Statement of The Eurogroup - Deconstructed

I have deconstructed today's statement of the Eurogroup, my comments are in blue.

30 March 2012
Statement of the Eurogroup

The stability and integrity of the Economic and Monetary Union have required swift and vigorous measures that had been implemented recently, together with further qualitative moves towards a genuine Fiscal Stability Union.

This is a lie, there have been no "swift and vigorous measures".

In order to further improve market confidence and in accordance with the agreement reached at the Euro Summit on 9 December 2011 and reiterated on 2 March 2012, we have reassessed the adequacy of the overall EFSF/ESM lending ceiling of EUR 500 billion which, given EUR200 billion long term commitments of the EFSF, currently entails a 300 billion maximum lending volume for the ESM.

We agreed on the following principles:

· The paid-in capital of the ESM will be made available more quickly than initially foreseen in the ESM Treaty, in respect of national procedures. Two tranches of capital will be paid in 2012, a first one in July, a second one by October. Another two tranches will be paid in 2013 and a final tranche in the first half of 2014. In line with the ESM Treaty, the payment of the capital will be further accelerated if needed to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances.

Too little too late. Oh, and by the way, there is no real funding as yet for this or the EFSF.

· The ESM will be the main instrument to finance new programmes as from July 2012. The EFSF will, as a rule, only remain active in financing programmes that have started before that date. For a transitional period until mid-2013, it may engage in new programmes in order to ensure a full fresh lending capacity of EUR 500 billion.

· The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to EUR 700 billion such that the ESM and the EFSF will be able to operate, if needed, as described above. As of mid-2013, the maximum lending volume of ESM will be EUR 500 billion. The combined lending ceiling of the ESM and the EFSF will continue to be set at EUR 700 billion.

· In addition EUR 49 billion out of the EFSM and EUR 53 billion out of the bilateral Greek loan facility have already been paid out to support current programme countries. All together the euro area is mobilising an overall firewall of approximately EUR 800 billion, more than USD 1 trillion.

Using old debts to boost the "firewall", an "interesting" form of creative accounting!

· Moreover, euro area Member States have committed to provide EUR 150 billion additional bilateral contributions to the IMF.

The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis.

No it hasn't.

Progress was notably made with regard to fiscal consolidation and growth enhancing structural reforms in a number of countries, the successful implementation of the adjustment programmes in Ireland and Portugal, the Greek PSI operation and the agreement on a second Greek programme.

The Greek Prime Minister has today stated that the country will need a third bailout. The Greek PSI has not gone according to schedule, and foreign law bondholders are still holding out.

Important improvements were made to improve the governance of the euro area through enhancements of the Stability and Growth Pact, the new macro-economic imbalances procedure, the Euro Plus Pact and the Fiscal Compact enshrined in the new Treaty on Stability, Cooperation and Governance in the Economic and Monetary Union.

Finally, robust firewalls have been established. This comprehensive strategy has paid off and led to a significant improvement of market conditions.

There are no robust firewalls, and market conditions have not improved.

All in all this statement is bullshit!

Problem Solved?

Despite the hype from the Eurozone that all is well and that problems are being resolved, it seems that some are still rather worried about the reality.

The Telegraph reports that Klaus Regling, head of the European Financial Stability Facility (EFSF), has warned that the eurozone must reinforce its firewalls to avoid more market volatility.

"More money would reassure markets. Wrongly or rightly the fact is that big numbers in the shop window create calm." 

Even Angela Merkel appears to be prepared to yield to the pressure and agree to combine the EFSF and its permanent replacement, the European Stability Mechanism (ESM).

As to whether these vehicles actually have any funds in them is of course another issue!

Germany Trying To Sabotage Greek Bailout

I noted last week that "the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project".

Unsurprisingly, the G20 have now stated categorically in their end of summit communique that no money will be forthcoming until the Eurozone puts more of its own money in, and that it is "essential" that the Eurozone boosts its own firewall first.

Meanwhile, as if deliberately trying to further humiliate and antagonise the Greeks, the German Finance Ministry has announced that more than 160 German tax collectors have volunteered for possible assignments in Greece.

Anyone would think that the Germans were deliberately trying to sabotage the bailout, and force the Greeks to walk away from it!

