Spain planning to breach EU budget targets, warns prime minister Mariano Rajoy

Greek banks will probably be barred from normal ECB funding and have to turn to the Emergency Liquidity Assistance [provided by the ECB] instead but for how long, we don’t know. Greece needs around 95pc of its private creditors to accept the deal by the deadline on Thursday in order to secure its €130bn international bail-out package and avert imminent bankruptcy. ...Greek politicians back the use of CACs – which allow the deal to be imposed on all bondholders if 66pc agree to it – being inserted retrospectively if the voluntary agreement falls short. The uncertainty over the deal on Greek debt put further pressure on the euro last week. The single currency fell sharply against the dollar and other major currencies. ... Uncertainty over Spanish willingness to stick to its austerity programme also put pressure on the currency. Last week, the International Swaps and Derivatives Association (ISDA) declared that there had not yet been a credit event in Greece so there was no need for the credit default insurance instruments to be triggered. Should the CACs be triggered this week, the committee will almost certainly have to reconsider its decision.
Government austerity programmes: There are a number of channels through which higher oil prices will impact the public finances ----The governments will face a higher interest burden on the portion of the national debt that is linked to inflation...Slower economic growth will reduce tax receipts and could raise government outlays on unemployment benefits.... The governments may choose though to increase winter fuel subsidies to the needy against a backdrop of higher energy costs... However, it may be harder for the governments to implement the planned increase in petrol duty given the risk of public backlash. Wake up and smell the coffee, for we reached a point, where the price of oil, dictates the ability of the World's economy to function. Thousands of hauler jobs, hinge on the price of diesel, every aspect of our lives are directly impacted by the availability of oil at affordable prices. Politicians are showing complete disregard, for the hardships created by the pricing of oil versus taxation. Governments should set a cap on the prices, to allow growth and protect jobs at risk by market prices.

GREECE ALREADY HAS A GERMAN GOVERNOR : Horst Rauchenbach is the governor since oct. 2011....

IIF chief executive, Charles Dallara, met the Greek Prime Minister, Lucas Papademos, for the third time in three days on Saturday to continue discussing the deal. In an interview with Reuters on Friday, Mr Papademos said he was still confident. "We made significant progress over the last few weeks and in the last few days in particular," he said. "We are trying to conclude the discussions as quickly as possible. I am quite optimistic an agreement will be reached in the coming days." Sources close to the negotiations said that pressure from the "troika" of the International Monetary Fund, the European Central Bank and the European Union group of ministers was now the main reason a deal has not been signed. IN CONCLUSION : The EU elite, (but mostly Germany) are using the Euro crisis as an opportunity to create a United States of Europe through the back door in the guise of a new fiscal and political union. The countries that sign up to this will sign away the last remnants of their freedom, independence and sovereignty. Instead of shackling themselves deeper and deeper in the EU straitjacket those countries should have the courage to say no as it is only by being free of the dictates of their EU masters that Europe can resurrect itself. Greek sovereignty is now for sale...GREECE ALREADY HAS A GERMAN GOVERNOR : Horst Rauchenbach is the governor since oct. 2011....
Note to reporters: Mr. Dallara and Mr.Lemierre will be leaving Athens tomorrow and will remain in close consultation with Greek and other authorities.

January 28, 2012 — Mr. Charles Dallara and Mr. Jean Lemierre, Steering Committee Co-Chairmen of the Private Creditor-Investor Committee for Greece, stated: “We continued discussions today with Greek Prime Minister Lucas Papademos and Deputy Prime Minister and Finance Minister Evangelos Venizelos over the elements of a voluntary debt exchange. Further progress was made, building on the understandings reached yesterday on the key legal and technical issues. We are close to the finalization of a voluntary PSI within the framework expressed publicly earlier this week by Luxembourg Prime Minister Jean-Claude Juncker in his capacity as Chairman of the Eurogroup. We expect to conclude next week as discussions on other issues move forward.”

