Central bank governors and senior regulators are set to ordain that banks must have a minimum core tier one capital ratio, including a new so-called "buffer" to protect against extreme economic conditions, of 7%, I can reveal.

This is considerably lower than was wanted by the "hawks", the US, UK and Switzerland. They wanted a core tier one capital ratio of 8 to 9% including buffer, which is what British banks currently have to maintain. In fact most British banks currently have a core tier one ratio of around 10%.

But the new 7% minimum has been agreed in the face of stiff resistance from a number of countries, led by Germany, many of whose banks typically have much lower stocks of core capital in the form of equity and retained earnings - and will have great difficulty meeting the new standard.

This new international minimum was negotiated by regulatory and central banking officials in a meeting of the Basel Committee on Banking Supervision earlier this week. It is expected to be approved by the governors and senior regulators when they meet in Basle on Sunday. It will then be ratified in a final, supposedly irrevocable way by the heads of the G20 governments, at their summit in November. The 7% minimum represents a dramatic increase on the current minimum of 2%. That 2% minimum is widely seen as far too low: banks' low levels of capital relative to their assets was a major contributor to the severity of the 2008 banking crisis, as investors lost confidence in their ability to survive losses.

As they approached collapse, the capital ratios of Northern Rock and Royal Bank of Scotland fell to dangerously low levels - which is why Northern Rock was nationalized and RBS was semi-nationalized.

The point of capital is to absorb losses when loans and investments turn bad.

Although this new 7% minimum ratio of core capital (in the form of equity and retained earnings) to assets (loans and investments) as measured on a risk-weighted basis represents a significant increase, some will argue that the ratio is still too low.

One reason for this is that the absolute minimum capital ratio, without buffer, will be around 4%, or double the previous minimum.

Under the new system, if a bank's capital ratio falls below 7% or would fall below 7% when the bank is tested for financial stresses, the bank will be forced by regulators to raise new capital. And if the ratio falls below 4%, the bank will be put into "resolution" - which means that it will be taken over by regulators and wound up.

It means that banks' core capital ratios must always be above 7% in normal economic and financial conditions. But regulators would tolerate those ratios falling below 7% for short periods during economic downturns.

A senior regulator has told me that many of the biggest banks - those "too-big-to-fail" banks whose collapse would cause ruptures to the financial system - will in practice be forced to hold more than the 7% minimum.

"There will be some kind of add-on for systemically important banks," he said. So the likes of Barclays, JP Morgan, Royal Bank of Scotland, UBS and so on will in practice have to maintain core capital ratios greater than 7%.

The major concern of banks about the imposition of the higher capital ratios is that it will constrain their ability to lend in the transition period, as they build up stocks of capital - and that could undermine the global economic recovery.

The point is that there are two ways for banks to raise capital ratios: they can persuade investors to buy new shares; or they can shrink their balance sheets relative to their existing stock of capital by lending and investing less.

Because of the threat to economic growth of rapid implementation of the new capital ratios, the regulators and central bank governors are expected to give banks several years to meet the new standards.

The Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow in order to rein in their risk-taking.

The panel agreed yesterday to allow certain assets, including minority stakes in other financial firms, to count as capital, according to a statement. The committee set a leverage ratio to apply to banks globally for the first time, which could become binding by 2018, pending further adjustments to the method of calculating banks’ assets.

“Even after all the compromises, the banks aren’t off the hook from tighter capital and liquidity rules,” said Frederick Cannon, chief equity strategist at New York-based Keefe, Bruyette & Woods.

France and Germany have led efforts to weaken rules proposed by the committee in December, concerned that their banks and economies won’t be able to bear the burden of tougher capital requirements until a recovery takes hold, according to bankers, regulators and lobbyists involved in the talks. The U.S., Switzerland and the U.K. have resisted those efforts. The announcement reflects the give and take between the two sides, said Barbara Matthews, managing director of BCM International Regulatory Analytics LLC in Washington.

German Concerns

Germany hasn’t signed yesterday’s preliminary agreement, said Sabine Reimer, a spokeswoman for BaFin, the country’s financial regulator.

“One country still has concerns and has reserved its position until the decisions on calibration and phase-in arrangements are finalized in September,” the committee said in a footnote to its statement.

Sumitomo Mitsui Financial Group Inc., Japan’s second- largest bank by market value, led banks higher in Tokyo after the committee agreed to allow some deferred tax assets to be counted as capital. The nation’s banks and regulators had fought against excluding deferred tax assets.

“The Basel Committee’s easing of restrictions gives investors a reason to take another look at Japanese banks, which have been cheap recently,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co.

Sumitomo Mitsui rose 2.8 percent to 2,587 yen at the 3 p.m. close of trading in Tokyo. Mitsubishi UFJ Financial Group Inc., the country’s largest bank, gained 2.5 percent and Mizuho Financial Group Inc. climbed 2.2 percent.

‘Making Concessions’

“They’re definitely making concessions on the definition of capital and the liquidity ratios,” said BCM International’s Matthews, who used to lobby the committee on behalf of banks. “Those were necessary to convince the Germans to accept the leverage ratio. But even though we see a lot of concessions, there are also limits to the concessions. So this isn’t fully caving in.”

The Basel committee, which represents central banks and regulators in 27 nations and sets capital standards for banks worldwide, was asked by Group of 20 leaders to draft rules after the worst financial crisis in 70 years.

Yesterday’s agreements were announced after a meeting of the group of governors and heads of supervision, which oversees the committee’s work. While the committee narrowed differences when it met two weeks ago in Basel, it left most of the final decisions to its board, members said.

