Finland and Russia. Well Finland is the only EU member nation to border Russia and not be a NATO member. I suspect they are wary of Russia but have a greater understanding of Russia's somewhat justified paranoia and anger with broken ' influence space' NATO invasions since the 1990's. They seek the old USSR relationship probably which worked well for Finland. Your last sentence captures this.  BTW by many polls the most pro-EU Nordic - not members yet (and they were in the list with Denmark, UK and Ireland in the 1960's - is Norway. Following April's elections, Juha Sipila, the prime minister, Timo Soini, the eurosceptic foreign minister and Alexander Stubb, the finance minister, have pledged to create more jobs, to get the economy moving and avoid a "lost decade" from a lack of reforms.  Finland is out on its own compared to the other Nordic countries in joining the Euro. Norway isn't even in the EU, Sweden has done well keeping the Krona and Denmark has kept their Krona but ties it to the Euro, a tie that could easily be broken if the proverbial hits the fan. Finland is looking rather isolated. Of course the Baltic states are in the Euro but they have all paid a heavy price for membership.  Would I be right in thinking that Finland is being hurt by Russian retaliatory sanctions rather more than other countries? Whilst they must have an historical healthy fear of Russia, I would imagine they are far more scared about the West restarting the Cold war in extreme earnest because of western interference in the internal affairs of Ukraine.

Germany has signalled it is preparing a third rescue package for Greece – provided the debt-stricken country implements "rigorous"austerity measures blamed for record levels of unemployment and a dramatic drop in GDP.

The new loan, outlined in a five-page position paper by Berlin's finance ministry, would be worth between €10bn to €20bn (£8bn-16bn), according to the German weekly Der Spiegel, which was leaked the document.

Such an amount would chime with comments made by the German finance minister, Wolfgang Schäuble, who, in a separate interview due to be published on Monday insisted that any additional aid required by Athens would be "far smaller" than the €240bn it had received so far.

"What is sure is that any further aid would be much less expansive than whatever help [has been given] so far," he is quoted as telling the German finance magazine Wirtschaftswoche in what appears to be a calibrated move aimed at preparing public opinion.

The renewed help follows revelations of clandestine talks between Schäuble and leading EU figures over how to deal with Greece, which despite receiving the biggest bailout in global financial history, continues to remain the weakest link in the eurozone.

The talks, said to have taken place on the sidelines of a Eurogroup meeting of eurozone finance ministers last week, are believed to have focused on the need to cover an impending shortfall in the country's financing and the reluctance Athens is displaying to enforce long overdue structural reforms. The lack of progress is at the root of stalled talks between Greece and its "troika" of creditors, the International Monetary Fund (IMF), European Central Bank and EU.

Greece faces a financing gap of up to €15bn over the next two years, according to foreign creditors, which have kept its economy afloat since May 2010. As the EU's powerhouse, Berlin has bankrolled most of the emergency loans to date.

The slump in business lending has deepened, it has emerged, further sharpening the contrast with a surging mortgage market.

Companies took £4.7bn less in loans in November, the biggest drop in more than two years and nearly five times the recent average monthly decline of £1bn, according to figures from the Bank of England. The slide was due to a fall in lending to large businesses, as loans to small and medium-sized companies actually edged up slightly.

Economists are split over whether the decline is due to weak demand for bank finance or lenders’ reluctance to grant loans to business.

Howard Archer, chief UK economist at IHS, said the data suggested that banks “have yet to become markedly more prepared to lend to businesses amid the improved economic situation and outlook”. But Blerina Uruçi, economist at Barclays, believes businesses are unlikely to be held back by weak bank finance as the corporate sector has amassed a large cash surplus in recent years. Businesses are also increasingly turning to the bond market as a cheaper alternative.

Mark Carney, governor of the Bank of England, has redoubled efforts to boost business lending by making it the sole beneficiary of the Funding for Lending Scheme, which allows lenders to borrow at rock-bottom rates in exchange for providing loans. Previously, the scheme applied to all loans.

Several hundreds of people were protesting in the village of Silistea-Pungesti in Eastern Romania on Wednesday against plans by US company Chevron to start operating the first shale gas exploration drill in the county of Vaslui, news agency Agerpres reports.

Protesters - some of whom have come from the Barlad, Iasi and other cities in the region of Moldova, Eastern Romania, some of whom are locals from Pungesti - installed tents on the field where Chevron machines are to be deployed. They remained there over night to protest today and said they would not leave the perimeter and would not allow representatives of the US company to come to the area.

