EC PRESIDENT CALLS URGENT MEETING FOR TOMORROW #2

Shares all over Europe opened lower and particularly Spanish Banks. The German Finance minister has said he does not rule out a default for
Greece which is perhaps what Merkel was hinting at when she said the Treaty was not inviolate. Everyone knows now that Greece will never be able to repay it"s debt and with the rioting in Greece, it would be impossible to impose more austerity measures on that Country. Pity
this decision was not taken 18 months ago.!!!

Greek Newspaper says IMF may with-hold second tranche because of uncertainty about austerity measures being accepted in Greece.

Macedonia is complaining that the Greece problem is delaying their entry to the EU........Uum, where is Macedonia? Are you sure you want
to do this?

European Banks are complaining that the constant downgrading by the Credit Rating Agencies is making matters worse, the U.S. agrees.

Rescue Fund overhaul may make way for massive loans to Spain and Italy.

Merkel risks downfall as Eurpoe Odysseyto rescue Greece reaches climax.

Portugal may need capitalisation.

Slok, Chief Economist at DeutcheBank , trying to defend the actions , or lack of them, in an interview says the EU realises the seriousness
of the situation and how it is affecting markets, but is confident a resolution will be acheived. He says the meeting on Sunday will tell us what
action the EU has decided but it will take time to process and implement.

Breaking News......... A report from Germany is saying Germany is considering postponing Sunday"s Meeting , European Stocks and the Euro immediately went down further.

The Meeting on Sunday was cancelled because there was Debt talk deadlock say Lawmakers. Banks in America who hold Euros or EU Bonds
for European Countries lost share value.

I would imagine the G20 ultimatum not acheiving anything will annoy America in particular, it remains to be seen what Geithner"s reaction is.

Apparently Sarkozy is warning people the EU is in danger and the Euro continues to fall in value.

I think this is why there is deadlock. Merkel said the EFSF was only to be used as a last resort and that EU Banks should first seek help
through the issuance of Bonds, or their Country before asking the EFSF for a bail out. Sarkozy wants the EFSF Fund to be used as a Bank Account to try to stop France losing it"s AAA status. Merkel is against this, rightly pointing out there are 17 Countries in the EU who could all
use the Fund before trying to remedy their Country"s debt through other means first.

The sale of Spanish Bonds did not go very well , Portugal is maybe looking for Capital for their Banks, because they are short on liquidity.

An Economist reckons liquidity is as important as solvency and the European Banks will need to raise Capital to avoid downgrading by the
Agencies.

Merkel and Sarkozy to meet in Brussels this Saturday, full meeting of EU Leaders next Wednesday. Greece is being urged to seek Private
Sector debt deal, which suggests the E 8 Billion tranche will not be paid.

Barry Knapp, Head of Barclays Capital says his expectations of a resolution to the EU crisis remain low and for Banks to try to sell their assets
is not the answer. If France loses it"s AAA rating it would mean that Germany would be the only Country in the Euro with AAA status.

Thanks Panda. I am reading your updates.

AnnaEsse wrote:Thanks Panda. I am reading your updates.

It changes by the minute AnnaEsse

If France loses it"s AAA rating, can the EU survive with only one Country out of 17 having any status worth having???? I can"t see the 17
voting for the EFSF Fund being used as a Bank for the benefit of France, what about Spain, Italy, Ireland, Portugal , and Belgium?? What"s
wrong with the French Government bailing some of these banks out. Apparently France has 7,000 Banks. Apparently half the EFSF is money
put in by Germany which is why she is against using it before all other avenues have been explored.

It"s quite fascinating really, I am learning a lot.!!!

Panda wrote:

AnnaEsse wrote:Thanks Panda. I am reading your updates.

It changes by the minute AnnaEsse

If France loses it"s AAA rating, can the EU survive with only one Country out of 17 having any status worth having???? I can"t see the 17
voting for the EFSF Fund being used as a Bank for the benefit of France, what about Spain, Italy, Ireland, Portugal , and Belgium?? What"s
wrong with the French Government bailing some of these banks out. Apparently France has 7,000 Banks. Apparently half the EFSF is money
put in by Germany which is why she is against using it before all other avenues have been explored.

It"s quite fascinating really, I am learning a lot.!!!