The board said some of its proposals might not be completed by the end of this year, the deadline set by the G-20. Liquidity requirements for how much cash and cashable securities banks need to hold against their longer-term liabilities and counter- cyclical buffers, which would raise minimum capital requirements in times of faster economic growth, have to be worked on longer, the board said.

Lobby Efforts

European banks lobbied against the proposed exclusion of minority interests that banks hold in other financial institutions. Japan fought the hardest against the elimination of deferred tax assets, past losses that lenders use to offset tax charges in future years. The U.S. has opposed removing mortgage-servicing rights, contracts to collect payments, which are unique to U.S. banks.

The compromise announced yesterday would allow a bank to count part of a stake it owns in another financial firm in relation to the risk the capital is supposed to cover at the entity in which it invested. Deferred tax assets and mortgage- servicing rights would be included in capital up to a limit. The total for all three could not exceed 15 percent of a lender’s common equity.

While the capital ratios allow banks to assign weights to assets based on their risks, the new leverage figure considers all assets without a risk assessment. The committee initially set it at 3 percent -- meaning a bank’s total assets cannot be more than 33 times its Tier 1 capital, which includes securities that could help a lender cover unexpected losses.

Level Playing Field

The new rule also defines how assets are tallied, so as to level the playing field between different accounting standards and bring off-balance-sheet items into the calculation. The ratio will be tested from 2013 until 2017, and banks would be required to start publishing their individual leverage figures starting in 2015.

Bankers including Deutsche Bank AG Chief Executive Officer Josef Ackermann and HSBC Holdings Plc Chairman Stephen Green have said that the new rules may force banks to reduce lending, potentially limiting economic growth.

While yesterday’s announcement resolved several issues, many areas of contention, such as the actual minimum capital ratios that will be set, remain outstanding, said KBW’s Cannon.

“The definition of capital had to be finalized before the numbers can be put on, but there are still many moving parts,” said Cannon, whose research firm specializes in financial companies. The committee is planning to present a final package of reforms to the G-20 leaders meeting in Seoul in November.

Risk-Weighted Assets

Banks currently need to hold capital equal to a minimum of 8 percent of risk-weighted assets. Half of that must be Tier 1, and half of the Tier 1 needs to be common stock. Both Tier 1 and common-equity ratios will be increased, Cannon and other analysts expect. The Basel committee is also revising how the risk weighting will be done.

Like the leverage ratio, the liquidity rules are new to the Basel standards. The liquidity coverage ratio sets the amount of cash that needs to be held by a lender against any payment coming due within a month, while the net stable funding ratio considers liabilities up to 12 months.

The committee announced several modifications to the definition of liquid assets and of how to measure the safety of different types of funding. Government deposits will now be considered the same as corporate cash put in a bank, instead of treated as other banks’ money as originally proposed. Bank deposits are seen as less stable.

The changes should please banks, said Cannon.

“They compromised more on the short-term ratio than we were expecting,” he said.

A pathetic gesture by a group of Nordic Europhiles intended to boost EU morale in dark times.

Has the committee which runs the Nobel Peace Prize been infiltrated by satirists or opponents keen on discrediting the organisation? Norwegian radio reports this morning, carried by Reuters, suggested that the European Union is to be awarded the prize for supposedly keeping the peace in Europe for the last sixty years. Was this a Nordic spoof? Apparently not.

It is only a few years since President Obama was ludicrously awarded the Nobel peace prize for winning the 2008 election and not being George Bush. Since then Mr Obama has continued the war in Afghanistan, stepped up drone attacks and got America involved in Libya's bloody revolution, suggesting that it is better to hand out baubles after someone has finished their job rather than when they are just getting started or are half way through. Incidentally, the same stricture should have applied to bankers honoured by New Labour when they were still running banks which later blew up.

Giving the EU a peace prize is at best premature, like knighting Sir Fred Goodwin in the middle of the mad boom. We have no idea how the experiment to create an anti-democratic federation will end. Hopefully the answer is very peacefully, but when Greek protesters are wearing Nazi uniforms, and Spanish youth unemployment is running at 50 per cent, a look at history suggests there is always the possibility of a bumpy landing.

Daftest of all is the notion that the EU itself has kept the peace. It was the Allies led by the Americans, the Russians and the British who defeated and disarmed the Germans in 1945. The German people then underwent the most extraordinary reckoning, transforming their country into an essentially pacifist society. The EU had very little to do with it. Throughout that period it was Nato, led by the Americans and British, which kept the peace in Western Europe. The American taxpayer picked up most of the resulting tab, and the British paid a significant part of the bill too.

Under this defence umbrella, the federalists who wanted to reconstruct the notion of Carolingian Empire which dominated 9th century Europe, created what we have come to know and love as the EU. Of course there are advantages in what they constructed – the single market and easier travel, making the South of France and Tuscany more accessible. But they also built an appallingly designed single currency, a horlicks of an agricultural policy and rapacious bureaucracy determined to stifle the nation state in the name of utopian, unachievable continent-wide homogeneity. And at every turn those driving it looked for ways to outwit the democratic will.

It is said that those in charge of the Nobel Peace Prize have made their latest award to distract attention from the eurozone crisis, which only adds a further surreal twist. The last year or so in Europe has been marked by demonstrations and extensive European rioting. There are words one can use to describe what is going on, but "peaceful" isn't one of them.(By Iain Martin)

Super writting by Helena Smith - The Guardian

Up close Angela Merkel is very static. She stands immoveable, her eyes flashing this way and that. In Athens, as she stood behind a lectern following talks with the Greek prime minister, Antonis Samaras, the German chancellor was so restrained she hardly moved at all. The Greek capital resembled Fort Knox – with riot police guarding her every move, helicopters roaring overhead and sharp shooters installed on the rooftops of buildings great and small – but Europe's most powerful woman was having none of it. The angry chants and hoarse slogans of the thousands of protesters who had also come out to greet her, eliciting one of the biggest security operations ever put on by near-bankrupt Greece, belonged to another world. As did the copious amounts of acrid teargas that wafted through the Athens air.

