Tag Archives: Spain

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.

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.

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