Euro Hubris Pricked

The days of optimism and hubris about the Euro are long gone.

Wolfgang Schauble, Germany's finance minister has admitted that Eurozone finance ministers, who are meeting in Brussels, cannot agree on the terms of the European Financial Stability Facility (EFSF).

He went on to tell Handelsblatt that plans for the EFSF were too “intricate and complex” for investors to understand.

Based on my experience of finance and fraud, when someone says that something is too complex for people to understand it generally means that either:

1 They don't understand it themselves, or

2 They are committing fraud

The dithering and failure of Eurozone "leaders" to resolve the Euro crisis has destroyed confidence in the euro experiment. As such, multinationals around the the world are now making contingency plans for the breakup of the Eurozone.

Andrew Morgan, President of Diageo, is quoted in the FT:

“We’ve started thinking what [a break-up] might look like.


If you get some much bigger kind of ... change around the euro, then we are into a different situation altogether. With countries coming out of the euro, you’ve got massive devaluation that makes imported brands very, very expensive.”

The Eurozone has signed its own death warrant.

Busted Flushes

Eurozone finance ministers to meet in Brussels today to discuss ways to expand the European Financial Stability Facility (EFSF).

Given that it has been proven to be a busted flush, this meeting will be a remarkable waste of time.

Meanwhile, in the UK, George Osborne, will deliver his Autumn Statement.

This will be a "jam tomorrow" speech, in which he attempts to create the UK's mini version of the EFSF by using a £5BN cash injection from the government to leverage a further £20BN or so in finance from UK pension funds and the Chinese.

To give him credit, he may achieve more that the Eurozone has done with their busted flush!

The Farepak Debacle V

Regular readers may well recall that I have written several articles (some years ago) about the collapse of the Christmas savings company Farepak.

To add insult to injury of those who were robbed of their savings by its collapse, it now transpires that the cost of administering Farepak now stands at £8.2M in fees paid to BDO the administrator, lawyers and various others.

As for the 120,000 people who lost money (an average of £400 per person) the most they can expect to receive in compensation is £5.5M, most are still waiting, which equates to roughly £45 per head!

It is sad and ironic to see accountants and lawyers doing better than those who can least afford to lose money.

The Abyss

Starting the week as it will most surely go on, the OECD has given an urgent warning that Europe, and by definition the global economy, is standing on the edge of the abyss.

The OECD stated that the failure of EU leaders to stem the crisis could "massively escalate economic disruption" and end in "highly devastating outcomes".

"The euro area crisis represents the key risk to the world economy at present."

Needless to say, the Eurozone seems determined to dig its (and the global economy's) own grave, and continues to sow the seeds of confusion and despair.

Die Welt reports that Germany is considering issuing joint 'elite bonds' with five fellow AAA nations. That of course means the creation of a two speed Eurozone. Needless to say the German government has issued a hasty denial of the plan.

Which, given that France may well lose its AAA rating, is doubtless welcome news for the French (assuming that is, the Germans are being truthful in their denial).

Meanwhile in Washington, Barack Obama will today meet European Council president Herman Van Rompuy and European Commission president José Manuel Barroso at the annual EU-US summit.

Good luck with that then!

The EFSF - The Busted Flush

On Monday I wrote that the European Financial Stability Facility (EFSF) was a "busted flush".

Finally it seems that the reality of that has hit home to the Eurocrats, who are trying to sell this unwanted product from their bunkers in Brussels.

The Eurocrats have now admitted that "plans" to leverage a fund of Euro250BN to over Euro1BN will fail, and that less than half of that now looks likely (ie it will not be fit for purpose).

Unsurprisingly this failure is attributed to the fact that the markets simply don't believe anything that is coming out of the mouths of the Eurocrats or politicians in Europe.

Even if some money is raised for the fund (and that looks extremely unlikely), Eurocrats do not anticipate that it will be ready anytime before 2012.

In the meantime the markets will continue to deteriorate and the costs of borrowing soar.

Latvia, a Portent of the Future

Fitch has cut Portugal's credit rating to junk.

It has downgraded Portugal from BBB- (its lowest investment grade rating) to BB+ (the highest non-investment grade), with a negative outlook.

Meanwhile, in Latvia, people are queuing to take cash out of ATMs as stores now only accept cash.

Is Latvia a portent of the EU's future?

Dexia Deal Unravels

In mid October I wrote that the rescue "plan" for Dexia was unravelling.

Today (one month later) the media are awash with reports that Belgium is pressing France to pay more into an emergency facility for Dexia.

For why?