And you're condensing it well for the rest of us!

AnnaEsse wrote:

Panda wrote:

AnnaEsse wrote:Thanks Panda. I am reading your updates.

It changes by the minute AnnaEsse

If France loses it"s AAA rating, can the EU survive with only one Country out of 17 having any status worth having???? I can"t see the 17
voting for the EFSF Fund being used as a Bank for the benefit of France, what about Spain, Italy, Ireland, Portugal , and Belgium?? What"s
wrong with the French Government bailing some of these banks out. Apparently France has 7,000 Banks. Apparently half the EFSF is money
put in by Germany which is why she is against using it before all other avenues have been explored.

It"s quite fascinating really, I am learning a lot.!!!

And you're condensing it well for the rest of us!

Thanks from me too Panda. This is so much better than listening to loads of news readers blabbering on. So much is repeated I get bored with it.

Thanks Angelina,

I don"t believe it ........Italy and France disagreeing on who succeeds Trichet?????? These are Presidents of their Countries for God"s sake.

Italian 10 yr Bonds sold for 6.04%, slightly higher than their last sale.

Gordon Brown (that"s rich considering what he did with Britain"s Economy) says the Euro cannot survive in it"s present form.
Nowotny, ECB Council Member says they have a mandate to fulfil it"s obligations, similar to our Bank of England. It is not mandated to intervene
in Public Advances.

The Governments to decide whether ECB will buy Bonds is not permanent.

When you hear the word Bonds to "take a haircut", it means the Bonds issued by Greece have no chance of being repaid so those that
bought them the ECB and banks must take a loss, currently suggested 50%.

Obama has been in contact with Merkel to discuss the crisis.

Germany may not be in a position to bail out any other Countries, the EFSF is expected to grow to E1.3 Trillion in 2013, could it be brought forward to 2012 to allow bail-outs to distressed Countries. ? Merkel is against the Fund being used without these Governments like France,
Italy and Spain not helping their own Banks.

An Asset Management Chief with $700 million client portfolio doesn"t think markets will accept the EU decisions.

Stocks in Europe are up slightly on hopes the meeting tomorrow will achieve some resolution.

Sky News What"s German for Manana , Manana


The idea behind the euro – though this wasn’t the one trumpeted to its members at the time of its adoption – was that in due course the single currency’s members would become more like each other. Greece and Spain would become less, well, Mediterranean and more productive, fastidious and efficient. Germany and its northern European neighbours would become less Teutonic, less obsessed with deadlines, would consume more, would just take it easy.
Well in at least one sense that has certainly happened in the past few days. The Germans have started to miss their deadlines. A few weeks ago we were told that the European summit, timetabled initially for last Monday in Brussels, would provide us with the detailed plan we’ve all been waiting for on resolving the euro crisis. That meeting was then postponed for a week – the definitive plan was then slated to be unveiled in a hastily-rescheduled summit in Brussels this Sunday, October 23.
The summit’s still going ahead but the Germans are now briefing that it won’t contain the definitive euro rescue plan we’ve been hoping for. That, they now insist, will arrive on Wednesday.
It’s not like the Germans to ask for homework extensions. So what’s going on? The simple answer is that the rescue plan is proving far tougher than policymakers originally thought. That this should come as a surprise to anyone who has glanced at the fundamental problems facing the currency area – enormous internal imbalances; fundamentally insolvent countries and banks; stubborn governments reluctant to support their struggling neighbours – is difficult to believe.
And yet, on Monday the story being spun to the media was that the package was all but completed. It would consist of three parts: a big recapitalisation of euro area banks (probably worth around EU200bn), a deal to reduce the Greek government debt burden by 50-60% (the 21% reduction negotiated in July wasn’t enough) and a nifty plan to leverage up the European Financial Stability Facility – the bail-out fund which has just been formally approved by euro members (the last being Slovakia last week).
Unfortunately all three of these components now look to have fallen short of those initial enthusiastic proclamations. The recapitalisation now looks only to be worth EU100bn or less (good news for those looking for the money, but less convincing for those who believe that Europe really does face a fundamental solvency problem – like Mervyn King). Negotiations have only just begun between governments and their private sector counterparts (chiefly the Institute of International Finance) on the size of haircut – semi-default – on Greek debt and that 50% target may be too much, since it could trigger a “credit event”, triggering market chaos as insurance contracts against Greek defaults flipped. The expansion of the EFSF is proving too technically difficult to wrap up this weekend – hence the Germans asking for that three-day extension.
Each of these elements is also generating quite vicious disputes between various of the key parties in the negotiations. The French appear to have fallen out with the Germans, who in turn have fallen out with the European Central Bank, who are not best popular with the southern Europeans, who… well, you get the idea. At the very moment it most needs to show unity, Europe is fraying.
Now, it is perhaps too early to start panicking about this. European officials often like to downplay expectations ahead of a key summit so that they can then, out of nowhere, unveil a coup announcement. Moreover, there are always hopes that the newly-arriving president of the ECB, Mario Draghi, might be able to provide some extra monetary ammunition.
The problem is that that Sunday’s announcement will have to be not just big and bazooka-like, but must stand up to serious scrutiny. It is no longer enough for Nicolas Sarkozy and Angela Merkel to promise a decisive solution: they need to provide the detail on how they will achieve it – detail which can stand up to the scrutiny of millions of investors around the world, many of whom are, rightly, questioning whether Europe has what it takes to sort out its problems.
These next few days and weeks could be among the most important in post-War European history – determining whether the continent’s history is one of further unity and joint sovereignty, or whether it frays, ushering in a more bordered, nationalistic future. The recent crisis has underlined the fact that a halfway house is no longer possible.