On Wednesday afternoon, some 500 people were taking part in the protest. Some locals forced a line of intervention police deployed in the area and managed to reach the perimeter they were not allowed in. Vaslui county prefect Radu Renga warned that laws must be complied it and that gendarmes have to intervene when public order and traffic on public roads are affected.

The first exploration drill is to be deployed in the close vicinity of the village of Pungesti.

Chevron Romania holds another three certificates for the county of Vaslui to start explorations in order to identify possible shale gas reserves.

As long as we don't worship the Keynesian Dogma we are going to read things like this one.

Mr Rajoy said the eurozone's fourth largest economy was "out of recession but not out of the crisis", and faced a long period of more austerity before the country could sustain the recovery.

"The task now is to achieve a vigorous recovery that allows us to create jobs," he told the Wall Street Journal.

Spain's unemployment rate, at 25pc, is among the highest in the eurozone. The bloc's official unemployment rate of 12.1pc also masks huge disparities. While Austria boasts an unemployment rate of just 4.8pc, the jobless rate in bailed-out Greece is 27.6pc.

The recovery in Germany, Europe's largest economy, has also been fragile. Data on Tuesday showed business sentiment rose for a fifth consecutive month in September. The Ifo Institute's business climate index, which is based on a survey of 7,000 firms, rose to 107.7 in September, from 107.6 in August. However, the reading fell short of the 108.2 expected by economists.

European Central Bank rate-setter Ewald Nowotny said on Tuesday that the bank had "flexible" tools at its disposal if it needs to take additional measures, including providing banks with additional central bank money. ECB President Mario Draghi said on Monday that the ECB stood ready to deliver a fresh injection of cash into Europe's banks. Asked about the possibility of the central bank giving banks another chance for those loans, known as Long Term Refinancing Operations (LTRO), Mr Nowotny said: "It is certainly important to show all that we have in the way of instruments, which are flexible...Pier Carlo Padoan, the OECD's chief economist, said he expected growth in the 17-nation bloc to be negative this year, despite several countries showing signs of recovery. Mr Padoan said the single currency area, which emerged from its longest recession in more than 40 years in the second quarter, remained "a considerable source of risk" to the global recovery, though he added that the systemic risk from the eurozone's debt crisis had subsided. He added that while countries should continue to implement austerity policies, automatic stabilisers such as unemployment benefits should be allowed to kick-in if economies stalled. Mr Padoan also urged policymakers to tackle high jobless rates. "There is no doubt that policy priority number one in the euro area is fighting unemployment. Let's not fool ourselves and expect unemployment to come down in a stable fashion," he said.

Economists expect growth in the eurozone to pick up in the second half of the year. On Monday, Spanish prime minister Mariano Rajoy said the country would exit recession - defined as two or more consecutive quarters of negative output - in the third quarter, following two years of contraction. 

Greece's international bailout faces a shortfall of around €11 billion ($14.59 billion) by the end of 2015, the International Monetary Fund said Wednesday in a review of the country's program, adding that this could be even bigger if the fund's outlook turns out to be optimistic.  Greece's international bailout faces a shortfall of around $14.59 billion by the end of 2015 and this shortfall could be even bigger if the fund's outlook turns out to be optimistic. Global economics expert Charles Forelle joins MoneyBeat. Photo: AP.  According to the report, Greece's bailout faces a €4.4 billion financing gap in 2014 and another €6.5 billion in 2015. The gap could be even bigger, according to the head of the IMF's mission in Greece Poul Thomsen, if the fund's growth outlook is overly optimistic or if the country doesn't reach its privatization revenue target.  "There are clearly downside risks [to the economic forecast] next year," Mr. Thomsen said during a conference call. "The assumption of a gradual recovery is based on the assumption that we have a rebound in consumption and investment and sustained implementation of policies and broad political support of the program."   A group of European Union finance ministers will have to meet and make commitments for the 2014 financing gap at the next bailout review—which likely wouldn't be considered by the board until October, according to Mr. Thomsen. "I have no doubt that we will see a bottoming out and gradual recovery in output next year. The exact timing is where the uncertainty comes," the head of the IMF's mission said.  The report says that Greece needs debt relief worth 4% of gross domestic product to meet a 124% debt-to-GDP ratio by 2020.  Last week, a European Union official said that the country's bailout faces a shortfall of around €3.8 billion between now and the end of 2014. That gap is because of the refusal of national euro-zone central banks to buy new Greek bonds when the ones they hold mature. When the euro zone and the IMF sealed Greece's latest aid program last year, such a rollover was part of their calculations. But since then, several central banks have refused to follow through, claiming it would amount to financing a national government, which central banks aren't allowed to do under EU rules. The official said the shortfall will have to be closed this fall in order to continue with the bailout program.  The EU and Greek flags flew in front of the Parthenon on the Acropolis on February 17, 2012 in Athens, Greece.  A group of European Union finance ministers will have to meet and make commitments for the 2014 financing gap at the next bailout review—which likely wouldn't be considered by the board until October, according to Mr. Thomsen.   "I have no doubt that we will see a bottoming out and gradual recovery in output next year. The exact timing is where the uncertainty comes," the head of the IMF's mission said.  The report says that Greece needs debt relief worth 4% of gross domestic product to meet a 124% debt-to-GDP ratio by 2020.(source WSJ) 