Because Belgium knows that if Dexia falls over, the collateral damage to France (wrt its exposure to Dexia) would be immense.

France is less than amused, because if it pays more into the rescue fund it's AAA rating will be undermined.

This "renegotiation" is of course going to send the whole deal "tits up".

As I noted in October:

THERE IS NO PLAN!

The Thomas Cook Affair

Today Thomas Cook announced the following:

"Thomas Cook Group plc announces that as a result of deterioration of trading in some areas of the business in the current quarter, and of its cash and liquidity position since its year end, the Company is in discussions with its principal lending banks with regard to its facilities during the seasonal low period of cash in the business.

While the Company currently remains in compliance with its financing covenants, it also intends to seek agreement from its lending banks to adjustments that will improve its resilience if trading conditions remain difficult.

As a result, the Company will delay its announcement of its full year results until these discussions are concluded.  The Company expects to report a headline operating profit for the year ended 30 September 2011 broadly in line with previous guidance."

Thomas Cook is now in the process of renegotiating the terms of its £1BN net debt burden for the second time in a month.

These discussions (with a syndicate of 17 banks) come a month after the company agreed a deal with lenders, that it hoped would end speculation over its future.

This announcement is more than a "tad ironic", given that on 29 September 2011 Thomas Cook in its Pre Close Trading Update stated:

"Overview
Many of our businesses have performed well this year, notably Northern Europe, Central Europe and our German airline. However, our overall performance has been impacted by our UK business and the disruption in the MENA region, particularly on our French business. Summer booking trends in our key markets have remained largely in line with expectations since we last reported.

• Underlying operating profit expected to be broadly in line with market expectations;
• Cashflow performance is strong;
• Variety of measures underway to strengthen the balance sheet;
• Actions underway to increase UK cost base flexibility as part of the overall UK business review.

Trading and cashflow performance
The Group delivered steady results for July and August, in line with our expectations, but September has been a more challenging month, particularly in our French business. However, we still expect to deliver a result broadly in line with market expectations.

Our focus on cashflow continues to deliver benefits, with a £78m improvement in free cash flow for the 11 months to 31 August 2011, driven by lower capex and cash exceptionals and good working capital management. As at the 28 September 2011, we had circa £830m headroom of available cash and committed bank facilities."

The company has lamely issued a string of profits warnings over the last 18 months, blaming everything from government cuts to the Arab Spring for unexpected hits to its revenues.

Unsurprisingly, the shares have fallen off a cliff from above 40p yesterday to around 14p at the time of writing.

It is clear that whatever arrangements Thomas Cook might (and that is not at all certain) be able to make wrt future funding, the fact that this announcement has caught everyone out by surprise has brought its continued existence into doubt:

1 Markets don't like being surprised.

2 Shareholders will quite rightly question the competence of the board.

3 Customers will avoid the company like the plague.

It seems that Thomas Cook has become the private sector's version of Greece!

The European Financial Clusterfuck

The European financial clusterfuck continues this week unabated.

Here are but a few headlines to start the week with:

- Moody's has issued a downgrade warning on France.

- Despite a landslide victory in Spain, for a party that will implement further austerity measures, markets are falling and Spanish bond yields are rising.

- Hungary has asked the EU and IMF for financial assistance, oddly enough they haven't put a figure on how much they actually want/need!

- The European Commission has sated that the "cure" for Europe's ills are Eurobonds. This has been publicly slapped down by Germany, which stated that Eurobonds were not a "cure" at all.

- The EU's Jean-Claude Juncker says if France were to lose its AAA rating so would the EFSF.

Wrt the latter point, so what?

The EFSF is a busted flush anyway, a downgrade in rating is completely irrelevant.

Oh, and if anyone is remotely interested, Belgium's politicians have yet again failed to form a government (Belgium has now been without a government for 526 days).


The week starts as it means to go on, badly!

Bring On The Superwaffe!

Problem sorted then David!

The German Juggernaut II

The German Juggernaut

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As the eye of the financial storm moves from Italy to Spain, it was fascinating to learn that the Irish budget was being circulated around the Bundestag for approval, before it was even seen by Irish members of parliament.

Coupled with the fact that both Greece and Italy are now, in effect, German financial protectorates (complete with German appointed Prime Ministers) and we have to wonder what form of "new" European political structure and governance model is being created.

Clearly David Cameron is concerned as well, because he is hot footing it to Berlin for talks with Chancellor Merkel.

Let us trust that something more tangible than a piece of paper will be forthcoming from that meeting!

