwashed.

The two main messages are either “Watch out for hordes of migrants and we could do it alone if we wanted to” or, more worryingly:  “The UK is effectively imprisoned within the #EU with no way out without damaging EVERYTHING!”

Both messages are negative – especially now that it would appear that the Cameron camp has admitted that even if we wanted to leave – we can’t. We’re trapped!

Today it was the turn of Spain’s 800,000 permatanned British residents to have the fear of God put into them…..as if the Spanish economy would even think about risking the loss of such a vast slice of revenue!

The one aspect of the debate I cannot agree with and that is the perceived danger from millions of low-level migrants. Once the UK economy collapses, no-one will want to come here.

Now it’s just a matter of waiting for the ECB’s Mario Draghi to pontificate.

 

Brexit Fun with Statistics

gidders

Good to see the Cameron #EU ‘In-Crowd’ adopting the official government policy of spouting meaningless and spurious statistics in order to try and prove that being a member of the European Union is compulsory if one is to maintain economic success , which, incidentally, is something which continues to elude the United Kingdom – in spite of Chancellor Gideon’s creative use of percentages.

Here are some more numbers:

  1. Six out of ten of the world’s biggest economies are not members of the EU. If the UK Brexited, SEVEN out of ten of the world’s most powerful economies would not be members of the EU.
  2. According to Bloomberg , of the world’s top ten fastest-growing economies, not one is a member of the EU.
  3. If we look at real GDP growth rate, the highest performer within the EU is Ireland and is placed only 44th(!) in the world.

What Cameron is REALLY saying is very simple: He does NOT believe that he, Chancellor Gideon and the rest of the current crop of Westminster PPE and History Grads have the collective ability to run an economy without the bureaucratic and legal crutch of the Brussels Commissars.

Lagarde, Brexit & Panic

gideonLagarde
Je T’aime …..moi non plus!

It was the IMF’s Christine Lagarde’s turn today.

She says that Brexit would have “assez mauvais to très , très mauvais” consequences but was not particularly specific.

“Pretty bad to very, very bad” is once again a judgement and not a prediction….and if she wants to see “very, very bad”, she should keep a closer eye on Greece’s problems!

Make no mistake, just like Mark Carney before her, prior to issuing her predictable statement, she would have been on the phone to Chancellor Gideon or David Cameron for approval of this latest piece of the well-choreographed scaremongering pro-EU referendum jigsaw. So WHO is next to have been recruited by the ‘IN’ camp?

One suspects that either this weekend or possibly on Monday, it will be the turn of the ECB’s Mario (il Papa) Draghi to instil a bit of ‘panico’ among us gullible Brits!

It started with Obama and they’re travelling East……..

 

Carney in the Cameron Corner?

Mark-Carney

The (hired by Chancellor Gideon) totally impartial Governor Mark Carney of the oh-so independent Bank of England said today that if the United Kingdom left the Bruderschaft of the oh-so economically-stable #EU, the risk of leaving “could possibly include a technical recession”……….which by implication suggests that if we stay firmly wedged in Bundeskanzlerin Merkel’s ample #EU cleavage, the risk of recession will be gone! Good news !!

David Cameron then said the warning amounted to “a very clear message” of the dangers of Brexit.

Some have declared that the Governor was spouting unwarranted and unmitigated bollocks with several calling for him to be sacked.

In reply, the Governor’s spokesperson said  the Bank had “a duty to make its judgments known.”

As the Bank of England has been so incisive and accurate in all of its previous economic judgments and predictions – the 2008 economic collapse, the subsequent recession and the collapse of RBS, to name but a few – I cannot think of any reason why we should not take Governor Carney’s latest prophecy (it’s NOT a prediction!) VERY seriously.   🙂

Point of View

Remember that whatever your opinion, whether it’s the #EU hokey-kokey debate or Mr Cameron and his deep and  (so genuine!) offshore love for his father, it all depends on where you’re standing …your POV……………… For instance:

Dog: ” I love the way I’ve trained that nice Dr Pavlov to smile, make notes and give me a treat every time I drool”

Cameron’s letter to Santa.

gdp

David Cameron is about to send his Christmas EU wish-list letter to Brussels.

As he licks the stamp, he should perhaps reflect on the fact that this is the third renegotiation since Britain joined in 1973 and our second referendum on membership.

It’s not even as if the United Kingdom is negotiating from a position of strength. The rather flaky economic recovery which Osborne thinks he’s sold not only to a gullible British public but also to the EU, is looking shakier by the day.

The much-promulgated “We’ve managed to get the deficit down to 5% of GDP!” may sound good in isolation but the much-maligned Eurozone has a Deficit-to-GDP ratio of only 2.1% ! (The UK figure is actually well over 5.0%). The only three coutries with a higher Deficit-GDP ratio are Croatia, Spain and Cyprus.

If you listen very carefully to Cameron’s referendum rhetoric, you may notice that he has moved from being pro-EU to very neutral. You will also notice that he’s chosen four very flabby areas on which to “negotiate”:

  • Integration: Allowing the UK to opt-out of any EU Superstate nonsense
  • Benefits: Restricting access to in-work and out-of-work benefits to EU migrants.
  • Sovereignty: Giving greater powers to national parliaments to block EU legislation.
  • Eurozone vs the rest: Securing an explicit recognition that the euro is not the only currency of the European Union.

He has totally ignored our two biggest gripes: The £6-20 BILLION (depending on who you talk to ) net annual contribution to the EU and that obscenely inflated money-pit that is the Brussels bureaucracy. THAT is where the changes ought to be!

However, we can take comfort from the certain knowledge that WHATEVER our Prime Minister “negotiates” will be proven statistically to be a great (statistical) victory for the UK taxpayer.

 

 

We not only want our cake……….

camcart

 

Chancellor Osborne is off to Germany next week to outline how he wants to protect London’s financial services industry in a reformed European Union. The fear is that ever-closer integration of the eurozone could leave London sidelined in financial policymaking, affecting its banking sector. In fact, London’s status as a European financial centre has already been compromised by Cameron’s dithering and inability to put down on paper the exact changes he is (apparently) negotiating. The continuing lack of detail on his demands for new EU membership terms, is causing both frustration, bemusement and a level of confusion among EU leaders.  Cameron has now had to “do a Chilcot” by promising to send them his wish-list by next week.

The Greeks – they’re just like us!

First published  17th March 2015, The News Hub…. www.the-newshub.com

The relationship between the European Union, the Eurozone and Greece is no different to the relationships between many governments and their own citizens. The EU-Greece relationship is no more than a macro model of what is currently occurring, for instance, in the United Kingdom.


Let’s face it since the Greek crisis started a few years ago, in the main, the Greeks have been caricatured as lazy, workshy and the architects of their own misfortune. That naturally led to the assumption that they didn’t ‘deserve’ support from their richer European cousins unless they changed their ways.

Here in the United Kingdom, the scrounging working classes, just like the Greek nation, have really been clobbered over the last few years. They have been characterised as lazy, workshy and sitting back, as hard-working richer people fed them undeserved benefits. Government slogans such as “The workshy”, ” Abuse of the system” and “Benefits Culture” became common.


The government not only blamed them for a poorly designed welfare system by cutting benefits but humiliated the sick and disabled by forcing them to undergo questions and tests to ascertain whether they were deserving of government support.
Welfare benefits were even reduced if the State decided that they had more bedrooms than they really needed!
This was forced austerity without purpose.

The Greeks are taking the rap not just for their own economic shortcomings but for a very badly conceived and designed Eurozone. Their punishment too was humiliation through austerity.


Poor Brits had the state machinery and official interrogation to contend with whilst the Greeks were humiliated by the fiscal police known as ‘the troika’. Same principle, different scale.


The EU continues its slogan of “We want Greece to remain within the EU”, when all the evidence so far, is to the contrary.
The equivalent UK slogans are all about those ubiquitous ‘hard-working people’ and being ‘In it together’, which just like the EU – is supposed to be a club that everyone needs to belong to.

The oppressed eventually find a hate figure. The Greeks have found themselves the Nazis and poor Brits have found themselves ‘the toffs’ and the bankers. The Greeks want reparations for the damage done during WW2 and the Brits are enjoying bankers forgoing their comedy bonuses. The oppressors (real or imaginary) also need to be punished – an economic quid pro quo!


The Eurozone’s motives in not being too overt in helping the Greeks are very straightforward.


They say that they want to avoid a possible Greek exit from the Eurozone but in fact, it’s much more than that. There are other states within the European Union which are just below the radar and could potentially be in just as much trouble as the Greek economy. Spain and Portugal immediately spring to mind.


If Eurozone officials were not seen to dispense a certain amount of punishment to the Greeks before helping them, or if Greece decided to leave the Eurozone as a result of not being able to stand any more EU humiliation, others would doubtless follow . That means that Greece can only be helped by being thrown the occasional EU morsel, preceded by a public serving of abuse or austerity.

In the United Kingdom, the poor are being kept in line by also being thrown the occasional morsel such as an increase in minimum wage, a meaningless shift in tax bands or mini handouts which no doubt will be expressed by the Chancellor of the Exchequer in this week’s Budget.
It’s all about keeping the poor in check without giving others any ideas.

The Little Englander v The Europhile

Whilst cocky Nigel Farage is looking increasingly like a pink Kermit the Frog, EU-enthusiast Nick Clegg retains the boyish charm and earnestness which won him so many plaudits after the 2010 “I agree with Nick” pre-election debates with Cameron and Brown.

Nowadays, Farage’s studied arrogance and increasing belief in his own publicity is beginning to water-down both his image and the argument. I say THE argument because he is also coming across as a one-trick pony and thus in danger of being perceived as the head of a right-wing pressure group rather than the Leader of a bona fide Political Party. I am not saying that he’s not a good bloke  but had he debated Britain’s Defence system or the changes in Education, he would have gained more credibility. Instead, we had yet more déjà vu!

He is probably regretting the fact than post-January 1st 2014 we are NOT being overrun by screaming hairy hordes of Romanians and Bulgarians heading over the hill from Newhaven to the nearest Benefits Office. David Cameron has been very quick to respond to Nigel’s xenophobic hysterics and has an ongoing charm-offensive in place, aimed at the “at-risk” Nutty Right Wing of the Conservative Party. DC and Nigel both know that come the General Election, the many who have dallied with UKIP will retake their rightful place and step back into the Conservative thin blue line.

Nigel’s task of criticising the EU gravy train whilst simultaneously immersing himself in the gravy makes some of his arguments appear both hypocritical and increasingly valueless. He was obviously VERY uncomfortable when being asked about paying his wife a salary and lapsed into his usual defence of turning an attractive shade of fuschia accompanied by bluster and large numbers.

Nick Clegg, on the other hand, was a tad patronising and appeared to lack conviction – although he is doubtless a committed Son of Brussels. He too made the usual points and counterpoints and one could argue that he cheapened himself by even appearing on the same platform as the UKIP Commandant.

The upcoming MEP elections will demonstrate quite clearly that as far as Europe is concerned, the British public fits neatly into the “don’t care” camp….

As to who “won” the debate…If you measured it on well-known points and statistics repeated yet again…it was a draw.

Euro Christmas Wishes

My best wishes for an environmentally friendly, socially responsible, low stress, non-addictive, gender non-specific celebration of the Winter Solstice holiday, practiced with the most enjoyable traditions of religious persuasion or secular practices of your choice with respect for the religious/secular persuasions and/or traditions of others, or their choice not to practice religious or secular traditions at all and a   fiscally successful, personally fulfilling  recognition of the onset of the generally accepted Gregorian calendar year 2014. This of course does not imply any disrespect to other calendars which, in certain cases, are accepted to predate the generally accepted measurement method and are not considered to be any less valid.

If you live within the Eurozone, we shall of course meet in one month’s time to discuss the above wishes and possibly renegotiate them as they are always subject to clarification or withdrawal. Moreover they can be withdrawn should one member not be in full agreement or should they personally not perform as expected within the usual application of good tidings, the above-mentioned fiscal success and ongoing cooperation from the Holy banking system.

The Wisher also accepts without reservation that especially within the political sphere, there may be, because of election, death or resignation, changes of Wishee. In such cases, the above is fully transferable in perpetuity, to subsequent Wishees but only subject to ongoing membership and cooperation.

2014 Predictions – PART ONE

Predicting the future has always been a mug’s game. For instance, I continue to believe that the markets are all in the wrong place and overpriced and I predicted the FTSE at about 4500 – but then again, I could not have predicted the collective madness of Quantitative Easing and the real fear that politicians have of the banks. I used to understand investment…but not any more. Cheap virtual cash continues to fund the markets and to keep them artificially high.

The politicians feel that they have to please the banks first and only then the voter. Governments are no longer in control of events. Nowadays, finance drives politics and politicians have become the bankers’ lackeys.

For as long as banks and governments continue to mutually gorge themselves on virtual cash and governments do not have the courage to increase interest rates and taxes in order to join us in the real world, there is a very real possibility that the current economic situation will become the status quo.

These predictions are in no particular order.

1. The disconnect between economic data and the quality of life is fueling populism. It is also fueling right-wing extremism and anti-government sentiment. I fully expect the equivalent of the Arab Spring sometime during 2014 , in the UK and some other European states.

2. South Sudan will provide the next African bloodbath.

3. The Scots will vote “No” to independence.

4. The recently-adopted self-congratulatory air will desert both UK and European politicians as it is realised that the “virtual” economic recovery is unsustainable.

5. There will be a substantial increase in China’s birth rate (the new “one child plus” policy), contrubuting TWO MILLION children to the 2014 economy, boosting consumer motivation.

6. China will continue to build and accelerate its natural resource monopoly in Africa. (One million Chinese already live there).

7. As the West cuts its military budgets, China will continue to do exactly the opposite.

8. David Cameron will continue to tell us what MUST and SHOULD be done, one a whole range of issues.

9.  Anaemic growth in the advanced economies will see government debt continue to climb.

10. The US $ will continue its decline. Instead of Quantitative Easing Infinity accelerating economic growth, its effect will be to shrink the $’s buying power.

11. The sudden (and unexpected) pick-up in UK growth, followed by the indication of a reversal in the final quarter of 2013 suggests that businesses were adding to their inventories rather than selling their goods. Expect the reversal to continue in 2014.

12. Germany currently represents approximately 30% of the Eurozone economy and will continue to enjoy the fruits of a weak euro and ramp-up exports.Germany has the world’s highest current account balance as a percentage of GDP. During 2014, Germany’s economic success will continue to accelerate and will represent over ONE THIRD of the Eurozone’s output.

13. Japan will continue to prosper. Its economic output is not 75% of China’s. although it is 4% of China’s size with 9% of China’s population. “Abenomics” has provided the “jump-leads” which Japan needed.

14. The USA will enter another recession in 2014. Currently it is still on “below-2%” growth.

15. A Populist movement will become increasingly vocal here in the UK (and in certain Eurozone countries), with sudden impetus being generated AFTER the European Parliamentary Elections when the main traditional parties will be decimated by the Left and Right.

16. In spite of the Eurozone’s economic “recovery”, unemployment will remain at current record heights (Over 12%).

17. Deflation will accelerate within the Eurozone and economic forecasts will once again be downgraded.

18. The European Court of Auditors (ECA) will publish the 2013 EU accounts and once again, confirm that the continuing “errors” in all of the EU’s spending  areas have finally crossed 5%(!) of expenditure.

19. The UK government will do well to prepare for the possibility of social unrest which is driven by the rapid growth of the “have nots”. The financial hangover caused by  Christmas 2013 will be far more extreme than in previous years.

20. The Federal Reserve will announce and implement the end of its  massive bond-buying programme. This will have a substantial effect on the markets.

21. The full-extent of the banking industry’s Pension and Life Assurance mis-selling will become apparent.

22. There will by an explosion in Teacher Militancy as the government continues to fiddle with our childrens’ education.

23. The price of Crude Oil will fall to about $75 per barrel. The decrease will be primarily caused  by oversupply as a result of new production methods.

24. The European Union will fail to deal with its members’ collective debts. Again.

25. The Global Recovery will falter.

26. On January1st, Greece will take over the Presidency of the EU – at a cost to itself of €50 MILLION. This exemplifies the madness of the European Union when a de facto bankrupt state with zero clout is allowed to be burdened such a “spend”. Prediction: Greece will make a “pig’s ear” of its Presidency. Hopefully Subway and MacDonald’s are bidding for the catering contract.

27. Twitter, Amazon etc will be recognised as part of yet another totally unsustainable bubble.

28. In the UK, there will be yet more calls for House of Lords reform. Hopefully, as more and more of their Lordships’ financial “indiscretions” come to light, the debate will snowball, eventually leading to an elected Upper House. Turkeys may well HAVE to vote for Christmas.

29. Once South Africa has recovered from Mandela’s death, there is a real danger of  a return to what I can only describe as “Reverse Apartheid”. Violence.

30. Syria will continue to generate substantial profits for the world’s Arms producers as it has become increasingly apparent that there is NOT the political will to even attempt to end this butchery.

(I am NOT a Global Warming mullah but the image above shows all the world’s water and air to scale.)

Post-war German leaders have long argued German interests coincided with the greater European interests. Angela Merkel’s singular achievement, vindicated by her latest election victory, is to have kept Germany in the heart of Europe even as terrifying sovereign debt crises exposed the fissures and conflicting interests between states within the euro zone.

There is no doubt that the German economy benefited enormously from the euro-driven economic union. But when the crisis broke out, German taxpayers, understandably, did not want to bail out foreign governments and financial institutions caught in the upheaval. Merkel’s strategy was to protect the interests of her taxpayers while convincing them that the euro must be kept alive; otherwise the whole European project, the basis of the continent’s peace and prosperity, could collapse. To this end, she imposed much-criticised austerity on the hard-hit peripheral states in southern Europe while pledging support to them by committing the equivalent of Germany’s annual federal budget to various rescue funds.

Merkel preferred the step-by-step approach rather than any grand reform schemes. Euro-zone bonds to lower sovereign borrowing costs? No way. An even tighter banking union than currently planned? Forget it. She perceived that in all these big and ambitious schemes, Germany would be the one that ended up paying the most to support them, thereby putting German taxpayers on the hook.

Because of the delicate balancing act she had to pursue, she has been criticised, with reason, for dragging out the crisis rather than resolving it once and for all with a bold plan. But it’s highly doubtful that without her cautious approach, German citizens would have gone along in helping the crisis-hit states. And without German backing, no rescue plan could work. Now, finally, the euro-zone economies are showing signs of life. Most likely, they still have a long way to muddle through.

Merkel may not have saved Europe. But she deserves credit for preventing a euro-zone break-up. (SCMP)

Economic “Growth”?

Politicians are currently gadding about, scattering statistics like confetti and pointing everyone at figures which are not preceded by a minus sign!

It’s time we paused, drew breath and took a closer look at the figures. Before we do, let’s have a go at putting some general perspective on the numbers. In Europe, it is being reported that the E17 (Eurozone) and the E27 (EU) have “grown” by 0.3% and that the figures signal a recovery!! A few points about what 0.3% actually means.

3% means THREE parts in a HUNDRED, so 0.3% means Three parts in a THOUSAND……but there’s more! The percentage change being quoted is the change in nothing more than the PREVIOUS QUARTER (see the top of the table above). That means that even if the figure was -100 and it changed to -99.7, THAT would be a POSITIVE growth of o.3%.

However, if you look at the PERCENTAGE CHANGE COMPARED TO THE SAME QUARTER LAST YEAR (the right-hand column above), the figures remain negative ( -o.7% and -o.2%).

France returned to growth in the second quarter of 2013, boosted by stronger domestic demand, after two straight quarters of decline. However, France’s reported increase in consumer spending is largely as a result of increases in energy prices. It was not an “en-masse” dash to the shops!

Meanwhile, Germany’s economy grew 0.7% in the second quarter (compared to the previous quarter), and when annualised, it was the fastest growth of all the world’s advanced economies.

The Netherlands, whose government has been a strong supporter of austerity, reported a a second-quarter contraction of 0.2%, confirming its fourth straight quarter of negative growth. It remains in recession.

Portugal reported a quarterly growth of 1.1%,  Spain -0.1% and Italy -0.2%.

Compared with the same quarter of 2012, the United Kingdom is showing a growth of 1.4%, the same as the United States.

These figures are NOT a sign of the end of the Financial Crisis. That crisis remains firmly in place, with many of the figures indicating little more than the continued recovery from a particularly bad  and exceptionally long winter……………… a weather-related catch-up.

European unemployment figures are being reported with just the tiniest amount of “spin”. This is the whole story:   In June 2013, Unemployment continued at record highs in the 17-nation Eurozone but there was some hope of an improvement as the numbers of those out of work fell slightly. The official Eurostat data was published yesterday. The overall Eurozone jobless rate came in at 12.1 per cent, unchanged from May. The jobless numbers, however, fell by 24,000 to 19.26 million. BTW, Europe’s population has increased by about 5 MILLION since the crisis began – perhaps THAT’S what is confusing the statistitians.

Immigrants – we NEED them!

According to the Office for Budget Responsibility (OBR), the UK needs SEVEN MILLION migrants over the next 50 years to help keep down national debt levels.

The OBR warns that the UK’s ageing population was squeezing public finances and said there was “clear evidence” that migrants, who tend to be working age, have a “positive effect on the public sector’s debt dynamics”.

The OBR has also warned that increasing pensioner numbers and a strained healthcare system means an extra £19 BILLION of spending cuts or tax increases  are needed to combat an “unsustainable” pressure on the nation’s public finances.

It IS possible that while we continue to live too long and not produce enough, those much maligned  immigrants could be the solution to our economic problems.

That should please UKIP!

HERE’S the Executive Summary of the OBR’s Fiscal Sustainability Report.

Brussels Pass-the-Parcel

There’s a European Summit in Brussels. This is when the EU leaders tell everyone what MUST be done.  It’s a sort of Brussels Pass-the-Parcel but the music is on a perpetual loop and never stops.

Here’s the AFP report on the game so far:

BRUSSELS — European leaders on Thursday tried to come up with new measures to tackle the crisis-hit continent’s soaring jobs crisis, but the head of the European Parliament warned that the plans were “a drop in the ocean”.

“We’re here to fight youth unemployment, a most urgent concern for our societies,” European president Herman Van Rompuy said as he opened the summit to which trade union leaders had also been invited to attend for the first time.

Shortly before the Brussels summit began, the European Union clinched a deal on its trillion-euro budget, which opens the prospect of the 27-nation bloc being able to quickly disburse billions of euros to help the one in four young Europeans currently out of a job.

“Today we have agreed on this budget that will make investment in Europe possible,” EU Commission president Jose Manuel Barroso said of the compromise that still needs to be approved by EU lawmakers.

“This is the growth fund for Europe,” Barroso said.

The talks were briefly held up by Britain’s demand for clarification on a rebate from farming funds — an issue already agreed in February, EU diplomats said, with one source saying the issue “has all been sorted.”

British Prime Minister David Cameron’s reiteration of the rebate issue ruffled a few feathers but most leaders said the fallout of Europe’s devastating economic crisis should take centre stage at the summit.

Prime Minister Antonis Samaras of Greece, which has the highest unemployment rates in Europe, said as he arrived for the summit that the key aim for the leaders was to come up with “drastic measures”.

“Unemployment in countries like mine has sky-rocketed,” Samaras told reporters.

The jobless rate for young Greeks is the worst in Europe — at 62.5 percent — followed by Spain at 56.4 percent, Portugal at 42.5 and Italy at 40.5.

Analysts warn the unemployment rate will continue to rise as the eurozone recession grinds on and that there is little the European Union itself can do, with much of the burden shouldered by national governments.

Among the measures being considered is a proposal to speed up disbursement from next year of a 6.0-billion euro ($7.8-billion) fund for young unemployed.

