German MPs voted to back a third bail-out for Greece on Wednesday as Dutch prime minister Mark Rutte faced the threat of a no confidence vote over his decision to support the €86bn rescue plan. After a three-hour debate, the Bundestag approved a new rescue package for Greece with a majority of 454 votes to 13. Eighteen MPs abstained.  Within Angela Merkel's ruling Christian CDU-CSU coalition, 228 MPs voted in favour of the deal, with 63 voting against and three abstentions. In an earlier vote in July, 60 coalition MPs voted "no" to new aid for Greece. Wolfgang Schaeuble, Germany’s finance minister, told policymakers … there was “no guarantee of success” … “If Greece stands by its obligations and the programme is completely and resolutely implemented” … An immediate payment of around €13bn is expected to be handed to Greece shortly so the country can make a €3.2bn loan repayment to the European Central Bank on Thursday.’ Right, let me hand you a bucket of money so you can pay me back a bit of what you already owe me that you can’t pay back. Please. As Einstein (or Mark Twain or Ben Franklin, depending on where you look) is reputed to have said, the definition of insanity is doing the same thing over and over again and expecting a different result. Surely a collective insanity is at work here, convincing otherwise sentient adults that giving a bankrupt money to discharge his debts, which he will then pay back, is insane...The total that is actually going to Greece itself will be around €3bn per year, peanuts in a €12.2trill annual GDP economy.

Open Europe, the think tank, has blogged on the latest developments in Portugal, here: Beyond appearances, the recent political crisis has changed things in Portugal. It argues that the promotion of junior coalition leader Paulo Portas to deputy PM  with responsibility for dealing with the troika, is an important change: Let's not forget Portas tendered his resignation from the government because he disagreed with Prime Minister Pedro Passos Coelho over the appointment of Maria Luís Albuquerque as new Finance Minister. On that occasion, Portas made clear that he was hoping for a change in the country's economic policy approach (in substance, less austerity).  That could mean further tensions between the coalition, with Portas's conservatives pushing for less austerity, while the prime minister's Social Democrats stick to the current policy.

Portugal's PM has now announced that Paulo Portas, his junior coalition partner will be given responsibility for "coordinating" negotiations with the Troika.  Pedro Passos Coehlo also confirmed that Portas will become Portugal's new deputy prime minister -- proving that old adage that a well-timed resignation can do wonders for a career*.  It was Portas's shock decision to quit on July 2 that inflamed the crisis, a day after former finance minister Victor Gaspar threw in the towel.  There's going to be a wider cabinet reshuffle too - but the details aren't available yet.

German "Think Tank experts" push for wealth seizure to fund EMU bail-outs …Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.  Professors Lars Feld and Peter Bofinger said states in trouble must pay more for their own salvation, said arguing that there is enough wealth in homes and private assets across the Mediterranean to cover bail-out costs. “The rich must give up part of their wealth over the next ten years,” said Prof Bofinger.  The two economist are members of the Germany’s Council of Economic Experts or “Five Wise Men”, a body that advises the Chancellor on major issues. There is no formal plan to launch a wealth tax but the council is often used to fly kites for new policies.   Prof Bofinger told Spiegel Magazine that it was a mistake to target deposit holders in banks, the formula used in the EU-IMF Troika bail-out for Cyprus where those with savings above €100,000 at Laiki and Bank of Cyprus face huge losses. “The canny rich in southern Europe just shift their money to banks in Northern Europe to escape seizure,” he said.   Prof Feld said a new survey by the European Central Bank had revealed that people in the crisis countries are richer than the Germans themselves. “This shows that Germany has been right to take a tough line of euro rescue loans,” he said.  The ECB study found that the “median” wealth of is €267,000 in Cyprus, compared to just €51,000 in Germany where home ownership rate is just 44pc and large numbers of people have almost no assets.

A chapter of the IMF's latest financial stability report, released to coincide with the build-up to the meetings, warns that long periods with ultra-low interest rates and so-called "unconventional" monetary policy, such as quantitative easing, can spawn serious long-term problems, even if they succeed in boosting short-term growth.

