Thursday, August 30, 2012

Barroso To Unveil European Banking Union

The European Commission President, Jose Barroso, has said that the EU will unveil its proposals for banking union on September 12.

Tuesday, August 28, 2012

Draghi Digs Himself Out of a Hole

European Central Bank President Mario Draghi will not attend the annual Jackson Hole meeting of central bankers at the end of this week the ECB said, citing a heavy workload.

Friday, August 24, 2012

ONS Screws Up Again

On July 25 I wrote the following:
"UK GDP has contracted by 0.7% in the second quarter of 2012, thus bringing the UK into a double dip recession.

However, this figure needs to be taken with a pinch of salt, ONS figures are out of date and are invariably wrong
One month on and, as predicted, it transpires that the ONS figures were of course wrong. Economia reports that the ONS has revised its figures upwards from -0.7% to -0.5%.

As I have noted many times before it is extremely unwise to rely on figures provided by the ONS, they are always out of date and invariably wrong.

Thursday, August 23, 2012

Time Is Not a Healer For Greece

Wolfgang Schaeuble, Germany's finance minister, has told SWR that time (in Greece's case anyway) is not a healer.

In his view granting Greece more time to implement spending cuts would not solve its problems, the Telegraph quotes him:
"More time is not a solution to the problems."
Why draw such a line in the sand?

Schaeuble is no fool, he knows that with Greece it is never just a matter of "time" but also money. He knows that, at some stage, Greece will come back and ask for more money.

As I have already noted it is highly likely that Greece will ask for more money, given the Euro3.5BN black hole in Greece's finances.

Wednesday, August 22, 2012

Greece Pleads For Time

As I noted on Monday, Greek Prime Minister Antonis Samaras is asking Eurozone leaders for Greece to be granted "a little room to breathe" on its austerity targets.

Interestingly he is not asking, as yet, for more money. The Telegraph quotes him:
"Let me be very clear: We require no additional money.
All we want is a little room to breathe, to get the economy going and to increase government revenues. 

More time does not automatically mean more money." 
All very well, maybe. However, as I also noted on Monday, there is a Euro3.5BN black hole in Greece's fiances for 2013/14.

Where will the money come from to fill that?

Tuesday, August 21, 2012

Euro Burnout

The hapless citizens of the Eurozone who feel that they are forever condemned to a lifetime of austerity and recession until their political masters finally admit that the Euro (in its current form) is destined to fail, may be forgiven for thinking that no Eurocrat understands what they are going through.

Step forward the very empathetic folks at the ECB.

For they too are suffering from "Euroburnout".

According to Welt Online the burnout amongst ECB staff trying to cope with the Euro crisis is a "serious potential operational risk for the ECB".

The "good" news for the staff of the ECB and the citizens of the Eurozone is that 40 new jobs will be created within the ECB to address this issue.


Admittedly 40 new jobs is but a gnat's piss against the millions of jobs destroyed by the Eurocrisis, but a job's a job!

The bad news is that these jobs won't be created until 2013, by which time the Euro and the Eurozone economy will have all but collapsed.

Monday, August 20, 2012

Greece's Bottomless Pit

The Greek Prime Minister, Antonis Samaras, will meet with various Eurozone leaders during the coming week in order to beg for more time (an extension of two years) for Greece to try to enact its austerity programme.

His renegotiation mission comes on the eve of next month's Troika report into Greece's economic progress (or lack of it).

Der Spiegel has reported that the Troika's initial assessment is that there is a Euro14BN hole in Greec's finances for 2013/14. This hole being Euro3.5BN larger than the previously identified hole of Euro11BN.

The abundance of black holes is rather alarming, given that the Troika found a Euro15BN in Greece's finances in February 2012.

Therefore will Greece be given more time and more money?

The German Finance Minister, Wolfgang Schaeuble, as per the BBC sums up the situation perfectly:
"I have always said that we can help the Greeks, but we cannot responsibly throw money into a bottomless pit."
The question is, at what stage do those funding Greece realise that the Greek economy is a "bottomless pit"?

Friday, August 17, 2012

Finland Preparing For Eurozone Breakup

Erkki Tuomioja, Finland's Foreign Minister, has stated that Finland is preparing for the breakup of the Eurozone. He is quoted in the Telegraph:
"Our officials, like everybody else and like every general staff, have some sort of operational plan for any eventuality."
He wisely and honestly notes that the end of the Eurozone does not mean the end of the EU. Other politicians in the Eurozone would have us believe that the end of the Euro will sound the death knell for the EU, this is of course scaremongering nonsense.

Kudos to Mr Tuomioja for speaking the truth and for shooting the fox of the lying Europhiles!

Thursday, August 16, 2012


Liborgate, despite the brief interlude provided by the chaff from the DFS over Standard Chartered, rumbles on.

The BBC reports that seven banks (HSBC, Royal Bank of Scotland Barclays, Citigroup, Deutsche Bank, JPMorgan and UBS), are to be questioned in the US for alleged Libor manipulation.