In the hushed marble interior of the mansion that is the prime minister's office, Merkel had a message and on this, her first visit to Greece since the eruption of Europe's debt drama, it was a message she was determined to convey.

"I have not come as a task-master," she said, her eyes elevated towards the room's ornate sunlit ceiling as if focusing on some indefinable spot. "And nor have I come as a teacher to give grades," she added, now focusing intently on the marble floor. "I have come as a friend to listen and be informed." Three years into the crisis that began in Athens, Merkel also wanted to say that she understood "a lot" was being demanded of Greece. She was not the austerity warmonger that critics had painted her to be. "I come in full and firm awareness of what the people of Greece are going through," she insisted. But, she continued, Europe's weakest link was badly in need of change – and, if reforms were not made now, they would come back "in a much more dramatic way".

"I come from East Germany and I know how long it takes to build reform," she said, almost by way of reassurance. "The road for the people of Greece is very tough, very difficult, but they have put a good bit of the path behind them. I want to say you are making progress!"... But even as the leader attempted not to sound like the matriarch in charge of the family till, there is no denying that that is exactly what she is.

"Saying that she is not here to preach is bullshit," said one of the small retinue of Berlin-based journalists who follow her every move. "She is here to tell them exactly what to do."  For the vast majority of Greeks, no person is more identified than Merkel with the punitive measures that have ensnared the country in unprecedented recession and record levels of poverty and unemployment.

As up to 300,000 took to the streets in a massive display of fury over the savage cuts and tax increases that have brought growing numbers to the brink of penury, it was the woman who is widely seen as the "architect of austerity" that was firmly in their sights.   "If I met her I would say if you had read Greek history you would have been more aware," said Takis Stavropoulos, a bearded leftist who had converged with thousands of other protesters on Syntagma square. "If she had done that she would have known we would resist."   No government has been in as difficult a place as the ruling coalition that Samaras has lead since June. Although Merkel's surprise visit was seen as a major coup, with officials hailing it as further proof of Berlin's new-found willingness to keep Greece in the 17-member eurozone, there was also an acceptance that the chancellor's six-hour presence in Athens, while rich in symbolism, did not yield much in the way of substance.   Merkel's Calvinist approach to dealing with Europe's crisis-hit southern periphery may have softened, as the leader looks to re-election next year, but as tiny Greece stares into the abyss with enough funds to survive only until the end of next month, the message was clear: apply more draconian measures and the rescue funds will keep pouring in. Echoing the complaint of German commentators, Greek analysts agreed that the visit was long-overdue.

"It is hard not to see that this visit had a more important message for Germany ahead of [next September's] general elections than it did for Greece," opined the prominent commentator Yiannis Pretenderis.  The sad reality remained. After the biggest debt write-down in the history of world finance and two EU-IMF-sponsored bailouts worth a mammoth €240bn, Greece was still far from being saved and, even worse, was slipping inexorably into social meltdown with its political arena becoming ever more radicalised.

The draconian €13.5bn package of spending cuts that is the price of further aid could, many fear, push Greece further to the edge.  Back at the heart of the government, untouched by the discord of everyday life, the awkwardness of Greece's disharmonious relationship with its big brother Germany was on full display in the awkwardness of the body language of its prime minister.   As Merkel, the pastor's daughter, spoke, Samaras, whose background is privileged elite, Harvard and moneyed, looked on and winced.

"Greeks are a proud people," he said. "And our enemy is recession. But we are not asking for favours. In my discussion with the German chancellor I pointed out, however, that the Greek people are bleeding."  As he spoke, Merkel remained absolutely static before pursing her lips and looking away.  Police fired teargas and stun grenades to hold back crowds chanting anti-austerity slogans and waving Nazi flags while Merkel's host, Prime Minister Antonis Samaras, welcomed her as a "friend" of Greece.  On her first visit to Greece since the euro zone crisis erupted three years ago, Merkel struck a conciliatory tone.  She reaffirmed Berlin's commitment to keep the debt-crippled Greek state inside Europe's single currency but offered Samaras no concrete relief ahead of a new report on Greece's reform progress due by next month.  "I have come here today in full knowledge that the period Greece is living through right now is an extremely difficult one for the Greeks and many people are suffering," Merkel said at a news conference with Samaras just a few hundred yards from the mayhem on Syntagma Square, outside parliament.

"Precisely for that reason I want to say that much of the path is already behind us," she added. (source guardian.uk)

You can't have your cake and eat it...

Given that the overall public debt of Greece is approximately Euro 360 billion, this means an effective annual interest rate of approximately 3.7% for Greek public debt . A better interest rate than many other countries would get.  None of the above denies that Greece's economy is in a terrible mess and that many of its poorer citizens suffer.  Posting agitprop on Guardian bulletin boards won't change that, dear Kouros, neither will the stopping of paying taxes in Greece change that, which you also advocate for frequently in your comments. Paying no taxes means no money for schools to educate children, no money for medicines to be given to sick people, no money for pensions to be given to old people in Greece.