At home, "zombie" firms and households that would have gone bust can be propped up by super-cheap borrowing – only to face an even greater risk of collapse when interest rates finally go up.

Meanwhile, some of the cheap money created in the US, Japan and the UK will leak overseas, as investors seek better returns elsewhere. Emerging economies in Asia and Latin America are increasingly concerned about speculative investment flows pumping up their currencies and inflating asset bubbles.

"Despite their positive short-term effects for banks, these central bank policies are associated with risks that are likely to increase the longer the policies are maintained," the IMF warned.

Depreciation is another welcome by-product of the hyperactive central banks' policies, and there will also be a debate in Washington about the risks of a beggar-my-neighbour battle to create the cheapest currency.

Even before Japan's dramatic expansion of its bond-buying programme, the sharp devaluation in the yen over the past six months had raised concerns in Europe that a strong euro will harm competitiveness.

Danny Gabay, of City consultancy Fathom, said an appreciating euro would drive Europe's economies deeper into recession and put the region's fragile banks at greater risk. "Do they think the banking system that is already under stress from high unemployment and non-performing loans can withstand a stronger euro too?"

Face-to-face talks, like those that take place at these IMF gatherings, can force policymakers to confront the consequences of their domestically motivated policies – but they are rarely persuaded to change their plans as a result. Sir Mervyn King, the outgoing Bank of England governor, is likely to repeat his frequently expressed fear that there remain deep, fundamental tensions in the world economy, between creditors and debtors, savers and spenders, which have never been tackled.

Cyprus’s central bank said lenders would remain closed until at least Tuesday amid growing speculation the Meditterranean island could become the eurozone member to exit the currency bloc.

Officials at the ECB were reported on Wednesday to be considering pulling the plug on Cypriot banks unless the country agreed to a new bailout package.

Jörge Asmussen, the ECB’s chief negotiator, warned that Cyprus’s decision to reject the terms of an €10bn (£8.6bn) bailout meant it could not guarantee support to domestic lenders for much longer.

“We can provide emergency liquidity only to solvent banks and... the solvency of Cypriot banks cannot be assumed if an aid programme is not agreed on soon, which would allow for a quick recapitalisation of the banking sector,” said Mr Asmussen in an interview with a German newspaper.

The threat followed the unanimous voting down by the Cypriot parliament of a rescue package that would have seen the authorities levy a “tax” of up to 10pc on deposits of more than €100,000.

Senior European politicians have expressed hope that a new bailout could be organised, however some have begun to openly discuss the possibility of Cyprus exiting the euro. Austrian Chancellor, Werner Faymann, said he could not “rule anything out for Cyprus”.

German Chancellor Angela Merkel said she expected the Cypriot government to come up with a new rescue plan, but continued to insist it was fair for large depositors in Cypriot banks to face a loss on their savings.

Banks in Cyprus have remained closed since last week and on Wednesday the country’s central bank said lenders would not open their doors until next Tuesday, leaving Cypriots dependent on using ATMs for day-to-day cash.  The prolonged closure of banks has led to widespread fears among senior industry executives that it could undermine confidence in the financial system. Christian Clausen, president of the European Banking Federation, said a way had to be found to reopen Cypriot banks before it was “too late”.

“Everything needs to be solved very quickly. This is a matter of a very few days before it gets too late,” Mr Clausen told Reuters... While the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say:

Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.

UPDATE : Cyprus Popular Bank and the Bank of Cyprus would be split to create a so-called bad bank, one of the officials said.
Insured deposits -- below the European Union ceiling of 100,000 euros -- would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.

Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. hile the eurozone finance ministers are busy having their conference call, Bloomberg reports that the currency bloc's finance chiefs are pressuring Cyprus to shrink its banking system. Here's what the newswire had to say: Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing.