Other EU funds could also be tapped for such projects.

But European Parliament chief Martin Schulz played down the proposals being discussed.

“Releasing 6.0 billion euros to fund this new youth employment initiative is a start; but, as we are all only too well aware, that six billion is just a drop in the ocean,” Schulz said.

German Chancellor Angela Merkel, who faces elections in September in a country largely weary of funding struggling southern European states, warned that budget discipline remained key.

“The main thing here is about improving our competitiveness,” she said. “It’s not about creating more and more pots of money.”

Europe-wide, talk of a “lost generation” and concern over popular discontent are feeding support for extremist political parties and fuelling animosity towards EU institutions.

A Pew Research survey last month branded the European Union “The New Sick Man of Europe”, showing favourable opinion of the EU slumping from 60 percent last year to just 45 percent now.

“The European project now stands in disrepute across much of Europe,” it said.

But Eastern European states continue to bid to join the bloc of 500 million people and Croatia on Monday will become the 28th EU member in the first accession to the club since Bulgaria and Romania in 2007.

Serbia is expected to win endorsement at the EU summit on Friday to begin membership talks no later than January after having agreed to tough conditions to normalise ties with its former province Kosovo.

Albania is also hoping its membership bid will win fresh support from elections over the weekend that were won by the opposition in a landslide in a vote that was being closely watched by the European Union.

But officials privately worry about including more troubled economies into the European system and citizens from the core EU states are increasingly opposed to enlarging towards the poorer east.

Economic Recovery: Fact or Faith?

Whenever man has struggled with solutions to big problems, he has turned to his God, who has consistently said that if man endures deprivations and suffering on this Earth, he will get his just reward in Heaven.

The weird thing is that here we are in the Year 5PL (Post Lehman) and our politicians are behaving just like those prophets of old. WITHOUT any proof and relying solely on faith, they say “Endure the austerity and soon you will be transported to the economic heaven.” Meanwhile they (the prophets) search for “signs”. For instance, a small statistical variation in economic data is seized upon as a “sign” that all will soon be well. (Chancellor Osborne did it again yesterday when he announced “encouraging signs that the economy is healing” HERE In fact, he repeats the holy phrase.)

Is that true? Have we been offered any proof? Do we have to accept the words of the prophets without question or are we being heretical and behaving like Doubting Thomases?

If the New Religion is true, then we have been witnessing the longest Resurrection ever!

There is much talk of “positive sentiment” and Central Bankers accept gifts and many sacrifices from the people and prophets….but, is there really room for faith in economic thinking?

Currently, it would appear that it is all we have.

(As you listen to the Chancellor, notice the total lack of numbers and dates in the affirmation of his faith)

What’s happened to PROPER Investment Banking?

As recently as 2009, banks’  investment fees were higher in Europe than in the United States. Nowadays, Europe is delivering only about a quarter of total investment activity, with the corresponding collapse in fee income.

Mergers and Acquisitions (M&A) used to be the investment banker’s bread and butter but nowadays, European bankers appear to be either dozing at the wheel or they’ve left the building! Or perhaps they’ve forgotten how to do it!

In the last year American acquisitions were up by about a third whereas in Europe, they appeared to be too busy sitting on their cash, playing the markets and endlessly “rebuilding balance sheets”.

Before the 2007 crisis, the European dealmaking level was about three times as high as today. In the last year, only about $750 billion in deals was announced. Six years ago, it was over 2 TRILLION!

Europe’s global share of M&A activity is now less than one third – the lowest in 10 years. In fact NINE OUT OF TEN of the largest deals in the last 12 months have been executed by US teams.

Equity Capital Markets are showing the same trend.

In EMEA (Europe Middle East and Africa), issuance (offering securities in order to raise funds) over the last 12 months has been about $145 billion. That is well down on last year. Compare that to an increase of nearly 50% in the USA!

Even Asia has overtaken EMEA which is now delivering only about 20% of global issuance. As recently as five years ago, it was nearly 40%.

The conclusion? European Corporates are waiting (they do have cash) and the banks have become lazy and preoccupied with their political debt games.

So what are the politicians doing to make the banks on this side of the Atlantic more profitable? Very little.

Unsurprisingly, subsidiarisation (breaking up or threatening to break up banks), “ringfencing”, bonus caps and financial transaction taxes are all serving to make Europe a structurally much less profitable region.

You see, the banks too are being made to suffer their own kind of austerity by the politicians.

Add to all that the 2013 craze of blatantly robbing bank depositors and the  outlook continues to feel depressingly negative.

The Eurocrisis isn’t just Financial.

The Eurozone crisis has managed to morph from a plain old currency crisis to a debt crisis, an economic crisis and now, a full-blown political crisis – although no-one seems to have noticed…….. and it’s not just the Eurozone:

In the United Kingdom, people are making increasingly indiscreet noises about the Prime Minister’s leadership capabilities and the Chancellor’s questionable competence, as the cold hand of political instability makes a (so far) half-hearted grab for No 10. Currently it looks as if there is already a swing to the right. Nigel Farage and UKIP no longer look like a bunch of extremist Right-wing loonies and as they gain respectability and seats, they will pose a genuine threat to the status quo.

Here’s a quick Grand Tour:

Greece’s political problems are well-documented and this is where the recent polarisation of national politics began with the success and increasing support of the right-wing Golden Dawn Party. Greece is on its knees.

In France  there’s the scandal of a Minister and his secret Swiss Bank account with the consequent  investigation of all Ministers – shades of the UK’s MP expenses outrage. President Hollande is keeping a very low profile because , let’s face it….he came to the table without any ideas. His mere presence has allowed Marine le Pen and her Right-wingers to re-emerge blinking into the sunlight, ready to build on her father’s legacy.

Germany’s Bundeskanzlerin Merkel is no longer odds-on to win her autumn election and so, in order to placate her detractors, countries such as Cyprus are being put through the debt-wringer and effectively having to bail themselves out! All in the cause of extra Brownie points for the Merkelator.

Many are anticipating more resignations from within the Cypriot government. Michalis Sarris, the Cypriot finance minister who negotiated Cyprus’s bailout agreement with international creditors has already gone.

Portugal’s Constitutional Court has kicked into touch some of the austerity measures imposed on the country by the Eurozone moneylenders. Now the politicians are wondering about how to plug the fiscal gap and Prime Minister Coelho may resign.

Belgium took 535 days to form a government after its last election and now has a 6-party Cabinet.

Italy is struggling to form a government and will most likely hold another election after President Napolitano comes to the end of his tenure as Head of State on May 15th. Goodness only knows what the reaction of not only the Eurozone but of the Markets would be  should Silvio Berlusconi (again) rise from the dead! Italy’s political scene has become so surreal that  ONE QUARTER of the vote in the recent election went to a protest movement headed-up by Beppe Grillo – a comedian!

Spain’s politicians, including its Prime Minister are mired in corruption scandals – and now there are anti-Royalist demonstrations as a direct result of the king’s daughter being implicated in a government financial rip-off. Mind you, affluent Spaniards have already pulled about $100 billion out of their Spanish bank accounts. They started running early. It’s only a matter of time before the Basques and Catalans start to make their separatist noises.

The difficulty is that one would normally expect the emergence of the Right to be counterbalanced by a strong showing from the political Left. But what Europe has are weak governments , compounded by even weaker oppositions. No European political party in government has over 50% of the vote……. and the less said about the European Union’s politicians, the better! They seem to have elevated ineptitude into an art form.

Currently, Britain’s Left is being driven by Ed Miliband and the New-Old-New-Who-Knows-Who-Cares Labour Party. They earn their salaries through the medium of being critical. They have shown themselves to be totally bereft of a coherent, cohesive strategy and will be directly responsible for the future success of UKIP.

Leadership (or a lack of it) within Germany’s Social Democratic Party will be the main factor which could give Merkel another few years of power. If that happens, the rest of the Eurozone should begin to consider itself as no more than a motley collection of Vassal States……there to do Germany’s bidding. Unless of course, Germany accepts George Soros’ advice and leaves the Euro.

France does not enjoy having a Socialist President and it is right to be sceptical. President Hollande is now totally ignored by Merkel and is doing what he does best – he keeps out of the way as Germany tightens its stranglehold.

Hollande could have been the Eurozone’s great hope but unfortunately is way out of his depth. France now has a negative bond rating  by all three rating services and has lost much of its international respect. It’s precarious banking system is just waiting (like many others) to go “pop!”

The Main Event this year will be Merkel’s re-election so the Eurozone states must not expect any major policy changes until then – and when she wins? More of the same – but without the compassion!

What of Europe’s medium to long-term future? Without some sort of political quantum leap, it will inevitably  descend into a collection of  Third World states but with running water, TV and a banking system totally independent of its economy and probably with its own flag.

Equity Euphoria. Why?

The Markets are in the wrong place. For about two years, I have been suggesting that market sentiment bears absolutely no relation to what is really happening in the real economy.

Yesterday’s Markit manufacturing figures clearly show that Europe’s manufacturing sector is in a mess. At 12% , Eurozone unemployment is at an all time high with further austerity measures to follow.

In spite of all that and with increasing hand-wringing from economists, the markets are buoyant at near-record and record highs, the euro is showing only modest losses and for Bond investors it’s business as usual!

19 million Eurozone unemployed with Germany’s PMI at 49.0,  France’s at  a three-month low of 44.0 ….which is even below Italy’s at 44.5 and Spain’s at 44.2! But the Markets grind on regardless.

What is going on?

One thing that we can see from the manufacturing figures is that there is quite a marked divergence between Germany and the rest. Although manufacturing activity is shrinking to 5-6 month lows, the so-called “financial fragmentation” across the Eurozone has become increasingly obvious. The Eurozone does NOT have a uniform monetary policy which means that Italian and Spanish banks, for instance, pay much higher funding costs than Germany. That means that certain manufacturers are paying much more than German ones for their cash. On the face of it, that seems to be anti-competitive – but that unfortunately is just one of the many anomalies of the Eurozone – in fact of the entire European Union.

The poorer you are, the more you pay for your heating fuel.”

This is the backdrop to a largely blinkered , almost “autistic” equities market where we appear to have reached the stage of self-amplification where , because of the abysmally low bank rates, EQUITIES is the only game in town. Self-amplifying? Yes – as more and more investors pile into stocks – mainly because they don’t want to lose out on a rally which they themselves are now fuelling.

The only cautionary note should be for investors who are only just coming into the market to ask themselves “What is the real likelihood of me making a profit?”

When will it stop? History shows us that rallies such as the current one can stop pretty suddenly!

There will come a point at which traders, especially those with short positions will decide “Enough!” – in spite of the fact that currently, there is no obvious level at which to climb out and possibly take a loss.

Once one jumps, the rest are sure to follow.

We could go down so fast that you’ll get a nose bleed!

European stock markets slumped and the euro dropped under $1.28 for the first time in four months Wednesday owing to concerns over fallout from the Cyprus bailout and a disappointing bond sale in Italy, analysts said.

London’s FTSE 100 (FTSE: ^FTSE news) index of leading companies fell 0.69 percent to stand at 6,355.10 points in afternoon deals, as Frankfurt’s DAX 30 (Xetra: ^GDAXI – news) shed 1.44 percent to 7,766.11 points and in Paris the CAC 40 (Paris: ^FCHI – news) slumped 1.46 percent to 3,693.95 points.

Madrid tumbled 1.90 percent and Milan lost 1.59 percent. The Athens stock exchange, a low volume market, plunged 6.83 percent.

Italian borrowing rates fell slightly in a 10-year debt auction on Wednesday, but borrowing rates were higher for five-year debt and demand was weak amid concerns of political deadlock in the recession-hit country following inconclusive elections.

Stock indices were falling “as the ongoing issues in Cyprus continue to weigh on sentiment,” said Alpari trading group analyst Craig Erlam.

In foreign exchange deals, the euro dropped to $1.2751 — the lowest level since November (Xetra: A0Z24E – news) 21 — compared with $1.2861 late in New York on Tuesday.

Gold prices slipped to $1,591 an ounce from $1,598 Tuesday on the London Bullion Market.

The foreign exchange market “is concerned about medium-term contagion effects” of the Cyprus bailout, said Commerzbank (Xetra: 803200 – news) analyst Thu Lan Nguyen.

Troubled eurozone nation Cyprus on Wednesday scrambled to finalise capital controls to avert a run on banks, a day before they are due to reopen after a nearly two-week lockdown while the island secured a huge bailout.

Meanwhile there are fears that the controversial terms of the bailout could be mirrored in any future financial rescues of indebted eurozone members.

Nicosia early Monday agreed a last-minute deal with its international lenders that will see it receive a $13 billion rescue package to help pay its bills.

And while the decision to tax bank savings above 100,000 euros raised fears of a similar move in future rescues — reinforced by comments from the head of the Eurogroup of finance ministers — officials have since insisted that Cyprus is a special case.

“The negative sentiment is also enhanced by rumours that this format will be adopted as a template for any further bailout schemes,” said Currencies Direct trader Amir Khan.

“Although top officials deny any such move in the future, markets are still wary that this format will leave the banks with fewer deposits and in turn will allow them to lend less, shrinking growth.”

Elsewhere on Wednesday, in indebted eurozone member Italy there was weak demand at an auction of 5- and 10-year bonds, with bid-to-cover ratios of 1.2 and 1.3.

Ratios of above 2.0, where submitted bids are double those accepted, are considered strong.

The Italian treasury took in 3.91 billion euros at a rate of 3.65 percent, a five-month high.

However the yield on 10-year bonds dipped 4.66 percent, compared with 4.83 percent at the last similar auction on February 27, with three billion euros raised.

The European Commission meanwhile said its key business and consumer confidence index for the eurozone fell 1.1 points in March to 90 points, reflecting a downturn in the manufacturing and service sectors while consumer sentiment was steady overall.

Amid the gloom in Europe, US stocks moved lower Wednesday in early trading.

The Dow Jones Industrial Average gave up 0.33 percent, the broad-based S&P 500 sank 0.36 percent, while the tech-rich Nasdaq Composite Index dropped 0.26 percent.

The retreat followed strong gains Tuesday that resulted in a record high for the Dow and a near-all-time high to the S&P 500.

“Follow-through has been lacking this morning for reasons that are both convenient and clear,” Patrick O’Hare of Briefing.com wrote. “Headlines out of Europe are largely to blame.”

— Dow Jones Newswires contributed to this report —

CYPRUS: Help me to understand this : Bank Depositors are clobbered in one bank but not the other. Then, cross-border money movement is restricted as are withdrawals from individuals’ own accounts. Finally, a large swathe of the population is condemned to many years of unemployment and grinding economic austerity. My question is this: Why is it called “Monetary Union” ? Herman Van Rompuy believes that the Eurocrisis has been averted. IT HAS JUST STARTED.

Cyprus: A blessing in disguise?

The United States, the Eurozone and even our own administration here in the United Kingdom have shown us that we are fast approaching the time for a major rethink of the Democratic Model.

The Global Economy is becoming permanently unstable and  far too technical to be in the hands of gifted amateurs. Or, in the case of the United Kingdom:  the “Gentleman Politician”.

By all means, allow the Elected Ones to fanny about with the politics but sharp-end economics should now be in the hands of professionals who do not constantly keep one eye on the opinion polls and the other on their next election.

There have already been attempts to install  Technocrats, e.g. Italy and Greece  – but these were no more than economists dressed as politicians, who were then expected to play politics. Inevitably, they crashed and burned.

Cyprus is the latest to demonstrate that politics (of any flavour) coupled with an absolute inability to Manage at Macro level is slowly killing economies.

Some may repeat the “But it’s those bankers” mantra…. and to a certain extent they are correct. However, the Root Cause is the politicians’ inability and unwillingness to manage the banks, themselves and the economy.

Cyprus should not only be a very loud wake-up call but also a watershed moment for Western politics.

CYPRUS Robbery

For 24 hours, the world has been focused on the Cypriot small savers who are likely to lose  a slice of their cash to the god Euro. However, there are others who may lose a lot more.

According to Moody’s, the Cyprus debt crisis has endangered many Russian banks who work with companies owned by Russian oligarchs who are registered in Cyprus. They stand to lose BILLIONS if the Cypriot government defaults.

HERE’S what Spiegel said about all this last November.

As usual, Eurozone politicians have allowed a drama to develop into a potential tragedy.

Banking Reform – A Lack of Will?

When will groups such as  The Parliamentary Commission on Banking Standards wake up and realise that this government has NO real intention of reorganising the banks.

The talk has moved from buffers to firewalls, ring-fencing, electrified ringfencing , shocks and any number of excruciatingly bad metaphors.  As the Commission must have realised by now, the government is cherry-picking its recommendations in order to mollify the Banking Lobby  – which is probably the most influential in Westminster.

Today the Banking Reform Bill is being debated in the Commons, no doubt with the ultimate objective of yet more procrastination by a government which seems unable to either manage or take those “tough decisions” which it is always banging-on about. Unless , of course those tough decisions are aimed at and affect the less privileged.

Andrew Tyrie, the Chairman of the PCBS says “”The government rejected a number of important recommendations. We have concluded that the government’s arguments are insubstantial.”

He added: “There remains much more work to be done to improve the bill.”

JUST what the Chancellor and Prime Minister wanted to hear…..and just as long as the argument can continue until at least May 2015.

Banking reform is in the future – and that is exactly where the government intends to let it stay. Indefinitely.

Europe’s economic fractures widen in February

By Andy Bruce

LONDON | Tue Mar 5, 2013 11:46am GMT (Reuters) –

France, Spain and Italy dragged the euro zone into a deeper downturn in February, according to business surveys that showed the chasm between these countries and prosperous Germany widening yet again.

While British services companies had a slightly better month than expected, Tuesday’s purchasing managers’ indexes (PMIs) showed deepening fractures running through the European economy.

The divide Between Germany and France, the euro zone’s two biggest economies, grew to its widest since the currency union’s inception in 1999.

The PMIs reflected how euro zone businesses were faring mostly before the inconclusive outcome of Italy’s general election, which unsettled international financial markets.

“Two months into 2013, we’ve been somewhat disappointed with the Eurozone’s economy’s progress. The PMIs again reaffirm that,” said Victoria Clarke, economist at Investec in London.

“Germany’s doing a bit better than the rest of the pack, but in general, there’s no real sign there of stabilisation, or of the contraction at least bottoming out.”

Markit’s Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the 17-nation bloc, fell to 47.9 in February from 48.6 in January. Although that was a little better than a preliminary reading of 47.3, it was still well below the 50 mark dividing growth from contraction – as the index has been for just over a year.

Euro zone retail sales for January, showing a 1.2 percent rise, were much better than expected, although economists cautioned that the underlying picture was still very weak.

British retail sales also grew at their strongest annual rate in almost two years last month.

The euro rose slightly against the dollar in response to the data. European stock markets also rallied on Tuesday, although led by strong bank results.

Britain’s services PMI, which accounts for the bulk of its economy, hit a five month-high of 51.8 last month from 51.5 in January, beating the median forecast of 51.0 in a Reuters poll.

Economists expect comparable data from the United States will show its non-manufacturing economy maintained a moderate rate of growth, slowing only slightly since January.

Growth among Chinese services companies, which comprise a smaller proportion of its economy compared with Western peers, slowed from a four-month high in February.

BETTING ON THE BANK

For the euro zone, the outlook depends largely on whether Germany can keep up its economic growth and offset struggling France, Italy and Spain, according to Chris Williamson, chief economist at PMI compiler Markit. “(That) seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic,” he said.

Williamson said the latest surveys were consistent with the euro zone economy shrinking around 0.2 percent this quarter, with only German strength saving the bloc from a downturn as bad as the 0.6 percent decline at the end of last year.

The European Central Bank meets to decide monetary policy this week, although few economists expect any major announcements this month.

Whether the Bank of England will act this month to help boost the economy is a tougher call, despite Tuesday’s unexpectedly strong services PMI.

Before the data, economists polled by Reuters put a 40 percent median chance on the Bank of England adding to the 375 billion pounds it has spent so far on its asset purchasing programme.

However, the upbeat services number follows dire construction and manufacturing PMIs from the last few days. “Maybe a small glimmer of hope is showing through for the UK services sector amidst deepening gloom for the UK economy,” said David Brown from New View Economics.

He said it was far too tenuous to suggest the services PMI means there was some uplift in economic activity this quarter, taken together with the poor manufacturing data.

(Graphic by Vincent Flasseur. Editing by Jeremy Gaunt)

Economic ruin: The Root (Banking) Cause.

Here is some simple high-level analysis which always helps to crystallise issues:

The 2008 mortgage-driven banking industry meltdown was directly responsible for the Eurozone debt crisis, political chaos, austerity, recession (in some cases – depression) and mass unemployment.

The  multi-billion bank and government bailout costs were borne by the surviving taxpayers through increased taxes, constantly inflating prices as well as erosion of their capital and their pensions.

The ROOT CAUSE of this catastrophe was the design and distribution by the banks of technically ill-conceived products which were designed for no other purpose than to optimise bank profits.

Mortgage Securitisation, Default Swaps, PPI, Interest Rate Swaps etc were (are) all bad products.

Against this background, the British Chancellor, on behalf of the Coalition Government wishes to do everything he can to preserve the banking status quo. An “industry” which continues to grind the economy into the ground whilst sucking more cash out of the economy than it is putting in.

Meanwhile, it declares largely illusory profits upon which to base eye-watering bonuses.

The argument that the financial services industry represents a substantial percentage of the United Kingdom’s Gross Domestic Product used to be a good one!

But if the economic collateral damage being inflicted by the banking industry continues, its contribution to GDP will soon tend towards 100% – once everything else disappears!

(On the subject of Root Causes – the NHS is failing to deliver because it is TOO BIG and over-populated by over-promoted Administrators rather than Managers!)

Greece: The Russians are coming.

There is  little doubt that the Eurozone has been so inward-looking over the last few years that the big-picture has eluded it.

Two years ago, I wrote about possible Chinese interest in Greece but it would seem that I was wrong. It is the Russians who appear to be first in the queue.

This is what the Vice President of the Russian Chamber has to say about the Eurocrisis: “This has not been a crisis of the Greek economy but of the European Union and Greece has been chosen as its victim”.

There is massive interest among Russian business people about opportunities in Greece.

In the next few weeks, Russia will be the first country in which Greece’s Investment Bill is presented – after it has been debated in the Greek Parliament.

Unlike Greece’s Euro “partners”, the Russians are showing great interest and confidence in the Greek economy and the Greek people.

The Greek Development Ministry’s General Secretary Tsokas and Simon Kedikoglou (a government spokesman) have already had discussions in Moscow about cooperation with Russian investors. Greek agriculture, tourism, alternative energy sources, pharmaceuticals and even holiday homes for the Russian middle classes were on the agenda.

Whereas Greece’s European ” friends’ ” main focus has been on maintaining the Greek banking system and the “intangibles”, it would seem that there are others who are willing to do what should have been done by Europe in the first place – they’re investing in the Greek economy.

The Nature of Modern Democracy

The concept of political power crystalised as a left/right divide is in its death throws.  UK Political Parties constantly confirm this by this by the politicians’ constant playground squabbles over the political “centre- ground”. Beppe Grillo’s recent success in the Italian elections also suggests that perhaps electors are looking for something concerned more with themselves rather than belonging to one of the “ancient” political herds.

In the UK, the search for a distinction between  the two main parties, has returned us to the Class War which we all thought had burned itself out in Margaret Thatcher’s and John Major’s day. It  certainly wasn’t apparent during Tony Blair’s tenure at No 10 Downing Street.

In the current “model”, it is usual for two major political herds to constantly battle whilst the smaller factions watch with puny impotence.

So where do the “little ones” glean their support? In the UK, smaller parties such as the Liberal Democrats can do no more than feed off the scraps of those at either end of the rapidly- shrinking political spectrum.