Eurozone finance ministers agreed Monday to unlock billions of euros in fresh aid for Greece on condition it press ahead with urgently needed reforms. The Eurogroup ministers, holding their last meeting before the summer break which was also attended by IMF chief Christine Lagarde, agreed to pay out 6.8 billion euros in fresh aid to Athens. However, the funds would not be handed over in one lump sum, but in different instalments subject to certain conditions being met. "The Eurogroup commends the authorities for their continued commitment to implement the required reforms that have already led to a significant improvement of cost competitiveness, an impressive strengthening of the fiscal position and a more resilient banking sector," the group said in a statement read out by its chief, Dutch Finance Minister Jeroen Dijsselbloem, at a news conference. "The Eurogroup therefore expresses its appreciation for the efforts made by the Greek citizens. "At the same time, significant further work is needed over the next weeks to fully implement all prior actions required for the next disbursement," Dijsselbloem added. In particular, the required reforms of the public administration -- Athens has pledged to axe 4,000 state jobs by the end of the year, as well as redeploy 25,000 civil servants across its vast bureaucracy -- needed to be carried out. And further efforts were needed to improve tax revenue collection. "It is time to step up momentum of reform in Greece," said EU economic and monetary affairs commissioner Olli Rehn.... the worst incompetent idiot . 

Under the terms of the deal, some 4.0 billion euros would be paid out "in the coming weeks," and a further 1.0 billion euros in October, both sums shared by the eurozone rescue fund EFSF and European central banks... The Economist Intelligence Unit's Martin Koehring notes that today's proposals on a common bank resolution mechanism are still quite some way off being implemented and could face further watering down in the meantime.
As with other elements of the evolving European banking union (such as the single supervisory authority and the European-wide bank deposit scheme), the proposals for a single resolution authority are testing governments' willingness to pool sovereignty. Germany and other creditor countries fear that their taxpayers may ultimately foot the bill when a major bank goes bust in the euro area. Unsurprisingly, debtor countries such as Spain are in favor of pooling sovereignty in banking matters. Each of the core elements of the suggested banking union has so far been watered down and/or delayed as the fundamental question about the extent of solidarity within the EU remains unresolved; the single resolution authority is unlikely to be an exception. The time frames involved in constructing the various elements of the banking union, such as the resolution authority and the recently-agreed "bail-in" regime, suggest that a banking union capable of making important decisions to boost financial stability is unlikely to be in place before 2018. Hence, the latest steps towards banking union are unlikely to have a major impact on solving the current crisis. They may, however, increase confidence in the medium-term viability of the euro zone, which has been severely shaken.

Oh, NOOOO...trouble in "natziland"???

The FTSE fell 74 points, or 1.2%, while the German Dax and French CAC tumbled 1.5% as markets digested rumors that the resignation of Portugal's finance minister and foreign minister could be followed by more colleagues. Market unease over the health of the world economy was exacerbated by the political drama unfolding in Egypt and a weakening in China's growth.

The Portuguese ministers quit the coalition government this week in a row over the ruling party's handling of the country's economic plight, amid fears that they will be followed by two ministerial colleagues who are members of the junior coalition partner. If that happened, observers fear that they could take down the centre-right government. However, the junior coalition party, CDS-PP, said this evening that there would be no more ministerial resignations.