The US authorities will look to see if there is sufficient evidence to support a criminal prosecution.

The coming weeks will see much behind the scenes haggling between the banks, the regulatory authorities and governments, in order to avoid this going to court.

Wednesday, August 15, 2012

#Grexit Next Month?

I see that with the depressing inevitability of the return of an unloved season, there is renewed speculation (which frankly has never gone away) that Greece will exit the Eurozone possibly as early as next month.

CNBC quote Paul Day, Chief Strategist, at Market Securities:
It’s a question of when, not if. 

Next month there is the ratification of the ESM [European Stability Mechanism] in Germany and you may well see a situation where Greece leaves the euro, the ESM is ratified and Spain and Italy then go in and ask for the money. 

There is a feeling that time is running out.
He is of course correct, Greece will exit the Euro. The trouble is no one can know for sure when. As I have noted before, as and when it happens, it will have to take the markets and the citizens of Greece "by surprise".

When Greece leaves the Euro there will be, at the very least, the following "events":

- an imposition of capital and border controls,
- atms will run out of cash
- foreign banks and companies will treat Greece as a "plague ship", and stop all financial dealings in the short-term
- credit cards will not be accepted by many establishments (in fact this is already the case)
- there will be issues of street and civil disorder to contend with
- airports will be full, as foreigners rush to leave

Will Greece leave next month?

I don't know.

However, pressure is mounting; eg Greece is seeking a two year extension to its austerity program.

It is just a matter of time.

Tuesday, August 14, 2012

Spain Looking For Another Bailout

It seems that Spain (unsurprisingly) is looking for another bailout.

According to Spanish Economy Ministry sources quoted by La Vanguardia, Spain could make a formal request for the early disbursement of €30BN from its bank rescue package this Thursday or Friday.

The money, apparently, will be used to help Bankia and other nationalised savings banks.

Monday, August 13, 2012

Bank of England Clueless

Unfortunately, it appears that according to former MPC member Danny Blanchflower:
"The MPC didn't know where the economy had been, didn't know where it was when they made the forecast, and had no clue where it was going and still doesn't."
The  most alarming question that arises from the above is that, if the Bank of England (which has been relatively proactive in trying to reboot the economy) is so clueless, what does that say about the ECB?

Friday, August 10, 2012

Scrap Libor

Martin Wheatley has called for Libor to be scrapped, and for the fictitious Libor rates be replaced with "reality".

What an excellent recommendation!

Read his full report below:

Thursday, August 09, 2012

Greece Sacrifices Jobs To Appease The Euro Gods

Greek unemployment has risen to an all time high of 23.1%, from 22.6%.

It is quite clear that Greece cannot remain in the Euro under the present terms and conditions, However, the politicians will continue to sacrifice jobs and people's lives in order to feed their egos and vanity with the continuation of the Euro monolith.

Wednesday, August 08, 2012

Mervyn King Chides US Authorities

Mervyn King is less than impressed with the US over its "shoot first, ask questions later" approach to financial regulation, wrt dragging Standard Chartered through the mire of public opinion before even completing its investigation.

King is quoted in
"I think all that the U.K. authorities would ask is that various regulatory bodies that are investigating a particular case try to work together and refrain from making too many public statements until the investigation is completed."
King is too polite to say that this is in fact a trade war between the US and UK.

Tuesday, August 07, 2012

The USA's Little List

Standard Chartered (a British bank) finds itself on an ever growing American list of British banks that have been accused of all manner of "dastardly" deeds of alleged money laundering etc, that "in theory" threaten the safety of the USA.

Unsurprisingly, as a result of the public witch hunt and accusations, shares in Standard Chartered have fallen by 24%; as the USA lets loose in the media in a concerted attempt to bring the bank to heal before any evidence has actually been presented in court.

Standard Chartered deny the accusations.

Does anyone else not find it a tad "odd" that the US authorities are not pursuing US banks with such vigour through the courts and the media?

As one unnamed London based director allegedly emailed in 2006:
"You f****** Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

Monday, August 06, 2012

Sentix Predicts 73% Chance of Euro Breakup

The sentix Euro Break-up Index for July has risen by 22% to 73%. The index mirrors the investors' perceived probability of at least one country leaving the Euro within the next twelve months.

The index predicts that there is a 97% probability that Greece will exit the Euro.

Unsurprisingly, Euro politicians (who have much to lose when the Euro collapses; eg status, ego and salaries) have been quick to panic and have been trying to talk markets up. Step forward Germany's foreign minister, Guido Westerwelle, who has warned Europe's politicians "not to talk Europe apart". He is quoted in the Telegraph:
"We need a strengthening, not a weakening of democratic legitimacy in Europe.
This is all very well, but the markets will only now believe actions not words (as even Draghi must now realise after last week's dismal showing by the ECB has proven).

Thursday, August 02, 2012

ECB Does Nothing - As Predicted

As I predicted this morning, the ECB has done absolutely nothing to alleviate the crisis in the Eurozone.