Well, otherwise .... For too long in Europe (and elsewhere) governments have run deficits, and have added to their overall debt. The only way to run those deficits and have that level of debt is through the bond market. All of us have enjoyed high standards on living, and some of that is paid for on tick, where are children will end up picking up the tab.   I don't see how anyone can blame the bond traders for charging higher interest rates if through their own risk assessment it looks like that debt will either never be paid back, or will be swollowed up through inflation.  Either a government runs near on balanced budgets which means the electorate not voting for high public spending 'free monkey in every office' political parties, so the bond markets have very little to do with economic decisions, or the electorate go for those parties and accept high debts and deficits which leaves them beholding to the bond markets.  You can't have your cake and eat it.

France -- tax rises for the wealthy ???!!!

"In France, prime minister Hollande is presenting the details of the 2013 budget to his cabinet this morning. The budget is expected to include tough spending freezes and tax rises for the wealthy as Paris struggles to rein in its deficit."

Just a second: tax rises for the wealthy is not typically classed as "austerity".

There are two sides to fixing the finances of the state:

a) cutting expenditure, i.e. welfare, public sector jobs, wages and pensions, all of which certainly hit the unemployed and low paid. One can also cut procurement of things like weapons but often the interests of the "defence" industry are well protected.

b) increasing income via taxation. Here, there are options. One can increase indirect taxation and hit the poor or introduce higher marginal taxes for the wealthy, capital gain tax, corporation taxes etc. Some of the latter of course have become risqué economic policies because highly mobile globalised capital can blackmail governments with disinvestment.
However, I would certainly not classify tax rises for the wealthy as "tough austerity" in the classic definition of austerity.   Some "austerity for the rich" is long overdue. Inequality has kept increasing in the context of the worst crisis and impoverishment of the populations of Europe.

Waiting to see what Hollande is proposing anyway ... I doubt that it will be a vicious attack on the rich.

The EU is dead in the water....

The EU is dead in the water already, the Euro and Eurozone even more so. Or perhaps you think the whole mad caboodle is a roaring success, and on an ever-upwards curve? Who cares when it finally unravels - it will, by its nature, never be a success in the future, because its structure and aims are stuck in the past in a fast-changing world. UKIP were top in the EU elections, and have gained significant success in the polls ever since the last General Election, so much so that they are challenging the Limp Dicks for third place. Most Conservatives agree privately with UKIP, and significant numbers have deserted to UKIP, so much so that the Conservatives cannot possibly win the next General Election without UKIP aid or without adopting UKIP policies in a significant fashion. There's a message for you there, chum. There is a great irony here that the steps taken in order to prevent a deflationary collapse could mean there is an even greater "danger" if we do start to recover. Put simply, the debt burden of the major economies are so large that they cannot afford to pay higher rates. The central banks, have massive rate risk through the bonds they are holding. What we are trying to do is create via financial alchemy a solution to the problem that the debtors cannot pay the creditors, but a restructuring is politically impossible as well as a mortal threat to undercapitalized banks. Therefore, we hope that we can somehow flood the world with liquidity, to inflate only specific assets (property, equities) but not others (food and energy). Because this is "unnatural" we see efforts made to manipulate markets (officially sanctioned fudges of housing data, outright equity market intervention, and rumors of oil releases) so the markets just get weirder every day. The question is, whether we are happy to live in a world of extreme central planning, which seems to benefit the ultra wealthy the most or would be prefer to stop the charade, allow the markets to clear, accept the reality that we are not as rich as we thought, but move on.

Why do we even write about the EU and its politicians any more?---The truth has been laid bare so many times already. The political class in Europe are not worthy of electoral support, and have decided they don't need a popular mandate to rule. The Eu politicos are interested only in themselves and will destroy nations to maintain their troughing habits. The Euro was a financial concept designed by EU politicians to control their own national governments. It has worked so well, there are now ungovernable nation states in Europe just waiting for Brussels to step into the political vacuum so created. This was always going to be the outcome, the fear recently injected into the "Project" is that it will destroy not only European nations who have already lost their sovereignty but the knock on effect will be so severe around the world that even non Euro nations are getting involved in the debate. The Bilderbergers and New World Order prime movers, didn't predict the latest financial rupture in their megalomaniacal plans. Why don't these "world leader" just read and learn from history?...Did the world leaders really expect to carry forever their Ponzi scheme of paying the debt with more debt, and borrowing more every time, using the borrowed money to pay interest? Why is everyone surprised that this scheme is finally collapsing? When will the politicians and the economists understand that development of a nation is not measured by how many shirts they can change a day, or how many hairdressers are there, or how many holidays people have, but by the nation's capacity for innovation and technological progress? Germans understand this perfectly; engineers are regarded as Gods there. The PIGS (I for Italy, not Ireland) don't, nor does the GB - there civil servants have the God-like salaries and pensions, for not very much and not very professional work that many of them are doing (I shall avoid sweeping generalizations here, as no doubt there are professional hard-working civil servants somewhere, but they are hard to see for some reason)....It looks like politicians and financiers are still looking for quick fixes to prolong the Ponzi scheme for a little longer. If only ECB could lend more. If only Germans shared their wealth. The markets could indeed be persuaded - again - that all is well - but no Ponzi is sustainable in the long term. Merkel is insisting on structural reforms - why no-one has ever argued this point, asking her what structural reforms Germany would be willing to finance? Maybe offer engineering expertise? Pure annonymous GDP figures is all that commentators are fixated on these days.
I do not understand how smart people expect to boil down complex socio-economic issues down to a single financial aspect... I seem to remember that "They" called Mario Monti a 'gentleman' and I begged to differ. His position and that of his ministers is that of puppets in the hands of the real powers in Italy: the delinquent misterial burocracy. 100 billion euros are owed in terms of unpaid invoices (70%) and tax reimbursements (30%) to small and medium sized companies, by the Italian government. Giving rise to countless banruptcies and suicides primarily caused by tax demands in some cases illegal. Yet, italians are painted as inveterate tax evaders, where tax evasion is in fact justified in terms of shear survival, your family's welfare comes before anything and anyone else, the reality is that the italian treasury collects exactly the same amount of money as the german treasury. For every 100 euros of net wages 120 euros are paid in taxes and contributions. In order to qualify for Euro entry Mr Ciampi fiddled the sale of italy's gold reserves which in fact were never sold to balance Italy's books, with the full knowledge of the German embassy in Rome and Mr Kohl. The italian end of this fraud were Mr Ciampi, Mr Romano Prodi, Mr Giuliano Amato who actually raided millions of bank accounts to collect 60 billion old liras (30 billion euros) once again to fiddle the balance sheet for euro entry. Italy's Financial and Political establishment which of course includes the likes of Mr Mario Draghi, Mr Tremonti and Mario Monti are well versed cynical experts of managing Italy's debt and euro entry was always comceived as a permanent expedient to off load the debt to the Germans.Seems that the expedient won't be that permanent, indeed it will turn out to be very temporary. These people I have mentioned should be standing in a dock with their Greek and German counterparts, yet the italians at least enjoy incomes of thousands of euros per month paid with the toil and I am sad to say the blood of good honest and brilliant italian working citizens.