The Left- Right nonsense continues to have ‘legs’ primarily as a result of the efforts of the media ‘opinion-formers’ . Their prejudices and fixed views ensure that the Class War continues to simmer.

Instead of a contrast between the Working Classes and the Upper Classes, the modern argument is between the ‘haves’ and the ‘have nots’ – which nowadays is a subtly different distinction. Nowadays you cannot really spot a ‘have not’ because they may be wearing the uniform and  displaying the behaviour of a ‘have’.

We need to find a new set of values……and quickly!

Let’s forget flat-caps, whippets, bowler hats and black rolled umbrellas but at the same time, let’s accept that there are several components which we would ALL like to be included in our new thinking.

Our current political ‘values’ have their roots in past tradition.

We need political values to be in accordance with the one thing which tends to be the  MAJOR STUMBLING BLOCK in any political system.

HUMAN NATURE ……married to our basic instinct – not of  ‘Community’ but of selfishness. We do it for OURSELVES and NOT our neighbours. That’s why Communism failed.

These are three components which are non- negotiable:

1. FREEDOM  2.SOCIAL JUSTICE  3. EGALITARIANISM.

These basic components do NOT need to be overlaid by a PARTY POLITICAL system because these are ABSOLUTES.

In order to achieve the three components above we need to include an element of both Personal and National WEALTH CREATION.

We therefore also need to promote the dynamic of the BUSINESS ETHOS.

Unfortunately, the word ‘BUSINESS’ has become a bit of an emotive topic BECAUSE of the old (present)  LEFT- RIGHT Political system and  Feudal thinking.

Business is all about trade, vocation, craft, employment, industry, enterprise, commerce, bank transaction, negotiation, merchandising, making and most important of all – work and employment.

Unfortunately, because of the L-R divide, business has come to mean bosses, workers, management, greed, oppression and profit.

We need to generate a pretty major adjustment in perception and from that, a new ideology.

Capitalism, Communism, Socialism, Democracy etc are not concepts which have been around for ever. However, they do appear to be running out of steam.

Currently we assume that these labels are the only ones which work or have worked. Unfortunately, human experience tells us otherwise.

Imagine existing Political Parties in say 100 years time. They will still be confronting each other in that theatrical way we have come to love. Left and Right hacks will still be stoking the fires of discontent because that’s their job. The Left- wingers will continue to highlight the Politics of envy whilst the Right will continue to be disrespectful to everyone.

Here in the UK, we have a change of administration every 5 years but all that happens is that The Elected Ones merely continue the ‘blame game’ and the playground bickering.

There are visionless “little” people who ALL suffer from politically-induced Tunnel-Myopia. In the grand scheme of things, they are insignificant.

Meanwhile, whilst the puny jousts and rhetoric continue, the interests of the ordinary voter are sacrificed on the twin altars of blind political and corporate interest.

As the politicians become more and more irrelevant to the irreversible arrow of ‘progress’, democracy is being diminished daily.

Unfortunately the politicians’ self- serving vanity and an over- developed sense of belonging (to a Party) continues to cloud their already flaky judgement.

New thinking is needed. It needs a new METHODOLOGY – one based on expertise plus knowledge and NOT in the combative ‘here today- gone tomorrow’ nonsense of partisan politics.

Rhetoric must give way to implementation of scientifically and rationally-derived policies which are untainted by political dogma.

It is most definitely NOT about economics. Economics, as the main divider of political thinking does not, for instance, have anything to say about human nature or morality or human values – which are the factors which destroy every Economic Theory.

The mathematical formulae and conjectures of the economists are no longer enough.

We do need Capitalism. We need a form of Welfare Capitalism but we need it with a healthy dose of Sociology and Anthropology but with its roots embedded firmly in pragmatism rather than the economics-derived abstract thought and conjecture.

The New Thinking needs to start now- especially since five years ago, when capitalism was effectively destroyed by the Rentier Capitalism Kleptocracy of the United States – which is now becoming increasingly apparent in Europe. Spain is the last economy to fall to Rentier Capitalism.

What we considered to be a benign form of Capitalism has been infected by its malign cousin and currently no-one has a cure. The cause remains while politicians and bankers continue to attempt to cure some of the symptoms with what appears to be the wrong medicine in ever-increasing volumes. For example, the latest craze of Quantitative Earning.

Quack economic cures will soon have to give way to nothing less than major surgery, followed by a totally uncompromising cure.

An example of the “compromises” which highlight the schizophrenia of the current Party-based political and economic system is clearly demonstrated by the double-think of Thatcherism.

The Thatcher years are remembered for two apparently opposing concepts:   The dismantling of many State controls running alongside increased State control.

Nationalised organisations were privatised, thus removing them from State control. State aid was removed from dying industries. Prices and incomes as well as Financial Services Regulation were no longer State controlled and many State organisations were encouraged (forced) to ‘contract out’ many of their functions to the Private Sector, (NHS, Education etc).

At the same time State control was tightened in other areas. Education and Local Government became more centrally controlled, as did the Police. State power was used to control the Unions and State power was used to prevent price- fixing in private industry and commerce.

This sort of Political Schizophrenia continues to this day and clearly demonstrates a lack of ideological coherence.

In fact, it also highlights the traditional view of the two main parties. The intellectual social dogmatism of Labour versus the Conservative avoidance of any real systematic political theory.

Hence the Conservatives’ preference of viewing themselves as the ‘party of common sense’- a phrase one often hears from its leadership.

‘Freedom’ is another often-quoted concept. But is it a REAL concept or maybe just empty rhetoric?

America is (some may argue) the MOST Capitalistic country in the world. It has awarded itself the sobriquet ‘The land of the free’. In fact, there is little understanding of the word.

People do NOT feel ‘free’ because they are told that they are free.

Therefore any new political theory need to examine questions of Social Ethics as well as peoples’ psychological needs.

TRUE democracy HAS to be DIRECT. Modern democracy has dissipated the individuals voice in favour of its citizens handing their voice to someone they may or may NOT have elected.

The Eurozone Crisis has clearly demonstrated that you can have too much Democracy – especially if it generates intransigence because Left and Right views plus upcoming Elections cloud economic judgment.

The changes we need are NOT economic – they need to be a root and branch rethink of the Nature of Democracy and what really underpins it.

The Greek question. It’s all Greek.

The Hellenic Telecommunication Organisation (OTE) is to sell a euro benchmark Bond in order to finance itself and redeem previous bond issues which mature both this year and next.

So, what are its chances of successfully issuing the bond in the international bond markets?

Quite good!  OTE is 40% owned by Deutsche Telecom – although that is NOT the only reason.

CONFIDENCE is the new Euro buzzword.

Even Greece’s Central Bank Governor Provopolous is feeling it. He says that the worst of Greece’s crisis is over because Greek 10 year bond yields have no dropped below 10%! That’s a bankers measure of “confidence!!

In spite of a falling GDP (a further contraction of 4% is expected this year) , unemployment at 26% (and rising), strikes and a very cold Greek winter, according to Mr Provopolous “There is improved confidence” and  “We have turned the corner”.

The bank Governor seems to be confusing the ECB’s promise to “do what it takes” to save the Eurozone with internal “confidence”.

In fact, as a result of last year’s declaration of love for the Eurozone by Mario Draghi, ALL  Eurozone bond yields have fallen. Greek economic policies have  had very little to do with what so far, appears to be the “Miracle of 2013” ……..when Markets are rising and bond yields are falling. The Athens Stock Exchange (ASE) has risen by over 10% since the beginning of the year!

In reality, all the unusual market activity further reinforces that fact that the dislocation between the REAL economy and the virtual money-printing-driven economy is more-or-less complete. The Markets are performing in spite of the economy and NOT because of it.

“Confidence” is all very well…but confidence in what exactly?

Economic recovery or the ability to borrow more?

Whilst Greek politicians are pointing to the fact that Greek bank deposits are increasing, have they forgotten the 50 billion euro recapitalisation which Greece’s largest four banks are still awaiting?

Only THREE MONTHS ago (October 29th  2012), the Greek banking sub index tanked by 13.59% as a result of the unresolved recapitalisation. It remains unresolved.

The only change has been the European Union’s temporary rescue fund which  has “earmarked” about 50 billion euros for the Greek banks….and there will be another delay in paying the money over. There always is. June 2013 is the latest estimate.

The “confidence” cannot possibly be related to any future growth of the Greek economy because that cannot happen until the banks have been mended.

Apart from the bank recapitalisation, there is another EU-IMF allocation of 31.5 billion euros for the banks to “restore their balance sheets” so that they can at least think about participating in Greece’s economic recovery.

Greek bankers and politicians may well be feeling “confidence” but can they honestly say when Greece’s 5-year recession (depression) will be coming to an end?

It looks as if Greece’s recovery is firmly embedded  in the future . Permanently.

GDP excuses?

These are the GDP figures per quarter since Q4 2010, the time from which we can assume that the government’s policies “kicked-in”.

Q4 2010:      -o.4%

Q1 2011:      +0.4%

Q2 2011:      +0.1%

Q3 2011:      +0.6%

Q4 2011:       -0.3%

Q1 2012:       -0.2%

Q2 2012:       -o.4%

Q3 2012:       +o.9%

Q4 2012:        -0.3%

If we now look at a “Moving Year”, that is to say, starting a year at Q4 2010, taking the four figures in blue and then adding them…..and then taking the next four numbers, starting with Q1 2011 etc, we have these GDP figures for the Moving Year:

+0.7%     +0.8%      +0.2%    -o.3%     zero    zero

WE HAVE BEEN IN RECESSION or “FLATLINING” SINCE  THE YEAR BEGINNING Q3 2011

The OECD statistics are HERE.

As you can see from the table, no matter how our government dresses-up the figures, we are the worst performing nation in this list (apart from Spain and Portugal).

The basic solution is simple. The Chancellor of the Exchequer needs to prioritise Growth ahead of Credit Rating.

Incidentally, much has been claimed by the government in respect of how many jobs they’ve created , WITHOUT any significant increase in GDP or “tax take”.

This could be the reason:

When the Coalition took power in May 2010, the number of unemployed people was 2.51 million. See HERE.

The latest figure shows that there are still 2.51 million unemployed in the United Kingdom. See HERE.

……….and no-one appears to have noticed!

All this banging-on about “THE MILLION JOBS we have created” since coming to power?


(Once again, the government appears to have been “economical with the actualité”.)

World Economy: The lunatics ARE running the Asylum!

Today, I was asked what I thought about this year’s European economic outlook. It isn’t great!

One factor which I have consistently underestimated is the ability of politicians to “wheelbarrow” a tragic set of circumstances from one meeting to another without even aiming for a holistic solution. Plus, I have always been conscious of the symbiotic relationship between politicians and bankers but, like an illicit love affair, it has grown over the years. Not into a mature loving relationship but instead, it has acquired all the charming qualities of an incestuous shotgun marriage.

I have been feeling very pessimistic about the world’s banking system for years – even before the 2007/2008 crisis. HERE!

Today, the ENTIRE financial system remains in crisis with both bankers and politicians apparently reduced to the role of observer. Their well-timed occasional “good news” is both ritualistic, orchestrated and largely illusory.

The problem is most acute in Europe where all major banks are barely managing to contain gut-busting levels of very bad government bonds.

Asian banks are at risk as Japan has begun to print and we all owe them money. Plus, we been in the habit of paying for their goods with money which they’ve lent us.

As a result of the sharp decrease in world demand, Asian economic growth has slowed very sharply.

Meanwhile, the United States was becoming addicted to the easy “fix” of Quantitative Easing, but nevertheless, in spite of the supply of virtual money, many of its institutions remain on life support.

Now we have the frightening prospect of the Fed stopping its money printing and the U.S economy having to go “cold turkey”. That won’t be a pretty sight!

Because nothing has really been done post the 2008 banking system collapse, I fear that we may be soon heading for an action replay.

The so-called “stress tests” which various governments have been performing on the banks have been less than useless as an indicator of banking “health” because the entire banking industry has been dispensing the wrong information to those who dare to try and measure what they’re doing and what they’ve got.

Bankers have only ever told  us what they feel we ought to hear.

We are all aware of how badly the Rating Agencies managed to mess things up prior to 2008 and guess what…………the likelihood is that they’re still doing it! It is clear that, for instance, the Eurozone is about to suffer Cardiac Arrest but the Agencies are still telling us that everything is (more-or-less) fine!

The Rating Agencies have a history:

In a landmark 1994 study of the rating agencies, the U.S Government Accountability Office (GAO) concluded that Standard & Poor’s didn’t issue a “vulnerable” rating for one of the biggest failed companies, Fidelity Banker’s Life, until SIX DAYS before the failure … and for another, Monarch Life, until 351 days AFTER the failure! Similar instances of outright neglect were true of Moody’s as well as A.M. Best .

The Enron Failure of 2001: The New York Times reported that ratings agencies saw signs of Enron’s deteriorating finances but did little to warn investors until at least five months later  –  long after more problems had emerged and Enron’s slide into bankruptcy had already accelerated. It wasn’t until four days before Enron filed for Chapter 11, that the major agencies first lowered their debt ratings below investment grade!

What about the U.S mortgage meltdown of 2007 and 2008? EVERYONE now agrees that triple-A ratings on mortgage-backed securities grossly overestimated the investments’ credit quality  and that this played a pivotal role in the debt crisis and that the primary factor behind their inflated ratings were multiple conflicts of interest between them and the issuers.

In the United Kingdom, the collapses or near-collapses of Northern Rock, HBOS, RBS etc were also a surprise to everyone except a few impotent accountants and auditors.

Do you remember anyone commenting on the “ratings” of the companies which had been bankrupt for months or even years?  Me neither.

Nearly all ratings issued by the major agencies are paid for by the issuers — in other words, by the companies that are supposedly being rated!

In addition, the ratings agencies have often earned substantial additional consulting fees to help structure the very Securities which they rate!

To add insult to injury, it’s been proved that the major ratings agencies have often revealed their ratings formulas to issuers, helping their clients to pre-manipulate their data and “adjust” reporting in order to achieve the highest rating.

During the first phase of the financial crisis (2008), and largely because of the inherent conflicts of interest, the major ratings agencies continued to feed investors disinformation. (b******t).

For example, on the day of Bear Stearns’ failure, Moody’s maintained a rating on the company of A2 — the same rating it had published from June 1995 through to June 2003.

S&P was equally generous, giving the firm an A rating until the day of failure.

And Fitch assigned Bear Stearns an A+ rating for 18 straight years all the way up until the day it imploded!

The same basic facts apply to Lehman Brothers and all the other companies that either went belly up or were acquired for pennies.

The major ratings agencies have failed time and again to provide adequate warnings on collapses in all kinds of stocks, bonds, and even entire companies.

The scariest thing today is that European banks are now on the verge of being decimated just like Lehman, Bear Stearns and other firms were back in 2008.

The world economy is slowing from one end of the globe to the other. With massive debts piling up, unemployment rates soaring and the world’s banks still HIGHLY leveraged (overborrowed), it’s only a matter of time before the entire system blows up.

Nowhere is the crisis more acute than in Europe — and nowhere are the risks so great.

The key reason is that European banks are so HUGE relative to their home economies.

The aggregated European economy is roughly equivalent to that of the USA. However, European banks have almost THREE TIMES the assets of our American cousins. Now THAT’s disproportionate power!

That makes it all but impossible for European countries to successfully bail out their banks without jeopardizing their own credit standing and crushing their citizens under the weight of massive tax increases.

Greece, Spain, Portugal, Italy and soon France,  have been lined up like fairground ducks under the jackboot of austerity by tax-starved governments.

That’s why we’re seeing sovereign credit ratings fall, bank share prices decline, and policymakers scrambling from one end of the continent to the other in a desperate attempt to find some kind of workable solution!

The problem? THERE ISN’T ONE!

The perfect recipe for an epic, global financial collapse that will sweep up major banks around the world!

Happy 2013!

50 Predictions for 2013

Last year’s predictions are HERE.

Some were right, some were nearly right whilst others were nowhere near! That’s because most forecasting is a mixture of extrapolation, conjecture, wishful-thinking and luck…………..apart, that is, political and economic divination , which also includes an unhealthy slice of blind optimism.

My interests are mainly political and economic although the list below contains a few random “fun” ones!

I have not included too much of the blindingly obvious, such as the 2013 Eurovision Song Contest in Malmö, where the United Kingdom will be in the bottom THREE and the most likely winner will be Scandinavian.

Wishful thinking has been avoided. For example I do wish that Mo Farah would stop sticking his hands on his head and doing an impression of a demented Pretzel in a vest!

Conjecture, based on past performance suggests that there will NOT be any banking reorganisation because of vested interests and political cowardice. Governments have it within their power to keep that particular pot boiling for years!

All Eurozone Crisis predictions of the last four years vastly underestimated politicians’ capacity for procrastination, ineptitude and political self-interest.

However, I do perceive that European countries with reasonably strong economies will begin to see the advantage of NOT prolonging the Euro agony and once again, striking out on their own, setting their own interest rates and returning to the Lira or Peseta!

These are my predictions:

1. Gold will skyrocket in value.

2. Brazil will finally become THE place to invest(shares and currency)….but see 41 & 42 below.

3. Germany will accelerate the sale of its Bunds, in spite of the fact that it hopes to sell about only about €250 billion Euros’ worth which is lower than in 2012.

4. As predicted last year, Silvio Berlusconi will reappear in Italian Politics – much to Frau Merkel’s chagrin.

5. Pressure will increase on Chancellor George Osborne to be replaced (It’s the ONLY way that the Coalition can move to Plan B without too much loss of face).

6. The banks will continue to rebuild their balance sheets as the value of their assets diminishes, resulting in an increase of non-bank lending. Credit Unions, peer-to-per lending, asset leasing, community finance organisations and  invoice finance will all accelerate as the banking system continues its introspection.

7. United Kingdom property prices will fall by 25%.

8. Frau Merkel will be re-elected and continue as Germany’s Chancellor.

9. Italy will talk about leaving the Euro and readopting the Lira…………..and Berlusconi will be accused of blackmailing Europe.

10. People-power will win-out in Greece and it too will (finally) seriously consider leaving the Euro as its austerity programme is given a violent  “thumbs down” by its people.

11. The theoretical €30 billion in French tax hikes will have a negligible effect on its tax “take”. High net worth individuals and businesses will continue the exodus which began in late 2012.

12. Greek banks will begin to totter as loan defaults by Greek borrowers (both personal and commercial) continue to accelerate.

13. The “restructuring” of Spanish banks will fail.

14. David Cameron and other members of the UK Coalition Government will continue to add 100,000 to the ” number of new jobs we have created in the Private Sector” every time they make a speech. By mid-2013, the “figure” will have swollen to over 1.5 million. Unfortunately without the associated increase in tax-take which one may be forgiven for having expected.

15. Japan printing money will result in a currency battle, primarily involving the American dollar.

16. Greek Tax authorities (in spite of all those reorganisation noises!) will still fail to collect the taxes.

17. David Cameron will realise that UKIP is a clear and present danger and will begin the fight-back by the only way possible. He will adopt their policies and reinforce that by continuing to spray copious volumes of testosterone in Brussels.

18. Mario Monti will stand for election in Italy in a last-ditch attempt to maintain the stranglehold on European politics by Goldman Sachs old boys.

19. The Euro will make its annual journey “to the brink”.

20. Protests will accelerate across Europe – into the United Kingdom….as voters wake-up to the politicians’ ineptitude, procrastination and complacency. Voting-out incompetent governments and merely replacing them with incompetent outfits of another flavour will no longer be viewed as the solution.

21. In France, Francois Hollande will continue to demonstrate why the French don’t really appreciate Presidents who are Socialist.

22. The ECB’s Mario Draghi will once again tell the world that he will do “all it takes” to keep the Euro intact…..including the ruination of millions of Euro lives.

23. Someone, somewhere will wake up to the fact that the banking system is not working and has morphed into a fat, ever-hungry cash cow which no longer executes the functions which it was designed for (to support individuals, commerce and government).

24. Youth Unemployment in Greece and Spain will approach 60%.

25. By the end of 2013,the Catalans and  the Basques will decide on their self-determination.

26. There will be a massive surge in the Spanish anti-Royalist movement and the Spanish Royal family will feel “unloved” as demands are made for the abdication of King Juan-Carlos.

27.The Franco-German Euro Axis will be consigned to the poubelle of history as Frau Merkel finds herself another “favourite”.

28.There will be an exodus of high-earners from France in protest to the Socialist-style “Politics of Envy” taxes on those earning over €1 million.

29. British P.M David Cameron will continue to bang-on about “the mess that Labour left behind” – THREE years after coming to office. That will remind the electorate that in spite of the PR, the Coalition still has no idea about how to deal with the budget deficit, except to adopt the bad part of the Merkel Model.

30. Japan’s money-printing programme will drive up its inflation, to match (and exceed) that of the USA, possibly achieving “hyper” levels. Then, they’ll print some more!

31. USA: There will be no “Fiscal Cliff”. The cracks in policy will be papered over by compromise and political expediency………. as America lurches towards the next crisis.

32. In the UK, the Church of England will continue to fret about sex-related matters such as gays, gay marriage and lady bishops. Hopefully, some of them will find  a bit of time for their God and congregation!

33. The winners of the X-factor and Britain’s got Talent will have no discernible…………talent. (That’s my annual, sure-fire, 24-carat banker!)

34. In Europe (as usual), neither Barroso nor Van Rompuy will say anything REMOTELY interesting or pertinent.

35. Europe will continue to TALK of fiscal and political integration………but that’s what it will remain…..TALK. Why? Because one of the by-products would have to be some form of Debt-Mutualisation which so far,  remains a deal-breaker.

36. German resistance to European supervision of the banks will result in the smaller banks remaining unsupervised.

37. In Italy, Mario Monti has clearly demonstrated the usefulness of a government of Technocrats: they have pushed through economic reforms and budget cuts which a properly-elected government would have NO CHANCE of implementing. However, the honeymoon appears to be over and Italy will return to a Berlusconi-led coalition.

38. Bundeskanzlerin Merkel will strengthen her position as de facto European leader as other (weaker, male) European leaders (half of who are on their way out – including the UK administration) continue to defer to her.

39. After the German elections, Mrs Merkel’s Christian Democrats will form a new coalition with the Social Democrats.

40. Stagnation, Recession and Depression will continue in Europe. Greece will remain in depression (yes!), as will Spain and Portugal.

41. If you’re an investor, you could do worse than keep an eye on Mongolia’s mining boom which will pick up speed in 2013.

42. If you’re a gambling person, here’s an interesting “double”. Lord Patten to resign as BBC Chair . Then, invest your winnings on anything in Macau whose economy is booked to grow by about 15% in 2013.

43. The “in denial”  UK Coalition Government will continue to spout meaningless statistics as the retail trade continues its slow-motion collapse and accelerating volumes of businesses go into administration and bankruptcy.

44. The Protestant Church will begin to turn more to Bible-centred Christianity – away from the airy-fairy, trendy, unleaded and flaccid Christianity of the Rowan Williams era. More “splintering”.

45. Last year I predicted a dismembering of the UK’s Coalition government but now realise that it was just wishful thinking. I underestimated how much Tory crap Nick Clegg could swallow. Last year, his capacity seemed infinite. However, for 2013, I predict that Europe will provide the catalyst for an all-out Coalition Civil War.

46. Unless the Chancellor can sell 5G, 6G and all the other “G” Futures and assuming he collects for 4G, there will be a massive government Welfare Review designed to further butcher Public Spending. ( He has no choice because of his rather stunted economic repertoire). That will finally shake the Libdems from their collective coma and fight the Tories. Otherwise…….Libdem Oblivion.

47. “Dead-tree” journalism will continue to atrophy and die with an announcement that at least one major newspaper is to go exclusively digital. (My money is on the Guardian).

