The £259BN EU Black Hole

The European Court of Auditors has identified a £259BN black hole in the EU budget that will cost Britain £34BN over the next six years to fund.

Is there another way that this hole can be filled?

Yes, governments can decommit from spending programmes that they have already committed to.

However, in the Lah Lah Land of the EU that will never happen.

Like it or not we are screwed by our membership of the EU, and most likely screwed if we leave it.

Turning Japanese

Andrew Roberts, RBS's credit strategist, is quoted by the Telegraph:

“We are seeing `Japanification’ setting in across Europe.

We expect 10-year Bund yields to cross the 10-year Japanese government bond and we are amply positioned for such an outcome.” 

In theory, as economic predictions are always "theoretical", either the ECB launches massive QE in which case it will buy bonds, or it won't in which case bond yields will collapse further.

Either way, in theory, bond prices will rise.

Theory and reality have, of course, a nasty habit of becoming disconnected!

Yorkshire Bank £2BN Float

Yorkshire Bank will be floated for £2BN by its current owners, National Australia Bank as part of their strategy to exit the UK market after making significant losses here.

Yorkshire and Clydesdale, both of which are owned by National Australia Bank and both of which will be floated, have (according to the Telegraph) 2.7m customers and 330 branches. As with many other banks, they have had to write off billions of pounds of bad debts and compensate customers mis-sold payment protection insurance and complex interest rate derivatives.

Greece's Bailout Negotiations Stall

As I noted a couple of weeks ago, Greece is looking for another bailout in order for it to be able to exit its current bailout cleanly when it matures on 31 December.

Unfortunately, the negotiations between Greece and its international creditors have become deadlocked over a final round of measures required to release the last tranche of the country’s bailout.

According to Bloomberg the Greek government is resisting pressure from the troika for additional budget savings in 2015 of about 2.5BN euros.

Seemingly Greece now risks missing the 8 December deadline to reach agreement on the steps required to unlock the aid and what comes after. Dutch Finance Minister Jeroen Dijsselbloem said:

“It’s crucial that Greek authorities work with the troika to complete the current review and the program so we have a clear cut between the finishing of the program and any instruments that will follow up on that from Jan. 1.”

As I have noted many time before, Greece's best path to economic stability and growth lies outwith the Eurozone.

Japan Slides Back Into Recession

Japan has slid back into recession after reporting a third quarter fall in GDP of 0.4%.

Apparently this has "shocked" analysts and those who claim to be experts in economics.

Why?

Japan introduced a sales tax earlier this year which, quite obviously, would have (and indeed did) negatively impact consumer spending.

For reasons that only Prime Minister Shinzo Abe can know, the sales tax hikes (another is planned) were meant to bring the economy out of its decades long slump.

Quite why increases in consumer taxes were meant to stimulate the economy is beyond me, even more so why "experts" didn't see the increase in taxes as a threat to any form of nascent economic recovery!

Twitter Bonds Junk

Apparently Twitter bonds are "junk".

Who would have thought that!

We're Going To Crush Greece!

As per The Telegraph's quote of Tim Geithner:

"'We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.' [That] was their basic attitude, all of them."

The Greeks knew this at the time, and it was indeed self evident to anyone who took more than a passing interest in the death throws of the Eurozone.

However, seeing it in black and white four and half years on is still shocking!

The Banking List of Shame

UK, US and Swiss authorities have fined five banks more than £2BN over failings that led to manipulation of the foreign exchange markets.

For good measure The Bank of England dismissed its chief currencies dealer following an investigation, for "breaching internal policies".

As per the Telegraph:

Total Fines

Financial Conduct Authority
• Citibank: £225,575,000
• HSBC: £216,363,000
• JPMorgan: £222,166,000
• RBS: £217,000,000
• UBS: £233,814,000
Commodities and Futures Trading Commission
• Citibank: $310m
• JPMorgan: $310m
• RBS: $290m
• UBS: $290m
• HSBC: $275m
Finma
• UBS: 134m Swiss francs

Well done lads, you are a "credit" to the "profession"!

In case anyone is wondering why Barclays isn't mentioned, it is still being investigated.

Inflation Too "Low"

The Bank of England is of the view that inflation will remain at around 1% for most of next year. Seemingly the Governor may have to write to the Chancellor to explain why inflation is so "low".

Governor says more likely than not that he will have to write letter to Chancellor in coming months explaining why inflation too low

— Robert Peston (@Peston) November 12, 2014

Thus underscoring what I have said many times before on this site, namely that interest rates will not go up anytime soon!

Juncker - The Rotten Core at the Heart of The EU

The EU is rotten to the core, as exemplified by its president Jean-Claude Juncker.

As per Bloomberg:

"Jean-Claude Juncker, the new president of the European Commission, was always a bad choice for the job, foisted on the bloc's 28 national governments by a European Parliament eager to expand its powers. It's becoming clear now just how poor a decision that appointment was.