Russians in Cyprus are getting tired of suggestions from Germany that anyone with a Russian accent here is a Mafioso. They say that claims that the island is simply a money-laundering post for Mob cash are wide of the mark, and that the EU strategy has been purely a political one.
"Since this started happening the German, Dutch, and Scandinavian treasuries have been doing very well while the quotes for southern European ones have gone down," says Andrei Surikov, 30, a financial manager from Moscow who moved to Cyprus three years ago.
"The whole thing is just a dirty political game, and I don't think the EU has estimated the impact of what they have done. The trust has gone now in the whole system."  

 

EU leaders have agreed on a roadmap for eurozone integration beyond the deal on centralised banking supervision, German Chancellor Angela Merkel said.

Specific dates have not yet been agreed for the phases of integration. But the EU summit chairman, Herman Van Rompuy, said a deal should be reached next year on a joint resolution scheme for winding up failed banks.

Mr Van Rompuy's far-reaching roadmap was the main topic of the two-day Brussels summit. Speaking after the summit talks, French President Francois Hollande said: "There is no doubt today about the integrity of the eurozone - Europe cannot now be taken by surprise."

But beyond the banking reforms, he said, Europe must address the problems of unemployment and feeble growth.

The deal to make the European Central Bank (ECB) the chief regulator should pave the way for direct recapitalisation of struggling eurozone banks by the main bailout fund, the 500bn-euro (£406bn; $654bn) European Stability Mechanism (ESM). Spain is especially anxious to get that help for its debt-laden banks.

Direct recapitalisation would help break the "vicious circle" in which bank debts have put a crippling burden on national budgets and led to massive taxpayer-funded bailouts. However, Germany insists that the ESM should not be used to write off the existing "legacy" debts that have burdened Spain, Greece and the Republic of Ireland. Any ESM loans will be accompanied by tough rules on budget discipline.

What the incompetent idiot stated :Rehn added that the euro was "irreversible"....hahaha!

Spanish banks borrowed a record €402bn (£316bn) from the European Central Bank in July, leaving them as far as ever from returning to capital markets, and heaping further pressure on Madrid as it tries to avert a full sovereign bailout. The banks borrowed 10% more than the €365bn they tapped in June, Tuesday's data from the Bank of Spain showed. Spiralling debt costs and balance sheets ravaged by a domestic property bubble that collapsed in 2008 have shut most domestic banks out of the bond markets. The banks' use of the ECB facility has increased sharply this year, rising from €161bn in January, and the sector was propped up in July with the promise of a European rescue package – which it has yet to tap – worth up to €100bn. The pattern is similar if less acute in Italy – like Spain at the sharp end of the eurozone debt crisis – where banks held €283bn in ECB funds in July compared with €281bn in June, Bank of Italy data showed last week. In Spain, only heavyweights with big operations abroad such as Santander and BBVA continue to have few problems raising funding from the market. One likely factor in the July increase was the higher charges that some clearing houses were levying on the use of Spanish bonds – which many domestic banks have invested heavily in – as collateral for raising funds, one analyst said. The eurozone has avoided entering a technical recession, defined as two consecutive quarters of negative growth, because growth was flat over the first three months of 2012. Howard Archer of IHS Global Insight predicted that GDP will fall again during the current quarter. Archer said the eurozone was "struggling against tight fiscal policy in many countries, high and rising unemployment, muted global economic activity and ongoing serious sovereign debt tensions that weigh down on confidence and limit investment. Stock markets, however, were cheered by the news as the contraction was smaller than expected and share prices rose across Europe. The FTSE 100 finished 32 points higher at 5864, while the DAX closed 0.8% higher. The European commission vice-president, Olli Rehn, told CNBC that the EU and the European Central Bank would take action "once certain conditions are met". Rehn added that the euro was "irreversible".