48. Massive Solar storms may envelop the Earth which, according to NASA, could render the above predictions both irrelevant and obsolete. Keep an eye on www.swpc.noaa.gov

49. Andrew Mitchell MP will make a return appearance in the Cabinet after the nonsense of allowing the police to investigate themselves in what is increasingly looking like the fit-up of the year.

50. William Hague and Hillary Clinton will keep-on “condemning”  the Syrian Authorities as they continue to murder with impunity. Western powers have learned that when they intervene in the Middle East – only one group ever benefits: The Construction Industry.

Germany – a non-elective dictatorship?

Today, Mario Draghi, the President of the European Central Bank is in Berlin, explaining himself to the Bundesbank.  Last week European leaders agreed a timetable to create a European Banking Union but German Chancellor Angela Merkel refused to countenance measures to provide immediate support to Eurozone banks.

That was in spite of the fact that she had previously agreed (or has appeared to agree) to a proposed fund which would have given Spanish Banks immediate help. She said: “As long as there are individual national budgets, I regard the assumption of joint liability as inappropriate and from our point of view, this isn’t up for debate.”

In addition, Germany, through Frau Merkel, has also managed to postpone the creation of the new post of European Central Bank Banking supervisor until the end of 2013.

Then there was the rumour that if David Cameron persisted in his plan to veto the next Brussels Budget, Germany would seek to postpone the next European Summit.

Two weeks ago, Frau Merkel visited Greece with the sort of anticipation normally reserved for visiting Royalty. The Greek government were behaving as if “to please” Frau Merkel was the most important thing that they could achieve.

So who IS in charge? Who IS running Europe? It certainly does NOT appear to be any of the array of  “Presidents” who occasionally spout meaningless  Euro-rhetoric in order to justify their not-so-meagre existences.

It would seem that Europe and especially that “organisation-within-the-organisation” , known as the Eurozone had mutated into an “NON-ELECTIVE DICTATORSHIP”.

An Elective Dictatorship is simply a situation within a Democracy when the political power of the ruling Party is so strong that “what they say goes”. NO questions!

This usually occurs within a “first-past-the-post” system where the Party of Government has such a high majority that political debate becomes purely cosmetic. Whatever THEY decide is carried.  Some call it “strong” government. In actual fact, it is a Dictatorship.

One may say that in the United Kingdom, we have the safeguard of the Upper House. However, the concept of an Elective Dictatorship is compounded by the Parliament Acts and the Salisbury Convention. Parliament may pass legislation on any subject it wishes and even if the House of Lords disagrees, the legislation can be bludgeoned through using the Parliament Act.

But “Ah!” I hear you say – “What about the Monarchy?” After all, any new legislation has to receive the Royal Assent which is in the gift of the monarch.

You may be interested to know that  a British monarch has not refused the assent to a bill for about 300 years. It is a formality.

That means that a powerful government (in theory) could get away with whatever it damn-well pleases – with few real balances and checks.

In  theory a strong government is a Dictatorship – an Elective Dictatorship.

These days, in spite of the counterbalancing weight provided in the United Kingdom by the Liberal Democrats in Coalition with the Conservative Party, the Government is behaving more and more as a Dictatorship – and that’s within the system described above.  It is a manifestation of the weak in coalition with the strong and is a phenomenon reflected on modern-day Europe.

The “weak”  in partnership with the “strong” (whether it is political OR economic strength), can only result in one outcome……the strong will always prevail.

What about Europe?

There is no upper house and there is no ultimate sign-off. It all has to be agreed “democratically”. But is that really what happens? Is the citizen still holding the ultimate power but more importantly, is the elected political representative still accountable to the citizen?

Firstly, the real decision-makers in Europe are non-elected. But on a macro scale, by virtue of nothing more than economic strength – an ultimate leader has emerged. A leader who has the final say with a built-in “queen” who has to give assent…….. Frau Merkel’s Germany.

Germany has NOT been elected to oversee Europe , neither has Germany been elected to dictate to other European states…….. and………the German Chancellor should not be required to grant “royal assent” to  any economic or political changes within Sovereign European States……but that is exactly what is happening.

A strong  non-elected entity dictating to the weak. A NON-ELECTIVE DICTATORSHIP.

“European Democracy” is fast becoming an oxymoron.

Europe: Read the small print.

European leaders have agreed a timetable during which they will produce (only) the legal framework for a Eurozone Banking Regulator.

Critical words? Timetable and Legal Framework.

NO BANKING REGULATOR.

Implementation will be “during 2013”. (Nothing AT ALL to do with the pure coincidence of the September 2013 German Elections.)

That sort of crap deserves a Nobel Prize!

Good job they managed to crank up the markets earlier this week…….

pssst……….the economy?………

Money printing – a simple question.

Today, the Head of Germany’s Bundesbank, Jens Weidmann, has asked a very simple but critical question about Quantitative Easing and its cousin, the Unlimited Bond Purchase:

If a central bank can create unlimited money from nothing, how can it ensure that money remains sufficiently scarce to retain its value?”

Money is a commodity and was invented when someone did not have goods or skills to trade  in return for a commodity he wanted. He was able to offer “money” which could be redeemed at a later date for something that the original “seller” wanted or needed.

However, if there is a too much of a commodity, its price goes down.

So, if there is too much money, its price WILL go down.

THAT is why Central Bankers are playing a very dangerous game.

The simple answer to Herr Weidmann’s question is that a Central Bank CANNOT ensure that by increasing the money supply, it can even begin to ensure that the money will retain its value.

What they’re doing is the equivalent of fixing a stalled car engine by painting the car…..again….and again….and again…..

Eurozone: Decisions Decisions

LONDON: Global stocks and the euro dipped yesterday as investors cashed in some of last week’s sharp gains ahead of a German ruling on the euro zone’s new bailout fund, Dutch elections and potential new stimulus from the US Federal Reserve.

The European Central Bank’s statement last week, indicating that it was prepared to buy an unlimited amount of strained euro zone government bonds pushed European shares to a 13-month high and the euro to a four-month peak on hopes it could mark a turning point in the bloc’s 2-1/2 year crisis.

Investors started the week by taking some of that profit off the table. The MSCI index of top global shares was down 0.1 ahead of the opening bell on Wall Street, with the euro and stock markets in London, Paris and Frankfurt all slightly lower.

US stock index futures also pointed to a lower open on Wall Street, with futures for the S&P 500, Dow Jones and Nasdaq 100 all down just over 0.2 percent.

Europe faces another testing week, with Dutch voters going to the polls and Germany’s constitutional court set to rule on new powers for the European Stability Mechanism, the euro zone’s new bailout fund, both on Wednesday.

Since ECB President Mario Draghi first mooted the ECB’s new crisis plan on July 26, world stocks have rallied more than 8 percent, euro zone blue chips have jumped almost 20 percent and the euro has risen more than 4 percent. Analysts are wondering whether the gains can continue.

“The Draghi effect obviously helped the markets hugely, so people are likely to be a bit more hesitant this week,” said Hans Peterson, global head of investment strategy at SEB private banking.

“Risk appetite is likely to be on the way up, but we have to clear some hurdles, and the things in Europe have to go according to plan. The key issue this week is the approval of the ESM by the German constitutional court.”

Strategists at Goldman Sachs also issued an upbeat note on equities, saying that while there were worries over China’s wobbling growth, the brighter European news and signs of gradual improvement in the US were both positives.

There is still room for market rallying,” they said, citing their target for the Eurostoxx 50 to hit 2,700 points in the next 12 months. “From current levels, however, we expect further gains through to year-end, but at a slower pace,” they added.

BOND FOCUS

The euro followed the downward trend, easing against the dollar, but stayed close to a near four-month high hit on Friday after below-forecast US jobs data fanned speculation the Federal Reserve may launch more monetary stimulus this week.

Hopes that powerful ECB intervention in Italian and Spanish bond markets could finally draw an end to the seemingly endless euro crisis has seen massive upward shifts across global markets, from European stocks and treasuries to commodity-reliant economies.

Spanish 10-year yields have tumbled more than two percentage points from an unsustainably high 7.8 percent to around 5.6 percent, while the reduced demand for safe-haven German debt has pushed equivalent yields up 36 bps from their record lows to stand at 1.48 percent.

Spain’s borrowing costs hit a fresh five-month low on Monday while German Bund futures bounced around in choppy conditions, supported initially by worries over Greece’s fiscal repair plans and Fed aid hopes before going into negative territory around midday.

U.S markets are waiting eagerly to see whether the latest data have convinced the Federal Reserve that more stimulus is required.

The benchmark S&P 500 index rose 2.3 percent last week, its biggest weekly gain in three months.

SEB’s Peterson said it was still uncertain whether the US central bank would act and cautioned that any new support was likely to provide a temporary rather than a long-term lift.

“What is really important here is the wider macro picture, whether the euro zone sorts itself out and what happens in China and Asia,” he added.

Fresh data from China on Monday showed exports grew at a slower pace than forecast last month while imports surprisingly fell, underlining weak domestic demand as the global economic outlook dims.

Oil markets are riding high, underpinned both by hopes that economic stimulus around the world will fuel growth and geo-political tensions in parts of the Middle East, the world’s most important oil-producing region.

Brent crude futures for October delivery were trading 46 cents higher at $114.71 per barrel by 1248 GMT, after settling up 76 cents on Friday. US crude was trading up 7 cents at $96.49 per barrel.

“Chinese data had been expected to be weak, so to some extent it has been taken into account in oil prices, but having said that, it basically caps the upside,” said Masaki Suematsu, energy team sales manager at Newedge Japan.

Copyright spygun/Reuters, 2012

ECB Mario Draghi’s Statement……….. 6th September 2012

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and by the Commission Vice-President, Mr Rehn.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, to fall below that level again in the course of next year and to remain in line with price stability over the policy-relevant horizon. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. Economic growth in the euro area is expected to remain weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation.

It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area. We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area. OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro. Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area. Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.

In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building. At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective. Details of the Outright Monetary Transactions are described in a separate press release.

Furthermore, the Governing Council took decisions with a view to ensuring the availability of adequate collateral in Eurosystem refinancing operations. The details of these measures are also elaborated in a separate press release.

Let me now explain our assessment in greater detail, starting with the economic analysis. Recently published statistics indicate that euro area real GDP contracted by 0.2 percent, quarter on quarter, in the second quarter of 2012, following zero growth in the previous quarter. Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually. The growth momentum is expected to remain dampened by the necessary process of balance sheet adjustment in the financial and non-financial sectors, the existence of high unemployment and an uneven global recovery.

The September 2012 ECB staff macroeconomic projections for the euro area foresee annual real GDP growth in a range between -0.6 percent and -0.2 percent for 2012 and between -0.4 percent and 1.4 percent for 2013. Compared with the June 2012 Eurosystem staff macroeconomic projections, the ranges for 2012 and 2013 have been revised downwards.

The risks surrounding the economic outlook for the euro area are assessed to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. These risks should be contained by effective action by all euro area policy-makers.

Euro area annual HICP inflation was 2.6 percent in August 2012, according to Eurostat’s flash estimate, compared with 2.4 percent in the previous month. This increase is mainly due to renewed increases in euro-denominated energy prices. On the basis of current futures prices for oil, inflation rates could turn out somewhat higher than expected a few months ago, but they should decline to below 2 percent again in the course of next year. Over the policy-relevant horizon, in an environment of modest growth in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain moderate.

The September 2012 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation in a range between 2.4 percent and 2.6 percent for 2012 and between 1.3 percent and 2.5 percent for 2013. These projection ranges are somewhat higher than those contained in the June 2012 Eurosystem staff macroeconomic projections.

Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes owing to the need for fiscal consolidation. The main downside risks relate to the impact of weaker than expected growth in the euro area, particularly resulting from a further intensification of financial market tensions, and its effects on the domestic components of inflation. If not contained by effective action by all euro area policy-makers, such intensification has the potential to affect the balance of risks on the downside.

Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 increased to 3.8 percent in July 2012, up from 3.2 percent in June. The rise in M3 growth was mainly attributable to a higher preference for liquidity, as reflected in the further increase in the annual growth rate of the narrow monetary aggregate M1 to 4.5 percent in July, from 3.5 percent in June.

The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) remained weak at 0.5 percent in July (after 0.3 percent in June). Annual growth in MFI loans to both non-financial corporations and households remained subdued, at -0.2 percent and 1.1 percent respectively (both adjusted for loan sales and securitisation). To a large extent, subdued loan growth reflects a weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, the segmentation of financial markets and capital constraints for banks continue to weigh on credit supply.

Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.

To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

lthough good progress is being made, the need for structural and fiscal adjustment remains significant in many European countries. On the structural side, further swift and decisive product and labour market reforms are required across the euro area to improve competitiveness, increase adjustment capacities and achieve higher sustainable growth rates. These structural reforms will also complement and support fiscal consolidation and debt sustainability. On the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. In this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. Finally, pushing ahead with European institution-building with great determination is essential.

We are now at your disposal for questions.

Eurozone Meetings Merrygoround

This week, Angela Merkel meets Herman Van Rompuy, Mario Monti meets Francois Hollande who also meets David Cameron.

The new Meeting Season seems to indicate that Eurozone leaders have decided that meeting in plenary will be punctuated by the new craze of meeting in pairs.

I thought that it may be useful to compute how many meetings 0f TWO, could be managed by 20 politicians.

They are:  the 17 Eurozone leaders + Van Rompuy + Barroso + Cameron = 20.

So, how many meetings would  20 politicians generate if they met in pairs?

Using the formula n!/(r!(n-r)!)……… (n = number of leaders and r = 2,  as they meet in pairs)

The total number of “pair meetings” achievable by 20 politicians is  20!/(2!(20 – 2)!) = 190

We have to double that, because they each will want to meet twice so that each one has TWO meetings with every one. (One Home and one Away).

Therefore 20 politicians can generate 380 meetings – if they confine themselves to meeting TWO at a time.

That of course is on TOP of the monthly Eurozone Crisis Meetings, EU meetings and special meetings – for instance, when Spain decides to take the €500 billion we all know it needs or the next time Greece is (once again) about to go down the Grexit toilet.

We can see therefore that any attempt to solve the European Crisis would only serve to interfere with what is already a very heavy meeting schedule.

Eurozone – a new religion?

The Eurozone has gradually and imperceptibly acquired all the unsavoury aspects of a religion – and we don’t even appear to have noticed!

For instance, Greece is having to do PENANCE (austerity) as punishment for its past sins. Others are already gathering to follow the Greek example. The HOLY EURO demands it!

All believers need HOPE in order to believe. The Eurozone hope is provided by the ECB which may or may not decide to help. Sometimes it is merciful but yet on other occasions it gives the impression that perhaps Euromortals should be allowed to make their mistakes and then clear up the mess themselves. Freewill or Predestination?

Then of course, any religion worth its salt has its Unique Selling Proposition. The most simple and powerful is the promise of an afterlife  or , more accurately, the choice between TWO afterlives. One where the Euro remains intact and everyone lives happily ever after (HEAVEN). The other is the threat of HELL should the Euro break up. However, the Eurozone High Priests have provided a third way – PURGATORY – where the genuinely penitent can suffer for a while so that their transgressions (SINS) may be forgiven.

(Greece is currently languishing  in PURGATORY with its cilice so tight that it has begun to draw blood).

Every religion has a DOGMA. That is provided by the strong belief that Monetary Union is the only true Path of Righteousness.

The DOCTRINE is extracted from the many words which have been handed down over the years. They are true because it has been written that they are true. (See Maastricht Treaty).

There are RITUALS – every religion has its rituals. The Eurozone rituals are mysterious and enacted during the frequent MEETINGS of the High Priests with the important rituals being acted-out in THEIR own Vatican, which is in Brussels but some believe that it is in Berlin. Every such ritual generates words for the believers – but just like every other religion, the words have become repetitive and Mantra-like with little real meaning or relevance.

There has to be a MYTH. Something which , even in the face of overwhelming evidence , remains sacred. Theirs is THE HOLY EURO…..

Every religion has its DETRACTORS – those who may wish to modify or change either the beliefs or the mode of worship. There are those who would REFORM. Europe has such an enemy within – it’s own JUDAS. It is called the United Kingdom – which is sometimes viewed (by High Priestess Merkel) as the DEVIL incarnate.

It is appropriate to highlight the New Religion this week because it is the time when the new round of meetings and pilgrimages begins.

At the end of this Holy Euro Week, there will be no changes but the faith of many will be strengthened by the promises of the High Priests.

Amen. May the blessings of the Euro be with you.

Eurozone headed towards lengthy recession

Roddy Thomson (AFP)  from Brussels:

The eurozone veered towards a prolonged recession with new growth figures out on Tuesday showing its economy shrinking again and analysts warning of falling output right through 2013.

Germany posted better-than-expected growth of 0.3 percent between April and June, while No. 2 economy France just about scraped zero growth — but the experts saw precious little good news ahead, with the eurozone as a whole contracting by 0.2 percent.

“The big picture is that the economic growth required to bring the region’s debt crisis to an end is still nowhere in sight,” said London-based Jonathan Loynes of Capital Economics.

“The slowdown has spread from the periphery into the core,” said Tom Rogers, an analyst with Ernst & Young in London, one of many to highlight a systemic “north-south divide.”

“Positive readings in Germany and the Netherlands (0.2 percent) are to be welcomed, but with conditions in the rest of Europe deteriorating further, and export markets farther afield also cooling, it is looking increasingly likely that output in the core economies will contract during the second half of the year,” Rogers added.

Italy’s economy lost 0.7 percent during the quarter and Spain 0.4 percent, with the economic implosion in Greece continuing unabated — a 6.2 percent contraction after shrinking 6.5 percent in the first quarter of 2012.

These were to be expected, but, said Howard Archer of IHS Global Insight, it was “notable and worrying that GDP also contracted in Belgium and Finland,” by 0.6 percent and 1.0 percent respectively.

Tipping an overall GDP contraction for the eurozone in 2012 of 0.5 percent, he said IHS forecasts thereafter “are based on the assumption that Greece leaves the eurozone around mid-2013.”

“We expect a strong policy response to limit the fall-out but modest eurozone recession is still expected as a consequence in the second half of 2013,” Archer added.

Archer said the IHS team was forecasting a 0.2 percent contraction for next year as a whole.

Daniele Antonucci at Morgan Stanley was scarcely more optimistic, saying: “We expect the eurozone economy to shrink by 0.5 percent this year and to stagnate next year.”

The most recent forecast released by the European Commission in May anticipated growth of 1.0 percent for the eurozone next year.

The IMF last month revised its 2013 projection down to 0.7 percent growth, while ratings giant S&P and Ernst & Young each last month cut their estimates for next year to 0.4 percent.

Even in the days before Tuesday’s figures, Commerzbank economists said they “expect no growth until well into next year,” tipping “stagnation,” or zero growth, for 2013 as a whole.

A recession is commonly defined as two consecutive quarters of contracting activity.

The eurozone already posted flat growth in the first quarter of this year.

These latest flash estimates from the EU underscore how Europe is lagging well behind its main economic and trade rivals and partners, with comparative Eurostat figures saying GDP rose by 2.2 percent quarter-on-quarter in the United States and 3.6 percent in Japan.

“Only once the eurocrisis is back under control can a rebound in investment lead to a return to trend growth in core Europe,” said Christian Schulz of Berenberg Bank.

He highlighted Socialist-governed France, where imports now outpace exports, as the one to watch — floating in between the “north” of Germany and similarly-structured neighbouring economies such as Austria that are broadly holding on, and the tumbling economies of the south.

“In terms of economic confidence, it remains firmly part of core Europe, but it is losing competitiveness… France has to bring down its excessive public deficit eventually,” Schulz underlined.

French Finance Minister Pierre Moscovici, who must cut his country’s budget deficit from some 4.5 percent of GDP this year to the EU limit of 3.0 percent by the end of 2013, admitted the second-quarter result was “very weak,” but held to the government’s forecast for 0.3 percent growth in 2012.

He would not have appreciated notes figuring prominently on finance news streams from Barclays and UniCredit which pointed out that the official figure was actually rounded up to zero, whereas in reality it showed “negative” growth of 0.045 percent.

Germany held up thanks to exports and consumer spending, said Newedge Strategy analyst Annalisa Piazza, maintaining that its economy “remains relatively resilient” with only “limited” spillover from the euro crisis.

Venizelos’ Oral Plan

Here is a 10-point “plan” for a strategic framework, presented to the Greek Parliament by PASOK leader Evangelos Venizelos. He described  his 10-point proposal as a plan for an “integrated national strategy”. (I have highlighted certain words in BOLD.)

1. There is need for immediate actions by Greece in the period of August-September that will concern high-level contacts with the leaders of the EU member states and also the institutional partners (European Commission, European Central Bank and International Monetary Fund), and also for shielding the domestic front. The national negotiating team must be formed and the opposition called on to contribute to the effort. Venizelos said it would be a “mistake” and “insult to the country” for it to be said that it has been inert with respect to the structural changes, adding that the changes effected from 2010 to the present are “unprecedented” and the reproduction of such stereotypes at Greece’s expense must stop.

2. The country must manifest its strong determination to promote structural changes, and noted the 77 obstacles pinpointed by the Fund for privatisations, which he stressed need to be immediately eliminated through legislation.

3. The end fiscal target must immediately be confirmed, so that from a deficit of 11.5 billion euros we will go to a primary surplus, and a 2.6 percent growth rate must be achieved.

4. The fiscal adjustment period needs to be extended to 2016.

5. It is necessary to draft an updated programme for the period 2012-2016, so that the 2012 budget may be closed and a draft budget drawn up for 2013, which should be tabled in parliament in early October.

6. A proposal should be drawn up for full itemisation of the programme for 2012-2014, without across-the-board cuts that affect small and medium incomes.

7. Improvement of the macroeconomic climate which, if improved, will enable an easier implementation of the second stage of fiscal adjustment in 2014-2016.

8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction of the cost of money, as well as measures to control prices.

9. Measures must be taken to reinforce social cohesion.

10. The international communications framework that is negative towards Greece must change, in cooperation with the partners.

The “must be” phrase is the one which gives the illusion of action but in fact means absolutely nothing. It is not even a statement of intent. You will notice (in bold above) that Venizelos is using exactly the language which I outlined HERE .

Political pronouncements would carry far more gravitas if they sometimes contained dates and more definite verbs. For example, looking at just ONE of the items on Mr Venizelos’ shopping list:

See the wording of No 8 (above)…NO amount…NO date…..in fact, NOTHING definite. Here’s a slight modification:

The original:

8. Immediate and tangible measures must be taken to increase employment in tandem with a reduction  of the cost of money, as well as measures to control prices.

A modified version:

8. Directly through the Treasury, we are allocating €5 billion to be available to employers, specifically for them to hire new people. This money is available now and the employer will be paid the equivalent of six months of the new employees salary on Day 1 of that employee joining the business. This facility will be open only to those employers with an annual turnover of under €500,00 per year.  All start-up businesses will be completely tax-exempt for 12 months.

(The figures are only for illustration purposes but they do shed some light on the difference between empty political words and a PLAN.)

It looks as if Mr Venizelos continues to practice exactly what Eurozone politicians have been indulging themselves in for the last FOUR years:

ORAL POLITICS :  Words WITHOUT actions.

Germany reports the biggest fall in new business orders since records began,  manufacturing in France is at a three-year low with Italy experiencing the fastest rise in unemployment for three years. On the other hand, Ireland’s output is beginning to increase – although they did start from a lower base.

The Eurozone’s overall manufacturing activity is at a three-year low although the markets continue their comatose drift whilst traders try to make the best of a bad job.

Expect more fine Eurowords over the next few days with a market rise towards the end of the week if Draghi manages to pull a rabbit out of the ECB hat.