Given that German Finance Minister Wolfgang Schaeuble doesn't believe that the bailout will succeed, it is in Germany's interests that time and money are not wasted on it.

 

Wheels Start To Come Off Greek Bailout

Unsurprisingly, less than 24 hours after the announcement that the bailout had been agreed and that the Greek crisis had been "solved", the wheels are now coming off the agreement.

There will be a G20 summit in Mexico on 25-26 February, where the EU will beg the IMF to increase its contributions to prop up its firewall.

Unfortunately, the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project. In fact, according to the Telegraph, the IMF will threaten to pull the plug on its contribution to the Euro130BN bailout unless the Eurozone creates a Euro750BN fund.

The small problem with this idea is that Germany has no intention of creating such a fund, because it would increase Germany's exposure to default.

Olli Rehn, the EU's economic and monetary affairs commissioner, wants to merge the European Financial Stability Facility (EFSF) with a new European Stability Mechanism (ESM) which has yet to be created.

The fantasy value of this yet to be created ESM is Euro500BN.

However, as with the ludicrous "values" placed on the busted flush of the EFSF, it is safe to assume that the ESM will never reach that level.

As with all matters pertaining to the Eurozone firewall and the bailout, the "leaders" of the Eurozone are building castles in the air.

The EFSF Begging Bowl

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

It would seem that S&P agree with me, as they have downgraded its AAA rating by one notch. This downgrade, although fully expected, has sent Eurocrats into a panic.

Klaus Regling, chief executive of the EFSF, is now in Singapore begging (not asking) them for money to prop up this failed mechanism.

My advice to the good people of Singapore is simple, don't waste your money on this busted flush.

Meanwhile Regling is trying to put a brave face on things, by claiming that this downgrade doesn't matter; so long as no other agency downgrades it.

The reality of course being that another agency will downgrade the EFSF.

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 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.

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.

China Says "Not Yet"

Despite European hopes and spin that the Chinese will bailout Europe, by funding a large part of the EFSF, China is not rushing to write Europe a cheque.

Klaus Regling, went to Beijing to discuss terms. However, his poorly planned, uninvited visit and the comments of Nicolas Sarkozy about Beijing having a "major role to play" in proposals to expand the European Financial Stability Facility (EFSF) only seem to have irritated the Chinese.

China, quite rightly, wants more clarity on terms and conditions etc before it considers investing anything.

The official Xinhua news agency said that Europe must put its house in order:

"China can neither take up the role as a saviour to the Europeans, nor provide a 'cure' for the European malaise.Obviously, it is up to European countries themselves to tackle their financial problems."

Europe needs to understand that it is a "buyers' market", and that it is up to the Europeans to "sell" their "investment opportunity" (EFSF) to potential investors.

Where's The Money Hunny?

Despite all the hoopla exuded by the Eurozone "leaders" over their "plan" to save the Euro, there are quite a few nagging questions over the details of that "plan".

Not least, the elephant in the room, where is the money coming from?

Klaus Regling, the head of the eurozone bail-out fund, has popped over to China today to try to twist some arms there.

Good luck with that then, as China has already indicated it will only put money in via an IMF backed scheme. Note, the IMF cannot put money into the EFSF.

In other news, Italian bond yields have risen today above 6%, in the event they reach 7% then it's game over.

Meanwhile in Greece, where the country's pension funds have been cut in half by the rescue "plan", the people marked National Day by forcing state officials to leave the parades by hurling eggs, yogurts, raising banners with Swastikas proclaiming "No to 4th Reich" and chanting “Thieves!”

This video shows students marchingin Athens, and raising their hands holding black handkerchiefs.



Whatever the hype and spin from the Eurozone bunker, the decisions made by the "leaders" of the Eurozone have had, and are having, very real and unpleasant consequences for the people of Europe.

Draft Statement of EU Heads of State

Pathetic!

Source 

DRAFT STATEMENT OF EU HEADS OF STATE OR GOVERNMENT

At today's meeting, in line with paragraph 7 of the European Council conclusions of23 October concerning relations between the EU and the Euro area, the members of the European Council were informed by President Van Rompuy about the state of preparations of the Euro Summit that will take place later in the day.