Europe's biggest concerns center on Italy and Spain, which had already published GDP data showing sharp contractions. Italy's GDP fell at an annualized rate of 2.9% in the second quarter, while Spain's shrank an annualized 1.7%. In both countries, economic activity remains well below its level before the 2008 financial crisis. Their renewed recessions since late 2011 are making it harder for those countries to curb rising national debts and win back investors who are fleeing their government bonds and banking systems. Many Italian companies are trying to reduce their exposure to the slumping domestic economy. Tuscany-based knitwear maker Filpucci SpA is shifting more manufacturing to China to cut labor costs, while trying to boost sales to U.S. retailers such as Gap Inc. "There is no longer a market here" in Italy, said the company's vice president, Federico Gualtieri. At family-owned textile maker Marini & Cecconi SRL, orders from Italian retailers and clothing brands have dropped as much as 15% for this winter's collections, compared with last year, said Francesco Marini, who helps run the company. Mr. Marini said the company is increasingly selective about who it supplies in Italy amid concerns that smaller, financially strained retailers won't be able to pay.

On the question of the single currency and its survival, the majority -- 54 percent -- believes that Germany should not continue to fight to save the euro if it has to provide additional billions in aid. A sizeable minority (41 percent) disagrees, however, while 5 percent are undecided.

The survey revealed that this skepticism is shared by Germans of almost all political affiliations. Among respondents who support Angela Merkel's conservative Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), 52 percent said it was almost pointless for Germany to continue fighting for the single currency, while 45 percent disagreed. The figures are similar among supporters of the opposition center-left Social Democratic party (54 percent versus 43 percent), which has generally supported Merkel in her efforts to fight the crisis.

The greatest skepticism was found among supporters of the far-left Left Party, 68 percent of whom felt it was pointless to keep fighting to save the euro. The most pro-European tendencies were found in the camp of the environmentalist Green Party. There, 64 percent thought Germany should keep trying to rescue the monetary union.

The divide in the responses mirrors a current debate among top economists in Germany. This week, influential German economist Hans-Werner Sinn published an open letter, signed by around 170 economists, criticizing the resolutions agreed upon at the most recent European Union summit and claiming that Merkel was "forced into" agreement at the meeting. Other leading economists, including Peter Bofinger, a member of the German Council of Economic Experts that advises the German government, have reacted by attacking the letter and defending Merkel's policies.

The survey was conducted by the pollster TNS on July 3-4. Around 1,000 Germans aged 18 and over took part.

I am with the faux Angela Merkel (Queen of Europe ) on this - using a fund that doesn't exist - and if not the ESM then who is picking up Spain's share of the ESFS?

Brussels, 29 June 2012 - EURO AREA SUMMIT STATEMENT - 29 June 2012  • We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to re capitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalized in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector wit the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally.

• We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for overcapitalization of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.

• We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF/ESM instruments in a flexible and efficient manner in order to stabilize markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure. These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ESM in conducting market operations in an effective and efficient manner.

• We task the Eurogroup to implement these decisions by 9 July 2012.

I am with the faux Angela Merkel (Queen of Europe ) on this - using a fund that doesn't exist - and if not the ESM then who is picking up Spain's share of the ESFS?

Italy borrowing at 6% to lend to Spain via the ESFS at 3% sounds like a great plan. Or maybe it isn't.

Debt crisis...

Debt crisis: Germany caves in over bond buying, bank aid after Italy and Spain threaten to block 'everything'. The agreements at a European Union summit in Brussels suggested Germany had yielded on its insistence on forcing tough reforms in exchange for rescue money. That was a victory for Italy and Spain, who have argued they have done a lot to clean up their economies yet are facing rising borrowing costs. European Council chairman Herman Van Rompuy said the aim was to create a supervisory mechanism involving the European Central Bank by the end of this year, and to break the "vicious circle" between banks and sovereign governments. Jose Manuel Barrose, the European Commission president, said the deal was "ambitious".My excuses but I forgot to take my 'suspension of disbelief' pill this morning. So this 'deal' comes into effect at the end of the year and after the Bundestag presumably vetoes Germany allowing any more money? And because the money is not available from a non-existent-fund that hasn't been set up yet and won't happen anyway the markets have reacted favorably? Until when will this non-solution solve the problem of Spanish and Italian debt yields, to say nothng of Greece, Portugal, Ireland, Cyprus and possibly France? I shall go and celebrate immediately !!!