There was little good news

The European financial crisis has moved into a new phase after Standard & Poor's cut the credit rating on nine euro zone countries, and Greece's debt talks collapsed without agreement. The long-awaited loss of France's AAA was the most high-profile move from S&P, which also cut Austria's triple-A rating and pushed Portugal and Cyprus into junk status. S&P's move, which was rumored for most of the afternoon, is a major embarrassment for Nicolas Sarkozy, and will also undermine Europe's bailout fund. There is a one-in-three chance of France being downgraded again by the end of 2013.

S&P criticized European leaders for not making more progress, and criticized the focus on austerity. Fiscal cutbacks alone, it said, will not solve Europe's problems and could make the crisis even worse. The nine countries downgraded were France, Austria, Malta, Slovena, the Slovak Republic, Spain, Italy, Portugal and Cyprus (details here). Meanwhile in Greece, the body representing private creditors admitted that it was struggling to reach a deal over the Greek debt reduction program. The news that talks had broken up without agreement was seen as very serious by several analysts, as it makes a disorderly default more likely. The double-dose of bad news sent shares falling and pushed the euro to a 16-month low against the dollar. There was little good news - although an auction of Italian bonds did go pretty well.

MerKozy "demand tough new eurozone treaty" - demand of whom ???...what a farce !!!

Smoke and mirrors - - Speeding up implementation of the permanent bailout funds, the European Stability Mechanism, to 2012"... The intra-euro zone ESM treaty, draft signed on July 11th here: http://consilium.europa.eu/med... is legally dependent upon the EU treaty change agreed by EU leaders on March 25th: http://eur-lex.europa.eu/LexUr...which now awaits ratification by all 27 member states "in accordance with their respective constitutional requirements" before it can come into force. That is the EU treaty change which Hague ruled would not be put to a referendum, in his statement laid before Parliament on October 13th. "In my opinion the European Council Decision of 25 March 2011 amending Article 136 TFEU with regard to a stability mechanism for Member States whose currency is the euro adopted under Article 48(6) TEU does not fall within section 4 of the Act and no referendum is required in the UK." Far from speeding up the Bill to approve that EU treaty change, Cameron should announce that pending further negotiations he will not be proceeding with its ratification ... About half an hour ago, the Financial Times reported that S&P is putting the 6 AAA-Eurozone counteries, i.e. France, Germany, Netherlands, Austria, Luxemburg and Finnland COLLECTIVELY on negative watch, meaning that there will be a 50pc chance of a downgrade in 90 days. S&P cited "political turmoil" in the midst of the eurocrisis as a main reason for their decision, knowing this move will lead to yet more recriminations of politicians against itself: http://www.ft.com/intl/cms/s/0/7cf2e0ae-1f63-11e1-9916-00144feabdc0.html#axzz1fgeFjZei .... So much for the new investor confidence in the new approach of the eurozone leaders towards a solution of the crisis.

IN THE WEEK AHEAD

IN THE WEEK AHEAD: Investors will have only a few U.S. economic reports to distract them from the events in Europe. Factory orders and an update from the service sector will be followed by monthly updates on consumer credit and sentiment. Investors will focus on the European summit in Brussels at the end of the week. Yes, we are still talking about Europe. Fiscal union and tighter controls will be the main topics, as the wealthier nations (read: Germany) try to extract a pound of flesh in exchange for a full-fledged bailout of weaker nations. Economists have been saying that to solve the European crisis, Germany would have to come down from its moral high horse and admit it has far too much to lose if the EU were to implode. Last week, Merkel's comments, along with the central bank action, were seen as positive developments towards that end. To wit, stocks were up 7 percent, the strongest weekly performance since 2009. German government bonds, which until recently had been a haven from turmoil in the rest of the euro zone, are losing their allure as the sovereign-debt crisis roils Europe. For most of the two years since Greece's budget woes set off a spiral of selling in the bond markets of some euro-zone countries, German bonds, known as bounds, have benefited from a flight to safety along with Treasury bonds and U.K. gilts. But that relationship started to crack a few weeks ago when Germany had its worst 10-year bond auction in history, which sparked one of the biggest sell offs in some time. Despite the brouhaha about the U.S. jobs report (more on that below), the stock market-moving news last week was all about Europe and the coordinated central bank action to attack one of the symptoms of the European contagion --liquidity for European banks. Sure, the action could be called a "band-aid," but it could also be seen as the necessary preparation for the major procedure that is required to treat the ailing patient.