As per Business Insider President Mario Draghi of the ECB failed to announce any definitive measures to address concerns about the burgeoning sovereign debt crisis in his latest post-decision press conference today.

The markets, that had foolishly deluded themselves that the ECB would act, have taken a tumble.

Here is Draghi's lengthy statement outling that the ECB will do nothing:
"Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 
2 August 2012 

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged, following the decrease of 25 basis points in July. As we said a month ago, inflation should decline further in the course of 2012 and be below 2% again in 2013. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A further intensification of financial market tensions has the potential to affect the balance of risks for both growth and inflation on the downside.

The Governing Council extensively discussed the policy options to address the severe malfunctioning in the price formation process in the bond markets of euro area countries. Exceptionally high risk premia are observed in government bond prices in several countries and financial fragmentation hinders the effective working of monetary policy. Risk premia that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner. The euro is irreversible.

In order to create the fundamental conditions for such risk premia to disappear, policy-makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination. As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines.

The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures.

Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012, following a decline of 0.3% in the previous quarter. Economic indicators point to weak economic activity in the second quarter of 2012 and at the beginning of the third quarter, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually, with growth momentum being further dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum, which is also affected by the ongoing global slowdown.

The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term.

Euro area annual HICP inflation was 2.4% in July 2012, according to Eurostat’s flash estimate, unchanged from the previous month. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be below 2% again in 2013. Over the policy‑relevant horizon, in an environment of modest growth in the euro area and well‑anchored long-term inflation expectations, underlying price pressures should remain moderate.

Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area, in particular resulting from a further intensification of financial market tensions. Such intensification has the potential to affect the balance of risks on the downside.

Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 stood at 3.2% in June 2012, slightly higher than the 3.1% observed in the previous month and close to the rate observed at the end of the first quarter. Overall, inflows into broad money in the second quarter were weak. Annual growth in M1 increased further to 3.5% in June, in line with the increased preference of investors for liquid instruments in an environment of low interest rates and high uncertainty.

The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.3% in June (from 0.5% in May). As net redemptions of loans to non-financial corporations and households (both adjusted for loan sales and securitisation) were observed in June, the annual growth rates for loans to both non‑financial corporations and households (adjusted for loan sales and securitisation) decreased further in June, to -0.3% and 1.1% respectively. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. A considerable contribution of demand factors to weak MFI loan growth is confirmed by the euro area bank lending survey for the second quarter of 2012. This survey also shows that the net tightening of banks’ credit standards at the euro area level was broadly stable in the second quarter of 2012, as compared with the previous quarter, for loans to both enterprises and households.
Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

While significant progress has been achieved with fiscal consolidation over recent years, further decisive and urgent steps need to be taken to improve competitiveness. From 2009 to 2011, euro area countries, on average, reduced the deficit-to-GDP ratio by 2.3 percentage points, and the primary deficit improved by about 2½ percentage points. Fiscal adjustment in the euro area is continuing in 2012, and it is indeed crucial that efforts are maintained to restore sound fiscal positions. At the same time, structural reforms are as essential as fiscal consolidation efforts and the measures to repair the financial sector. Some progress has also been made in this area. For example, unit labour costs and current account developments have started to undergo a correction process in most of the countries strongly affected by the crisis. However, further reform measures need to be implemented swiftly and decisively. Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth. It is now crucial that Member States implement their country-specific recommendations with determination."
The hostage to fortune is of course this phrase:
"The euro is irreversible."
As previous failed currency unions have shown, the Euro is reversible.

Don't Believe The ECB Hype

The markets and some commentators are trying to delude themselves that the ECB will finally do something tangible to "save" the Euro.

ECB President, Mario Draghi, has managed to con some people who should know better into believing that the ECB will conduct a major bond purchasing campaign. In theory the bond buying campaign will reduce the interest rates of Spain and Italy (note Greece is not included, because it has been thrown to the wolves) and thus save the Euro.

However, people are ignoring the two very large elephants in the room:

1 Any such decision and action to buy bonds will not occur until after 12 September, when Germany’s top court rules on the ratification of the ESM. This being over a month away means that Spain and Italy, because of crippling interest rates, will most likely have imploded by them.

2 Germany’s top court may well not ratify the ESM. Even if it does, all 17 eurozone members would need to agree to it as well. Fat chance!

Therefore, don't believe the ECB hype.

The Euro, in its present form, is finished!

Wednesday, August 01, 2012

Bundesbank Challenges ECB To Pissing Contest

In an interview conducted in June, but "conveniently" published on the Bundesbank's website today, the Bundesbank president Jens Weidmann has stressed that the ECB should not exceed its mandate.

He also noted that the Bundesbank is more "important" than others in the eurozone.

The Telegraph quotes him:
"[The ECB] must be aware that its independence obliges it to respect its own mandate and not to exceed it. 

We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks in the Eurosystem."
It seems that the Bundesbank has just challenged the ECB to a pissing contest!