George Osborne is heading to Brussels for what he called "critical" talks to resolve the eurozone crisis.










The chancellor said negotiations with fellow EU finance ministers
this weekend would be vital for making steps toward boosting growth in
the UK and across the world.


Mr Osborne is attending a meeting on Saturday ahead of a Sunday
summit of all 27 EU leaders - but there are growing fears that a
solution to the economic stalemate remains far off.


Eurozone finance ministers have agreed to an 8bn euro loan to Greece, the latest tranche of a bailout package.


The money, which must still be signed off by the International Monetary Fund,
will help keep Greece afloat for longer - but most economists agree the
country also needs a drastic reduction in overall debt.







Merkel and Sarkozy are 'dictating' on the crisis, says one EU official





Finance ministers say they are looking at ways of doing that -
including imposing bigger losses on the banks that hold Greek bonds.


Greece has meanwhile announced further details of its plans to sell off state assets, starting with its national lottery


A eurozone summit was planned for last Monday.


However, German Chancellor Angela Merkel and French President Nicolas
Sarkozy announced a postponement until Sunday after realising they were
far from agreement on issues such as a massive reinforcement of an
existing bailout fund for struggling eurozone countries, and a major
recapitalisation of European banks to help them withstand economic
shocks.

At the very moment it most needs to show unity, Europe is fraying.

Ed Conway, economics editor







The sense of confusion has deepened since Paris and Berlin announced
that another summit would be held in Brussels next Wednesday -
indicating no results were likely from the Sunday meeting.


The announcement only reinforced nervousness in financial markets and
increased frustration in European capitals in the face of an apparent
revival of the Franco-German axis in Europe.


"At the moment Merkel and Sarkozy are dictating everything we do on this crisis," said one EU official.







Mr Osborne and Mr Cameron are joining talks in Brussels





Mr Osborne said: "The coming days will be critical for resolving the crisis in the eurozone.


"I am convinced of everyone's commitment to this. A resolution to the
eurozone crisis would be the biggest boost to growth in Britain and
around the world."


Prime Minister David Cameron arrives in Brussels early on Sunday for the half-day summit.

Press review

Another attack from the rating agencies

19 October 2011
Presseurop


Kopelintsky

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A few days ahead of the EU summit that should be “decisive” for the eurozone, rating agencies have degraded or threatened to degrade the sovereign rating of Spain and France and the Italian banks. A final assault while Brussels is trying to get its act together? asks the European press.
“Moody's places France on probation,” leads La Tribune on its front page following the decision on Monday October 16 by the U.S. rating agency to monitor the situation for another three months to see if the “stable” outlook for the country’s AAA rating remains justified. Of the six countries in the euro area getting the highest rating, France is the one with the worst finances, the agency said in a statement. This announcement, writes La Tribune, coming as it does “within days of a crucial summit on the future of the eurozone, reinforces the drama.” For if France were to lose its AAA rating -
... it would be a nightmare scenario for the European Financial Stability Fund (EFSF) [...] which is based largely on the financial strength of Germany and France. [...] Paris in effect guarantees over 20 percent of the amount that the Fund may borrow to help the countries in trouble in the eurozone.