Geting closer to the Ribbentrop - Molotov Pact implemetation ..!!!

PARIS—France and Germany were moving closer on a comprehensive package to stabilize the euro zone that would bolster the firepower of the bloc's rescue fund and strengthen the region's banks, the countries' finance ministers said Friday, though officials cautioned they were still working on many of the details. French and German finance ministers Friday said they have made progress on delivering a comprehensive package to stabilize the euro zone. Meanwhile the cost of the collateral Greece is expected to provide its creditors has zoomed up. Charles Forelle reports live from Paris. Finance ministers and central-bank chiefs from the Group of 20 leading nations were meeting here Friday and Saturday, with the threat the euro zone's crisis poses to the rest of the world economy and financial system dominating discussions. France's President Nicolas Sarkozy gestures at Germany's Finance Minister Wolfgang Sch??uble after a meeting at the Elys??e Palace in Paris. Meeting ahead of that gathering, French Finance Minister François Baroin and his German counterpart Wolfgang Schäuble said the two governments have developed specific agreements to present to other European countries at a summit in Brussels on Oct. 23. The package—first promised by German Chancellor Angela Merkel and French President Nicolas Sarkozy last Sunday—includes maximizing the force of the euro zone's bailout fund and finding a solution for Greece's debts. "We also made progress on the shared plan to recapitalize banks," Mr. Baroin told reporters after a meeting with Messrs. Schäuble and Sarkozy. As Portugal announces further austerity cuts and Spain experiences another ratings cut, G-20 finance ministers talk to the IMF about a possible role in the euro-zone crisis. France and Germany hold the key to resolving the biggest question hanging over global financial markets: how to boost the European Financial Stability Facility's firepower without requiring nations to contribute further funding or guarantees. According to a European Union official familiar with the situation, Germany and France are weighing two models but leaning towards using the fund to insure bonds from euro-zone countries.

This post for oct. 05. 2011

We seem to be entering dangerous new territory here, on the one hand we have the European commission following it's agenda to create a European superstate trying to introduce European wide taxes and regulations and now we have the Euro Zone headed by France and Germany trying to build a state within a state excluding the 10 members who are not in the Euro from decision making but requiring them to follow regulations made by them. Merkel and Sarkozy are taking Europe down a dangerous road rather than create a stronger more co operative Europe their actions could lead to the breakup of the Union and armed conflict. History will not thank or forgive them.Everyone, all of them, to a man (and increasingly, to a woman) are fighting their own national corners. Sarkozy and the French are determined that Greece will not go under. Not in the interests of the Great European Brotherhood of Nations, but to protect the French banking system which dies along with Greece. Merkel and the Germans will sell their grandmothers if it will ensure the survival of the Euro. Not for the Great European Dream, but because the Euro is grossly undervalued for the Germany economy, allowing them to export competetively. Something they would find it very difficult to do with their own currency. Barroso the Cork Salesman is an ardent European, not because he loves waving the Star Spangled Sphincter, (he would much rather be waving the Bright Red Worker's Flag) but because he knows that without it all that is left for him and his bankrupt country is destitution, ignominy and a return to third world status. The list goes on, but somehow seems to miss the United Kingdom, which is woefully short on British interest.

I suspect money is secretly being printed and moved around to prop up Greek banks and maybe other European banks too. The Fed's enforced audit published recently shows they already disbursed at least $16 trillion (some reports claim as much as $23 trillion) to various establishments around the globe. Merkel et all look much too smug to me and they know public anger is growing, particularly in America, is growing by the hour.