European commission president José Manuel Barroso, a former Portuguese premier, said the indebted nation risked damaging its hard-earned financial credibility after two years of closely following its €78bn (£66.4bn) bailout programme, coordinated by the International Monetary Fund, European Union and European Central Bank.

"This delicate situation requires a great sense of responsibility from all political forces and leaders," he said.

The government's future hung in the balance after president Aníbal Cavaco Silva's office said he would meet the leader of the main opposition Socialists and other parties to discuss the deepening schism in the coalition. Under the constitution, he has the power to dissolve parliament and can invite opposition parties to form a government.

Speaking in Berlin, where he was attending the EU summit on youth unemployment, prime minister Pedro Passos Coelho reiterated that he had no plans to resign. He said: "I am confident that we will be able to surpass this difficulty … I hope this internal crisis can be overcome very quickly."

With no solution imminent, the euro fell and the interest rate on Portuguese government debt soared past the 7% level – where debts are considered unsustainable – to hit 8.1% at on point, before settling back at 7.5%. The PSI 20 stock index in Lisbon fell by 5%, led by sharp losses of over 10% in bank shares

We're not living in a world where the one billion people inhabiting the 'developed world' control 80% of the world's wealth. We're living in a world in which 65% of the world's wealth is held by the 'developing world' (mostly in the BRIC countries).

This the underpinning global economic reality of where we are. The never-ending 'Euro crisis' blog and 'Japan crisis' articles that appears on this website on a daily basis is a consequence of this profound global shift in wealth and power... More info here...

http://www.youtube.com/watch?v=mOwZwkhFemQ

http://www.youtube.com/watch?v=6a0zhc1y_Ns

What has helped mask these extraordinary transformations are cheap energy, cheap debt, and cheap imported goods. However, right now, all the chickens are coming home to roost - the west (and particularly Japan) does not have sustainable access to cheap debt and cheap energy to fuel consumption and our mobile lifestyles.

We're still in the mindset that 'we' control 80% of the world's wealth. The reality is much of our supposed wealth is entirely abstract - living in the imagination of bankers and the financial industry. Whilst much of the real economy (primary resources; secondary manufactured goods, and; increasingly the service industry) is to be found more so in the BRIC countries.

We seem unable to face up to the reality - socially, economically, or politically - and educationally, we do not want to learn from the BRIC countries. In sum total: The world has got a lot more diffuse, and multi-facetated, with its power, wealth and social relations increasingly spread. But most people would prefer to accept the social and political attitude and agenda of a dinosaur imperialist like Farage, rather than a modern internationalist voice from the BRIC countries.

In essence, every city is becoming more like Janeiro or Johannesburg and every country more like Brazil or South Africa. This is the effect of globalisation - it's unsteadying the safe and cosy world of white Europeans and Americans - who can no longer rely on cheap energy, cheap oil, cheap debt, and cheap imports.

Spain's banking crisis wiped out billions of euros of family savings on Tuesday as small investors who bought shares in the nationalized giant Bankia were finally able to trade them – but at only a fifth of their original price. The wipeout on Madrid's stock exchange means that Bankia, which was created by the fusion of seven savings banks, has now lost 99% of its stock exchange value since it was listed 22 months ago.  Preference share owners had been given the tradable shares, which came with a hefty haircut, as part of a cash injection worth billions of euros into the bank that wreaked most damage on Spain's financial system after suffering huge losses on toxic loans to real estate developers.  Bankia's 11bn new shares, part of a €15.5bn (£13.3bn) recapitalization, tumbled as soon as they started trading on Tuesday morning. By the end of the day they were worth half their €1 book value. Trading in the new shares was meant to have marked a new start for the country's fourth-largest bank by market capitalization. Last year it needed a €24bn bailout as part of a wider European rescue of Spain's financial system.

"They're cheating us again, like they did before," Maricarmen Olivares, whose parents lost €600,000 in life savings made from selling her father's car workshop, told Reuters. "Everything is a swindle, the share listing, the compensation package, the value of the stock now."

Spain took €42bn of the €100bn offered to help it clean up banks that were drowning in a sea of bad real estate loans left behind by the country's burst housing bubble. Bankia was the biggest of four nationalized banks that needed funds, along with NCG Banco, Catalunya Banc and Banco de Valencia.

