Jan 26, 2012
Merkel Casts Doubt on Saving Greece, Insists ECJ be Empowered to Police Nannyzone; ECB insists on Profits on Greek Bonds; IMF Takes Tougher Stance; Greek Socialists Reject EU Mandates
From Mish's Global Economic Trend Analysis
Roubini CNN Davos Vidoes: Europe Needs a ‘Bazooka’, U.S Has 1929-Style Income Inequality
By Mike "Mish" Shedlock
Amazingly, smack in the midst of deal to save Greece from bankruptcy, the ECB not only insists on taking no losses on Greek bonds its holds, it wants a profit on them because it bought them at what seemed at the time to be a substantial discount. The discount was imaginary. The bonds were trading at 7% at the time.
Uncomfortable Days for ECB
The Financial Times reports Uncomfortable days for ECB
The ECB started buying Greek bonds in May 2010, when the eurozone debt crisis first erupted. The objective of Jean-Claude Trichet, president, was to stabilise financial markets. The assumption was that bonds bought at market prices would be held until maturity, when the ECB would book a tidy profit.
Having taken action when the private sector held back, it justifiably feels it should not have to pay a price now, said Erik Nielsen, chief economist at UniCredit. “In an emergency, the fire brigade goes in – but the deal is that it is protected.”
Economists estimate that a 70 per cent “haircut” on the face value of the ECB holdings could leave a loss of more than €20bn – a significant but not disastrous sum given the size of the reserves held by the ECB and eurozone national central banks. But the ECB’s resistance to accepting losses is not just principled. Agreeing to take a loss could be viewed as providing financial assistance to Greece – and in violation of the European Union’s ban on central banks funding governments.
ECB Itself Puts Deal at Risk
It is the ECB's insistence to be made whole that is a primary source of bickering about lowered coupon rates.
I commented on this mess previously in Greek Bondholders Reject Deal; History Lesson on Defaults; The ECB's Dilemma; Deadline Laugh of the Day.
In that post I showed a calculator that suggests the IMF and Germany are angling for a haircut between 75% and 79%.
To top it off, taxpayers in the EMU states would have to cover all the ECB's losses as well.
Should the deal go through, another 100+ billion euros will be thrown down the Greece rathole. In my estimation that still will not bring Greek debt down to 120% of GDP by the targeted 2020 date, up from the targeted 2015 date, up from the targeted 2013 date.
Bear in mind, with the original 21% haircut idea, Greece was supposed to be at an 80% debt-to-GDP by 2013. So not only did timeframes stretch, the targeted debt levels did as well.
IMF Throws Its Hat Into the Ring
Today the IMF threw its hat into the ring with a tougher stance over Greek debt.
On Wednesday [IMF Chief Christine Lagarde] argued that if Greece’s private creditors did not accept a big enough writedown, the European Central Bank might have to take a reduction in its own Greek debt holdings. “The balance between the participation of the private and the public sector is a concerning question,” Ms Lagarde said.
Ruffled Feathers and Spooked Investors
There was no official response from the ECB but it is safe to presume the IMF's stance ruffled a lot of feathers.
However, look at the situation from the point of view of investors. If the ECB and IMF never have to take losses, and everyone else does, then investors are buying subordinate debt that should have a much higher yield.
The situation is obviously a complicated mess in more ways than one.
Place the Blame on Arrogant Fools
Place the blame for this Grecian dilemma squarely on the shoulders of former ECB president Jean-Claude Trichet, an arrogant fool who insisted on buying Greek bonds, overriding strong objections by then Bundesbank president Axel Weber who resigned in protest of the move.
Merkel Casts Doubt on Saving Greece, Insists ECJ be Empowered to Police Nannyzone
In a candid interview with The Guardian, Angela Merkel casts doubt on saving Greece from financial meltdown
Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.
In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.
She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.
Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.
Despite the prime minister's blockade and the belief in Berlin that he blundered, Merkel sounded conciliatory.
"I am convinced that Great Britain wants to remain a member of the European Union. Of course, it's never easy for 27 states to hold together … We need to find that balance with everyone time and again, including the United Kingdom wherever possible."
On her "vision" for the future of the EU, though, there is unlikely to be any "balance" struck with No 10 because Merkel's hopes for a Europe united politically under a single government are at odds with Britain's views. Besides, Merkel's project would require substantial transfers of powers to Brussels that would run foul of Cameron's EU referendum law.
"My vision is one of political union because Europe needs to forge its own unique path. We need to become incrementally closer and closer, in all policy areas," the chancellor said. "Over a long process, we will transfer more powers to the [European] Commission, which will then handle what falls within the European remit like a government of Europe. That will require a strong parliament. A kind of second chamber, if you like, will be the council comprising the heads of [national] government."
"And finally, the supreme court will be the European court of justice. That could be what Europe's political union looks like in the future – some time in the future, as I say, and after a goodly number of interim stages."
There was no immediate reaction to Merkel's interview from Cameron.
Candid Interviews or Candid Lies?
I am suspicious of "candid interviews". Every time one of these European leaders starts acting pessimistically, another kick-the-can rescue is pulled out of the hat.
I also get the sense Merkel is fighting for her political life. That be the case, she has all the more reason to say anything that suits her purpose. Then again, it's always safe to assume politicians are babbling lies for political purposes.
In this case it is clear she is throwing an olive branch to Cameron. After that affair in December, it would be appropriate for him to throw Merkel an anchor.
Rest assured she would connive with Sarkozy once again to weigh the UK down with a financial transaction tax, except for two things.
- After all his Pompous "France will go it alone" buffoonery, Sarkozy pulled the Tobin Tax off his agenda bowing to French banks.
- Sarkozy is not going to be reelected.
For details please see
- Sarkozy Dumps Financial Transaction Tax After Pressure From Banks
- "Let the Euro Die" Candidate Trails Sarkozy by Slight 2 Percentage Points; Will Sarkozy Survive the First Round Vote? Eurozone About to Become Unglued
- Le Pen Inches Closer to Bumping Off Sarkozy in First Round of French Elections; Interesting Crossover Vote Opportunity for Hollande Supporters to Dump Sarkozy
My take is Merkel finally realizes Sarkozy is toast and the Tobin Tax is toast for now, and now Merkel wants to suck up to Cameron to help save her political career.
Is there any reason to believe anything else?
Greek Socialists Reject EU Mandates
For an article that shows just why the Greek bailouts are ultimately doomed even if another rabbit is pulled out of the hat, please consider Greek deputies join populist backlash
A revolt by socialist lawmakers over one clause in a new structural reform package has highlighted a populist backlash as Greece races to complete talks with international lenders on a medium-term fiscal programme.
More than 60 backbenchers, among them a former European commissioner, voted against the lifting of restrictions on Greek pharmacy opening hours, as part of measures liberalising more than 130 “closed-shop” professions.
A group of conservatives were among another 90 deputies who abstained, forcing the coalition government to withdraw the article. Andreas Loverdos, health minister, appeared poised to make concessions to the rebels, saying it would be presented again “with improvements” as a separate piece of legislation.
The uproar in the chamber was emblematic of continued unwillingness by Greece’s political class to accept the discipline imposed by its European partners and the IMF in return for a second bail-out, even as the country stands on the brink of a disorderly default.
“I cannot understand a parliamentary vote that puts the interests of 12,000 pharmacists above those of 11m Greeks . . . the house must finally stop protecting these mini-oligarchs,” said Giannis Ragousis, defence undersecretary and a socialist backer of market liberalisation.
A Pame [communist trade union] official said: “Greece faces three more years of austerity, even if the latest package succeeds in stabilising the economy, and people are already facing extreme hardship.”
Eventually, Will Come a Time When ....
I am sticking with what I said on November 23, 2011 in Eventually, Will Come a Time When ....
Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.
That time may be at hand.
Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post List
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Most Popular Posts of the Week:
- The Prison System Expands at Frightening Pace Following Declaration of War on Drugs
- Michel Chossudovsky: The Anti-Globalization Movement and the World
- Black Eagle Fund, the Shadow CIA and the relationship to Sept. 11th
- UKIP's Godfrey Bloom Blasts Fractional Reserve Lending as Fraud; Says Central Bankers Should be Tried for Financial Crimes
- THE COLLAPSE OF FIAT MONEY BY A FALLING ENERGY SUPPLY
- THE SATURDAY ESSAY:What else are they manipulating?
- Folly of Preserving the Euro at All Costs; Should France Lead Breakup of Euro?
- You Are a Guinea Pig - How Americans Became Exposed to Biohazards in the Greatest Uncontrolled Experiment Ever Launched
- Hilarious! Top official to plead Fifth Amendment protections after targeting constitutional groups that taught the Bill of Rights
- Is America’s Economy Being Sovietized?
"backyard" "bank holiday" "Change" "Jewish Achievements" 1st Amendment 2nd amendment 4GW 4th Reich 7/7 9/11 abiotic oil abuses of power ACTA Afghanistan AfPak Africa AFRICOM agenda 21 al-CIAduh alternative currencies American revolution anarchy apocalypse Argentina ARTICHOKE Asia Asian Energy Security Grid assassinations asteroids austerity AWOL ballistic missiles B/S backfire bad cops bailout bailout scam bank nazionalization banksters big oil big pharma Bilderberg Bin Laden biofuels biological warfare biological weapons biological weapons research bioterrorism bird flu bitcoins black ops Blackwater Brazil BRICs Brzezinski bubbles cap and trade capitalism carbon credits carbon tax carbon trade cash nexus cass sunstein casus belli CDS Central Asia central banks CFR Cheney China CIA CIA assets civil wars class conflicts class structure class warfare climategate COINTELPRO collapse Color revolutions COMEX default communism community currencies Congo conspiracies conspiracy theories Constitution Copyright corporate "personhood" corporate law corporatocracy corruption countercoup counterinsurgency Coup D'etat covert agents covert operations covert ops covert war covert warfare coverup crazy lone gunmen crimes against humanity currencies currency war dancing israelis David Kelly dead microbiologists death squads debt debt bondage debt bubble debt monetization debtors' prisons deep politics default deficit deflation deglobalization deindustralization deja vu delocalization democracy depleted uranium depopulation depression deregulation derivatives detentions Detroit devaluation devolution dictatorship Dimitri Khalezov dirty tricks dirty wars disaster capitalism disaster management discovery disinformation dissent diy diy currencies DMCA drones drugs trade DU dystopias eastern europe ECB eco-fascism economic cycle economic hitmen economic warfare Egypt electromagnetic weapons electronic surveillance elite consensus elitist propaganda Ellen Brown emerging markets end game energy engineered clusterfuck Ethiopia EU EU666 eugenics euro eurocracy eurocrats europe fake bonds fake democracy fake gold fake revolutions fake terrorism false flags fascism fascism 2.0 FED FEMA FEMA death camps fiat money Finance Capitalism forecasts ForeclosureGate foreclosures FOREIGN TRADE ZONES Fort Detrick fractional reserve banking France fraudclosures fraudonomics frauds Free books free money free speech freedom Fukushima funny money G20 gatekeepers Gaza genocides geoengineering Geopolitics Germany Ghana ghost towns Gladio global currency Global warming hoax globalization GMO gold gold manipulation gold standard Goldman Sachs golpe google Grand Chessboard great depression 2.0 great game Greece Green shoots greenbackers Guantanamo Gulf of Tonkin gun ban gun control Guns H.R. 45 HAARP habeas corpus hackers Haiti Halliburton happiness health health care bill health care reform hemp heroin high frequency trading historical cycles history hitler hoaxes Honduras House Bill 1796 how-to human organs trafficking human rights Hungary hunger hyperinflation ICC Iceland Illuminati IMF imf riots immigration imperialism incoherence income distribution income tax India inequalities infiltration inflation inflationary depression information war insider trading insolvency instability insurgency intelligence International Criminal Court international political economy internet censorship internet warfare ior IP IPCC Iran Iraq Ireland IRS Israel israeli assets Israeli firsters Israeli killers israeli lobby Israeli Organ Harvesting israeli terrorism italy Ivory Coast jesuits jews JFK Jim Willie JPM k-waves Kazakhstan Keynesianism Kissinger kleptocracy Kosovo Krugman KUBARK Kurt Sonnenfeld Kyrgyzstan Land Grab Large Hadron Collider Larry Summers Latin America LBMA Lee Harvey Oswald legitimacy crisis legitimation lesser evilism Libya lies Limited Hang Out Lincoln Lisbon Treaty lobbying local currencies Lockerbie Logan Act lol looting lsd mafia Mali Manchurian candidates Mandatory vaccinations maquiladoras market manipulations martial law Martin Armstrong Medicare meltdown MENA Mend mercenaries Mexico MI5 Michael Chertoff Michael Hudson Middle East migrations Military Industrial Complex military research military spending military tribunals militias mind control mind tricks Minerva Research Initiative Minot missing nukes missile defense missing pathogens MKDELTA MKNAOMI MKSEARCH MKULTRA money money as debt money laundering money supply Mongolia monsanto Montenegro morgellons mossad msm Mumbai narco-states narcodollars narcotics national debt National Emergencies Act national emergency native Americans NATO NDAA neo-Malthusians neocolonialism neocons neofeudalism neuroscience NGOs Nigeria NLP Non-lethal Weapons Noriega North Korea Norway NSA NSPD-51 nuclear demolition nukes NWO odious debt Oil OKLAHOMA CITY bombing oligarchy OOTW Operation Ajax operation CONDOR Operation Fast and Furious operation Mockingbird Operation Northwoods operation paperclip Operation Strange Man opium Orwell outrages p2p currencies Pakistan Palestine Panama Panarin pandemics paper money Paraguay paranoia paranoia pimping patents Patriot Act patsies pauperization peak oil pearl harbor Pennsylvania pensions Pentagon persuasion Peru pervs philippines Phoenix program piigs pimping Pipelinestan piracy Pirates plagues planned disasters Plum Island plutocracy PMCs PNAC poison pills Poland police state political economy political fakeries polls ponzi schemes pork Posse Comitatus Act pot poverty poverty business power elite pr0n predictive programming prepping primitive accumulation prison industrial complex prison population private debt privatizations problem-solution prohibitionism Project Artichoke Project Bluebird Project Censored Project MK/NAOMI Project Mockingbird project monarch Prompt Corrective Action Law propaganda prostitution protests provocateurs psy-ops psycho-police psychotronic warfare Ptech public policies qe qe2 R2P rabbis crackdown real wages regime change regulations relative disadvantage religion renditions renewable energy reserve currency resistance revolution revolution (how to) revolutions riots robots Rockfeller Roman Empire Rothschilds Rumsfeld Rupert Murdoch Russia Rwanda s510 sabbateans Salvador Option samson option saudi arabia sayanim SCADs scams scandals scares schemes SCO SDR secrecy secret algorithms Secret services sedition self-employment self-reliance serial killers sex scandals sheeple shock capitalism SHTF silver sixties slavery slums social conflicts social currencies social movements social research Social Security social spending socialization of costs somalia Soros sound money South Africa South Caucasus South Korea Southern Poverty Law Center Sovereignty Sovereignty Resolutions spain special economic zones spin spyware stagflation state of exception state secrets state terrorism statistics stimulus stuxnet submarines subprime Sudan suicides superbugs superimperialism suppressed technologies supremacist racist genocidal apocalyptic cults surveillance Survivalism SVADs sweden Swine Flu syria Taliban Tamiflu TAPI taxes tea party technocracy Tennessee TEOTWAWKI terrorism Thailand The Fourth Turning the left The Mogambo Guru Thirdworldization TIPS tiranny torture totalitarism toxic assets toxic waste trade deficit trade war treason Treasuries Bubble Tri-Border Area Trickle down trolls tsa tunisia Turkey uganda UK Ukraine UN underclass upper class US $ US army US bonds seized US debt US elections US gulags US hunger US secessionists US Treasuries US666 useful idiots vaccines VAT vatican Venezuela vets vietghanistan Vietnam violent conflicts virii Voodoo war war crimes WAR CRIMINALS war on drugs war party war pimps war propaganda warfare warfare state wars water WB wealth distribution web bot weed Weimar weird welfare white collar criminals White phosphorous WHO who rules Wikileaks wikipedia witch hunt WMD working poors world bank world economy world hegemony world reserve currency world trade WTF WTO WW3 xe Xinjiang Yemen Yuan Yugoslavia Zimbabwe zionism zionist trolls zious
Protect Your ASSets: Buy Gold or Silver NOW - If you wait you will be late.
(He who panics first, just may salvage something.