AMSTERDAM—Weeks-long negotiations among the Netherlands' ruling coalition parties on budget cuts collapsed Saturday, making early elections an inevitable step and raising the prospect of a downgrade of the country's triple-A credit rating. The center-right coalition government, led by Prime Minister Mark Rutte's liberal party VVD, had been in talks for seven weeks with its right-wing ally, the Freedom Party, or PVV, on a package of measures to bring the deficit below the European Union limit of 3% of gross domestic product in 2013. The negotiations, over budget cuts of €14 billion ($18.5 billion), had been in final stages, Mr. Rutte said at a news conference Saturday, but the PVV "lacked of political will, therefore we are standing here empty-handed." "Early elections are now obvious," said Mr. Rutte, who informed the Queen about the situation. Dutch economic minister Maxime Verhagen of governing Christian democratic CDA party blamed Geert Wilders, the head of the populist, anti-Islam and anti-euro PVV, for "not taking responsibility." Mr. Wilders said after the collapse of the talks that his party will no longer support Mr. Rutte's center-right minority government, and called for elections "as soon as possible." Earlier this week, Fitch Ratings threatened to strip the Dutch of their cherished AAA credit score if they failed to take action to cut their budget deficit and stop their debt from rising. The rating firm will consider its rating of the Netherlands in June, and placing it on negative outlook is a possible first step toward an eventual downgrade, it said. The Netherlands is one of the four remaining triple-A-rated countries in the euro zone, along with Germany, Finland and Luxembourg. Klaas Knot, Dutch central bank chief and ECB governing council member, has said the government's borrowing costs could rise significantly if it lost its top rating. Without extra measures, the Netherlands will breach the budget rules that it has been fiercely advocating as one of the euro's founding nations. This has fueled a debate on whether the country still belongs to the group of "core" euro-zone states with solid public finances.

Journalists Matej Šurc and Blaž Zgaga spent more than three years investigating and analyzing more than 6000 pages of declassified official documents on the trade of arms in Slovenia during the Yugoslav Wars. They obtained the documents through the Slovene Freedom of Information Act. Journalists from six other countries cooperated in cross-border investigation. The research was co-financed by a Journalismfund.eu research grant. The findings of the investigation are chronicled in the trilogy In the Name of the State, of which the last volume has now been completed. The first volume, published in June 2011, focused on the sale of arms and ammunition from the former Yugoslav People’s Army’s warehouses, which were seized during a ten-day military conflict in Slovenia in 1991. It was called ‘Odprodaja’ or Sell. The second volume, ‘Preprodaja’ or Resell, appeared in October 2011 and dealt with the purchase of arms abroad and subsequent resale to Croatia and Bosnia and Herzegovina during the UN arms embargo. The third and final volume, ‘Prikrivanje’ or Cover-up, describes how the arms smugglers managed to keep their activities largely concealed for the last twenty years. It starts by bringing to light the conflicts between the Ministry of Defense and the Ministry of Interior after the Brnik scandal, in which 460 tons of arms, designated for resale in Bosnia and Herzegovina, arrived to Slovenia only to be stored at Brnik airport for months due to problems with the intended resale. Afterwards, the book examines the three parliamentary inquiries on the arms trades that were initiated over the years and the intrigues and obstacles that politicians put up to thwart them. The last of these parliamentary inquiries was triggered by the biggest arms deal in the history of Slovenia – a 278 million EUR purchase of the Finnish armored vehicles Patria that was concluded in 2006. The Patria case is under investigation in Finland, Austria and Slovenia. Two dozens of suspects are on trial for bribery and industrial espionage, one of them being the former and current Prime Minister of Slovenia, former chairperson of the Council of the European Union in the first half of 2008. With the publication of this third volume of the trilogy, the research project has reached its final stages as one of the most significant investigations in Slovene history. It uncovered some of the country’s hidden chapters had been kept under veil the past two decades.