Questions are already being raised about whether banks will have to find yet more capital, amid worries that they have not owned up to all their bad property loans and as the country's economy continues to deteriorate. Reports suggest they may need €10bn more, though Spain can now easily raise any additional funds the state may have to provide on the markets.  Bankia may raise several billion euros from the sale of stakes in the British Airways owner International Airlines Group, electricity company Iberdrola and insurer Mapfre. It agreed last week to sell City National Bank of Florida to the Chilean bank BCI for $883m. NCG Banco said on Tuesday it would sell its 80-branch EVO network as part of the restructuring plan negotiated with the EU after the injection of €10bn of public money into the lender.

The IMF suggests that as soon as central banks signal that they are readying themselves to halt QE, bond prices are likely to fall sharply, as investors "run for the door". Interest rates, which move in the opposite direction to bond prices, would jump and central banks might be forced to push up rates even further to prove they have not lost control of inflation.

"The potential sharp rise in long-term interest rates could prove difficult to control and might undermine the recovery (including through effects on financial stability and investment). It could also induce large fluctuations in capital flows and exchange rates," the IMF warned.

The research analyses the potential losses to central banks under three possible scenarios, from a relatively benign one percentage point rise in interest rates, to a much more dramatic six percentage point increase in short-term borrowing costs.

Under the most extreme scenario the losses to the exchequer would be £80bn, so even if the Bank is right about the £60bn gains for the Treasury from QE, that could still blow a £20bn hole in the public finances.

Economists stressed that any direct costs of QE should be weighed against the wider benefits to the economy. Erik Britton, of City consultancy Fathom, said, "the losses could be large - that much is true, and they would be borne by the taxpayer; but that would only be in a scenario where we were back in growth, and the benefits to the Treasury of that would outweigh those costs."

The IMF's researchers stressed that the prospect of losses on central banks' balance sheets should not prevent them from unwinding their unconventional policies, but warned that, "the path ahead will be challenging, with many unknowns."

Spanish industrial production dives again - The economic crisis in Spain continues. Data released this morning showed that industrial production in the country tumbled by 6.5% in February, compared with a year ago.

That's the 18th monthly contraction in a row.

The slump was driven by a double-digit decline in production of durable goods for consumers, who are suffering badly as Madrid implements its austerity programme.

But production was also down across the board, from other consumer goods to large-scale industrial equipment:

Many Spanish factories have closed since the financial crisis struck, creating a vicious circle of rising unemployment and falling demand.

One example, thousands of people were employed at a door factory in the town in Villacanas, south of Madrid. In the good days they churned out products for Spain's property boom - but the plant is now closed, along with most of of the Villacanas industrial park....

The picture is slightly better in France this morning, where industrial production only fell by 2.8% year-on-year in February, and actually picked up by 0.7% compared with January.

I'll be tracking the reaction to today's data, and watching developments across the eurozone -- particularly Slovenia (whose PM yesterday rejected speculation that a bailout would be needed), and Cyprus (where time is running out to agree its bailout).

Portugal's opposition party has called for a renegotiation of the country's EU/IMF bailout package and labeled the government an "incompetent" one which must be replaced. Socialist leader Antonio Jose Seguro, presenting a largely symbolic no confidence motion, said his party was against the spending cuts the government agreed to. He said (as reported by Reuters): Your government is destroying Portugal and there is only one solution - to replace the incompetent government. But the prime minister Pedro Passos Coelho, whose centre-right coalition has a comfortable majority, said the country had to comply with the programme to guarantee funding, and the no-confidence vote created a climate of political instability. He said a bailout renegotiation would lead to a second bailout.... The weaker than expected jobs data out from the US today could mean analysts are being too optimistic about Friday's non-farm payroll numbers, suggested James Knightley at ING. He said: The employment component [of the ISM non-manufacturing survey] dropped to 53.3 from 57.2. Given today’s ADP payrolls survey also showed a slowdown in private sector hiring to 158,000 from 237,000 in February this perhaps indicates some downside risk to the consensus forecast of non-farm payrolls rising 198,000 on Friday. With ongoing concerns about the potential economic impact from sequestration we suspect that we are going to see a softer period of activity data. As such we doubt that the Federal Reserve’s quantitative easing plans will be scaled back before the third quarter of 2013.