Italian Prime Minister, Mario Monti is on fine form today with yet another observation on the Eurozone crisis: “It is a tunnel but … some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel.”

Never a truer word has been spoken by a Eurozone politician. They are approaching the end of the tunnel.

However, does he realise that the light at the end of the Euro tunnel is runaway train heading in their direction?

This June saw an additional 123,000 people  out of work in the Eurozone.  We can all agree that an unemployment rate of 11.2% across 17 countries is only acceptable to the politicians who appear to be continuing to merely observe the numbers climb.

At just under 25%, the highest Eurozone unemployment rate is  in Spain.

On Thursday 2nd Auguust 2012, in order for the Eurozone to have any sort of mid-term future, the ECB’sMario Draghi has to pull something out of the hat. Because of the political procrastination and everyone else’s expectation, this cannot just be a “rabbit out of the hat”. This has to be the biggest rabbit EVER!

A “No shit Sherlock?” moment from Italian P.M Mario Monti : “It is vital to not lose a moment in the battle to return the crisis-hit euro zone to stability.”

He continued: “What’s at stake – the stability, the strength of the Eurozone, its ability to contribute to the economic and social growth of Europe.”

The Eurozone’s Déjà vu Economics

For years, regulators have been trying to control bad banking. Governments have been failing to control bad sovereign fiscal governance. That’s the nature of the Eurozone. This flawed approach has only left one solution – at some stage, both the banks and sovereigns will have to be properly underwritten by the European Central Bank (ECB).

One day soon, the ECB will become the lender-of-last-resort.

However, possibly for reasons of either dull-wittedness or maybe just some good old-fashioned showmanship, the ECB never makes a move until there is a proper danger of a crisis. (Think Superman grabbing that train on a railway bridge just seconds before it falls into the ravine.)

Unfortunately, this economic scenario appears to be played out on a perpetual “loop”.

Déjà vu Economics.

Currently, markets are once again applying severe pressure to Eurozone public debt and  Euro politicians are repeating the “We are determined” and “Whatever it takes” mantras. The markets continue to fluctuate “in vacuo” with little regard to the “real” conditions, further confusing the politicos who, for some unknown reason, believe that the solution to everything lies in greater Eurozone union and organisational changes. (Bless them! It’s all they know!)

The next stage is simple (and it began last week):  a few mealy-mouthed statements from Euro leaders which attempted to shove the crisis-cursor forward a few weeks until after the end of the Summer Holidays – whilst Spain and Italy (both standing on the trapdoor) have  issued “holding statements”.

The well-worn and rapidly failing  policy response from the Euro Gods is those potentially explosive “Austerity Measures” – the only other technique in their repertoire. Yet another case of the cure being more painful than the disease. Ask Greece.

In 2010, the Greek Government (just before it lost access to the markets) po-pooed the idea of  needing help. “We are not Latin America!” they scoffed. Now it’s Spain’s and Italy’s turn: “We are not Greece!”

Oh yes you are – only bigger, hungrier and therefore more dangerous – and remember this, when you too lose access to the markets, you will need a bailout.

Euro politicians do play with a very limited repertoire, so Spain and Italy will have yet more austerity. That will accelerate the deterioration of their economies – although their politicians will talk (a lot) about “growth”.

This (just like in Greece) will result in lower tax revenues and austerity targets being missed (although the “Troika” continues to believe that, contrary to all the evidence, an economic miracle will manifest itself . Suddenly,  as if by magic, they hope that the Perpetual Spring of Eternal Economic Growth will materialise out of the ashes of Austerity!!).

Then, the banks will need yet more and we’ll end up discussing when Spain and Italy will leave the Eurozone. Then France…..

That will return the cycle to Square One with the politicians once again being “Determined” and promising to do “Whatever ir takes”.

Another dose of  Déjà vu Economics.

Meanwhile, should the crisis look really dangerous, the ECB’s Marion Draghi will find a telephone box, change and fly-in to save the day. “To calm the Markets”

The banks have spent four years watching and secretly hoping that this ridiculous loop continues forever, Why? Because once the ECB steps in and protects sovereign debt, those debts will have a price. Banks will have to revalue any debt they are holding (downwards), resulting in quite a few of them going to the wall.

There will be yet more “haircuts” for private investors too!

Just like a rapidly expanding non-working retired population needs more and more support from an increasingly taxed but shrinking working population, so the Eurozone is becoming an arrangement whereby more and more non-producing and increasingly reliant countries have to be supported by a rapidly shrinking collection of fully-functioning states.

The tipping point is not too far away – the point at which there are more (economically) broken states than those in reasonable health which can continue to support them.

Meanwhile, let’s have some more Déjà vu.  Again.

Growing up hungry in Greece

ATHENS/PATRAS, Greece  —  Μarcos Efcarpos is only 10 years old, but he already knows what the euro crisis means.

He lives with his single mother, an English teacher named Nena, in an apartment in the poor, waterfront neighborhood of Kallithea, where a growing number of immigrants jostle with far-right gang members affiliated with neo-fascist party Golden Dawn.

Incomes here have plummeted since the start of the financial crisis in 2008, especially after international lenders imposed debt repayments on the country two years ago.

“My family still pays taxes but very soon we won’t be able to buy what we need,” said Marcos, who plays guitar and appears older than his age. “That’s why we’re careful with what we spend — we have very few possessions.”

Nena works 11 hours a day, six days a week to support her son. But although she often runs out of money by the end of each month, she considers herself lucky because her parents send fruit and vegetables from their rural garden.

Marcos rarely begs for new purchases. “He’s learned to ask if we have money for something he wants,” Nena explained. “We have a new slogan: ‘Fewer needs, fewer worries.’”

Despite his straitened circumstances, Marcos is doing well for a Greek child. Many others are growing up hungry, a stark result of austerity measures such as wage cuts and tax increases that were prompted by the country’s three-year drive to repay its debts, and are affecting almost every part of the population.

Estimates for the number of children living below the poverty line vary. The EU’s official figure, 439,000, or 23 percent of the population under 18, increased a mere 2 percent since 2009. However, that number is derived from the current Greek median wage.

Child poverty specialist Matsaganis Manos says the real number probably jumped “dramatically” between 2009 and 2011 — to 35 percent — if current earnings are compared to what Greeks made before the crisis. And the government’s decision to cut the minimum wage by a fifth earlier this year is “bound to make things even worse for families with children,” he said.

The changes in Greek society are clear on the streets. Social workers say some poor Athens neighborhoods are experiencing close to a humanitarian emergency.

“People are beginning to starve,” said Aglaia Konstantakopolou, who works at a soup kitchen and social center in downtown Athens originally planned for refugees. “Mothers come begging for diapers, milk for their children or food,” he added. “Two years ago, you never saw anything like that.”

Teachers say children often show up to class hungry. Many skip classes to eat breakfast at charity shelters, Konstantakopolou says.

The physical strains are producing psychological effects, especially among younger children who often blame themselves for the effects of the crisis.

“When parents can’t buy clothes or toys, children believe they’ve been bad and are responsible,” child psychologist Salemi Parrisia said.

There are reports of growing numbers of malnourished children collapsing at school and suffering health-related phobias.

Although cuts to social services are partly to blame for those dire developments, some children’s advocates say Greece’s notorious bureaucratic inefficiency is even more responsible.

UNICEF Greek director Ilias Liberis blames “structural weaknesses” among a profusion of overlapping agencies for harming efforts to protect children.

“There are many different services and organizations helping children,” he said, “but no central coordination.”

However, public anger over austerity, corruption and the failing economy has drowned out calls to reform child services.

Already one of Greece’s poorest cities, the western port of Patras has been badly hit by the crisis. The city council estimates the number of poor has more than doubled in less than a year.

At the city’s Greek Orthodox cathedral, employees at a soup kitchen prepare daily basic lunches of beans, olives and fruit.

“The number of people who come begging grows every day,” says cook Konstantina Nikolinakou. “We made food for 30 people before the crisis. Now we serve 120.”

She says there is never enough for everyone. “We can’t chase them away.”

Outside the soup kitchen wait 38-year-old Maria Papanikolaou and her 11-year-old son Petros, hoping for leftover scraps. A former accountant, Papanikolou fell on tough times when the company she worked for closed last September.

“When I grow up, I’ll take my mother far away from Greece,” said Petros. “I promised her we’ll go to an island where I’ll be a fisherman. So we’ll have food to eat and be happier than now.”

Thodoris Skoulis and Charles McPhedran

Whatever It Takes (WIT)

Every European politician is now resorting to the “Whatever it takes” mantra. This week they will do whatever it takes to safeguard the sacred cow that is the Eurozone. That pampered sacred cow which feeds and feeds without actually producing much in return.

The politicians don’t appear to realise that this is a nonsense phrase but they certainly DO realise that it is a phrase which excites the traders because it is code, designed to convey the fact that the ECB , the Fed and all the other usual suspects will once again indulge the banks by creating yet more cash for them to play with.

Another Central Bank Bonanza!

That is why the markets have risen today. This is how it works:

As soon as Central Banks start handing out cash, the investment banks use a proportion of that cash to purchase equities. That in turns “ups” prices. So, if investors convince themselves that next week,  the banks will start splashing money like a lonely Chardonnay-fueled celibate on ebay, they also realise that NOW is the time to buy.

Anything they buy today is bound to increase in price, once the Central Banks open the Banking “All-you-can-eat” Buffet.

In fact, the banks will be buying today in anticipation of Central Bank handouts. Once again, there’s the heady whiff of “empty profit” in the air.

Last week, the ECB’s Mario Draghi said that he would do “Whatever. It. Takes”. Today it was the latest Euro double-act of Merkel and Monti who joined the  W.I.T chant.

The next stage will be expressions of “confidence”, followed by “meetings”, the establishment of a “by the end of the year” deadline  and then the announcement of  “reforms”.

(Reforms are good because they give the illusion of progress.)

One such reform is rumoured to be the granting of banking licences to the EFSM, EFSF, ESM and any other European quango or organisation beginning with Capital “E”.

That will enable them to print yet more money to distribute among the needy….er…banks!

When they say “WHATEVER  it takes” – they mean it!

Euroshite:

This is the way that it’s going to work over the next few weeks:

The markets, in spite of the fact that they’re going up and down like a whore’s drawers, should really be DOWN (like a whore’s drawers).

However, BECAUSE the markets are way too high and will once again start to tumble, (mostly because of the €500 billion Spain needs and the Eurozone does not have), large amounts of  “empty-calorie” cash will be generated by Central Bankers.  (Take a bow Ben, Mario, Mervyn etc.)

They will call it QUANTITATIVE EASING – which is a nonsense phrase invented by bankers. However, they may call it something else on this occasion.

A large proportion of that cash will be used by the banks to buy stocks and increase commodity prices by investing in them, although the myth of  “Rebuilding our Balance Sheets” and “Creating a Firewall” may also be deployed in order to excuse the continued silliness.

THAT will once again make everyone believe that all is OK because this “faux-euphoria” will make the markets rise, in spite of the fact that whole economies are collapsing.

However, the banking industry will continue to book huge profits which after all, is the real “name of the game”.

Que les jeux commencent!

Merkel Gives No Ground on Demands for Oversight in Debt Crisis

(Bloomberg) — Chancellor Angela Merkel gave no ground on Germany’s demands for more European control over member states in return for joint burden-sharing as she conceded that the bloc has yet to master the debt crisis.

The German leader said yesterday she hadn’t softened her stance at last month’s summit in Brussels and that a so-called banking union involving a bloc-wide financial overseer will have to include joint oversight on a “new level.” She chided member states who had sought to slow moves toward greater central control “since the first summit” in the 30-month-old crisis.

“All of these attempts will have no chance with me or with Germany,” Merkel said in an interview with broadcaster ZDF in Berlin.

Two weeks after a European Union summit aimed at bridging differences over crisis resolution, euro leaders are still squabbling over details of how to lift the bloc out of the turmoil. Merkel hardened Germany’s position that any attempt to share burdens in Europe — such as jointly issued euro bonds or common banking bodies — must first be met with greater cooperation and a handover of some sovereignty to Brussels.

The euro fell to its lowest level against the U.S. dollar in more than two years last week, sliding to as low as $1.2163 on July 13. Europe’s most credit-worthy government bonds climbed, with German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro crisis.

Diverging rates and capital outflows within the 17-member monetary union signal that the single currency is “slowly unraveling,” Stephen Gallo, senior foreign-exchange strategist at Credit Agricole SA in London, told Bloomberg Television’s “The Pulse” in a July 13 interview.

’Unraveling’

“The whole project is unraveling, that’s what’s essentially happening now,” Gallo said.

While Merkel said that Europe is on the “right course” toward putting an end to the crisis, euro-area leaders “haven’t solved the problems conclusively.”

German lawmakers will interrupt their summer vacations and return to Berlin on July 19 to vote to approve 100 billion euros ($122 billion) in rescue loans to Spain. After Spanish Prime Minister Mariano Rajoy last week announced 65 billion euros in welfare cuts and tax increases, Merkel reiterated yesterday that financial assistance would not be doled out without conditions.

“Whoever receives assistance and where liabilities are taken over, there has to be control,” Merkel told ZDF.

Banks

French President Francois Hollande, Italian Prime Minister Mario Monti and Spain’s Rajoy have pressed for faster action, including joint liabilities, while Merkel has called jointly issued debt the “wrong way” to fix the crisis. Merkel last month castigated a blueprint for the summit by EU President Herman Van Rompuy as too focused on “collectivization.”

Euro officials this month have also sparred over the timetable for establishing a euro-wide bank supervisor, a benchmark required before they implement one of the decisions from the June 28-29 summit — direct bailout funding for banks. Investors have viewed such a step as a way to sever the link between banking debt and sovereign debt.

Euro-area finance ministers will confer on Friday, July 20, to complete an agreement on Spain’s bank bailout. On July 10, the minister’s announced 30 billion euros of aid would be made available by the end of this month.

Klaus Regling, who heads the euro’s bailout funds, told Welt am Sonntag yesterday that governments could avoid liability for bank rescues under proposals for a regional supervisor. That contradicts German Finance Minister Wolfgang Schaeuble, who said July 9 that he expects governments to guarantee loans even if they go directly to banks, Welt said.


Surrendering Sovereignty

Merkel said leaders hadn’t yet reached an agreement on the terms for bank rescues.

German Bundesbank President Jens Weidmann said euro leaders had caused damage by failing to define more clearly their conclusions at the summit. He told Dutch newspaper Het Financieele Dagblad on July 14 that euro nations “should discuss giving up sovereignty with the same openness as the question of how to resolve the debt problem collectively.”

As governments in Spain and Italy struggle under the burden of higher borrowing costs, Weidmann, Germany’s chief central banker and a European Central Bank GoverningCouncil member, told Boersen-Zeitung that Italy’s higher yields don’t justify a request for bailout assistance. Euro bailout funding should be deployed only as a last resort, he said.

Italy

“If Italy stays the course on reforms, it’s on a good path,” Weidmann told the newspaper in an interview. Asked whether the euro area’s third-largest economy needs to tap the fund, he said, “No, I don’t see Italy in that situation.”

Italian Prime Minister Mario Monti has sought a “debt shield” against spillover from a Spanish banking crisis.

Euro-area leaders have given Spain an extra year, until 2014, to drive its budget deficit below the euro limit of 3 percent of gross domestic product, a concession that may foreshadow leniency for other indebted states in the bloc.

In Greece, an MRB poll published in Athens-based Real News newspaper showed that almost three-quarters of Greeks want Prime Minister Antonis Samaras’s coalition government to insist on a renegotiation of the country’s international bailout.

Seventy-four percent in the survey said the government should insist on discussing the terms even if negotiations steer toward the prospect of Greece leaving the euro; 15.5 percent said the government should stick to current conditions.

Volker Kauder, the parliamentary leader of Merkel’s Christian Democratic Union, told Welt am Sonntag that he doesn’t want to give Greece more time to meet economic targets.

Merkel, asked the same question during the ZDF interview, said she would await a report by Greece’s international creditors, known as the troika.


With assistance from Tony Czuczka in Berlin, Paul Tugwell in Athens, Guy Johnson in London and Fred Pals in Amsterdam. Editor: Dick Schumacher.
To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Νύχτα των Κρυστάλλων ?

“Greeks are lazy, Greeks are corrupt, Greeks are dishonest, Greeks refuse to obey the rules……”

Are they? Do they?

Hearing that certain countries are already thinking about “doing something” about future Greek immigration sent a shiver down my spine.

The Eurozone  states and their limp politicians are beginning to treat Greeks like pariahs – in the same way that the Nazis treated the Jews in the 1930s.

What will be the the natural conclusion? Make no mistake – it could be tragic.

Is there going to be the modern equivalent of the 1938  Kristallnacht ?

Will Greek-owned shops and businesses all over Europe be vandalised because of negative anti-Greek Eurozone propaganda?

Kristallnacht was the starting point for intense economic and political persecution of Jews – with the end game being played-out during WW2.  No  further reminders needed.

Then,  as now, it all started with an excuse. In 1938, it was the assassination of German diplomat by a Polish Jew.

The 2012 excuse is nothing more than an anticipated refusal of Greece to comply with over-strict German-inspired ” necessary” austerity rules.

Anticipated refusal.

Propaganda is a very powerful device. Let us hope therefore that the gradually amplifying and insidious vilification of the Greek people does not result in yet another European catastrophe.

Eurozone “plan” – an Oxymoron.

Let’s hope that the Eurozone’s “plan” for a Greek exit from the Euro is better than their plan for the survival of the Eurozone.

Talk of “firewalls” and “rebuilding” balance sheets and other construction-related metaphors are wearing a bit thin.

So far, they’ve clearly demonstrated that they would have difficulty in planning their way out of a wet paper bag.

Greek Texas Hold ‘Em

The Greek Syriza leader has the measure of the Eurozone sheep.

You may not agree with his politics but Alexis Tsipras is THE ONE that Eurozone leaders do NOT want to negotiate with.

They have been bluffing that they’re “ready” for a Greek Euro exit. It’s all talk!

They are NOT ready and Tsipras KNOWS IT . He also knows that a Greek exit (forced or otherwise ) would not-only create economic and banking havoc but that the after-shocks would be felt all around the world.

He’s willing to call their bluff because he realises that countries such as China  & Russia are standing-by and would immediately move in with investment.

Your call.

German Hypocricy knows no bounds – especially in respect of Greece!

Twice during  the 20th Century, Germany left Europe in a mess. Now, in the 21st Century, it is their intransigence rather than their high explosives which may once again create European chaos.

Germany had to pay reparations after WW1. However, after its defeat in WW2, reparation payments were NOT resumed. In addition, there was another outstanding debt comprising of what the German Weimar Republic had been using to pay reparations. They had to borrow to pay.

In 1953, an international conference decided  that Germany could could defer some of the debt until East and West Germany were reunified – although because a reunification was though to be unlikely, this was effectively a debt write-off.

By 1980 West Germany had repaid some of the debt although the remainder (according to the 1953 agreement)  would be serviced for another 20 years.

The final payment was due on 3 October 2010 which was the the 20th anniversary of German reunification.

Over 10% of this debt, about 20 million euros, has never been paid.

So please Germany, remember that Europe has shown you mercy on more than one occasion.

Time to return the compliment and defer the WHOLE of Greece’s existing debt for – what shall we say? 30 years?

….and YOU can pick up ALL  the interest payments.

(THAT, my Greek friends, is how to negotiate with the Germans.)

Europe’s future is not up to the Bundesbank

George Soros | Financial Times | April 12, 2012

Far from abating, the euro crisis has recently taken a turn for the worse. The European Central Bank relieved an incipient credit crunch through its longer-term refinancing operations. The resulting rally in financial markets hid an underlying deterioration; but that is unlikely to last much longer.

The fundamental problems have not been resolved; indeed, the gap between creditor and debtor countries continues to widen. The crisis has entered what may be a less volatile but more lethal phase.

At the onset of the crisis, the eurozone’s break-up was inconceivable: assets and liabilities denominated in the common currency were so intermingled that it would have caused an uncontrollable meltdown. But, as the crisis has progressed, the eurozone has been reoriented along national lines.

The LTRO enabled Spanish and Italian banks to engage in very profitable and low-risk arbitrage in their own countries’ bonds. And the preferential treatment received by the ECB on its Greek bonds will discourage other investors from holding sovereign debt. If this continues for a few more years, a eurozone break-up would become possible without a meltdown – but would leave creditor countries’ central banks holding big claims that would be hard to enforce against debtor countries’ central banks.

The Bundesbank has seen the danger. It is now campaigning against the indefinite expansion of the money supply, and it has started taking measures to limit the losses it would sustain in a break-up. This is creating a self-fulfilling prophecy: once the Bundesbank starts guarding against a break-up, everybody will have to do the same. Markets are beginning to reflect this.

The Bundesbank is also tightening credit at home. This would be the right policy if Germany was a freestanding country, but the eurozone’s heavily indebted members badly need stronger demand from Germany to avoid recession. Without it, the eurozone’s fiscal compact, agreed last December, cannot possibly work. The heavily indebted countries will either fail to implement the necessary measures or, if they do, they will fail to meet their targets because of collapsing demand. Either way, debt ratios will rise, and the competitiveness gap with Germany will widen.

Whether or not the euro endures, Europe is facing a long period of economic stagnation or worse. Other countries have gone through similar experiences. Latin American countries suffered a lost decade after 1982, and Japan has been stagnating for a quarter of a century; both have survived. But the European Union is not a country and it is unlikely to survive. The deflationary debt trap threatens to destroy a still-incomplete political union.

The only way to escape the trap is to recognise that current policies are counterproductive and change course. I cannot propose a cut-and-dried plan, only some guidelines. First, the rules governing the eurozone have failed and need radical revision. Defending a status quo that is unworkable only makes matters worse. Second, the current situation is highly anomalous, and exceptional measures are needed to restore normality. Finally, new rules must allow for financial markets’ inherent instability.

To be realistic, the fiscal compact must be the starting point, although some obvious defects will need to be modified. The compact should count commercial as well as financial debts and budgets should distinguish between investments that pay and current spending. To avoid cheating, what qualifies as investment should be subject to approval by a European authority. An enlarged European Investment Bank could then co-finance investments.

Most important, some new, extraordinary measures are needed to return conditions to normal. The EU’s fiscal charter compels member states to reduce their public debt annually by one-twentieth of the amount by which they exceed 60 per cent of gross domestic product. I propose that member states jointly reward good behaviour by taking over that obligation. They have transferred to the ECB their seignorage rights, valued at €2tn-€3tn by Willem Buiter of Citibank and Huw Pill of Goldman Sachs, working independently. A special-purpose vehicle owning the rights could use the ECB to finance the cost of acquiring the bonds without violating Article 123 of the Lisbon treaty.

Should a country violate the fiscal compact, it would be obliged to pay interest on all or part of the debt owned by the SPV. That would surely impose tough fiscal discipline.

By rewarding good behaviour, the fiscal compact would no longer constitute a deflationary debt trap. The outlook would radically improve. In addition, to narrow the competitiveness gap, all members should be able to refinance existing debt at the same interest rate. But that would require greater fiscal integration. It would have to be phased in gradually.

The Bundesbank will never accept these proposals, but the European authorities ought to take them seriously. The future of Europe is a political issue: it is beyond the Bundesbank’s competence to decide.

Source: Financial Times

Today’s EU letter to Van Rompuy & Barroso

The letter reproduced below is signed by 11 European leaders. It is addressed to Herman van Rompuy and José Manuel Barroso, although the real audience is the entire European Union.

As I’ve pointed out before, in Euroland, there has been a noticeable increase in the use of  a very strange new language . It has been used by European leaders during their various pronouncements over the last couple of years.