They welcomed the consensus proposal on measures to restore confidence in the banking sector reached by the Council (ECOFIN) on 22 October. On this basis, they agreed the text annexed to this statement. The measures indicated in this text form part of a broader package, alongside the decisions taken by today's meeting of the EuroSummit. The Council will adopt the necessary follow up measures.

ANNEX

Consensus on banking package
1. Measures for restoring confidence in the banking sector (banking package) are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector. These measures should address:
a.
The need to ensure the medium-term funding of banks, in order to avoid a credit crunch and to safeguard the flow of credit to the real economy, and to coordinate measures to achieve this.
b.
The need to enhance the quality and quantity of capital of banks to withstand shocks and to demonstrate this enhancement in a reliable and harmonised way.
Term funding
2.
Guarantees on bank liabilities would be required to provide more direct suppo11 for banks in accessing term funding (Sho11-term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions.
3.
A simple repetition of the 2008 experience with full national discretion in the setting-up of liquidity schemes may not provide a satisfactory solution under current market conditions. Therefore a truly coordinated approach at EU-level is needed regarding entry criteria, pricing and conditions. The Commission should urgently explore together with the EBA, EIB, ECB the options for achieving this objective and report to the EFC.
Capitalisation of banks
4.
Capital target: There is broad agreement on requiring a significantly higher capital ratio of 9 % of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial repo11ing rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks' plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy or undue pressure on sovereign debt markets.
5.
Financing of capital increase: Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support, and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of Eurozone countries.
State Aid
6. Any form of public support, whether at a national or ED-level, will be subject to the conditionality of the current special state aid crisis framework, which the Commission has indicated will be applied with the necessary proportionality in view of the systemic character of the crisis.

Europe is Fucked II - Oh The Irony

"The options are ugly and, officials freely admit, smack of "smoke and mirrors" with too much reliance on the very leveraging and financial products the EU has previously blamed for causing the initial banking crisis. It was that mess, of course, which spilled over into the sovereign debt crisis that has threatened to tear down the euro. 

"Can the euro be saved by spreading the debt and slicing and dicing the EFSF's capital or guarantees into highly complex financial products?" asked one national finance ministry official. "It's looking much more like a fiendishly clever conjuring trick, or even a Ponzi scheme, than the big bang the markets want." 

Source Telegraph

Repeat after me, and learn this for prep:

- There is no plan
- There was no plan
- There never will be a plan

Kicking The Can Down The Road

As predicted, the Slovakian parliament voted against endorsing changes to the European Financial Stability Facility (EFSF) and the government has fallen.

However, those hoping that this will finally draw a line under the uncertainty and dithering wrt the Euro crisis (by drawing matters to a head) will be sorely disappointed.

Slovak lawmakers are regrouping Wednesday, to broker a deal that will ensure that a new vote on the issue will pass next time.

As to when that vote will be is not clear. However, this political "fix" will ensure that the Euro crisis continues for a while longer as the can has been yet again kicked down the road.

The New "Reality" From The Bunkers of Euroland

As the EU refuses to act to resolve the never ending crisis, markets have become used to the new "reality" of rumours/denials/promises/reneges being made by those allegedly "leading" Europe.

Unsurprisingly this febrile atmosphere, as we wait for Greece to finally/officially default and leave the Eurozone, has caused wild swings in the markets.

The latest round of news and rumours will do nothing to quell the volatility.

On the news front:

- Moodys' have downgraded Italy
- Greece is on strike (below is live footage from Syntagma Square)

Watch live streaming video from stopcarteltvgr at livestream.com

- Cameron (rather bizarrely) wants everyone to pay off their credit card debt (doesn't he understand that consumer economies are built on debt?) UPDATED Frightened by the ridicule heaped upon him, Cameron has changed that part of his speech.

On the rumour front:

The EU would have us believe that Dexia will be saved, and that European banks will be recapitalised. Oddly enough the markets actually believed this briefly and rallied. Commonsense then dawned, as the markets realised that this was in fact the normal bullshit being pumped out by the clueless bunker dwellers who "lead" the Eurozone.