Greek business head calls for rethink on bailout terms - It may count as stating the obvious but the head of Greece's biggest business group reckons the Cypriot crisis could tip his country into an even deeper recession this year. He also called for the troika of international lenders, due in Greece this week, to rethink the bailout programme by promoting growth measures as well as austerity. From Reuters: "Greece is directly affected by the Cyprus crisis and based on some estimates this may chop up to one percentage point off GDP (gross domestic product)," Dimitris Daskalopoulos, head of the Hellenic Federation of Enterprises (SEB), told reporters. "With the success of the Greek bailout programme already hanging by a thread, many signs show the recession is deepening with the prospect of recovery in 2014 fading," Daskalopoulos said. He said the insistence on austerity by the eurozone's core to cure the ills of the debt crisis risked breeding euro scepticism and anti-German sentiment among the suffering countries of the single currency bloc. "The North must give and the South must change, otherwise the historic demons of Europe will find again room to act." He said the protracted economic downturn and fiscal austerity were testing society's tolerance limits and called on the government and its international lenders to retool the applied programme with growth measures. "The bell of reforms must finally ring loudly in Greece," Daskalopoulos said. "We cannot be fighting tooth and nail against firing a few thousand public sector workers when almost one million people have lost their jobs in the private sector."

‘The mystery of Mario Draghi the Invisible Man is more disturbing in some ways. I posted about Schäuble briefing bigtime against him the week before last, and I now think it boils down to two serious possibilities. The first is that Berlin has somehow neutralised the ECB boss, and told him to stay out of public eye and leave it to them. If so, he has managed very well to be AWOL during a classic Brussels-am-Berlin cock-up. But even as the ECB demanded a Nicosia decision by Monday and then demanded more money after the Moscow talks broke down, SuperMario was nowhere to be seen. That is odd.

The second possibility – and one I increasingly favour – is that from the outset Mario Draghi saw Cyprus as a distraction, no more: he knows that via his control over the banking purse-strings, he can bring the island to its knees any time he likes. Either he knew (or guessed) that the Berlin mentality would jackboot into the situation and use it as a test-case for (a) future events where threats are felt to be necessary and (b) setting the precedent for State theft of depositor funds under the guise of bollocks like Open Bank Recontruction (OBR) or fantasy ‘levies’. Of course, he would prefer to be away from that grubby operation, but I return to the key word here – distraction: Germany’s aim is control; Draghi’s aim is the survival of the euro, whatever it might cost. The two need not be the same, and in the long term probably won’t be….Personally, I suspect what he plans to do adds up to yet another form of citizen pauperisation alongside the bank robbery approach…. in Frankfurt, Marketwatch opined as follows: ‘the precedents set by the Cyprus deal have undermined the euro in a very important way. The imposition of capital controls–a euro-zone first–now means that a euro held in a Cypriot bank account can’t be moved, withdrawn or even spent with the same ease as a euro held in a bank account in Germany, France or anywhere else in the 17-nation eurozone. Simply put, a “Cypriot euro” is worth less than a euro held in a bank account anywhere else".

The whole idea of EMU a nonsense: it is, in fact, the beginning of the end of EMU. In a client note after the true level of Cyprus haircut was announced, Deutsche Bank strategist George Saravelos wrote, ‘Economic and monetary union across the entire euro zone no longer exists. Even though [Cyprus] is very small, policy makers’ willingness to suspend cross-border euro convertibility is a meaningfully negative signal for the euro zone.’ The economics boffins at Nomura concurred: ‘Common currency, by definition, means that a euro in country A is equivalent to a euro in country B’ they wrote. UBS Head of Global Economics Paul Donovan told CNBC, “If you impose capital controls, effectively, the monetary union is dead.”. And perhaps most chilling of all, David Mann, Regional Head of Research for the Americas at Standard Chartered Bank says, “There is no point in anyone claiming they know what’s coming next. It’s [capital controls] gone from something hardly mentioned a week ago to something that is being taken absolutely seriously enough to be running into a real scenario. But it has to be instant. Bank runs can literally be electronic — they happen at a touch of the button.”

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."  

 

The Statement by the Eurogroup President

Statement by the Eurogroup President on Cyprus - The Eurogroup held a teleconference this evening to take stock of the situation in Cyprus. I recall that the political agreement reached on 16 March on the cornerstones of the adjustment programme and the financing envelope for Cyprus reflects the consensus reached by the Cypriot government with the Eurogroup. The implementation of the reform measures included in the draft programme is the best guarantee for a more prosperous future for Cyprus and its citizens, through a viable financial sector, sound public finances and sustainable economic growth. I reiterate that the stability levy on deposits is a one-off measure. This measure will - together with the international financial support - be used to restore the viability of the Cypriot banking system and hence, safeguard financial stability in Cyprus. In the absence of this measure, Cyprus would have faced scenarios that would have left deposit holders significantly worse off.