Northern Rock Sold To Virgin

Taking a short respite from international news of doom and gloom (bond yields in Spain at 7%, Germany and France fall out over role of ECB etc) it has been announced that Virgin will buy Northern Rock plc (the non toxic part of Northern Rock) for around £750M now, with a possible further £280M over the next few years.

Northern Rock plc will be rebranded as Virgin Money, which has promised not to make anyone compulsorily redundant over the next 3 years.

Taxpayers have put around £1.4BN into Northern Rock plc. Hence the loss is between £400M to £650M.

The "bad bank" part of Northern Rock is estimated to contain losses of up to £21BN.

ECB Does a Canute

The markets remain unconvinced by the new unelected technocrat government of Italy, and as such the bond yields have risen close to 7%.

The ECB is currently "doing a Canute", and buying bonds in order to keep the yield down.

This of course is merely kicking the can down the road.

The Irony

It is ironic that the new leaders of Italy (Mario Monti) and Greece (Lucas Papademos), who are regarded by the Europhiles as the potential saviours of the Euro experiment, have not been elected to office.

Whilst the other "leaders" of the Eurozone may regard the lack of democratic process as a "necessary step", in order to save their beloved Euro, the people of Greece and Italy may not be so relaxed about it as and when the two new leaders attempt to push through their economic reforms.

Imposing "benign dictatorships" via appointed technocrats will backfire on the Eurozone, and will inevitably hasten its demise.

Fuckshites!

EU Bullshit

"For the fourth year in a row, the EU's annual accounts have received a clean bill of health from its external auditors."

Source EUROPA

The reality is of course entirely different.

There was an estimated “error rate” of 3.7% in payments from the 2010 Euro 122BN budget.

"In the Court’s opinion, because of the significance of the matters described in the basis for adverse opinion on the legality and regularity of payments underlying the accounts paragraph, the payments underlying the accounts for the year ended 31 December 2010 are materially affected by error."

Source ECA

This is why the EU is destined to fail.

A Smaller Eurozone

As the world waits for Greece and Italy to name their new Prime Ministers, it seems that France and Germany have finally woken up to the fact that the current Eurozone structure is doomed to failure. They have talked about creating a smaller Eurozone.

Additionally, Merkel's party is discussing a move to permit countries to exit the eurozone without leaving the EU.

The question is, will these rumours turn into facts before the markets tear the Eurozone to pieces?

How To Make Money Out of The Eurocrisis

Want to make money out of this shambles?

Easy, buy shares in the following companies:

1 The catering firms that supply food and drink to the Euro "elite" for their interminable meetings

2 The suppliers of paper and ink for the ECB and Fed printing presses (ECB and Fed are going to print shitloads of paper very soon)

Simples!

Veni Vidi Vici

It is now game over for Italy and the Eurozone, as Italian bond yields have breached 7% (a level viewed as economically unsustainable).

Can the Eurozone bailout Italy?

No, there is not enough money in the "kitty".

Emperor Berlusconi's excesses have managed to do what many a Eurosceptic has only ever dreamed of, namely destroy the Eurozone.

To follow the latest updates from Italy and Berlusconi's antics read "Veni Vidi Vici".

The End of The Beginning

As Italian bond yields hit a staggering and unsustainable 6.7%, Umberto Bossi of the Northern Leagues has called on Silvio Berlusconi to resign.

Suffice to say Berlusconi will not go without a fight, because he fears losing the immunity from prosecution that remaining in office gives him.

That being said it is clear that he is finished.

The removal of Berlusconi will give some temporary relief to Italy. However, it is clear that this is not the end of the Euro crisis, nor even the beginning of the end, but most likely the end of the beginning.

I should point out that the end of the Euro crisis will occur only when the Euro itself is consigned to the dustbin of history.

The world mnust brace itslef for months of further turmoil, as Eurozone countries are picked off one by one until the "leaders" of the Eurozone finally admit that the "game is up"..

Italy Next in LIne

As Greece shambles towards some form of coalition government which might, given that it has a gun pointed towards its head, "graciously" accept the bailout terms foisted on it by the Eurozone, attention now moves to Italy.

This morning Italian bond yields are rising (6.6% at the moment), and are approaching the levels at which the country will have to ask for a bailout.

The only problem with that is that there is no money with which to bail them out, the EFSF has managed to raise zero funds (despite Eurozone flunkies passing the begging bowl around the world) and the ECB flatly refuses to purchase anymore bonds from Italy unless there is evidence from Italy that it will implement an austerity package.