As I noted yesterday, given Dexia's exposure (180% of Belgium's GDP), saving the bank is all but impossible. Add into the mix that other banks are also going to need saving (eg BNP and a number of Italian ones) and it becomes clear that the Eurozone is powerless to save them.

Unless the EFSF is expanded by to many trillions, it just can't be done. Germany has stated that it will not allow an expansion of EFSF.

Therefore, simply put, there is simply not enough money in Europe to save the banks without there being significant crystallisation of losses and a major print run of paper.

Meanwhile deep in the bunkers of the Eurozone our leaders are drafting the next rumour, which they hope will underpin the markets.

Fat chance!

The Death of The Greek Economy

The gullible elements of the media may well be reporting the hype from the Eurozone, that yesterday's vote by the German Parliament to approve a larger EFSF resolves the Euro crisis.

Well it doesn't!

1 The EFSF that the Germans have agreed to is not large enough

2 The implementation of the EFSF is not timely enough

3 Wise eyes are now focusing on Greece, which is not in a position to meet its obligations.

Greek Deputy Prime Minister Theodore Pangalos told AP:

"I believe that the tax limits of Greek society have been exhausted. I would say they have been exhausted for some time."

In the extremely unlikely event Greece tries to implement its much vaunted austerity measures, the knock on effect on GDP coupled with the rise in debt servicing costs and the inability to raise further taxes effectively means that the economy is dead and that they will have to default.

In October 2010 I wrote about the EU budget:

"The fact that budget rises of this kind are being pushed through, during a time when national governments are being forced to reduce their own budget deficits, shows just how out of touch with reality the EU has become.

The EU, by acts of folly such as this, will eventually engineer its own self destruction. Unfortunately, in the meantime the citizens of its member states will pay the price for the greed and intransigence of the MEPs."

Those "leading" the EU have lost touch with reality and the needs of its own citizens.

In Orwell's "1984" Winston Smith was told what the future would look like:

"Imagine a boot stamping on a human face forever".

Sadly we no longer need to read "1984" to visualise the future, we just have to watch what is happening to the Greek people courtesy of the Eurozone.

The Guilty Idiots

Angela Merkel has won the vote in the Bundestag to expand the EFSF. The expansion to the fund is too little and too late.

The Euro is collapsing under its own inherent weaknesses and contradictions.

Votes in the Bundestag will do nothing to stop that.

BTW, The Germans call the current iron eagle in Bundestag (the current version adopted is 1949) the PLEITEGEIER, ie the "CARRION BIRD OF DEFAULT"

Germany and USA Go To War, France Panics

It seems that the relationship between Germany and the USA has taken a nosedive.

The Telegraph reports that German finance minister, Wolfgang Schauble, has said that it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440BN.

"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense."

He then told Washington to mind its own business, after President Barack Obama rebuked EU leaders for failing to recapitalise banks and allowing the debt crisis to escalate to the point where it is "scaring the world".

Quote:

"It's always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government."

Well then!

In other news, the FT reports the following:

"A split has opened in the eurozone over the terms of Greece’s second €109bn bail-out with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger write down on their Greek bond holdings, according to senior European officials.

The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July."

The French are really panicking about the deal unravelling because, were it to do so, it would expose how under capitalised French banks really are as the banks would be forced to take a greater hit (one that they cannot afford).

The recent market rallies have been based on leaks spread by those with an interest in seeing a rally at month end, and by the gullible media.

Don't fall for the hype, there is no bailout plan!

Rumours Feed Markets - The End is Nigh

The European Investment Bank has stated the following today:

“There have been media reports about a potential involvement of the EIB in a special purpose vehicle in connection with the EFSF, for the purpose of bailouts.

The EIB has not been approached and has no plans to be involved in this.

The EIB will continue to focus on its mission which is financing viable investment projects."

Why did these rumours start, and what purpose do they serve?

Markets have rallied briefly, in time for the month end, useful for traders et al looking to show a "good" month.

Those who doubt EIB's rebuttal, re read the last sentence:


"The EIB will continue to focus on its mission which is financing viable investment projects."

No one on the planet can call Greece a viable investment.

In fact Valor Economic reports that Brazil is now preparing for a Greek default within the week.

"Something must happen. Greece is a few days [from bankruptcy]" said a high official source."