The Eurogroup continues to be of the view that small depositors should be treated differently from large depositors and reaffirms the importance of fully guaranteeing deposits below €100,000. The Cypriot authorities will introduce more progressivity in the one-off levy compared to what was agreed on 16 March, provided that it continues yielding the targeted reduction of the financing envelope and, hence, not impact the overall amount of financial assistance up to €10bn.

The Eurogroup takes note of the authorities' decision to declare a temporary bank holiday in Cyprus on 19-20 March 2013 to safeguard the stability of the financial sector, and urges a swift decision by the Cypriot authorities and parliament to rapidly implement the agreed measures.

The euro area Member States stand ready to assist Cyprus in its reform efforts on the basis of the agreed adjustment programme.

The taboos are falling one by one.

“We must leave the austerity cage,” he told leaders of his Democrat Party (Pd), responding to Italy’s electoral earthquake by tearing up his pre-election programme. “A change of course is absolutely necessary given that five years of austerity and attacks on workers have pushed up public debt levels across Europe,” he said.

“The vicious circle between belt-tightening and recession is putting representative government at risk and making it impossible to govern. The immediate emergency is the real economy and joblessness,” he said. The pledge puts Mr Bersani on a collision course with the ECB, which is constrained from helping to shore up the Italian bond market unless Rome complies with Europe’s austerity agenda. “Italian voters may have effectively voted away the ECB safety net,” said Christian Schulz from Berenberg Bank. The central bank cannot activate its bond purchase programme (OMT) unless Italy requests a rescue from the EMU bail-out fund, and that in turn requires a vote in Germany’s Bundestag.

“The ECB cannot – and will not want to – do anything to help Italy after the inconclusive election result, even if borrowing costs spiral out of control,” he said.

Mr Bersani’s Democrats (Pd) and its allies control the lower house but failed to win the senate. He is hoping for tacit support on a law-by-law basis from the Five Star Movement of comedian Beppe Grillo. Mr Grillo has responded with a volley of anathemas, calling Mr Bersani a relic from a defunct political order that must be swept away by civic revolution. Yet many of his 163 senators and deputies say the movement should seek common ground with the Pd.

Mr Bersani said Italy should mobilize its EU voting weight to push for an EU-wide change of course. He has natural allies in Paris.

French finance minister Pierre Moscovici warned EMU colleagues on Monday that current policies “risk a loss of social and political confidence across Europe. We must not pile austerity on top of recession”. Mr Moscovici said France would need an extra year to meet its deficit target of 3pc of GDP and called for action to tackle the root of the crisis with an EMU-wide growth strategy.

French officials are deeply alarmed by the relentless upward rise in France’s unemployment rate to 10.6pc, or 26.9pc for youth. President Francois Hollande’s popularity ratings have crashed from 55pc to 30pc since his election in May, the fastest decline ever recorded for a French leader.

Italy, France, and Spain toyed with a Latin bloc alliance last year to confront Germany over EMU’s contractionary policy mix, but the initiative faded.

Mr Hollande pulled back from a showdown with Berlin and ultimately pushed through further fiscal cuts and reforms, while Italy’s Mario Monti was never willing to jeopardise the European Project that he served for ten years as a commissioner.

Critics says Mr Monti, whose Civic Choice list won just 10pc of the vote, went native in Brussels long ago and has been slow to understand the deeper political crisis unfolding in Italy.

The outgoing premier gave them fresh ammunition today, saying that it would be better to hold fresh elections than to see an anti-EU government to take power.

It is unclear whether a second vote would achieve what he intends. The latest snap polls show that Mr Grillo’s support is still rising, jumping from 25pc to 28pc.

Ominously, nostalgia for Fascist leader Benito Mussolini has started to emerge as the post-War order crumbles. Two key figures have praised elements of Fascist rule over the last two days.