Among Italian newspapers reacting to the new "solidarity" tax hike for high-earning Italians, Il Giornale – which is owned by Berlusconi's brother – was the fiercest, saying "We are furious" in a front-page editorial and claiming that the PM was hitting his own electorate hardest. Berlusconi himself appeared a shadow of his former ebullient self on Friday as he announced Italy's second austerity budget in as many months, blaming the global economic crisis. He said: "Our heart bleeds when we think that one of the good things about this government was that it had never put its hands in the pockets of Italians." For Italian daily La Stampa, the cuts and tax increases, which must now be approved by parliament, are another nail in the coffin of the scandal-weakened prime minister. "A funeral has been celebrated where the man officiating and the man buried were one and the same – Silvio Berlusconi," it wrote. Hastily concocted to satisfy the European Central Bank, which stepped in to buy Italian bonds last week after interest rates soared, the cuts have been criticised for threatening to strangle economic growth when Italy needs it most. But the decree also contains measures to liberalise the moribund Italian economy, seen as the best way to boost GDP and work off some of Italy's €1.9tn public debt, which has ballooned since Berlusconi took office. The simplification of Italy's complex local government structure will see the scrapping up to 35 provincial councils and around 50,000 elected posts. Companies will have freer rein to negotiate contracts with staff, while a plethora of non-religious holidays will be shunted to Sundays to improve productivity. But the decree offers no more than incentives to local authorities to privatise services and limited plans to open up Italy's closed-shop trade guilds, which help perpetuate the country's system of fixed prices and nepotism. Meanwhile, German Chancellor Angela Merkel will meet French President Nicolas Sarkozy in Paris on Tuesday in their latest effort to get a grip on the mounting sovereign debt crisis in the eurozone. The embattled leaders have promised to put forward "joint recommendations aimed at strengthening political and economic governance in the euro area", by the end of the summer.

A summit of leaders on Feb. 4 produced no breakthrough, with Germany and France introducing new proposals for boosting competitiveness across the zone, prompting renewed disagreement among states. Another summit is due to be held after March 9 to sustain momentum towards a deal, with the complete package expected to be finalised at another summit on March 24-25 in Brussels. Below are ideas that have been discussed formally or informally and could be included. Some measures face strong opposition from Germany and appear unlikely to make it.

INCREASING THE EFFECTIVE LENDING CAPACITY OF THE EFSF

There is a strong chance of this step being adopted. The nominal lending capacity of the European Financial Stability Facility, the euro zone bailout fund, is 440 billion euros, but because of a system of guarantees to secure a triple-A credit rating, the special purpose vehicle has an effective lending capacity of only around 250 billion euros. The European Commission, France, Germany and others agree that the effective lending capacity should be boosted to the full 440 billion and talks are focusing on how to do that. The idea of raising the EFSF's overall size above 440 billion euros was rejected by euro zone ministers on Jan. 17.

HOW COULD THE EFSF'S CAPACITY BE INCREASED?

Lifting the EFSF's effective capacity could require euro zone states to increase their guarantees, forcing some governments to seek fresh approval from their parliaments. This could be politically tricky in countries such as Germany where public opinion is against bailouts of countries that have been overspending or not kept budgets in check. Berlin has indicated that instead, euro zone countries with a rating below the top notch could inject cash into the EFSF, making up for their lack of a triple-A grade. If the 11 non-AAA countries in the euro zone injected cash, the fund would no longer need cash buffers to secure its rating and could therefore lower its interest rate. But non-AAA countries are not keen to spend cash, so the end-result could be a mix of both options, euro zone sources have indicated.

Five cajas failed Europe-wide stress tests on banks last year. The Bank of Spain has forced them into a round of mergers, reducing their number from 45 to 17 last year. High levels of bad property loans at the cajas are seen as a major risk for Spain as it slashes its budget deficit to stave off fears it will need an Irish or Greek-style rescue from the European Union and International Monetary Fund. Estimates of the cost of recapitalising the savings banks range from €17bn (£14.4bn) to €120bn, with consensus falling in the €25bn to €50bn range, according to Reuters. Economists say Spain could afford that level of rescue without seeking outside aid.The banking sector has so far set aside €88bn to cover losses on total loans of €439bn to real estate and construction. Spain's borrowing costs have soared amid worries that the sovereign debt crisis that forced Greece and Ireland to seek bailouts will spread to Portugal and then Spain. A budget deficit of 9.3% of GDP in 2010 and stagnant growth have added to the worries, though the government is hitting deficit reduction targets and pledges pension and labour reform shortly. Analysts welcomed the promise of caja recapitalisation. "This underpins hopes that Spain is now on the right track," Commerzbank strategist David Schnautz told Reuters.