The rhetoric adopted by current Euroean Commissars is frighteningly similar to the Soviet-style nonsense spouted by dead-eyed Party apparatchiks of the 1960s. It is the empty “old-school”  Party-designed exhortatory language of the  now-extinct Soviet official.

In common with the good old Berlin Wall days, these pre-written Euro-statements appear to promise much but actually, say nothing.

It is a very long statement of the obvious and in keeping with EU tradition , there is overuse of the word “must” rather than the word “will”.

This looks very much like a preamble to many , many meetings but it is noticeable that neither Germany nor France has signed it.


To:

Herman van Rompuy

President of the European Council

José Manuel Barroso

President of the European Commission

20 February 2012

A PLAN FOR GROWTH IN EUROPE

We meet in Brussels at a perilous moment for economies across Europe. Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years. As many of our major competitor economies grow steadily out of the gloom of the recent global crisis, financial market turbulence and the burden of debt renders the path to recovery in Europe much harder to climb.

Europe has many fundamental economic assets. But the crisis we are facing is also a crisis of growth. The efforts that each of us are taking to put our national finances on a sustainable footing are essential. Without them, we will not lay the foundations for strong and lasting economic recovery. But action is also needed to modernise our economies, build greater competitiveness and correct macroeconomic imbalances. We need to restore confidence, among citizens, businesses and financial markets, in Europe’s ability to grow strongly and sustainably in the future and to maintain its share of global prosperity.

We discussed these issues when we last met. It is right that we discuss them again. Building on the conclusions we have previously reached, it is now time to show leadership and take bold decisions which will deliver the results that our people are demanding. We welcome the steps being taken, nationally and at the European level, to address this challenge and look forward to agreeing further concrete steps at our next meeting, with action focused on eight clear priorities to strengthen growth.

First, we must bring the single market to its next stage of development, by reinforcing governance and raising standards of implementation. The Commission’s report to the June European Council should set out clear and detailed actions needed to enhance implementation and strengthen enforcement.

Action should start in the services sector. Services now account for almost four fifths of our economy and yet there is much that needs to be done to open up services markets on the scale that is needed. We must act with urgency, nationally and at the European level, to remove the restrictions that hinder access and competition and to raise standards of implementation and enforcement to achieve mutual recognition across the single market. We look forward to the Commission report on the outcome of sectoral performance checks and call on the Commission to fulfil its obligation under the services directive to report comprehensively on efforts to open up services markets and to make recommendations for additional measures, if necessary in legislation, to fulfil the internal market in services.

Second, we must step up our efforts to create a truly digital single market by 2015. The digital economy is expanding rapidly but cross-border trade remains low and creativity is stifled by a complex web of differing national copyright regimes. Action is needed at the EU level to provide businesses and consumers with the means and the confidence to trade on-line, by simplifying licensing, building an efficient framework for copyright, providing a secure and affordable system for cross-border on-line payments, establishing on-line dispute resolution mechanisms for cross-border on-line transactions and amending the EU framework for digital signatures. We should build on the recent proposals of the Commission, without reopening the e-commerce directive, to create a system that balances the interests of consumers, businesses and rights holders, and spurs innovation, creative activity and growth. We must also continue our efforts to build modern infrastructure to provide better broadband coverage and take-up and extend and promote e-government services to simplify the start up and running of businesses and aid the mobility of workers.

Third, we must deliver on our commitment to establish a genuine, efficient and effective internal market in energy by 2014. All member States should implement fully the Third Energy Package, swiftly and in recognition of agreed deadlines. Energy interconnection should be enhanced to help underpin security of supply. Urgent action is also needed, nationally and where appropriate collectively, to remove planning and regulatory barriers to investment in infrastructure to release the potential of the single market and support green growth and a low-emissions economy. We look forward to the Commission’s forthcoming communication on the functioning of the internal market, which should include an assessment of the degree of liberalisation and energy market opening in member States. We also commit to making concrete progress towards the development of a Single European Transport Area and establishing the Connecting Europe Facility.

Fourth, we must redouble our commitment to innovation by establishing the European Research Area, creating the best possible environment for entrepreneurs and innovators to commercialise their ideas and create jobs, and putting demand-led innovation at the heart of Europe’s research and development strategy. We must also act decisively to improve investment opportunities for innovative start-ups, fast-growing companies and small businesses, by creating an effective EU-wide venture capital regime which allows venture capital funds to operate on a pan-European basis, assessing a proposal for an EU venture capital scheme building on the EIF and other financial institutions in cooperation with national operators, and agreeing a new EU-wide programme, modelled on the Small Business Innovation Research scheme, to promote more effective use of pre-commercial public procurement to support innovative and high tech businesses. Reforms to create an effective and business-friendly system of intellectual property protection remain a very high priority.

Fifth, we need decisive action to deliver open global markets. This year we should conclude free trade agreements with India, Canada, countries of the Eastern neighbourhood and a number of ASEAN partners. We should also reinforce trade relations with countries in the southern neighbourhood. Fresh impetus should be given to trade negotiations with strategic partners such as Mercosur and Japan, with negotiations with Japan launched before the summer, provided there is progress on the scope and ambition of a free trade agreement. The deals that are currently on the table could add €90 billion to EU GDP.

But we must go further too. We need to inject political momentum into deepening economic integration with the US, examining all options including that of a free trade agreement; seek to deepen trade and investment relations with Russia, following its accession to the WTO; and launch a strategic consideration of our trade and investment relationship with China, with a view to strengthening our economic ties and reinforcing commitment to rules-based trade. Recognising the benefits that open markets bring, we should continue our efforts to strengthen the multilateral system, including through the Doha Development Agenda, strive for multilateral and plurilateral agreements in priority areas and sectors, and resist protectionism and seek greater market access for our businesses in third countries. Above all, we must reject the temptation to seek self-defeating protectionism in our trade relations.

Sixth, we need to sustain and make more ambitious our programme to reduce the burden of EU regulation. We welcome the commitments made by the institutions to reduce burdens on small businesses but urge further and faster progress across the EU institutions while maintaining the integrity of the single market and the Union’s wider objectives. We should assess the scope for ambitious new EU sectoral targets and agree new steps to bring tangible benefits to industry. We should also make a very clear and visible statement of our intention to support micro-enterprises and ask the Commission to present detailed proposals to achieve this, including possible amendments to existing legislation. We also ask the Commission to publish an annual statement identifying and explaining the total net cost to business of regulatory proposals issued in the preceding year.

Seventh, we must act nationally and, respecting national competences, collectively to promote well functioning labour markets which deliver employment opportunities and, crucially, promote higher levels of labour market participation among young people, women and older workers. Special attention should also be given to vulnerable groups that have been absent from the labour market for long periods. We should foster labour mobility to create a more integrated and open European labour market, for example by advancing the acquisition and preservation of supplementary pension rights for migrating workers, while respecting the role of the social partners. We should also take further action to reduce the number of regulated professions in Europe, through the introduction of a tough new proportionality test set out in legislation. In this context, we ask the Commission to convene without delay a new forum for the mutual evaluation of national practices to help identify and bring down unjustified regulatory barriers, examine alternatives to regulation which ensure high professional standards and assess the scope for further alignment of standards to facilitate mutual recognition of professional qualifications.

Finally, we must take steps to build a robust, dynamic and competitive financial services sector that creates jobs and provides vital support to citizens and businesses. Implicit guarantees to always rescue banks, which distort the single market, should be reduced. Banks, not taxpayers, should be responsible for bearing the costs of the risks they take. While pursuing a level playing field globally, we should commit irrevocably to international binding standards for capital, liquidity and leverage with no dilution, ensuring that EU legislation adheres to Basel 3 standards to ensure financial stability and meet the financing needs of our economies. Banks should be required to hold appropriate levels and forms of capital in line with international criteria, without discrimination between private and public equities. We also call for rigorous implementation of the G20 principles on banking sector remuneration in line with existing EU legislation.

Each of us recognises that the plan we propose requires leadership and tough political decisions. But the stakes are high and action in many of these areas is long overdue. With bold and effective action and strong political will we can recover Europe’s dynamism and put our economies back on the path to economic recovery. We urge you and the European Council to answer our peoples’ call for reform and to help restore their confidence in Europe’s ability to deliver strong and sustainable growth.

We are copying this letter to colleagues on the European Council.

David Cameron, Prime Minister of the United Kingdom

Mark Rutte, Prime Minister of the Netherlands

Mario Monti, Prime Minister of Italy

Andrus Ansip, Prime Minister of Estonia

Valdis Dombrovskis, Prime Minister of Latvia

Jyrki Katainen, Prime Minister of Finland

Enda Kenny, Taoiseach, Republic of Ireland

Petr Nečas, Prime Minister of the Czech Republic

Iveta Radičová, Prime Minister of Slovakia

Mariano Rajoy, Prime Minister of Spain

Fredrik Reinfeldt, Prime Minister of Sweden

Donald Tusk, Prime Minister of Poland

Greece and the Moneylenders

Today, there appears to be a general sigh of relief in Europe.  Stock Markets are climbing , driven by a new banker confidence. Positive noises are beginning to emanate from Eurozone Ministers. They are all looking forward to the approval of the latest Greek bailout. Will Monday 20th February 2012 really be the first day of the rest of our Euro lives?

Is it all over? Are we now scaling a slightly easier cliff to the upper plateau of Euro-prosperity? Will disaffected and now disenfranchised Greek people stay indoors and patiently wait 10 or 15 years while their “Neu” European Masters make things better?

Even Germany’s Finance Minister Wolfgang Schauble who finally came came blinking into the daylight a few days ago, appears to have been temporarily muzzled.

Politics are an illusion. The difficulty is in discriminating between the headlines, the expected conclusion and the most likely outcomes.

Today, it looks as if all that Greece has to do is meet the conditions imposed by Germany, Holland and Finland for its latest bailout package to be approved. Furthermore, it also looks as if they may be able to manage  to agree both the bond exchange programme as well as Greece’s debt reduction in one fell swoop.

That has been the real progress. During the last week, there was talk of a two-stage approval, beginning with the most important “victims” – the bankers and hedge fund managers being dealt-with first, followed by the Greek people. Most appear to be in agreement that both aspects can now be dealt with together.

However, Germany (one imagines with the full support of the government and Angela Merkel) continues to make those unpleasant macho Teutonic noises.

For instance, Steffen Kampeter the German Deputy Finance Minister: “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”

Despite the posturing , the rhetoric and the barely-concealed German instinct to rule Europe, the 14.5 billion euro  Greek bond redemption will take place on March 20th. It was always going to take place – whether the entire Greek bailout package was approved or not. Even if it meant the cap being passed round the Eurozone – and we’d probably even find the United States and others making a contribution. Not giving money to the hedge fund managers and bankers was never an issue.

The real issue and rather alarmingly, the one which appears to have become the least important to the Eurozone High Command is the welfare of the Greek people. The Euro rulers have already showed the world that they would be quite happy to destroy Greece if they decided that it was expedient to do so.

Eurozone ministers spooked themselves last week on hearing that Greece would miss its debt-reduction goals.

Last year, Greece’s debt was 160% of Gross Domestic Product. This year , after being told to butcher its economy, Greece will probably deliver a reduced debt run-rate (by 2020) of only 129% of GDP. That is quite an achievement – bearing in mind the collateral damage.

However, Euro Ministers are experiencing the vapours because the set target was 120% of GDP by 2020. So what is the answer? You’ve guessed it. More Austerity.

The other unsavoury aspect of the Greek situation is that in spite of the whole arrangement being presented as a process of great charity, profits are being made. Profits are being generated from Greece’s misery.

The first 110 billion bailout in May 2010 was charged at an average rate of 5% per annum. That’s 5 billion euros! Even that was unsustainable because just like the door-to-door moneylender, Greece would be forced to borrow more, just to repay the interest…..and so on.  That rate has now been reduced to 4% per annum – but even so, it seems extortionate.

Euro moneylending is more Shylock than Mother Theresa – plus they do want their pound of flesh – unless of course, they are called Germany , Holland or Finland. They want several kilos of of the stuff.

They are the hawks – the hardliners and they appear to want to see Greece suffer,  to police Athens and hand-out bailout money like a stern uncle dishes out pocket money to his errant nephew.

What European Central Banks should do is simply return their ill-gotten Greek profits or at least direct them at Europe’s crisis programme. This should not be viewed as a profit opportunity.

Too many bankers and fund managers still view Greece only a profit centre.

In keeping with the Eurozone’s habit of creating rules “on the hoof”, there are discussions to fund an escrow account to guarantee that any bailout money goes to where Euroministers decide, thereby removing all management responsibility from Greece and its politicians.

There is one major issue which has not yet been ironed out – the Aladdin Solution – the “New Bonds for Old” proposal.

There are bondholders still resisting a debt-swap , so on February 21st 2012, Greece may be forced to legislate thus forcing those errant bondholders to accept a “new-for-old” arrangement.

What started a year ago as a simple bailout has now taken an unpleasant  politico-bureaucratic aspect which becomes more and more complicated with time.

The Greek people are quite rightly embarrassed by the way that they have been portrayed in the word’s media but one thing which they should always remember is that in spite of the fact that all their Eurozone friends have convinced the world that they want to help Greece – they really only want to help themselves.

They are the greedy moneylenders gathering round  a desperate family – having seen an excellent opportunity for profit.

I have a feeling that the happy ending will belong to Greece.

Greek party leaders seek deal as bankruptcy looms

By NICHOLAS PAPHITIS
Associated Press

ATHENS, Greece (AP) — Greek party leaders on Tuesday will seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.

Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new income cuts and job losses, which Greece’s eurozone partners and the International Monetary Fund are demanding to keep the country’s vital rescue loans flowing.

A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.

Police said up to 14,000 people took part in two peaceful anti-austerity demonstrations in Athens. The separate marches were to converge on central Syntagma Square, outside Parliament, which has been the focus of demonstrations over the past two years of economic pain.

On Monday, Prime Minister Lucas Papademos’ government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.

Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.

Among the measures the EU and IMF are pressing Greece for is a cut in the euro750 ($979) minimum wage to help boost the country’s competitiveness. This reduction would have a knock-on effect in the private sector – because private companies also base their salaries on the minimum wage – and even unemployment benefits. Unions and employers’ federations alike have deplored the measure as unfair and unnecessary.

“It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people,” Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.

He called on coalition parties to work more closely together.

“To save Greece … will involve a huge social cost and sacrifices,” Venizelos said. “On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices.”

“No one is as strong as Hercules on his own to face the Lernaean Hydra,” a swamp monster in Greek mythology, he said. “We must all, together, fight this battle, without petty party motives and slick moves.”

A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal.

But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc’s digital policies, said Greece’s exit wouldn’t be a disaster.

Kroes told Dutch newspaper De Volkskrant that “It’s always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true.”

Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive euro100 billion ($131.6 billion) in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.

Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.

The EU-IMF bailout will also provide an estimated euro40 billion ($52 billion) to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country’s privately-owned debt.

However, the bailout has to be secured for the deal with private investors to go ahead as about euro30 billion from the bailout will be used as the cash payment in the bond swap deal.

Greece’s coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.

The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product – about euro3.3 billion ($4.3 billion) – improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.

Creditors are also demanding spending cuts in defense, health and social security.

European Commission spokesman Amadeu Altafaj Tardio said Monday that Greece was already “beyond the deadline” to end the talks.

Also Monday German Chancellor Angela Merkel warned that “time is pressing,” and “something has to happen quickly.”

While Greece remains cut off from international bond markets – where it would have to pay interest of about 35 percent to sell 10-year issues – it maintains a market presence through regular short-term debt sales.

On Tuesday, the public debt management agency said Greek borrowing costs dropped slightly as the country raised euro812 million ($1.06 billion) in an auction of 26-week treasury bills. The coupon was 4.86 percent, compared to 4.90 percent in a similar auction last month, while the auction was 2.72 times oversubscribed.

Derek Gatopoulos in Athens and Gabriele Steinhauser in Brussels contributed to this report.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

EU official: Greece needs extra $20 billion

By GABRIELE STEINHAUSER

BRUSSELS (AP) — Greece needs about an extra euro15 billion ($20 billion) to get its debt down to manageable levels — and the rest of 17-country eurozone is being asked to help foot the bill.

Debt-ridden Greece is close to a deal with private investors to reduce its debt burden by about euro100 billion and that — plus an agreement to enact deep spending cuts — could pave the way for a euro130 billion bailout from its European partners and the International Monetary Fund. But on Thursday a European Union official said this plan was not enough to help fix Greece’s problems, which are getting worse as the effects of the recession take hold.

In order to bring Greece’s debt burden to a sustainable level — 120 per cent of its economic output in eight years’ time — the country’s international debt inspectors calculate that Greece needs an additional euro15 billion — a shortfall it believes should be made up by the rest of the 17-country eurozone, the European official. The official spoke on condition of anonymity because of the sensitivity of the matter

The extra money, in theory, could come either from the other euro countries or by having the European Central bank, its national counterparts and state-owned banks like France’s Caisse de Depots taking a loss on their Greek bond holdings, the official said. Analysts estimate that the European Central Bank holds euro50 billion to euro55 billion in Greek bonds by face value but it can’t simply write them down without breaking the EU treaty, which prohibits the bank from financing governments. Writing off a debt would be, in effect, transferring money directly to a government.

The new push for Greece’s public and government creditors to take a cut on their investments — dubbed the official sector involvement, or OSI — is a new front in the battle to save the country from a potentially devastating default. So far the eurozone and the International Monetary Fund have given billions in bailout loans to the struggling country, but they haven’t been asked to take losses.

It is also an acknowledgment that Greece’s economy is in such a dire state that the country’s debt inspectors — the so-called troika of the Commission, the European Central Bank and the IMF — are having a hard time finding more ways in which Athens can save money.

Greece has been at the heart of Europe’s debt crisis since it revealed in 2009 that its debt was far larger than its official estimates. It piled on the debt during a decade in which the government overspent and its economy was growing. Those fortunes turned when the world went into recession in 2008.

The challenge now is reducing the debt at a time when the economy is shrinking. Spending cuts, tax increases and the general uncertainty of the crisis have already pushed Greece into a deep recession, which in turn has eliminated many of the gains from the austerity measures.

Asking private creditors like banks and investment funds to share the burden of saving Greece was the first reaction to this problem; getting the public sector creditors involved is the next.

The official said a deal with private creditors to take losses on their holdings will have to be announced before the end of the week to make sure it can be implemented before Athens has to pay back euro14.5 billion in bonds on March 20.

Experts from national finance ministries will examine the details of the deal on the so-called private sector involvement — or PSI — on Friday, and will likely also discuss how the euro15 billion gap can be closed, the official said.

People familiar with the tentative deal have said it would see investors take losses of more than 70 percent of their holdings. On top of having to accept a 50 percent cut in the face value of their bonds, investors will also receive lower interest rates of between 3.5 per cent and 4.5 per cent and give Greece 30 years to pay back the debt.

If agreed, the deal would end negotiations with bondholders that started this summer and have become increasingly tenuous in recent weeks.

Getting public creditors like central banks or sovereign wealth funds to take a hit may be even more controversial, since any losses or foregone profits ultimately come out of taxpayers’ pockets. Germany, the strongest economy in the eurozone, is also one of the strongest opponents of OSI.

Germany’s finance minister, Wolfgang Schaeuble, said on n-tv television Thursday that he didn’t see the need for “any extra contributions from the public sector; we’re carrying everything anyway.”

Schaeuble didn’t address the issue of the euro15 billion funding gap.

The majority of the ECB’s Greek bonds were bought at a discount in the summer of 2010, when the central bank was trying to stabilize their prices. Even though it is bound by the rules of the EU treaty, it could find a way to give up the substantial profit it would earn by holding the bonds to maturity. It could do that by selling the bonds to the eurozone bailout fund or to Greece at the knockdown prices it bought them for.

However, the ECB has so far given no indication that it is willing to do so, with some of its governing board members saying that giving up on profits would clash with the bank’s ban.

Alternatively, eurozone states could boost their bailout loans beyond the promised euro130 billion, or provide some, more-limited, relief by further lowering interest rates on these loans.

Analyst Carsten Brzeski at ING in Brussels said the ECB and President Mario Draghi might be open to giving up the profits on the bonds. But the bank will wait to take action so it does not appear to be acting at the request of politicians.

The bank is legally independent and the EU treaty forbids it to take instructions from government officials.

“I think Draghi could live with it, but they will not bow very easily,” said Brzeski. “It has to look like it is their own idea, their own initiative.”

While officials have stressed the need for Greece’s financing to be set before the bailout goes through, the main players have been flexible before and “it’s not as hardball as it looks.”

On the official side, “someone will have to bite the bullet, or everyone,” he said. European officials are trying “to have everyone take part in the burden sharing and thereby get the ECB involved.”

The euro130 billion second bailout package also still depends on labor market reforms that the EU and IMF are asking Greece to implement. Unions and employers resumed talks on Thursday over troika demands to lower wage costs in the private sector and possibly lower the minimum wage.

AP Business Writer David McHugh contributed from Frankfurt.

Eurozoneski?

In the past, I have pointed out that none of the Eurozone summits has ever produced any “action points”.

Action points should be very much more than vague statements of unspecific intent. Proper action points should contain elements such as amount or time.

In addition, there has been a noticeable increase in the use of  a very strange new language . It has been used by Eurozone leaders during their various pronouncements over the last (many) months.

The rhetoric adopted by current Eurozone Commissars is frighteningly similar to the Soviet-style nonsense spouted by dead-eyed Party apparatchiks of the 1960s. It is the empty “old-school”  Party-designed exhortatory language of the minor government Soviet official.

In common with the good old Berlin Wall days, these pre-written Euro-statements appear to promise much but actually, say nothing. They have a smell about them. It is the smell of long-demolished East German Trade Mission offices – a mixture of damp buff-coloured pocket folders, dusty Party rubber stamps, wax floor polish, wet mops and lever-filled fountain pens.

Until very recently, apparatchik-speak  was a dead language.

There is ONE significant word which appears to be “de rigeur” because it implies a level of forcefulness and “doing” which is designed to suggest imminent action.

So far, it has fooled most of the people – especially those who plunder the Stock Markets. They crave warm words.

The words are empty but they provide hope – just like the old  Soviet insistence on increased wheat production quotas –  last transmitted on Short Wave from Radio Moscow.

These are actual extracts from recent Eurozone communiqués and statements:

“Our action must be determined…”

“We must do more…”

“We must modernise our economies and strengthen our competitiveness … This is essential to create jobs and preserve our social models …”

“These efforts must be made in  close cooperation with the social partners.”

“The March European Council must pay due attention…”

“EU legislation… must be rapidly and fully implemented…”

“National supervisors and the EBA must ensure that bank recapitalisation does not lead to deleveraging…”

This strange almost admonitory style, detached from any real analysis of the problems has a quaint nostalgia, which those of us who are used to modern management or political idiom do find both unsettling and hollow.

…and the band plays on.

German Chancellor Angela Merkel is one of the Euro leaders who appears to be slightly too relaxed about the fact that the Greek government has not yet finalised an agreement with creditors in respect of its Sovereign Debt.  Now there is the rumour of a German Government memo indicating that Eurozone Banks are just about ready and able to cope with a Greek default. If that is the case then it would seem that the Greeks have been “played” while Euro reorganisation has been taking place behind their backs. The latest wheeze is the IMF expressing dissatisfaction about Greece’s progress in implementing those draconian austerity measures. That means that Greece’s next tranche of bailout money is nowhere near being agreed. It is now possible that even if Greece does capitulate and agree to everything that the IIF demands, it is still not guaranteed a bailout. Tempus Fugit.

Franco-German Munificence!!

In January 2011, French President Nicolas Sarkozy proclaimed that by the end of the year, France was ready to implement  a financial transactions tax (FTT) to help poor countries. The German Chancellor, Angela Merkel,  also expressed her support.