A leader of the Five Star Movement professed “fascination” with the Fascist sense of the Italian state and the family, while the deputy state secretary of the economy said Mussolini “governed well until 1935.” (source telegraph)

MILAN—Italian police early on Tuesday arrested Finmeccanica SpA FNC.MI -7.31%Chief Executive Giuseppe Orsi as part of an investigation into possible international corruption related to the 2010 sale of helicopters by the Italian aerospace company to India, according to the prosecutor in the investigation. Hours after the arrest, India's Defense Secretary Shashikant Sharma told The Wall Street Journal that the country's government had ordered its federal investigation agency to investigate the helicopter deal. The official gave no further details of the Indian investigation. Mr. Orsi has been under investigation for several months in the case, in which Italian prosecutors are looking into whether the helicopter unit of Finmeccanica paid bribes to secure the €560 million ($750 million) sale of 12 helicopters to the Indian government, according to Finmeccanica and a person close to the investigation. Mr. Orsi was chief executive of AgustaWestland, the helicopter unit, at the time. Eugenio Fusco, the prosecutor on the case, also said that Bruno Spagnolini, current head of AgustaWestland, had been placed under house arrest as part of the same probe. Mr. Spagnolini was chief operating officer of AgustaWestland in 2010. A lawyer for Mr. Orsi, who hasn't been charged in the case, wasn't immediately reachable for comment. Mr. Orsi has in the past denied any wrongdoing. In a statement, Finmeccanica expressed support for Mr. Orsi and said the company's operations would not be affected by the arrest. A spokesman for AgustaWestland had no comment, and a lawyer for Mr. Spagnolini—who hasn't been charged—wasn't reachable for comment. The arrest of Mr. Orsi—who runs a company that is majority-owned by the Italian state—comes at a politically sensitive moment, just two weeks ahead of national elections. Outgoing Prime Minister Mario Monti said the government would deal with management issues created by the arrest. "(This opens up) a problem of governance at Finmeccanica, which we will address," he said in a radio interview on Tuesday morning. Mr. Orsi has said that he would step down from his position if the Italian government, which owns 30.2% of Finmeccanica, asked him to. Finmeccanica's stock fell 8.06% to €4.37—its lowest in two months—after being suspended from trade on the opening of the Milan exchange.

Stocks are up big to start 2013 but Marc Faber, Editor & Publisher of the Gloom, Boom & Doom Report, says it ends in tears.

"Either the market is going to correct more meaningfully now or we have a shallow correction and a continuously rising market until July or August," Faber told me via phone from Thailand. If stocks don't pullback soon, he says we risk a repeat of 1987 when stocks rallied 40% into summer only to collapse 41% in 2 months.

"In March of 2009 everything looked horrible, now nobody can find a reason why stocks could go down," Faber claims. "We ask that you should buy stocks when everything looks horrible, you shouldn't rush to buy them when everything looks perfect."

The problem is that it's hard to find anyone claiming the environment is perfect. Even the theme running under the reports of "the masses" buying stocks is that it's a cue to sell, not buy.

Analysts are looking for almost no corporate earnings growth in the current quarter and not much better than that for the balance of the year. The idea that Fed money printing is supporting assets may be true, but the FOMC has given clear guidelines on when the printing will stop. When inflation (as measured) rises past 2% or unemployment falls below 6.5% the Fed will raise rates.

Even if you think the Fed is wrong, there's no basis for calling them liars. A surprise end to Quantitative Easing isn't on the table. It's hard to make much of a case for ebullience beyond the fact of stocks much-hyped journey toward all-time highs.

So what's an investor to do? Faber says it's a matter of allocation and perspective. Stocks have gone very far in a relatively short amount of time. If you caught the rally, he says it's time to trim but not bail out entirely. If you're a Johnny-come-lately to stocks, you're too late as he sees it.

"If you have 100% of your money in equities and you just bought them now, maybe you should reassess your position," says Faber.

What an asshole would say ....

Olli Rehn, the European Union's economic and monetary affairs commissioner, today warned that recession-hit Italy must continue to implement economic reforms once the election is decided.

"It's a very fragile situation. Whatever colour the new government in Italy has, it is important that it maintains the course of reform," he told Austria's Profil magazine.

Rehn also cautioned that the growing strength of the euro will hurt countries in southern Europe by causing "problems with their exports to other parts of the world".

Germany and France have clashed over whether EU officials should intervene in currency markets, and Mr Rehn today argued that countries around the world should work more closely together to offset the potential damage caused by currency fluctuations.

"I recognise the risk of competitive devaluation. We have recently warned the government of Japan about corresponding steps towards depreciation of the yen," he said.

"We need reforms in the international monetary system so as to avoid negative influences on international trade. The coordination within the G7, G20 or the IMF should therefore be improved," Mr Rehn added.