During the course of this week the markets will push the intractability of the ECB and the stubbornness/shiftiness of the Italian political system to their respective extremes; it will be interesting to see which one breaks first.

G20 Failure

The G20 in Cannes looks like ending up as an enormously expensive failure.

It is now highly unlikely that world leaders will announce a figure for the increase in IMF funding, as the Americans are keen to "keep up the pressure" on eurozone to sort themselves out.

The Greek referendum has been cancelled, and it looks likely that the Greek government will fall.

Italy is now under close supervision, as its bond rates rise.

The Chinese will not put a Yuan into the over hyped and poorly structured fantasy known as the EFSF.

All in all this G20 meeting has shown how lacking in real leadership the world really is, just at a time when it needs it most.

Acropolis Now!

The end game wrt the Greece farce is upon us.

Greece's finance minister, Evangelos Venizelos, has broken ranks and said that the referendum should not go ahead.

There are plans for yet another emergency Greek cabinet meeting this morning. The Prime Minister of Greece, George Papandreou, will resign and the government will fall.

As such the idea of the referendum can now be considered dead and buried.

Unfortunately the damage is done:

- Markets are in turmoil
- The Chinese will not fund the EFSF until Europe gets its house in order
- Obama is furious that his time at the G20 has been wasted
- Italy's yields are now at 6.5% etc

What next?

There will be elections in Greece, the time between now and those elections will see the Eurozone under even more pressure, as markets hate uncertainty. Additionally, until Greece decides (whether by election or referendum) as to whether it accepts the bailout package it will not receive the next tranche of Euro8BN recently agreed (which was meant to pay the wages of the public sector workers).

This is a mess, and the endgame for Greece and most likely the Eurozone.

Follow daily updates on the end of the Euro by subscribing to Acropolis Now!

Where's The Meat?

As Eurozone "Leaders" meet at the G20 in Cannes today, amid the wreckage of the bailout "plan" that was scuppered by Greece's decision to hold a referendum on remaining in the Euro, I have but a simple question to ask.

In the unlikely event that the "plan" for the Euro1Trillion EFSF bailout has not collapsed, where exactly is the money coming from to fund this?

I ask, because the Euro3BN fund raising to bailout Ireland has been pulled by the Eurozone.

The reason for it being pulled?

"Market conditions".

Now, if they can't raise a mere Euro3BN, how the hell do they expect to raise Euro1Trillion?

Oh, and one more thing, isn't Greece about to run out of money in the next week or so?

Given that the referendum has in effect put the bailout "plan" on hold (after all they cannot be forced to accept the money if they have not yet approved the "plan"), how will Greece pay its bills in the meantime?

Does anyone actually know the answers to the above?

The Birthplace of Democracy Rattles Its Cage

The Greek Prime Minister, George Papandreou, dropped something of a bombshell on the markets and the self satisfied Eurozone "leaders" yesterday by calling for a referendum on the latest Greek bailout and austerity package.

He told the Greek parliament:

“The command of the Greek people will bind us. Do they want to adopt the new deal, or reject it? If the Greek people do not want it, it will not be adopted…We trust citizens, we believe in their judgement, we believe in their decision."

Unsurprisingly the markets are falling, and the "leaders" of the Eurozone are spitting blood at what they regard as a betrayal by Papandreou (who had promised them he wouldn't call a referendum - but hell, who trusts politicians to keep their word?).

As ever, with any referendum, the devil is in the detail. Aside from the fact that the referendum will not be held until January (leaving ample time for the markets to have a nervous breakdown), it is not yet clear exactly what the question will be.

Some are asking if Papandreou has lost his mind. I think not, it seems to me that this is a very shrewd political move.

Papandreou knows that the Greek people are less than "enamoured" with the bailout and at the prospect of having "on the ground monitoring" (as demanded by Merkel). Were he to try to push the bailout through he may well face a serious escalation of civil unrest.


By publicly placing the decision for accepting the bailout in the hands of the people, he gives them the power and responsibility to either accept the deal and "knuckle under" to decades of austerity, or throw it away and leave the Euro in a disorderly manner.

However, there is another more "subtle" strategy at play here. The more than two months before the referendum is held, gives the Eurozone "leaders" more than enough time to realise the dire consequences for their own futures if Greece publicly votes down the terms of the bailout. Papandreou knows this, and has used the referendum as a means of extracting "sweeteners" and a better deal from the Eurozone.

The calling of a referendum serves as a public reminder to the "leaders" of the Eurozone that you cannot impose economic policy by dictat.

The move by Papandreou is clever politics, but it will play havoc with the global economy.