For Mediapart, the warning from Moody's is tantamount to blackmail, reminding as it does French politicians, who are preparing for the presidential election of 2012, that “there is no question of letting up the pressure – of, among things, paradoxical injunctions calling for both austerity and growth – placed on them by the financiers.
This blackmailing of France by the financial world is a dangerous game”, the information portal maintains:
In warning France publicly, Moody's is laying the groundwork for an unleashing of speculation. The self-fulfilling prophecies of the financiers could once again come true, dragging France down in turn into an uncontrolled spiral.

If it’s threatening France, Moody's is beating up on Spain: “The trio is made complete,” notes El País following the two-grade deterioration in the Spanish debt rating (from AA2 to A1) by the rating agency, trailing in the footsteps of its fellow agencies Fitch and Standard & Poor's. “But the worst may be yet to come,” continued the Spanish daily, “since Moody's, like other [agencies], is maintaining a negative outlook and leaving the door open for further downgrades.” Moody's believes that Spain is still too vulnerable to the sovereign debt crisis in the eurozone, for which it sees no “credible solution”. The impact of the downgrading on the ability of Spain to obtain financing in the markets will depend, however, on the outcome of the EU summit on October 23...
... from which may come an agreement that the [EU] bailout funds can partially stand security for Spanish and Italian debt.

In Italy, where it’s the banks that are in the sights of the rating agencies this time, one month after downgrading treasury bond ratings Standard & Poor’s have dealt another blow to the Italian credit system by cutting the ranking of 24 banks, writes La Repubblica. In its statement the U.S. agency urges the government to carry out the structural reforms needed to boost growth if it is to prevent the rating from sliding further. On the same day, Fitch downgraded the rating of FIAT (whose sales are faltering) due to the precarious financial situation of its U.S. partner Chrysler, La Repubblica adds.


Faced with the onslaught of the markets against states, which are looking more and more vulnerable, something is beginning to shift in Brussels. To counter the dreaded speculation against the public debts, the European Parliament decided on the evening of October 18 to prohibit the naked short-selling of sovereign credit default swaps (CDS) – used to hedge against payment defaults of a state asset that the seller does not actually possess – reports Jean Quatremer on his blog. For the Libération correspondent in Brussels -
... the markets, by attacking the states, have gone too far. The EU has decided to begin to pull out its claws. The European Parliament has, in fact, rallied the states to its proposal to ban one of the favourite instruments of speculators, which was used notably to destabilise Greece in the first quarter of 2010. The agreement was anything but obvious, given that the states are particularly sensitive to the pressures from their financial sector, which loves these instruments. The deepening crisis affecting the eurozone that is now hitting the banks, however, has clearly convinced the European capitals that it was time to crack down.

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10 comments
VoE6 | 19.10.2011 | 18:11 | Translated comment

The scourge of Europe strikes again. Europe does not have sovereignty over its economy while its hands are tied by the vehicles of American ideology. Our governments are held to ransom.
Since 2006 their profits have trebled. They are making money from austerity and poverty – it's sickening. They want the Euro to suffer because that's how they make money. There is surely a conflict of interest. Because of them, millions are unemployed, suicide rates in Greece are up 40%, hospitals are underfunded. There is blood on their hands.
Rating agencies are the reason we have jackboots. Just kick them out. Refuse to pay the debt; surely it is more important to keep hospitals open than to pay back bankers.


mjmh77 | 19.10.2011 | 19:48

Just admit defeat. You can't blame the rating agencies for telling us the truth...something leaders won't. Wouldn't it just be cheaper to go back to our own currencies and get on with life.