Time to cash in your chips....

Time to cash in your chips ---Hollande based his manifesto upon "re-negotiating" the Treaty! Perhaps he should have had a word with Mme Merkel beforehand - as it now seems that it has backfired on him. There you go - people WILL believe what they want to hear - we're stuck with him for 5 years now - just look at the Markets - already, and it's only been 24 hours!There is little prospect of the German chancellor putting her hands up and losing the economic war she has been waging with her eurozone partners for two years now. Austerity Rules OK might be the graffiti shorthand for the debt and public spending reduction programmes that have formed the core of the Merkel approach to keep the eurozone intact and the markets on side. The message that came through strongly from France and Greece at the weekend was that austerity does not rule OK. Mrs Merkel was effectively told to "get lost" by one of the new political leaders in Greece – Syriza party leader Alexis Tsipras – who's plea was to end the "bail-out barbarism". Mrs Merkel or the markets are more likely to tell Greece to "get lost". The Euro is a disaster. The fact that the EU collectively are in denial can only make the disaster worse. Except they will not because the disaster is already as bad as it can get. Europe is going to enter a massive dislocation which will leave it irrelevant in the world. The UK will probably get dragged along unless UKIP makes a (literally) unbelievable breakthrough and we cut our bondage ties to Europe. It is over guys. Time to cash in your chips (investments, pensions etc) and depart to a foreign clime. Leave the young to suffer under the debt burden we have left them. But do not bank on their continuing to pay your pensions for the next half century. It is not going to happen.

The Telegraph  : - commentator Jeremy Warner is in Washington DC and points out the appropriate nature of Christine Lagarde's latest accessory - a crutch.....Christine Lagarde calls on all IMF member states to "finish the job" and pledge more cash to tackle the euro zone crisis, saying that bailout funds be sent directly to banks rather than struggling countries....Ms Lagarde is seeking donations to boost a firewall to protect the euro zone, but she faces an uphill task and there's no certainty such protection will even work, Jeremy writes. ----  There always seems to be some kind of accoutrements on hand when Christine Lagarde, the International Monetary Fund's managing director, makes her public appearances. In Davos this year, she'd brought her "little bag" to collect money for euro zone bailouts. For this week's spring meeting of the IMF in Washington DC, she's brought a crutch. This time it's not deliberate. She's recently undergone a knee operation. Yet it seems no less appropriate. The world economy is on crutches too....In requesting additional funds, Madame Lagarde has stressed again today that no country has ever lost money lending to the IMF. This is of course true, but then there is always a first time, and the eurozone crisis, an advanced economy fiscal meltdown quite without precedent in the IMF's 67 year history, may well be it. The amounts at stake are also much larger than ever before, and the possibility of an eventual break-up of Europe's monetary union make the risks much higher......I wonder if bailing out countries and bailing out banks is really the same thing? If major banks go under, that would represent 2 to 3 times the economy of most Eurozone nations and the countries would go down as well. Also, banks are required to buy their own countries bonds, so it so intertwined as to be virtually the same thing....In Europe Banks Are the States....The whole charade will keep going on untill there are gullible people out there ready to pour money into the EU.

The collapse of our debt based monetary system is a lot closer than many people think.

Moody's Investors Service downgraded Greece's sovereign debt rating yet again on Friday, dropping it to the lowest possible level after a debt-restructuring deal left private creditors facing heavy losses --- REUTERS - Moody’s Investors Service on Friday cut Greece’s sovereign debt rating to the lowest possible level after a debt-restructuring deal that imposes hefty economic losses for private creditors.... Moody’s lowered Greece’s local and foreign-currency bond ratings a notch to C from Ca, becoming the third credit rating agency to downgrade the country following the announcement of the swap deal to lighten its debt burden. Moody’s says that bonds rated C “are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.” The rating agency added that it did not assign any future outlook. “The announced debt exchange proposal,” the credit rating agency said in a statement, “implies that private creditors that participate will incur substantial economic losses on their holdings of the Greek government debt.” On Monday, Standard & Poor’s cut Greece’s long-term ratings to “selective default,” the second ratings agency to proceed with a widely expected downgrade after the country announced the bond swap. Fitch had announced a cut to its lowest rating above default last week. Greece formally launched the bond swap a week ago. Under the deal, which is part of a second 130-billion-euro rescue package to claw Greece back from the brink of a disorderly default, bondholders will take losses of 53.5 percent on the nominal value of their Greek holdings, with actual losses put at around 74 percent. According to Moody’s, “the announced proposal for private sector involvement, a precondition for the provision of further financial assistance from the euro area, would constitute a distressed exchange, and hence a default, on Greek government bonds.” The rating agency makes a distinction between a distressed exchange - where investors are losing money - and an outright default that is likely to happen when the exchange does not take place. “Both these conditions are met in this case,” Moody’s said. When the Eurogroup’s assessment has been finalized and debt exchanges have been completed, Moody’s will re-assess the credit risk profile and ratings of any outstanding or new securities issued by the Greek government. Moodys’ concludes that “the risk of default even after the debt exchange has been completed remains high,” and any upward movements in Greece’s sovereign ratings after the debt exchange are likely to be small.