Sarkozy promised: “My conviction has always been that the FTT is the best form of innovative financing…. France is prepared to implement innovative financing mechanisms even if other countries should choose not to join. Because there is a moment in time where you have to go from discourse to setting an example.”

But, surprisingly, no agreement has yet been reached.

It’s urgent that France and Germany take concrete action to drive this joint proposal forward and to ensure that the revenues will be used to help reach the Millennium Development Goals.

France’s and Germany’s generosity is to be admired and we should do all we can to encourage this initiative, especially in the wake of such momentous upheavals within the Eurozone.

One trusts that our Prime Minister takes the time to gently remind the French and the Germans of  this more-than-generous gesture.

The petition is here: http://www.thepetitionsite.com/takeaction/825/474/357/

PLEASE RETWEET.

50 Predictions for 2012

An economy used to depend on the interactions between consumers, commerce, politics and investors. Nowadays, we have to add banks (which used to be no more than a service industry) as an additional entity.

Keynesian economics are all well and good in a Steady State situation but we have well and truly entered times when Chaos Theory rules economics. Consequently, the motley collection of politicians-who-meet do not have the intellectual capacity to deal with what has become a multi-causal international problem with more parameters (known and unknown) than wines served at a G20 banquet.

My 2012 predictions are in no particular order, either in content or importance. They are random.

1. For several years, I have been writing about the Bank of England’s appalling forecasts. Finally, they have admitted that their forecasting model is wrong so they are spending £2.5 million on a new one. Their V-shaped recovery will become a straight-line depression and their 2% inflation forecasts will double.

2.  The prominence and dominance of Central Banks will continue to grow as politicians continue to struggle with sovereign debt.

3. Europe will continue  its recession with an estimated average contraction (negative growth) of -0.5%.

4. Sovereign monetary policy as well as the actions of Central banks will continue  to be driven by the same factor which has been dominant for the last few years: Political Ineptitude.

5. The European Central Bank has begun the process of Quantitative Easing and this will accelerate during 2012.

6. European Banks have 6 months within which to raise their Tier 1 Capital Ratios to 9%. This has already resulted in a Tsunami of deleveraging. This will continue to impact badly on economic growth.

7. Euro fiscal integration will continue to be discussed as will the ECB’s support for the (broken) bond markets.

8. Eurobond yields will continue to rise to record levels until even the Germans wake up to the fact that the whole thing has become unsustainable.

9. I continue to envisage the failure of the Euro which should have happened during 2011. There will be bank and government collapses.  French banks and the Spanish government will lead the way.

10. Contrary to what Mario Draghi has suggested, the ECB will leap into the Bond Market and begin to buy-up Government Bonds.

11. Italy will suffer massive Civil Unrest as the Monti government introduces unsustainable austerity policies and the economy is plunged into serious recession.

12. Spain is already in recession but more austerity will be announced .

13. The ECB will take centre-stage in Europe and will slash interest rates to zero (and below!).

14. The nonsense of the Bank of England’s “independence” will be put to the test with at least £150 billion in Gilt purchases during 2012.

15. The United Kingdom’s official unemployment figures will cross 3.5 million, producing an acceleration in forced sales and a subsequent collapse in the housing market with 25-30% wiped from house values.

16. UK consumption will remain weak, primarily as a result of increasing unemployment and a rising RPI.

17. Last year I predicted a UK General Election for October 2011. I now predict a General Election during 2012, following a vote of no confidence. The smart money is on Q2  – whilst the Conservatives continue to ride high in the polls and Ed Miliband remains Labour leader.

18. I predicted 2011 as the Year of the Riot. During 2012, every European capital will be affected by rioting.

19. America will make a surprising accelerated economic  recovery.

20. The next President of the United States will be…..Barack Obama.

21. Civil unrest will continue to accelerate in the Middle East as the people realise that they have been manipulated by the external forces of self-interest and that Western-style “democracy” is really not for them.

22. We will gradually realise that our intention to halt natural Global Warming was no more than a manifestation of our arrogance.

23. There will be  new Pope.

24. There will be an unusually high number of United Kingdom  by-elections.

25. Last year I predicted a Beckham divorce because I felt a momentous happening. They let me down by producing a baby (Harper Seven) instead. This year (for some reason), I see them setting up separate homes.

26. China will bail-out Italy from its economic woes. In return for gold. (Italy is the world’s 4th highest gold owner).

27. Gold will cross the $2000 per ounce barrier, then the $3000 barrier and possibly $4000.

28. FTSE  100 will cross 4000 on its way down and the Dow Jones will  hit 8500.

29. Nicolas Sarkozy will cease to be French President in May 2012 but his fate is very much intertwined with the Euro and much will depend on how long Mario Draghi of the ECB (the new man in charge) can help the politicians to string things out.

30. Turkey will be the beneficiary from  IPA (Instrument for Pre-accession Assistance), which is yet another Euro fund. 233 million euros have been earmarked for Turkey and will be spent on judicial reforms, climate change and environmental projects.

31. Turkey’s integration with Europe will produce an unexpected benefit to Greece. A non-economic excuse to leave the Euro.

32. When Greece leaves the Euro, possibly followed by Germany, a full-blown European recession will begin.

33. Last year I predicted a pre-emptive strike strike by Israel on Iran. It was very close but will happen during 2012. Uncle Sam demands it.

34. The United States will avoid a recession because consumers have begun to consume. However, much will depend on the volume of support America continues to provide to a broken Europe.

35. Crumbling economies will have a good effect on inflation and commodity prices will slide downwards.

36. The Euro will achieve parity with the American $.

37. If there is a “burst” of the Chinese property bubble, there will be a very sharp slowdown in China’s economic growth with a massive effect on commodity exporters everywhere.

38.  Greece will continue its death rattle until it wakes up and has the courage to exit the Eurozone shambles and default on ALL of its debt. Then it will receive proper support from unexpected sources and once-and-for-all break its links with Goldman Sachs.

39. The CIA-inspired Arab Spring will continue to become unglued as bloodshed in Egypt increases and the Libyans begin to wake up from the dreams of “democracy”. I foresee a Libyan Civil war.

40. There is only ONE logical end-game in Syria. An assassination and permanent removal of the Assad dynasty.

41. Britain and the United States have left Iraq and in keeping with modern tradition, it now looks more like a giant litter tray than the ancient  Cradle of Civilisation. Once again, Civil War, more bloodshed and extremists going “boom” beckon. No number of tin ballot boxes can prevent factional interests jockeying for position.

42. My favourite politician of 2011 will make a very welcome return to the European political scene and continue to annoy the Jedward of the Eurozone , Merkel and Sarkozy, now of course, known as Merkozy. Let’s hope that he doesn’t refer to Merkel as an “unfuckable lardarse” again. That  (quote of 2011) would be totally unacceptable!

43. ONLY because I am a great Harry Redknapp fan , I predict that Tottenham Hotspur will win the Premiership.

44. This is not a prediction but a hope that during 2012, somewhere a politician wakes up and realises that in any consumer-driven society, Quantitative Easing is best aimed directly at the consumer and not at the Prima Donna banks, who are not quite sure what to do with it anyway. Never feed a gambling habit.

45. In December 2012, the Chancellor and the Business Secretary (whoever they are) will ask the bankers to show “restraint” in respect of their bonus payments.

46. The United Kingdom’s Political Parties will BOTH realise that they have the wrong man in charge.

47. The Liberals will miss even more opportunities than they did in 2011 but will continue to make macho noises to impress the electorate and each other.

48.  The Labour Party will continue to support Ed Miliband and tell us that “Ed is a great leader and the man for the job” – until the moment that he begins to feel stabbing pains between the shoulder-blades.

49. The X-factor will be won by an entity with no discernible talent. (OK – that was an easy one!)

50. The skids will be bolted under the Office for Budget Responsibility.

Greece points the way.

Many have said that the defining photograph of 2011 was taken earlier this year, somewhere in or near Tahrir Square.  I disagree.

For me it is this image .

It represents the normally stoic Greeks shouting “Enough!” and trailblazing in a way which points to the inevitable and  over-postponed conclusion to the fast-failing Euro adventure.

Eventually, while the politicians and bankers play their increasingly convoluted monetary games,  the people WILL have their say.

Happy Christmas.

Dreamy British Eurosceptics fantasize about UK leaving the EU – but their arguments are weak

This article is by Keith Nuthall, Editor and Director at International News Services. It is reproduced here with Keith’s full permission. CLICK HERE.

Britain’s recent refusal to sign a new European Union (EU) treaty that would impose tougher controls over the level of budget deficits EU governments can run might seem like prudence, given the appalling state of the Euro. But the failure of Britain to negotiate itself a real say in how Eurozone members control public spending poses grave risks for the UK and its financial sector.

By standing aside from this agreement, Britain has cleared the way for Euro-zone members to agree their own financial industry legislation, which could ultimately make it easier for Euro trades to be made in Frankfurt than in London – and that might prove a bitterly expensive pill to swallow. The irony is that the senior partner in Britain’s ruling coalition government – the Conservative Party – has always been a pro-business party. And yet, the visceral nationalism and Euro-scepticism of some of its members threatens the financial health of this key constituency.

And if fears about losing City of London business to Frankfurt really did grow, just watch the UK follow Euro-zone financial regulations anyway. In this scenario, it would lose more sovereignty than it will gain by sitting in less-than-splendid isolation while others make decisions that will shape the UK’s future. It is a bit like the Swiss – they profess absolute neutrality over everything. And yet, they are always signing up to this or that bit of European legislation – recently doing away with border controls with EU member states.

The financial players in the City of London know all of this of course. For they trade around the world, and they know that the big corporations in America and the giant emerging market countries want to trade with one single European market, not a patchwork of 27 states. And if Britain retreats to being a semi-detached part of this union, its influence over the trade policies of the EU could dwindle. And this really matters, because the EU still controls trade agreements made for its members and will continue to do so. Some Conservatives retain wistful rose-tinted fantasies of Britain quitting the EU and then governments of the Commonwealth (once the British Empire) would strike replacement trade deals – maybe for old time’s sake, given the UK was supposedly such a civilised coloniser. This is romantic hogwash. The BRICs countries (inside and outside the Commonwealth) want to do business with the EU – not little Britain – which will remain a comparatively small market.

The same applies to trade with the US – another common Eurosceptic dream – that Britain should ally its trading and regulatory policies to that of America not Europe. This ignores the reality that the EU, USA, others are already getting together on harmonising their rules and regulations on a huge variety of issues. It is why the US likes the EU – because it enables their big companies and regulators to get their rules in sync with those governing the EU’s 500 million people.

A good example came just a couple of weeks ago – under the auspices of the UN Global Forum for the Harmonisation of Vehicles Regulations (yes it exists!). There, the USA, EU and Japanese auto industries and regulators got together to write the global rule book on how to make, run and charge electric vehicles – which we’ll all be driving in 20 years’ time. It’s a huge law – it will cover utilities; auto makers; safety regulators etc etc… And there are many more examples like this – medicines – the European Medicines Agency and the FDA of the USA will from January conduct joint safety inspections on all the medicines we use – working from a common rule book. Food – scientific safety standards for all WTO members (basically the whole world once Russia joins in the New Year)…are all based on a Rome-based body, the Codex Alimentarius. If a country (or the EU for EU member states) decides it wants to block the import of a foodstuff on health grounds – those grounds have to comply with Codex rules – or you get hammered by retaliatory duties at the WTO. I could go on and on (G20 rules on financial disclosures preventing another 2008 meltdown etc).

This is the coffee that has to be smelt by Britain’s dreamy Eurosceptics – national sovereignty over huge areas of our daily lives has been signed away for years. The EU is just part of a huge process of global law and regulatory harmonisation that has been happening and – crucially – will continue. There are similar processes in NAFTA, ASEAN (SE Asia), Mercosur (Latin America) and elsewhere.

This means that Britain can never ‘go it alone’ from Europe – because its key would-be trading partners want it to follow European rules, not only to make exports easier, because they want to follow the same rules too to help imports as well. It’s all just good business. And campaigners wanting Britain to withdraw from the EU can pretend this reality isn’t there if they like – but the markets won’t, and they demand to be heard.

Merkel: All is not well. Referendum?

BERLIN (Reuters) – A leading figure in Germany’s Free Democrats resigned unexpectedly on Wednesday amid a brewing battle for control of the beleaguered party that shares power with Chancellor Angela Merkel’s conservatives.

Christian Lindner, general secretary of the FDP and long seen as the liberal party’s rising star, quit in a dramatic move that exacerbated the party’s leadership crisis and appeared to be linked to a divisive referendum of party members on euro zone rescue moves.

Coalition sources said Lindner wanted to distance himself from besieged FDP chairman Philipp Roesler by lobbing a farewell grenade at his boss, who is under attack for persistent weakness in opinion polls and poor management of the referendum.

Turmoil in the FDP could cause instability for Merkel’s coalition even though the next election is not due until 2013. Speculation is growing that the FDP will dump Roesler and turn to veteran parliamentary floor leader Rainer Bruederle, 66.

Lindner, 32, and Roesler, 38, made brief statements on Wednesday to journalists in Berlin and did not take any questions. There have been rumours of behind-the-scenes tensions between the FDP’s two youthful leaders.

Merkel faced further turbulence from a growing scandal engulfing President Christian Wulff, an ally she nominated for the largely ceremonial post last year. Wulff has denied accusations he misled a regional parliament over a private loan.

Merkel’s spokesman said she had full confidence in Wulff and has no reason to doubt his comments about a private 500,000-euro loan for his house. Bild newspaper reported Wulff obtained the loan from a businessman friend at favourable interest rates.

Wulff told the regional parliament last year when he was state premier he had no business dealings with the friend. Bild said the businessman’s wife had lent him the 500,000 euros. German editorials attacked Wulff for being less than forthright.

“Merkel has full confidence in the person and conduct of Mr. Wulff,” said spokesman Steffen Seibert. “He’s a good president.”

‘BAMBI’ LINDNER LOST HIS NERVE

The Lindner resignation exposed deep splits in the party over whether to support Merkel’s efforts to bolster weak euro zone members. If they widen, it could destabilise her coalition.

“He lost his nerve,” a senior FDP official told Reuters when asked about Lindner’s move.

But a former senior leader in the conservative party said Lindner was attacking Roesler while saving his own skin.

“Roesler’s in over his head and Lindner wanted to get out before it was too late,” he said. “The whole country is fed up with these too-smooth, lightweight amateurs who have run the FDP into the ground. They need someone with experience.”

Lindner had responsibility for organising the referendum which was forced upon the party leadership by a group of eurosceptics within the FDP. Lindner was given the unflattering nickname “Bambi” by a FDP leader years ago and it stuck to the photogenic young man with the baby face.

His departure is the latest setback for the FDP, a pro-business party whose support has fallen to just 3 percent in opinion polls after it won a record 14.6 percent in the 2009 election, helping Merkel secure a second term.

“It’s possible that Lindner wanted to abandon ship before it was too late,” said Gero Neugebauer, political scientist at Berlin’s Free University. “In any event it will exacerbate the FDP’s crisis. The FDP has lost touch with its grass roots.”

The normally loquacious Lindner made a short, terse statement to journalists at FDP headquarters in Berlin, but then left without taking questions, saying only “Auf Wiedersehen.”

“There comes a time when you have to make room to allow for a new dynamic,” said Lindner, a polished speaker who previously worked in the advertising industry. “The events in recent weeks and days have strengthened my belief that this is the case.”

Angry that the FDP leadership was backing Merkel’s euro rescue moves, eurosceptics led by lawmaker Frank Schaeffler led a campaign in recent months to collect signatures within the party for the referendum, which is non-binding.

Their idea was send a signal to the leadership by showing them that grass-roots FDP members opposed euro rescue moves.

The referendum, whose results are expected to be published on Friday, may not pass because Roesler said the required quorum of FDP members is not expected to be reached. Of the 64,000 members of the party, 21,000 needed to take part for it to be valid.

Roesler said in an interview on Sunday the quorum would not be reached and said that was a victory for him. After that thousands of FDP members cast their ballots, FDP officials said.

Lindner married a newspaper reporter in August. He also obtained a license to drive racing cars two years ago.

(Additional reporting by Thorsten Severin, Andreas Rinke and Madeline Chambers, writing by Erik Kirschbaum; editing by Noah Barkin and Alistair Lyon)

More European Unforeseen Consequences?

For 3 years, (since the 2008 crisis) banks have been acquiring equity stakes in British companies.

That is grinding to a halt.

Banks will be cutting losses in order to get their money out – especially from weak companies, resulting in more businesses going into administration.

Maturing Private Equity Loans will be a major problem for both British and Euro economies.

There are nearly £300 billion Euros in Private Equity Loans.

How much of that will the banks go after?

……..and is it yet another example of the Law of Unforeseen Consequences?

The Merkozy Love-in.

This week sees yet another meeting of Eurozone leaders. On previous form, I would bet that the only outcome will be a series of half-measures and promises which will be primarily designed to reassure fund managers, investors and to placate the banks. The fate of the Euro will yet again, be postponed as millions of Europeans continue to stand in the fast-growing unemployment queue.

Theoretically, Euroleaders (or should I say Frau Merkel) will be deciding not-only the fate of the Euro but the fate of every economy in what used to be known as the “advanced industrial world”.

Austerity has become the new growth with the INEVITABLE result of ever-lengthening unemployment queues and increasingly turbulent currents of social unrest.

Received wisdom is that deficit reduction is more important than job creation through fiscal stimulus. The downside is that for countries which have already launched themselves on a deficit reduction programme, it is beginning to look as if there can never be quite enough deficit reduction because of  rapidly decreasing tax revenue.

There will always be  that no-man’s land between deficit reduction and fiscal stimulus. Not a single economy has arrived there yet.

However, what is even more worrying, is that there isn’t a single politician, banker or economist who can even begin to  put a time frame on the process. Currently, it looks like an open-ended arrangement.

One thing that the average punter does NOT realise that there are initiatives and money movements  within the banking system which he knows nothing about – unless of course, it is such a big move that the banking authorities decide that would be  prudent to go public. Last week’s sudden announcement by central banks that they would “assist” European banks which needed US dollars was a case in point.

The coordinated move was so huge that the most likely cause was that one or two major European banks must have made THE phone-call to their  own Treasury to say that they were about to go under. The U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada lowered their rates for borrowing dollars from each other by a 0.5 percentage point to “ease strains in financial markets.” (a meaningless phrase).

They went on: “At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise,”

Even  China  took steps to stimulate domestic demand by lowering its central bank interest rate.

Make no mistake – there was a crisis.

Every action so far by central banks and politicians has been a temporary fix. They are still trying to figure out the cure – if indeed there is one.

Last week, the central banks merely threw a rope for Eurobanks to cling onto  – but that does NOT solve  – or even begin to solve the still-spreading sovereign debt crisis.

This week, communiques are being written, meetings are being conducted and financial horse-trading is taking place as under-qualified politicians  attempt to put together a package which, in one fell swoop should solve the global financial crisis.

The whole circus will culminate in a December 9th Brussels summit ( another one) during which the 17 Eurozone leaders will be joined by the 10 non-Euro-participants and a series of agreements will be promulgated.

The ONLY agreement that they really need to pull out of the hat is  a “contract” to coordinate Eurozone fiscal policies.

Merkel’s dream of a Federal Europe will have taken its first faltering step.

So far , the Markets have tended to play ball with the floundering politicians but even those eternal optimists are fast running out of patience.

The latest rally has no legs because the current assumption is that somehow (for the first time ever), Eurozone leaders will provide a solution.

So, what is the likelihood of a TARP (Toxic Asset Relief Programme)?  What is the likelihood of a coordinated programme to recapitalise ALL the banks? What is the likelihood of Germany changing its mind on ever-increasing austerity programmes which are driving weak Euro economies to Depression (these days, mere Stagnation seems like an attractive alternative – an aspiration!)

So far, the Eurointransigence has been destructive: Unemployment, demotivated and desperate countries, amplifying hardship, collapsed governments.

The evidence so far suggests that those believing that this week will provide the Miracle in Brussels will be disappointed.

The weeks events began with today’s meeting between Chancellor Merkel and Nicolas Sarkozy – The Merkozy Meeting. The output was predictable with an early hint of further postponement.

German Chancellor Angela Merkel has called for “structural changes” after the keenly-watched meeting with French President Nicolas Sarkozy in Paris today. The two leaders said that they had agreed on a “comprehensive” agreement to be proposed on Friday at the summit. (What he meant was is that he had agreed with everything that Frau Merkel had proposed)

“This package shows that we are absolutely determined to keep the euro as a stable currency and as an important contributor to European stability,” said Merkel.

Among the proposals were that the European Court of Justice will have a say when countries break the legally established limit for public debt of 3% of GDP. Also, both leaders rejected the need for the joint issuance of European debt by member states, adding that socialising debt burdens is no solution. (Another Merkel victory).

Sarkozy has added that he expects all of the necessary negotiations to be finalised by March (no surprises there!) and that changes to the Treaty will be ratified in France, following the next national elections in March.

The pair  indicated that it is yet to be seen if the changes will be adopted by all 27 European nations or simply the  17 Euro states.

Lastly, they also made it clear that it is their intention to continue working with the International Monetary Fund and to bring forward the implementation of the permanent rescue fund by a full year, to 2012.

Here in the United Kingdom, where politicians have recently voiced concerns on how EU treaty changes could affect Britain, Downing Street has said that there will be no referendum on the EU treaty changes.

A spokesman for Prime Minister  said, “What is being talked about is a new set of rules for the Eurozone and how those countries that are members of the euro organise themselves on fiscal policy. There is no proposal on the table for a transfer of powers from the UK to Brussels. That is not what is being talked about…No-one has put that on the table and I don’t think it is likely to be on the table.”

At the end of the first day, it seems that we are about to be served-up yet another portion of bland European procrastination  – but what an object lesson in Blatant Brinkmanship from the Germans!

EFSF Accounting Gymnastics.

Last night , Eurozone  finance ministers (sort of) agreed a deal to increase the firepower of the European Financial Stability Facility  (EFSF).

Unfortunately, this time it really IS a case of too little too late or perhaps, someone didn’t get his sums quite right. Some of the €440 which the EFSF has to play with has already been allocated to help Portugal and Ireland.  There is also the small matter of the EFSF contribution to the next Greek bailout.

Nevertheless, it was agreed that the EFSF will guarantee 20 to 30% of the value of any bond issued by a Eurozone member, allowing the fund’s “assets” to be “leveraged”. That, in effect means that say,  €1 billion of EFSF  assets can underwrite about €3 billions’ worth of Eurobonds.  A dangerous game – especially as the EFSF’s real apacity is so limited.

In reality the EFSF’s  capacity might only be between €500 and €700 billion, which is not really even big enough to bailout Italy and Spain. Meanwhile, Greece will run out of cash in two weeks’ time and is already standing in the wings, hands out, awaiting its next €8 billion bailout.

Also embedded in the backdrop to all this accounting wizardry, is a secret Euro report which states that Italy will need to beef-up its austerity measures , otherwise it will soon become insolvent.

The ECB has its own issues, centering around its difficulty in securing support from banks in respect of balancing its sovereign bond purchases. Because banks are so unsure of what is going to hit them next, they wish to maintain liquidity. That means that they are no too keen on even depositing short-term money with the ECB.

Here’s what the EFSF announced.

When agreeing such initiatives, it is quite normal to “test the water” by soliciting the views of investors. Chris Frankel CFO and Deputy CEO of EFSF said  ‘Following extensive discussions with investors covering all types and geographical regions, a number of them” have given their positive views and signalled their willingness to participate.’

That simply means that  institutions which are already government-underwritten will invest in lower-risk bonds as a result of centralised underwriting. Consequently, they will be willing (in theory) to accept lower bond yields.