Derzis26 | 20.10.2011 | 02:24

but why are there only USA "rating" agencies?
and why they all focus only on Europe, are we in an economic war with USA? EU should get an agency of it`s own which should downgrade USA`s banks every month


Traveller32 | 20.10.2011 | 13:04

Rating agencies simply make a scientific analysis and then present their opinion. Investors are free to ignore them. The simple fact is that most European economies are in very, very bad shape due to decades of profligate borrowing. Rating agencies would not be doing their job if they did not adjust their ratings.
Don't blame the messenger. The current situation is the fault of everyone who borrowed too much during the last 25 years: governments, banks and also many normal citizens who fell into the trap of easy credit.
Sadly the crisis has been made worse by a bunch of unelected, anti-democratic mini-dictators in Brussels who still continue to promote their dream of a Soviet-style European empire at the expense of the European people.


Javier4 | 20.10.2011 | 16:08

Moody's has downgraded the Republic of Spain! Wow, these guys have their facts straight! Perhaps they may downgrade the Kingdom of France and the Republic of Belgium too???


Traveller32 | 20.10.2011 | 16:49

@Javier
The economy of Spain as a whole is very unhealthy because of the additional massive debts of the regional banks (cajas) and of the regions themselves. It's no wonder local banks can no longer extend mortgages to young people hoping to buy their own home, despite the enormous drop in real estate prices.
France and Belgium have also borrowed far more than they can safely repay while maintaining their current credit ratings. It is only a matter of time until these two spendthrift countries are rightly downgraded.


Mister democracy129 | 21.10.2011 | 00:07

Don't worry I am sure the EU will find a way to stop the rating agencies from telling the truth.


VoE6 | 21.10.2011 | 10:51

Rating agencies are making a profit as long as there is an economic crisis; they have no incentive or desire to see an end to it. The integrity and independence of their opinion is compromised. Look at what Moody's did to Hannover Re back in 2004; it was sheer blackmail. It is unbelievable that they have kept their reputation and are still listened to
It would be like if I had to review a company's financial statements but I would personally gain financially if that company went bust, thus I tailor my review for my own gain (who cares if some people lose their job as long as I gain, right?). Clearly the integrity of my review is gone. (Incidentally, I'm an auditor). Or if I was a bookie and someone asked me for my advice; I'm not going to tell them to back the likely winner, am I?
I believe banks are part of the solution. However they need to lend. They will not lend as long as agencies tell them not to, and agencies are making profit as long as there is a crisis.


VoE6 | 21.10.2011 | 10:52

I'm sure it's just a coincidence that a spate of downgrades have happened within hours of the Barnier Report to curb agency influence.
A recent change in criteria means that Standard & Poor will "emphasise the government's political and economic orientation". That means any government which wants to reform the markets or bring power back to the governemnt – the elected arm of the people – will face a battle. Their independence is compromised.
It amazes me how the EU is accused of being "Soviet Style" by the right and a 'free trade conspiracy' by the left. It is not a dictator; it needs the cooperation of national governments to execute its laws. It cannot pass anything without them. By 2014 all three branches of the EU will be democratically accountable, in the UK only one is (in 2005 the executive had 55% of seats with only 35% of the vote, in the EU the commission needs 50%+1)


Mister democracy129 | 21.10.2011 | 21:45

Hi VoE !
If "By 2014 all three branches of the EU will be democratically accountable"...then you are admitting that the EU has been undemocratic since it's founding. A bit "Soviet Style" perhaps ?
Millions if Europeans agree with you.




Press review

Another attack from the rating agencies

19 October 2011
Presseurop


Kopelintsky

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Euro


Financial crisis

Fear is gobbling up politics

20 October 2011
Frankfurter Rundschau
Frankfurt


Arend van Dam

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Out of fear and ignorance, the politicians have been trying since the beginning of the financial crisis to beat the financial markets with their own weapons – and they can still flourish many trillions of euros more. But if they can’t remember to go back to playing by the rules of politics, they are bound to lose the arm-wrestle.
Brigitte Fehrle
Since the great financial crisis started several years back with the bankruptcy of the relatively small Lehman Brothers Bank, politicians have been living in fear: fear of an enemy they do not know and whose rules they are not familiar with. Since the crisis began, they’ve been trying to understand those rules that the banks, the hedge funds, the stock markets and the speculators play by. But not just that. Ever since the start of the crisis they’ve been trying to beat the banks and markets with their own weapons.
That’s how the disaster got underway. Not that there hadn’t been similar crises before, like the tulip bubble in the 16th Century, when the speculation in perishable bulbs ruined a whole nation. In the Middle Ages, countries went bankrupt, and dynasties – the Welsers, the Fuggers, the Medicis – gave themselves up to the big banks. In the 1930s the Great Depression unleashed destructive forces around the world. In 2011, we do not know yet where the financial crisis is leading us.
We know only – no, we feel – that the politicians are at a loss, that they’re as clueless as we are. We see politicians, economists and supposed experts asserting their convictions and handing out the answers, and yet all the while a sense of helplessness is written over their faces. And the simpler their answers get, and the fewer the doubts they express about the correctness of one or another path, all the greater is the sense of mendacity hanging over whatever it is that is being proposed.
Political suicide