hahahaha,,,I am absolutely shocked! Putin, the "underdog", has actually won ? This just proves that it is indeed possible to be "honest and still win" a Russian election. So another 10 years of midget nr 1 = Mr Putin then 5 years of his midget lapdog then another 10 years of Putin then another...I am becoming dizzy just thinking about it. Boy, am I glad that I am not Russian!...Oh no...I am baffled !!!

Begining today Greece is being told by it's German Governor (Horst Reichenbach) how to run its budget and how to spend its funds.

Spain ended 2011 with a deficit of 8.51pc of GDP, well above its 6pc target, Finance Minister Cristobal Montoro says. That will make it harder to meet its public deficit goal for this year of 4.4pc. Standard & Poor's has released a statement that explains the thinking behind placing the EFSF on a negative outlook. To paraphrase: if the countries that back the EFSF aren't AAA-rated, then how can the EFSF be? ...Following the lowering of the ratings on France and Austria on Jan. 13, 2012, the rated long-term debt instruments already issued by the EFSF are no longer exclusively supported by guarantees from the EFSF guarantor members rated 'AAA' by Standard & Poor's or 'AAA' rated liquid securities. Instead, the EFSF's instruments are now covered by guarantees from guarantor members or securities rated 'AAA' or 'AA+'. Therefore, on Jan. 16, 2012, we lowered the long-term issuer credit rating on the EFSF, and the issue ratings on its long-term debt securities, to 'AA+' from 'AAA'. ....The vast majority of German MPs voted for the €130bn rescue package, despite it being ever more unpopular among the electorate, who know Germany will foot the bulk of the bill. A new poll in the Bild am Sonntag newspaper found 62% of Germans are against the rescue package, an increase from 53% in September. Of the 591 MPs present for the debate, 90 voted no and five abstained. It was the seventh time the Bundestag has voted on German aid to faltering countries since the debt crisis began. As anti-German sentiment grew on the streets of Greece, Bild, the biggest selling German tabloid, printed on Monday STOP! in large letters on its front page, urging parliamentarians not to "carry on down this wrong path" but to vote against the bailout---From today Greece is being told how to run its budget and how to spend its funds. That is the price for avoiding a return to the drachma. Before any money is released Greece has to implement 3bn euros in spending cuts. The EU has said that delivery of the funds depends on Greece honoring its promises in a "timely and effective manner". Euro zone governments have also agreed to lower the interest rates on the loans they made for the first bailout. That should reduce Greece's debts by a further 2.8%. The European Central Bank has agreed to forego profits on its holdings of Greek debt, another saving for Greece.

34 Italian financial firms downgraded by Standard & Poor’s -- UniCredit SpA (UCG), Intesa Sanpaolo SpA and Banca Monte dei Paschi di Siena SpA (BMPS) were among 34 Italian financial firms downgraded by Standard & Poor’s, after the credit-ratings company reduced the nation’s grade last month. UniCredit, Italy’s biggest bank, and No. 2 Intesa had their long-term ratings lowered to BBB+ from A, S&P said yesterday in a statement. Monte dei Paschi, the No. 3 bank, was reduced to BBB from BBB+. All three have a negative outlook, S&P said. .....Italy’s credit rating was cut two levels to BBB+ from A on Jan. 13 as S&P said European leaders’ struggle to contain the region’s debt crisis would complicate the country’s efforts to finance borrowings. S&P yesterday revised its banking industry country risk assessment, known as Bicra, for Italy to group 4 from group 3, citing mounting risks. ...“Italy’s vulnerability to external financing risks has increased, given its high external public debt, resulting in Italian banks’ significantly diminished ability to roll over their wholesale debt,” S&P said in a separate statement on the country’s financial industry. “We anticipate persistently weak profitability for Italian banks in the next few years.” European nations are grappling with a debt crisis now in its third year as they seek to restore budget order and shore up the region’s financial industry. Spreads on some Italian banks are trading as if they were rated at the cusp of investment grade....go figure!?!?!?!...that means that either investors lost their marbels, or all the financial intitutions lost their credibility entireley !!!

On Sunday in a measured but pointed open letter to the government, the Association of Support and Cooperation of the State Armed Forces, the professional association of full-time staff, warned that the Greek Armed Forces are monitoring the government’s moves “with increased concern” and that their confidence in the “intentions of the state” have been “shaken”.