Juncker was the prime minister of Luxembourg, a tiny nation with a population 1/17th the size of London's, for almost two decades. In that time, he oversaw the growth of a financial industry that became a tax center for at least 340 major global companies, not to mention investment funds with almost 3 trillion euros ($3.7 trillion) in net assets -- second only to the U.S.

Partly as a result of the Swiss-style bank secrecy rules and government-blessed tax avoidance schemes that helped draw so much capital, the people of Luxembourg have become the world's richest after Qatar. The tax arrangements, described in leaked documents provided by the International Consortium of Investigative Journalists, allegedly enabled multinationals, from Apple to Deutsche Bank, to reduce their tax liabilities on profits earned in other countries: The effective Luxembourg tax rates that resulted were as little as 0.25 percent. The countries where the money was made received nothing.

It's telling that these arrangements have long been shrouded in secrecy. (Only last month did Luxembourg's government drop its opposition to new EU rules on banking transparency.) Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve.

The commission was already conducting an investigation of Luxembourg's tax arrangements. Juncker says he won't interfere -- but he won't recuse himself, either. Indeed, his spokesman says he is "serene" in the face of the revelations. He shouldn't be. At this point, he could best serve the European project by resigning.
Juncker's position as the head of the body investigating the tax practices he oversaw as prime minister is a clear conflict of interest. It's possible the commission will find nothing improper about Luxembourg's tax-avoidance paradise: The EU allows member governments wide latitude in taxing companies, so long as they don't favor some over others. But with Juncker in charge of the commission, any such exoneration will fail to command public confidence.

Just now, the importance of restoring trust in the EU would be hard to overstate. The union is struggling to emerge from the financial crisis and is increasingly seen as elitist, meddling and incapable of producing either fairness or growth. It cannot help this effort to have it overseen by a man who spent his career as a quintessential backroom dealer while building and running an international tax haven at other European countries' expense.

Granted, most of this was known -- or should have been -- before the appointment was made, and the European Parliament is much at fault for insisting on Juncker's appointment in the first place. But the tax revelations have put the issues before the public in a way that tests the EU's credibility afresh. Juncker has done nothing illegal and is in no immediate danger of being removed. Even so, the EU would be best served if he stepped down. "

Juncker is but a symptom, not the cause of the stench that emanates from the EU. Until the EU, its systems, commissioners and MEPs are radically overhauled/cut out, the EU will never recover.

Banks' Creditors To Take The Hit

Mark Carney, the Governor of the Bank of England, wants creditors to be bare banks' losses (rather than the taxpayer).

He is quoted by the Telegraph:

"Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system."

The proposals are set to be agreed on by the G20 next year, and must be implement by banks by 2019.

This is all very well and dandy. However, it will mean higher costs for the customers of the banks; as the creditors will expect a greater return for the risks that they bare.

The Stench of Corruption at The Heart of The EU

According to the annual report of the European Court of Auditors, as per the Telegraph, £5.5BN of the EU budget last year was misspent because of controls on spending that were deemed to be only “partially effective”.

The audit report highlights that £109BN out of a total of £117BN spent by the EU in 2013 was "affected by material error”.

This means that the EU's accounts have been qualified 19 years running.

Any business that produced such a dismal set of audit results would be torn to shreds by its shareholders, and subjected to a thorough fraud investigation. Unfortunately the EU is, by its own reckoning, above the law and hence will not change its ways unless forced to.

Given the stench of corruption that emanates from Brussels, it is surprising that its MEPs and Commissioners aren't wearing gas masks!

The EU £1.7BN Surcharge

The government has woken up to the fact that the voters know that the EU isn't working. As such Cameron boldly stated the other week that he would not pay the £1.7BN surcharge.

He has, however, modified this now saying that he won't pay "all" of it.

Now comes the tricky question of interest payments (of £2M per week), if the bill is not steeled in full by the 1 December deadline.

Cue behind the scenes wrangling and negotiations.

The reality will be that Britain will pay the bill, probably late in order not to upset the Rochester by election, but not the interest.

EU Fiddles Whilst Athens Burns

Greece is hitting the financial headlines yet again.

Unsurprisingly, the EU has just woken up to the fact that it is "highly unlikely" that Greece will be able to end its bailout programme without some new form of assistance. In other words Greece will need another bailout in order to meet the conditions of existing bailouts!

A senior EU official is quoted by Reuters:

"A completely clean exit is highly unlikely.

We will have to explore what other options there are. Whatever options we may be adopting, it will be a contractual relationship between the euro area institutions and the Greek authorities."

In other words the EU doesn't know yet what form the new bailout will take.

They will have to hurry, the current bailout package expires 31 December this year.

Whatever the deal, if one is forthcoming, it will be in effect throwing good money after bad.

It is "ironic" that the EU busts a gut to try to keep Greece (a financial basket case) onboard, yet barely flinches at the very real prospect of Britain (a strong contributing economy) leaving!