Politicians seem to be powerless. Well, they are. They are powerless because they are playing by the rules of their opponent. Democracy thrives on transparency and openness, lives by its convictions and by citizens being enlightened about what their democratically elected representatives are up to, even if they do not agree with it. But the politicians today have pushed democracy to one side. They are behaving as if they were a player in the anarchic international financial markets, which obey only the logic of making money. The politicians have embarked on a trial of strength they are bound to lose.
Why is the bailout getting bigger every day? Because the politicians believe that only a gigantic, completely overshadowing "shield" can deter speculators from pulling currencies and states into a war. Why do the leaders of Europe only meet on days when the stock markets are closed? Because they fear the markets and the equity prices. Why is Germany’s Bundestag almost systematically excluded from decisions on the bailout? Because the politicians at the top are not even sure that they can convince Germany’s parliamentarians. The politicians are not even thinking of the citizens any more.
What we are observing is political suicide. Politicians are no longer making policy. What does that mean, ‘make policy’? In the first place, it means to draw up rules and make and enforce laws. It means stopping speculators from speculating. It does not mean that the state should become a speculator too and start betting against the real speculators. Yet the bailout is nothing else: it’s is a defensive shield against speculators that, the bigger the assumed risk of speculation, will always have to grow bigger yet. Perhaps two trillion are too little? Perhaps at the new EU summit in a month we’ll be talking about four trillion? Perhaps a way will be found to increase the so-called leverage? The logic is absurd.
Currency speculator wolves

We are observing at this very moment just how a highly vulnerable, unstable, world-wide web of financial relationships is threatening to tear apart. And how Europe is trying with all its strength to immunise itself against the consequences. “Europe”? Far from it. There is not even an agreement with Great Britain over the introduction of a financial transaction tax, nor is there consensus on the participation of banks in the crisis.
There is no awareness on the part of the states that, with their high debts, they themselves have thrown themselves to the currency speculator wolves. And it is far from clear to all of us how we, through our desire to please let our money grow – just not by the work of our own hands, but somehow all by itself – have contributed, and continue to contribute, to our being held hostage.
He who takes a risk must live with the consequences: plenty of us would sign on to this principle. Not the politicians, though. They’re acting on the principle that he who takes risks must be sheltered from those risks. And so states shall be rescued and banks propped up, and so too the citizens who aren’t averse to risk. Only those who stay away from the perils of financial and political adventures shoulder the full burden. And we’re supposed to go along with that?
Translated from the German by Anton Baer
Opinion

A pact with the Devil


In strengthening the European Financial Stability Fund “Europe is about to sign a pact with the Devil” – that is, with financial institutions – which is “beyond the law,” writes Slovak financial analyst Valér Demjan in Hospodárske noviny. “The time for rational solutions (the collapse of Greece in 2010) has passed, and the unsystemic approaches by Brussels will make the crash all the harder."
The EFSF, which is only a solution to gain time and calm the markets, will not be enough to stabilise the situation. Nor will the European Stability Mechanism (ESM), which will probably be brought in next year instead of in 2013. For the markets are not satisfied with the guarantees and want to see some real resources up front, represented by an expanded EFSF.
For the analyst, it’s time to start on “aggressive structural reforms” – i.e. to let certain unreliable eurozone members leave and let some banks go bankrupt. Demjan also criticises the attitude of central banks, which “must stop printing money without limit.... History is full of examples that show that printing money never helped solve the problems of debt.” If, in addition, rating agencies lower their rating of France, Germany will be reluctant to fund the entire rescue system, he concludes

This was written a while ago but very prophetic.