The EU Comission blocks the merger between Deutsche Börse and NYSE Euronext

The EU Comission blocks the merger between Deutsche Börse and NYSE Euronext -- The EU regulator voted against the plan of Deutsche Börse and of NYSE Euronext to create the largest stock market in the world, after concluding that the merger would hurt competition, Bloomberg reports. The deal would have led to a "quasi-monopoly" of derivatives traded on the European market, the European Commission announced yesterday, and it went on to say: "Any return on this deal would not be enough to counter the damage caused to consumers following the merger". The E.U. blocked the merger amid fears that the resulting entity - which would lead to more than 90% of the derivatives market in Europe - would make competition far too difficult for new players, according to the Chicago Tribune. The U.S. regulators approved the merger in December, on the condition that the two companies would sell a minor asset. Following yesterday's decision, both companies said that they are now focusing on singular strategies and are negotiating the halting of the deal. The NYSE said it would resume its 550 million dollars stock buyback program, once it reports its earnings on February 10th and the merger agreement is officially canceled. Deutsche Börse will publish its financial results on February 13th.

Buxelles Summit - Wow....blah , blah, blah..= summit statement

Translation of the EU Leader's joint statement: "BLAH,BLAH, blahh - waffle..... We have not yet learned that although this kind of crap may be taken seriously in good times, and even sometimes lead to something concrete after further negotiations, in bad times the markets show that we cannot agree on anything except words. "We fully commit ourselves to thinking about the following measures, but cannot carry them out unless our "social partners" (employers and trade unions) agree, and unless the measures follow our "social models" (paying ourselves more than we can afford now, or promising ourselves more than we can afford later, or both). "We will increase training schemes or apprenticeships to keep young people off the unemployment numbers, and if we cannot find any private sector employers who have any use for these people, we will put them on the public payroll, which we are having to shrink.
"The French, or someone, have pushed ... the idea of Eurobonds. As a compromise, we commit ourselves to rapidly examine the idea of "Euro Infrastructure bonds", and Germany in particular has committed itself, after this rapid examination, to throwing the idea in the waste paper basket"...what a farce, HOW COULD PEOPLE OF Europe ELECT SUCH IDIOTS TO RUN THEIR LIFES...???

The other Europe ...today's developments - At this hour ( 1:30 pmlocal time), there are people gathering in the center of Bucharest once more.

ROMANIA: More than 30 people were injured Sunday during a protest that turned violent in Romania’s capital, with demonstrators throwing stones and riot police using tear gas, medical sources said. Around a thousand Romanians had gathered in central Bucharest to voice anger at falling living standards and call on President Traian Basescu to step down. At this hour ( 1:30 PM. local time), there are people gathering in the center of Bucharest once more.

CZECH REPUBLIC: The Czech government’s restitution bill that compensates churches for property and assets confiscated during communist rule has raised political tensions and fiscal costs, and as such is credit negative, Moody’s Investors Service said Monday. The bill commits the state to transferring CZK170 billion, or 4.3% of gross domestic product, to the churches, Moody’s noted. Furthermore, if tensions result in the exit of Public Affairs (VV) from the ruling coalition, early elections would have to be called to form a new government, the credit rating firm pointed out.
SLOVAKIA: Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the Slovak Republic to ‘A’ from ‘A+’, and affirmed the short-term ‘A-1′ rating
BULGARIA: Miners at Bulgaria’s largest coal producer, state-owned Maritza East Mines, went on strike Sunday after failing to obtain demanded wage increases, miners’ union leader Valentin Valchev said.

Hungary sells 35billion of 10 years bonds, seeking to sell 45 Billion, yield at 9.9%

Hungary sells 35billion of 10 years bonds, seeking to sell 45 Billion, yield at 9.9%
** Not as bad as Portugal at 13.37%
** Just a little over Ireland at 8.207%
** And of course Greece at 34.955%

Meanwhile : The Frankfurter Allgemeine thinks recessions will be good for countries like Greece, which have debt problems, so they will be chuffed about the Irish double dip, no doubt. Deutschland geht es gut, noch.....is the motto. They seem to think that as the crisis only affects small countries like Greece, Ireland and Portugal, and don't see the knock on.. The UK will also be hit, as Eire is the UK's main trading partner. Portugal is important to Spain, Spain is important to France. The Greek crisis is a disaster for its Balkan neighbors, and they are important for Italy. Am listening to the German EU Commissioner Günter Öttinger on SWR1, it will be interesting to hear what he says about he Eurocrisis. He fell foul of Merkel and was kicked upstairs to the EU by her a couple of years ago. She managed to shift several such nuisances: Christian Wulff, and Roland Koch are no longer Minister Presidents, Stefan Mappus also opposed her and has now left politics.

The Bank of Spain said its indicators showed a "marked weakening" of household consumption and investment in the last quarter. The construction industry, which has been at the forefront of the downturn after Spain's property bubble burst, is still on a "path of contraction", the Bank added. Exports had slowed to almost half the pace registered in the third quarter, and tourist numbers also fell. Slow economic growth will raise concerns that Spain will not be able to meet its target to cut the budget deficit to from 9.2pc of GDP last year to 3pc by 2013. Mr Rajoy has promised to cut Spain's deficit by €16.5bn in 2012 through a series of tough spending cuts as well as banking and labor reforms. Some of the details of his plans will be laid out today following Mr Rajoy's second cabinet meeting. However ...In a real fiscal union where everybody was really committed, Germany would shift some industrial production facilities down into Spain, Italy, and Greece, maybe some automotive production or something similar and would lead with the introduction of Eurobonds so that the entire Euro Zone shared the debt (which actually isnt as high as the USA, UK or Japan) and the economic plight of these southern countries could be greatly alleviated. The simple fact is that its a single currency area in name only, and the hard fast one for all commitment just isn't there. Germany wont put its money where its mouth is. I know Germany cant be blamed and understand the feelings they have against what they feel is a lackadaisical attitude down south, but its the same thing in the UK for Wales and Scotland and in the USA for Mississippi and Louisiana, but the fact is that if Germany isnt willing to share the debt and the wealth, its not a union and by all rights should be immediately disbanded.