All of the above is being promulgated as a “done deal” but others believe that the whole arrangement is far to complex and too difficult to understand. It certainly smacks of desperation.

What is really needed is a fund which can operate quickly and simply.

In spite of very strong opposition from Germany, it would seem that the only eventual way forward will be not-only for the ECB to start printing Euros. but to become European lender of last resort.

One thing is definite – the whole thing is hanging by a thread and just one more “Eurosurprise” would be devastating.

And the IMF? Another statement declared: “The 17 Euro Finance Ministers have agreed to work on boosting the resources of the IMF so it can “cooperate more closely” with the European Financial Stability Facility.” Make of that what you will.

One thing is for sure, everything MUST be done to boost the EFSF’s effectiveness and for the “stop-gap accords” to stop. So far, all the temporary “fixes” and retro-crisis-management have failed  to protect Italy and Spain from surging bond yields and both Standard and Poors as well as increasingly cynical investors now have France in the crosshairs.

Today is a big day for the Eurozone.

The uncertainty is not helped by statements such as the one from EFSF Chief Executive Officer Klaus Regling who said  “It is “impossible to give one number” for the total firepower of the EFSF because market conditions change over time.”

Or ECB President Mario Draghi saying that the ECB’s 18-month- old bond-buying program is “temporary and limited.”

In spite of all the meetings, organisational complexity and communiqués, there are still two vital ingredients  missing – a coherent strategy and leadership with direction.

FTSE 100 to fall below 5000 this week?  It will be a great personal shock if if doesn’t. Asians have been dumping dodgy European Bonds for a couple of weeks and very soon (as in  – any minute now!) Equities will follow. This could have been the end of the beginning but now, thanks to inept frozen politicians, it looks as if it may be the beginning of the end – certainly the end of the Euro.

Fund managers are looking for safe homes for   investments which are currently languishing in European banks. American banks must be rubbing their hands together – especially as the European banks are also wanting to offload both loans and assets at bargain basement prices. The Americans will also be happy at the opportunity to help their European friends with a bit of capital raising. It’s an ill wind and all that! Mind you – that should have been us!

The Band Plays on………and on………

Markets are continuing to gyrate quite wildly and it will not be long before they finally wake up and pluck up the courage to realise that the nth solution to the Sovereign Debt crisis is not going to work any better than the (n-1)th solution or even the (n+1)th attempt next week. Greece is still bogged-down in a political and fiscal mess – in fact EVERY SINGLE DAY it is sinking further into the mire. Italy and its change of main players is also becoming unhinged, while everyone else in Europe is keeping their head well below the parapet, cringing in horror at the thought of having to produce increasing amounts of bailout money which DOES NOT EXIST. Countries such as the United Kingdom take scant comfort  from changes in growth and forecasts measured in no more than a few basis points. Meanwhile bankers are bracing themselves for the tidal wave of “sell” orders which are about to swamp their offices. Suddenly the Christmas Holiday seems such a long way away.

The principle of keeping the management of a national economy away from politicians and handing it to technocrats is very sound – as has been proved over the last THREE years by the procrastination and ineptitude of Euro politicians.

However, handing-over a sovereign economy to technocrats could be considered counter-democratic because technocrats tend to be unelected.

The “unelected specialists with focused knowledge versus elected generalist know-all politicians “ argument is set to explode in Italy where the new government is expected to be made up of mostly non-political, unelected technocrats.

Both  the Italian Democratic Party and Berlusconi’s PDL are seeking Cabinet representation – even though they have shown that they will be able to add little to the issues.

This should prove an interesting time and possibly a template for other democracies with elected politicians who have absolutely no idea how to deal with a failing multi-faceted and complex modern economy.

Eurozone ‘faces sovereignty loss’

Eurozone countries will have to swallow “a big loss of national sovereignty” by pooling resources and control over fiscal policy to restore long-term stability to the single currency, Chancellor George Osborne has said.

Mr Osborne said that the global economy was at its “most dangerous moment” since the crash of 2008, with real risks to British jobs and growth.

But he insisted once again that the UK will not be part of any EU fiscal integration and will not bear the financial cost of bailing out the single currency.

Writing in the Evening Standard, Mr Osborne said: “The financial risks of standing behind the currency will ultimately be borne by eurozone citizens. The eurozone has the financial capacity to restore stability. They now need to deploy it without delay.”

Mr Osborne also restated his opposition to a Europe-only Financial Transaction Tax, warning that a levy on trading in shares and derivatives which does not include the US or China would be “economic suicide” for Britain and Europe.

The European Commission launched proposals for an FTT in September, and they have the backing of France and Germany, who think the levy could help finance the eurozone bailout. Meanwhile, campaigners want some of the revenues from a “Robin Hood Tax” to go towards aid for the poor world.

But the Chancellor said: “Proposals for a Europe-only Financial Transactions Tax are a bullet aimed at the heart of London… The EU should be coming forward with new ideas to promote growth, not undermine it.”

Despite “grounds for optimism” following the formation of new governments in Greece and Italy, Mr Osborne warned that “this remains the most dangerous moment for the world economy since Lehman Brothers went down in the autumn of 2008”.

And he added: “The epicentre may be across the Channel in the eurozone, but the risks to Britain are no less real.

“Jobs and growth in our country have already been damaged by this euro crisis. In such uncertain times, this coalition Government’s priority is to help Britain ride out this storm instead of being consumed by it.”

Big Italian hopes for new Italian Prime Minister Mario Monti. People are already talking about the “Monti style”.  He may well be a tough negotiator and  be known a “Super Mario”. However, what he has to deliver has already been decided by the Eurozone. He has to put into place exactly the same austerity measures that Berlusconi  was charged with delivering. Monti has to create consensus within the new Italian government but with the added difficulty of having the still-powerful Berlusconi  lurking in the background with enough power to bring the government down whenever it suits him.

This weekend’s goings-on in Greece and Italy have bought maybe two or three days of calm. The usual pattern is for another crisis to surface or for another set of tragic trading figures to materialise and once again, it will be back to square one. No matter how many noughts are added to  various bailout schemes, it is the structural and political issues which need to be attacked. Putting bankers and Eurowonks in charge in Greece and Italy does not guarantee anything – in fact it looks like a very high-risk strategy with as much possibility of a positive outcome as there was under the previous regimes. The basic underlying numbers are exactly the same today as they were last week.

The moves by both Greece and Italy towards a Technocratic -style government are both reassuring and frightening. The increased complexity of global economics has really exposed elected politicians as being  incapable of making the right decisions, except at the most superficial level. The worrying thing is that Austerity Economics has become a modern Mantra and so has come to be viewed as a modern divine truth. In fact, Stimulus Politics is what is needed. Currently, the cure is killing the patient. The United Kingdom experience is an excellent example of a policy which clearly demonstrates that  austerity measures gradually KILL economic growth but that political dogma always wins out. Greece has been an extreme example where austerity has done little more than accelerate economic collapse. Italy has followed and now French austerity economics  are set to cause even more economic havoc.

Mario Monti , so far the most likely successor to Sylvio Berlusconi as Italian Prime Minister has all the credentials to fall into line with Euroland. He was European Commissioner for the Internal Market, Financial Services and Financial Integration, Customs, and Taxation as well as a member of the Bidergberg Group.

Italian Euro-light?

European Union Economic and Monetary Affairs Commissioner Olli Rehn has said that Belgium, Cyprus, Hungary, Malta and Poland are not doing enough to cut their deficits. How DO these people know?

The good news is that Italy has managed to shift 5 billion euros-worth  of one-year bonds at a rate of 6.087%. That means that in 12 months, the Italian government will have to repay those bonds at over 5.3 billion. By then, it will have to borrow more in order to redeem the 5.3 billion etc etc.

This bond issue  is, of course is a mere drop in the ocean if set against the 1.4 TRILLION which they will probably need for a bailout.

Within a few weeks, Italy’s president Giorgio Napolitano will attempt to form a new government. With Italy’s past electoral history, the creation of a new administration will make the Greek efforts look like a W.I. meeting.

Thank you for all your messages and inquiries about the Twitter suspension of my @spygun  account. I have probably been sinbinned for a week but am currently awaiting the results of an appeal which I have filed. Some of you already know that occasionally I Tweet from my corporate account which is @PresentationLab. Might see you there!! Otherwise, stick with me on spygun.com.  It would seem that my  predictions of the Eurozone collapse and  economic unravelling  aren’t as well-accepted as I thought.

October 2011 Eurozone Output

This is what they said:

1. Over the last three years, we have taken unprecedented steps to combat the effects of the world-wide financial crisis, both in the European Union as such and within the euro area. The strategy we have put into place encompasses determined efforts to ensure fiscal consolidation, support to countries in difficulty, and a strengthening of euro area governance leading to deeper economic integration among us and an ambitious agenda for growth. At our 21 July meeting we took a set of major decisions. The ratification by all 17 Member States of the euro area of the measures related to the EFSF significantly strengthens our capacity to react to the crisis. Agreement by all three institutions on a strong legislative package within the EU structures on better economic governance represents another major achievement. The introduction of the European Semester has fundamentally changed the way our fiscal and economic policies are co-ordinated at European level, with co- ordination at EU level now taking place before national decisions are taken. The euro continues to rest on solid fundamentals.

2. Further action is needed to restore confidence. That is why today we agree on a comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties and take the necessary steps for the completion of our economic and monetary union. We fully support the ECB in its action to maintain price stability in the euro area. Sustainable public finances and structural reforms for growth

3. The European Union must improve its growth and employment outlook, as outlined in the growth agenda agreed by the European Council on 23 October 2011. We reiterate our full commitment to implement the country specific recommendations made under the first European Semester and on focusing public spending on growth areas.

4. All Member States of the euro area are fully determined to continue their policy of fiscal consolidation and structural reforms. A particular effort will be required of those Member States who are experiencing tensions in sovereign debt markets.

5. We welcome the important steps taken by Spain to reduce its budget deficit, restructure its banking sector and reform product and labour markets, as well as the adoption of a constitutional balanced budget amendment. Strictly implementing budgetary adjustment as planned is key, including at regional level, to fulfil the commitments of the stability and growth Pact and the strengthening of the fiscal framework by developing lower level legislation to make the constitutional amendment fully operative. Further action is needed to increase growth so as to reduce the unacceptable high level of unemployment. Actions should include enhancing labour market changes to increase flexibility at firm level and employability of the labour force and other reforms to improve competitiveness, specially extending the reforms in the service sector.

6. We welcome Italy’s plans for growth enhancing structural reforms and the fiscal consolidation strategy, as set out in the letter sent to the Presidents of the European Council and the Commission and call on Italy to present as a matter of urgency an ambitious timetable for these reforms. We commend Italy’s commitment to achieve a balanced budget by 2013 and a structural budget surplus in 2014, bringing about a reduction in gross government debt to 113% of GDP in 2014, as well as the foreseen introduction of a balanced budget rule in the constitution by mid 2012. Italy will now implement the proposed structural reforms to increase competitiveness by cutting red tape, abolishing minimum tariffs in professional services and further liberalising local public services and utilities. We note Italy’s commitment to reform labour legislation and in particular the dismissal rules and procedures and to review the currently fragmented unemployment benefit system by the end of 2011, taking into account the budgetary constraints. We take note of the plan to increase the retirement age to 67 years by 2026 and recommend the definition by the end of the year of the process to achieve this objective.

We support Italy’s intention to review structural funds programs by reprioritising projects and focussing on education, employment, digital agenda and railways/networks with the aim of improving the conditions to enhance growth and tackle the regional divide. We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment. Countries under adjustment programme

7. We reiterate our determination to continue providing support to all countries under programmes until they have regained market access, provided they fully implement those programmes.

8. Concerning the programme countries, we are pleased with the progress made by Ireland in the full implementation of its adjustment programme which is delivering positive results.Portugal is also making good progress with its programme and is determined to continue undertaking measures to underpin fiscal sustainability and improve competitiveness. We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.

9. We welcome the decision by the Eurogroup on the disbursement of the 6th tranche of the EUIMF support programme for Greece. We look forward to the conclusion of a sustainable and credible new EU-IMF multiannual programme by the end of the year.

10. The mechanisms for the monitoring of implementation of the Greek programme must be strengthened, as requested by the Greek government. The ownership of the programme is Greek and its implementation is the responsibility of the Greek authorities. In the context of the new programme, the Commission, in cooperation with the other Troika partners, will establish for the duration of the programme a monitoring capacity on the ground, including with the involvement of national experts, to work in close and continuous cooperation with the Greek government and the Troika to advise and offer assistance in order to ensure the timely and full implementation of the reforms. It will assist the Troika in assessing the conformity of measures which will be taken by the Greek government within the commitments of the programme. This new role will be laid down in the Memorandum of Understanding. To facilitate the efficient use of the sizeable official loans for the recapitalization of Greek banks, the governance of the Hellenic Financial Stability Fund (HFSF) will be strengthened in agreement with the Greek government and the Troika.

11. We fully support the Task Force on technical assistance set up by the Commission.

12. The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.

13. Greece commits future cash flows from project Helios or other privatisation revenue in excess of those already included in the adjustment programme to further reduce indebtedness of the Hellenic Republic by up to 15 billion euros with the aim of restoring the lending capacity of the EFSF.

14. Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks.

15. As far as our general approach to private sector involvement in the euro area is concerned, we reiterate our decision taken on 21 July 2011 that Greece requires an exceptional and unique solution.

16. All other euro area Member States solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole. Stabilisation mechanisms

17. The ratification process of the revised EFSF has now been completed in all euro area Member States and the Eurogroup has agreed on the implementing guidelines on primary and secondary market interventions, precautionary arrangements and bank recapitalisation. The decisions we took concerning the EFSF on 21 July are thus fully operational. All tools available will be used in an effective way to ensure financial stability in the euro area. As stated in the implementing guidelines, strict conditionality will apply in case of new (precautionary) programmes in line with IMF practices. The Commission will carry out enhanced surveillance of the Member States concerned and report regularly to the Eurogroup.

18. We agree that the capacity of the extended EFSF shall be used with a view to maximizing the available resources in the following framework: • the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF. These measures are needed to ensure financial stability and provide sufficient ringfencing to fight contagion; • this will be done without extending the guarantees underpinning the facility and within the rules of the Treaty and the terms and conditions of the current framework agreement, operating in the context of the agreed instruments, and entailing appropriate conditionality and surveillance.

19. We agree on two basic options to leverage the resources of the EFSF: • providing credit enhancement to new debt issued by Member States, thus reducing the funding cost. Purchasing this risk insurance would be offered to private investors as an option when buying bonds in the primary market; • maximising the funding arrangements of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purpose Vehicles. This will enlarge the amount of resources available to extend loans, for bank recapitalization and for buying bonds in the primary and secondary markets.

20. The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances. The leverage effect of each option will vary, depending on their specific features and market conditions, but could be up to four or five.

21. We call on the Eurogroup to finalise the terms and conditions for the implementation of these modalities in November, in the form of guidelines and in line with the draft terms and conditions prepared by the EFSF.

22. In addition, further enhancement of the EFSF resources can be achieved by cooperating even more closely with the IMF. The Eurogroup, the Commission and the EFSF will work on all possible options. Banking system

23. We welcome the agreement reached today by the members of the European Council on bank recapitalisation and funding (see Annex 2). Economic and fiscal coordination and surveillance

24. The legislative package on economic governance strengthens economic and fiscal policy coordination and surveillance. After it enters into force in January 2012 it will be strictly implemented as part of the European Semester. We call for rigorous surveillance by the Commission and the Council, including through peer pressure, and the active use of the existing and new instruments available. We also recall our commitments made in the framework of the Euro Plus Pact.

25. Being part of a monetary union has far reaching implications and implies a much closer coordination and surveillance to ensure stability and sustainability of the whole area. The current crisis shows the need to address this much more effectively. Therefore, while strengthening our crisis tools within the euro area, we will make further progress in integrating economic and fiscal policies by reinforcing coordination, surveillance and discipline. We will develop the necessary policies to support the functioning of the single currency area.

26. More specifically, building on the legislative package just adopted, the European Semester and the Euro Plus Pact, we commit to implement the following additional measures at the national level:

a. adoption by each euro area Member State of rules on balanced budget in structural terms translating the Stability and Growth Pact into national legislation, preferably at constitutional level or equivalent, by the end of 2012;

b. reinforcement of national fiscal frameworks beyond the Directive on requirements for budgetary frameworks of the Member States. In particular, national budgets should be based on independent growth forecasts;

c. invitation to national parliaments to take into account recommendations adopted at the EU level on the conduct of economic and budgetary policies;

d. consultation of the Commission and other euro area Member States before the adoption of any major fiscal or economic policy reform plans with potential spillover effects, so as to give the possibility for an assessment of possible impact for the euro area as a whole;

e. commitment to stick to the recommendations of the Commission and the relevant Commissioner regarding the implementation of the Stability and Growth Pact.

27. We also agree that closer monitoring and additional enforcement are warranted along the following lines:

a. for euro area Member States in excessive deficit procedure, the Commission and the Council will be enabled to examine national draft budgets and adopt an opinion on them before their adoption by the relevant national parliaments. In addition, the Commission will monitor budget execution and, if necessary, suggest amendments in the course of the year;

b. in the case of slippages of an adjustment programme closer monitoring and coordination of programme implementation will take place.

28. We look forward to the Commission’s forthcoming proposal on closer monitoring to the Council and the European Parliament under Article 136 of the TFEU. In this context, we welcome the intention of the Commission to strengthen, in the Commission, the role of the competent Commissioner for closer monitoring and additional enforcement.

29. We will further strengthen the economic pillar of the Economic and Monetary Union and better coordinate macro- and micro-economic policies. Building on the Euro Plus Pact, we will improve competitiveness, thereby achieving further convergence of policies to promote growth and employment. Pragmatic coordination of tax policies in the euro area is a necessary element of stronger economic policy coordination to support fiscal consolidation and economic growth. Legislative work on the Commission proposals for a Common Consolidated Corporate Tax Base and for a Financial Transaction Tax is ongoing. Governance structure of the euro area

30. To deal more effectively with the challenges at hand and ensure closer integration, the governance structure for the euro area will be strengthened, while preserving the integrity of the European Union as a whole.

31. We will thus meet regularly – at least twice a year- at our level, in Euro Summits, to provide strategic orientations on the economic and fiscal policies in the euro area. This will allow to better take into account the euro area dimension in our domestic policies.

32. The Eurogroup will, together with the Commission and the ECB, remain at the core of the daily management of the euro area. It will play a central role in the implementation by the euro area Member States of the European Semester. It will rely on a stronger preparatory structure.

33. More detailed arrangements are presented in Annex 1 to this paper. Further integration

34. The euro is at the core of our European project. We will strengthen the economic union to make it commensurate with the monetary union.

35. We ask the President of the European Council, in close collaboration with the President of the Commission and the President of the Eurogroup, to identify possible steps to reach this end. The focus will be on further strengthening economic convergence within the euro area, improving fiscal discipline and deepening economic union, including exploring the possibility of limited Treaty changes. An interim report will be presented in December 2011 so as to agree on first orientations. It will include a roadmap on how to proceed in full respect of the prerogatives of the institutions. A report on how to implement the agreed measures will be finalised by March 2012.

Annex 1

Ten measures to improve the governance of the euro area There is a need to strengthen economic policy coordination and surveillance within the euro area, to improve the effectiveness of decision making and to ensure more consistent communication. To this end, the following ten measures will be taken, while fully respecting the integrity of the EU as a whole:

1. There will be regular Euro Summit meetings bringing together the Heads of State or government (HoSG) of the euro area and the President of the Commission. These meetings will take place at least twice a year, at key moments of the annual economic governance circle; they will if possible take place after European Council meetings. Additional meetings can be called by the President of the Euro Summit if necessary. Euro Summits will define strategic orientations for the conduct of economic policies and for improved competitiveness and increased convergence in the euro area. The President of the Euro Summit will ensure the preparation of the Euro Summit, in close cooperation with the President of the Commission.

2. The President of the Euro Summit will be designated by the HoSG of the euro area at the same time the European Council elects its President and for the same term of office. Pending the next such election, the current President of the European Council will chair the Euro Summit meetings.

3. The President of the Euro Summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits. The President will also inform the European Parliament of the outcome of the Euro Summits.

4. As is presently the case, the Eurogroup will ensure ever closer coordination of the economic policies and promoting financial stability. Whilst respecting the powers of the EU institutions in that respect, it promotes strengthened surveillance of Member States’ economic and fiscal policies as far as the euro area is concerned. It will also prepare the Euro Summit meetings and ensure their follow up.

5. The President of the Eurogroup is elected in line with Protocol n°14 annexed to the Treaties. A decision on whether he/she should be elected among Members of the Eurogroup or be a full-time President based in Brussels will be taken at the time of the expiry of the mandate of the current incumbent. The President of the Euro Summit will be consulted on the Eurogroup work plan and may invite the President of the Eurogroup to convene a meeting of the Eurogroup, notably to prepare Euro Summits or to follow up on its orientations. Clear lines of responsibility and reporting between the Euro Summit, the Eurogroup and the preparatory bodies will be established.

6. The President of the Euro Summit, the President of the Commission and the President of the Eurogroup will meet regularly, at least once a month. The President of the ECB may be invited to participate. The Presidents of the supervisory agencies and the EFSF CEO / ESM Managing Director may be invited on an ad hoc basis.

7. Work at the preparatory level will continue to be carried out by the Eurogroup Working Group (EWG), drawing on expertise provided by the Commission. The EWG also prepares Eurogroup meetings. It should benefit from a more permanent sub-group consisting of alternates/officials representative of the Finance Ministers, meeting more frequently, working under the authority of the President of the EWG.

8. The EWG will be chaired by a full-time Brussels-based President. In principle, he/she will be elected at the same time as the chair of the Economic and Financial Committee.

9. The existing administrative structures (i.e. the Council General Secretariat and the EFC Secretariat) will be strengthened and co-operate in a well coordinated way to provide adequate support to the Euro Summit President and the President of the Eurogroup, under the guidance of the President of the EFC/EWG. External expertise will be drawn upon as appropriate, on an ad hoc basis.

10. Clear rules and mechanisms will be set up to improve communication and ensure more consistent messages. The President of the Euro Summit and the President of the Eurogroup shall have a special responsibility in this respect. The President of the Euro Summit together with the President of the Commission shall be responsible for communicating the decisions of the Euro Summit and the President of the Eurogroup together with the ECFIN Commissioner shall be responsible for communicating the decisions of the Eurogroup.

Annex 2

Consensus on banking package

1. Measures for restoring confidence in the banking sector (banking package) are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector. These measures should address: a. The need to ensure the medium-term funding of banks, in order to avoid a credit crunch and to safeguard the flow of credit to the real economy, and to coordinate measures to achieve this. b. The need to enhance the quality and quantity of capital of banks to withstand shocks and to demonstrate this enhancement in a reliable and harmonised way.

Term funding

2. Guarantees on bank liabilities would be required to provide more direct support for banks in accessing term funding (short- term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions.

3. A simple repetition of the 2008 experience with full national discretion in the setting-up of liquidity schemes may not provide a satisfactory solution under current market conditions. Therefore a truly coordinated approach at EU-level is needed regarding entry criteria, pricing and conditions. The Commission should urgently explore together with the EBA, EIB, ECB the options for achieving this objective and report to the EFC.

Capitalisation of banks

4. Capital target: There is broad agreement on requiring a significantly higher capital ratio of 9 % of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer, which is justified by the exceptional circumstances. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial reporting rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy and taking into account current exposure levels of the group including their subsidiaries in all Member States, cognisant of the need to avoid undue pressure on credit extension in host countries or on sovereign debt markets.

5. Financing of capital increase: Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support , and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of Eurozone countries. State Aid

6. Any form of public support, whether at a national or EU-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis