“...Europe a nest of squabbling nations. Even the continent’s democratic achievements seem under threat, as dire economic conditions create a favorable environment for political extremism. Who could have seen such a thing coming? Well, the answer is that lots of economists could and should have seen it coming, and some did...” Well if they did, their silence was f**king deafening---I, and many others didn’t need to take in the econo-babble of so-called experts – common sense told you it wouldn’t work – if you were lacking that, then the example of the Soviet Union rubbed your nose in the dog shit that is collectivism. Over countless centuries, the people of Europe divided themselves naturally into what became nation states. There was some squabbling and not a little bloodshed along the way – most of this was caused by politicians (in those days they called themselves Kings and Priests) ... Left to their own devices, these nations created their own languages, culture, sexual deviations, food preferences and currencies – they traded with each other, and by and large, the market was self-regulating..And then, some twats invented the European f**king Union...The rest, as they say, is bollocks – sorry I mean historyThe most realistic scenario for euro break-up.... is that Greece, or one or more of the weaker peripheral countries, will leave the eurozone, introduce a new currency which then falls sharply, and default on a large part of their government debt. Preparations for exit must be made in secret and acted on straightaway. Just before departure, some form of capital controls will be essential, including temporary closure of banks and ATMs. With no time to print new notes, euro notes and coins should continue to be used for small transactions. The new currency should be introduced at a one-for-one rate with the euro. But it will soon depreciate by something like 30-50% giving a boost to Greece's international competitiveness. The government should redenominate its debt in the new national currency and make clear its intention to renegotiate the terms of this debt. They must announce robust measures to keep inflation in check but, with them, markets may well lend to the exiting country again the medium term. Importantly, the exiting country has an opportunity to break free from a crippling debt strait jacket....A break-up of the eurozone implies a need to redenominate contracts from euro into new currencies. This is relevant for bonds, loans, deposits and other financial instruments. This process is complicated by various legal constraints. Different financial instruments are governed by different laws, and many euro denominated instruments are governed by foreign laws, especially English laws. Eurozone governments cannot change laws of foreign countries and they cannot easily redenominate foreign law assets. Since there are tens of trillions of euro-denominated contracts in existence under foreign law this is a very large potential problem. This plan stresses the importance of facilitating an orderly currency redenomination process in all break-up scenarios. This includes the need for an ECU-2 currency basket to settle euro claims in a full-blown break-up, where the euro ceases to exist. The ECU-2 would constitute a bridge between the euro (which no longer exists in a full blown break-up) and the new national currencies. The ECU-2 concept would thereby help avoid arbitrary currency conversions and prolonged legal battles about redenomination. In the absence of an efficient process for redenomination, a full-blown break-up of the eurozone is likely to be devastatingly disruptive and could see a complete freeze of the global financial system.
ATHENS NOW --- Greece's finance minister, Vassilis Rapanos, resigned on Monday after being ill in hospital for several days. The prime minister's office said that Mr Rapanos had sent a letter of resignation to the prime minister, Antonis Samaras, who had accepted it. The country's new coalition government, comprising Democratic Left, Pasok and New Democracy, was formed last week following months of political turmoil and two inconclusive elections.----- Now we know the truth, Samaras couldn't or didn't want to see what he was getting himself into and Rapanos fainted the moment he did. Great stalwart team to implement what their Greek countrymen and women elected them for; putting an end to Teutonic austerity while remaining in the EMU. Both gents must know this combination is not on Frau Merkel's menu. I'd give them a month, about the time it will take Greeks to realize their election manifesto was a fraud !!!!!
The developments so far today:
- Spain saw its short-term debt costs almost triple in an auction this morning as its request for a €100bn rescue package for the country's banks failed to stem market fears.
- A report compiled by Barroso, Van Rompuy, Draghi and Juncker ahead of this week's eurozone summit presents a plan for rescuing the eurozone including creating a closer fiscal and banking union that would turn Brussels into a finance ministry for all eurozone members. Under the plan, the European Union could be handed powers to change countries' budgets if they breach debt and deficit rules.
- Finance chiefs of the eurozone's four biggest economies - France, Germany, Italy and Spain - will hold last-minute talks in Paris on Tuesday evening to try to narrow differences on the currency area's future
- Mervyn King has warned that the outlook for the UK economy has worsened during recent weeks due to the eurozone turmoil; that came as public sector net borrowing rose much more than expected
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Spain's formal request for €100bn fails to stem bail-out fears
Greek finance minister Vassilis Rapanos resigns after illness
German Chancellor Angela Merkel has resisted all proposals to provide relief to Spain and Italy from the excessive risk premiums prevailing in the market, Mr Soros said.
This week's summit of European Union leaders could turn into a "fiasco" because of Germany's aversion and will leave the rest of the eurozone without a strong enough firewall to protect it against the possibility of a Greek exit, he added.
"This may serve Germany's narrow self-interest but it will create a very different Europe from the open society that fired people's imaginations," said Mr Soros in an opinion piece in the Financial Times.
"It will make Germany the centre of an empire and put the 'periphery' into a permanently subordinated position."
The Hungarian-born US financier said there was a need to establish a European fiscal authority that, in partnership with the European Central Bank, could establish a debt reduction fund, that would acquire and hold a significant portion of the outstanding stock of debt of Italy and Spain.
Moody's is cutting its credit ratings on 28 Spanish banks, saying the weakening finances of Spain's government is making it more difficult for the country to support its lenders.
The agency also said the banks are vulnerable to losses from Spain's burst real estate bubble.
The announcement came on the same day that Spain's government formally asked for help from its European neighbours in cleaning up its stricken banking sector. However the request left many questions unanswered, including how much of a $125bn loan package Spain would ask for.
That uncertainty led to losses on Monday in stock markets in Europe and the US. Bond investors pushed Spain's borrowing costs higher, a sign of lagging confidence in the country's ability to support its banks.
The downgrades are a measure of Moody's view on the ability of the 28 banks to repay their debts. Moody's said the downgrades stemmed from its lowering of Spain's credit rating by three notches earlier this month.
A downgrade usually means that banks will have to pay more for their debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. However, with interest rates already at rock-bottom levels, the lower ratings may not significantly affect the cost of funding for the banks.
For weeks, investors and experts demanded a solution to the Spanish banking crisis, preferably in the form of a cash infusion from the two Luxembourg-based European bailout funds, the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). When Madrid finally decided to request what could ultimately amount to almost €100 billion ($125 billion), the experts realized that this would suddenly send Spain's government debt shooting up from 70 to 80 percent. As a result, interest rates started rising instead of falling.
Even ECB Has Largely Exhausted Resources
Until now, the defenders of the euro have been able to resort to the massive funds of the ECB, if necessary. If things got tight, the monetary watchdogs could inject new money into the market.
But now even the ECB has largely exhausted its resources. It has already bought up so much of the sovereign debt of ailing countries that any additional shopping spree threatens to backfire, causing interest rates to explode instead of fall. At the same time, the conflict between Northern and Southern Europe in the ECB Governing Council is heating up. Last week, the head of Spain's central bank managed to convince the ECB to ease its rules to allow Spanish banks to use even weaker collateral than before in exchange for borrowing money from the ECB. This could set off a tiff with the central bankers from the donor countries, who are loath to look on as the risks in the central bank's balance sheet continue to grow.
It's also clear, says Hamburg economist Dirk Meyer, that the timetable for a euro exit in the affected countries would begin on a Monday, or "Day X." Over the weekend, the governments would have issued the surprising announcement that banks would remain closed on Monday. The bank holiday would be needed to include all savings and checking accounts in the operation.
On Tuesday, the banks and savings banks would begin stamping their customers' bank notes with forgery-proof ink. Capital transactions would be monitored. Black market prices would quickly develop in what the scenario defines as an "unofficial, virtual currency market." Another bank holiday would be needed to convert accounts and balances to the new currency. But at least another year would pass before new bank notes could be printed and distributed. The stamped euro banknotes would remain legal tender in the meantime.
But these are merely the technical consequences of a monetary reform. The economic consequences, which many German companies are now assessing, would be more serious. What happens if, in addition to Greece, other countries have to leave the euro zone? What will be the consequences if Spain, Portugal or Italy reintroduce their own currencies? Experts in the finance departments of some companies are already envisioning the possible scenarios.
For instance, they are examining whether the "euro" is explicitly defined as the agreement currency in contracts with customers from problem countries, so that they don't suddenly find themselves being paid in drachmas or escudos for their products. They are also looking into whether the costs incurred by a possible currency crash would be tax-deductible. And they are examining the potential need for write-offs if claims against business partners from southern countries are suddenly denominated in new currencies on their balance sheets. "The demand for consulting services has risen considerably in recent months," says Gunnar Schuster, an attorney with the law firm Freshfields Bruckhaus Deringer.
Whereas Greece is now almost irrelevant for Deutsche Bank, Italy and Spain account for a tenth of its European private and corporate banking business. The bank estimates the credit risks in these countries at about €18 billion (Italy) and €12 billion (Spain).
Large insurance companies are also active in Spain and Italy. Allianz, for example, holds Italian government bonds with a book value of €31 billion, which could create losses for the German insurance giant if Italy withdrew from the euro and had trouble paying its debts. Allianz also holds direct investments in banks in debt-ridden Southern European countries.
Companies, sensing the potential risks, are already doing as much as they can today to prepare for a European monetary storm. For instance, they are financing deals in the peripheral countries locally, so as to avoid currency risk. Investment bankers report that companies are receiving loans almost exclusively from banks in their own countries. Where cross-border transactions are unavoidable, banks are engaging in hedge transactions. IT systems are being prepared for a Europe with multiple currencies. And whenever they can, banks are establishing liquidity reserves or depositing money with the ECB.
The measures are set to be discussed at the EU summit on Thursday and Friday, claims the Financial Times, citing a draft report it had seen.
The plan would create a closer fiscal and banking union that would turn Brussels into a finance ministry for all 17 eurozone members.
Fears over the financial health of the single currency grew on Monday after Cyprus became the fifth country to formally request EU aid, Spain asked for external loans to deal with its banking crisis and the new Greek finance minister was forced to step down due to ill health.
Germany has demanded that national budgets be subjected to strict controls as a prerequisite for mutualising debt and issuing eurobonds.
Under the latest plans, the European Commission would reveal detailed adjustments for any country that breaches its commitments. Such changes would be subject to an EU-wide vote.
As all eyes turn towards the Europe Union summit on Thursday and Friday, the FT claims to have seen a draft report which could give the EU sweeping powers to rewrite national budgets for eurozone countries that breach debt and deficit rules.
The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union.
NEW YORK — Europe’s latest efforts to quell its financial crisis left investors exasperated Monday, causing steep losses in stock markets on both sides of the Atlantic.
The Dow Jones industrial average dropped 138 points to close at 12,502.66, a loss of 1.1 percent. The broader Standard & Poor’s 500 index fell even more, 1.6 percent.
In Europe, Spain formally asked for help to rescue the country’s ailing banks, but its request left many questions unanswered, including how much it needs of the $125 billion loan package offered by other European governments. The uncertainty unsettled markets, pushing borrowing costs higher for Spain's government.
Spain’s stock market plunged 3.7 percent, and Moody's Investors Service further rattled investors by cutting its credit ratings on 28 Spanish banks after the markets closed, saying the weakening finances of Spain's government were making it more difficult for that country to support its lenders.
Following Spain's debt auction earlier, the results are now in from Italy's auction. The country paid 4.7pc to sell two-year paper, a new high since December. That reflects increasing investor doubts over whether the summit later this week will deliver a decisive answer to the single currency's crisis.
Italy sold a total of €3.9bn in zero-coupon and inflation-linked bonds - near the top of its planned range - ahead of a six-month bill sale on Wednesday and a more challenging offer of five- and 10-year debt for up to €5.5bn on Thursday
midday round-up of developments so far today:
- Spain saw its short-term debt costs almost triple in an auction this morning as its request for a €100bn rescue package for the country's banks failed to stem market fears.
- A report compiled by Barroso, Van Rompuy, Draghi and Juncker ahead of this week's eurozone summit presents a plan for rescuing the eurozone including creating a closer fiscal and banking union that would turn Brussels into a finance ministry for all eurozone members. Under the plan, the European Union could be handed powers to change countries' budgets if they breach debt and deficit rules.
- Finance chiefs of the eurozone's four biggest economies - France, Germany, Italy and Spain - will hold last-minute talks in Paris on Tuesday evening to try to narrow differences on the currency area's future
- Mervyn King has warned that the outlook for the UK economy has worsened during recent weeks due to the eurozone turmoil; that came as public sector net borrowing rose much more than expected
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