There is much excitement in Financial circles at reports coming in from NORAD.

In short : European leaders have been criticized for failing to take meaningful action to address the region's debt crisis. However, the European Central Bank’s decision to lend to banks is being applauded by many who had predicted doom, including euro bear Carl Weinberg, chief economist at High Frequency Economics. Weinberg consistently warned that the sovereign debt woes facing Europe would lead to a banking crisis and depression, CNBC reported. But following Wednesday's long term refinancing operation by the European Central Bank (ECB), Weinberg believes the eurozone and its banking industry finally have something to celebrate. Yahoo’s The Daily Ticker reported that the ECB kicked off its new borrowing facility with a bang Wednesday, lending $645 billion to 523 banks at 1 percent for up to 3 years. Both the dollar volume of loans and the number of banks seeking funds exceeded expectations. According to Bloomberg, the banks borrowed enough cash to refinance almost two-thirds of the debt they have maturing next year amid concerns that markets will remain frozen. This may not be enough in the end, but it is a significant step in the right direction, he added. The injection of liquidity converted bear into an optimist. And, according to Forbes.com, the news gave European stocks, especially financials, and the euro a boost. But not everyone agrees that it is time to break out the champagne. Skeptics said the high level of demand for loans is a sign of how desperate European banks are for financing, says the Daily Ticker.

There is much excitement in Financial circles at reports coming in from NORAD. First reports indicte that Father Christmas is closing in on planet earth with an unusually large sack. Rumpy von Lickspittle ( the much derided EU stooge) confidently predicts that santa is bringing a couple of Billion Euros to bung at indebted countries in the EU. Rumpy has gone on the record as saying that a policy of relying on Father Christmas was a darn sight more credible than any other policy the EU has yet formulated!!

Far from reassuring markets, the scale of Wednesday's bail-out for eurozone banks by Draghi's European Central Bank (ECB) should simply confirm fears

European banks face a €600bn tsunami of debt coming due in 2012 (mostly in the first quarter) and many simply can't pay up because the usual source of refinancing, wholesale money markets, are refusing to lend them any more. Sound familiar? One Northern Rock-style collapse after another would have reverberated around the eurozone over the next three months if the ECB hadn't stepped in with unlimited cash costing 1pc. Almost certainly there would have been a euro-Lehman moment too as a once mighty lender, probably in France, fell over. Draghi has had to ignore any sense of moral hazard and agree to fund weak banks at the expense of strong. He has opened a quantitative easing (money printing) exercise of enormous proportions. Weak banks unable to fund themselves on the open market are now hooked on cheap ECB money. Clearly, the fault for this chaos lies with the architects of the eurozone, who claimed to believe, all evidence to the contrary, that the productivities of seventeen countries would move in lockstep because the politicians demanded it. The Bankers loaned to Greece, Portugal, Italy etc. because the same politicians promised that the creditworthiness of all the parts stood with the whole, and that the whole would stand behind the parts. In the result, productivity in Greater Germany far outstripped productivity in Club Med, so that Germany ended up with a wildly undervalued currency, whilst Club Med now have a similarly overvalued currency. The essential problem is not the Club Med governments, nor the Bankers, but the architecture of the eurozone itself. The current situation was widely predicted, here and elsewhere, but the architects were and are driven by a megalomaniac mission to create a European superstate, and the consequences for the peoples of Europe are beneath their contempt. It is now impossible to see an evolutionary solution to the current impasse - at some unpredictable point, the solution will happen in the streets.

Germany - completely schizophrenic: - 78% still mourn the DMark ; 80% are against Club Med bail outs ; 66% want to keep the euro ?!?!?!

Lenders are already attempting to reduce their balance sheets by selling trillions of euros of assets, as well as so-called "liability management" exercises to cut the size of their debt piles. BNP Paribas, Lloyds Banking Group and Santander have all attempted with varying degrees of success to buy back or replace junior debt in an attempt to strengthen their core capital rations. However, Societe General analysts noted that these programs would not be enough to close the capital shortfalls worrying investors. The European banking system is a 31 trill.$ monster.The US printed some 16 trill from the beginning of the crisis to save the much smaller Wall Street . I assume that for saving the EU banking system and that includes the UK,the ECB and the BOE would have to 'create' money in a amount similar to 50% of world GDP.The moment France goes, 380 bill. black hole opens in Frankfurt and when Germany goes down,the city crashes as Britain holds some 400 bill in German debt. The world faces a cascading default in the largest economic unit on the globe. Frankly there is nothing that Paris,Berlin,London or Brussels can do about it, except for a complete reset of the system next year. Germany is however ahead of the curve since it endured 3 currency reforms in the past century and they realize when things are headed in that direction. So do it like us and go on a shopping therapy just before the crash,while you can still get something for the cash. I guess German angst was changed for escapism. The nation is completely schizophrenic: - 78% still mourn the DMark ; 80% are against Club Med bail outs ; 66% want to keep the euro ?!?!?! In the meantime, funding market conditions for euro zone banks continued to deteriorate last week despite the introduction by the European Central Bank of two long-term refinancing operations (LTRO) providing three-year funding. Euro zone banks shortage of collateral to borrow against, led the central bank to widen the pool of assets that "It" will accept, however analysts warned the move could be a "fast-track to destruction ". Excess bank usage of the three-year LTRO runs the risk of creating more banks who are dependent on ECB funds – ie. the classic model of "zombie" banks, said an analysts at Barclays Capital. A "zombie" bank is defined as one which relies on central bank funding to survive.