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Saving the euro

By Nouriel Roubini
Published: January 28 2011 15:00 | Last updated: January 28 2011 15:00

The contagion from the Greek and Irish crises has spread to Portugal, Spain and possibly Italy. Unless the eurozone undertakes radical reform there is a risk of disorderly defaults by fiscally stressed member states and even – eventually – of a break-up of the monetary union.
The current muddle-through approach to the crisis is to “lend and pray”: ie, provide financing to member states in distress (conditional on such states implementing fiscal adjustment and structural reforms) in the hope that their problems are of liquidity rather than solvency. But this could lead to disorderly defaults and a break-up of the European Monetary Union (EMU), unless institutional reforms and other policies leading to closer integration and restoration of growth in the eurozone’s periphery are implemented soon.
The periphery members all suffer from a loss of competitiveness, low economic growth (Italy, Portugal) or contraction (Spain, Ireland, Greece), and large private and/or public debts. Spain’s and Ireland’s problems started with too much debt in the private sector (due to a debt-financed housing bubble) and morphed into a public debt problem once the losses from the housing bust were socialised. Greece had a reckless fiscal policy for more than a decade, which led to a public debt crisis. Portugal and Italy have lower levels of private debt but large stocks of public debt. Distressed sovereigns that have already lost market access (Greece and Ireland) were bailed out by the IMF and the EU, but no one will come from Mars to bail out these super-sovereigns if the sovereigns end up insolvent. Thus, a new plan is needed to save the eurozone.
First, Europe needs policies that restore competitiveness and growth to the eurozone’s periphery. Without growth, it becomes mission impossible to restore fiscal sustainability by stabilising public and private debts and deficits as a share of GDP. And without growth, painful belt-tightening will lead to a political backlash against fiscal austerity and structural reforms, both of which are initially recessionary and deflationary.
To restore growth one has to implement other policies. The European Central Bank (ECB) should pursue a much looser monetary policy; this would weaken the euro, which is necessary to restore the periphery’s competitiveness. Moreover, Germany should postpone its fiscal consolidation or even increase its fiscal stimulus – to boost its growth and restore that on the periphery.
Second, while current resources are sufficient to bail out Greece, Ireland and Portugal, they are not enough to stop a run on the sovereign and banks’ liabilities of Spain and other potentially distressed eurozone members. An increase of official resources would nonetheless be needed to prevent a self-fulfilling run. Trigger-happy investors don’t want to be last in line in case of a run – thus, a destructive run is likely when official resources are insufficient.
Providing more official resources implies some form of a fiscal union, where the tax revenues of the core of the EMU (mostly Germany) are used to backstop not only the public debt of the core but also that of the periphery. One variant of this quasi-fiscal union would be the issuing of eurozone bonds; otherwise, the increase in official resources could occur through a much larger European Financial Stability Facility.
If these options fail to obtain the support of Germany, the ECB would be forced into long-term bond purchases and liquidity operations to support banks, thus dragging the ECB further into a quasi-fiscal role. Since any type of quasi-fiscal union implies that the eurozone’s core economies could end up bailing out those on the periphery, Germany and the core would accept taking such a risk only if the periphery bows to credible commitments to permanent fiscal discipline.
Moreover, super-sovereigns such as the IMF and EU cannot and should not continue to bail out distressed sovereigns that are insolvent rather than illiquid. Thus, a third necessary reform pillar is for Europe to implement early, orderly restructurings of distressed sovereigns’ public debt. Waiting until 2013 to implement these policies (as recently agreed by the EU) would be a recipe for disorderly defaults, as it would imply a much larger haircut (or losses) on residual private claims on sovereign borrowers, once more senior super-sovereign claimants have replaced the lucky private creditors whose claims come to maturity before 2013.
Orderly, market-based restructurings – via market-based exchange offers that replace older debt with new debt that has different financial terms – need to occur in 2011. Such exchange offers can limit the private creditors’ losses if they are done early, while formal haircuts on the face value of debt can be avoided via new bonds that include only a maturity extension and interest rates set below current unsustainable market rates. Waiting to restructure unsustainable debts would only lead to disorderly defaults and much larger haircuts for some private creditors.
Finally, a fourth set of reforms requires that all unsecured creditors of banks and other financial institutions, even senior ones, must accept losses on their claims when a financial institution is severely financially distressed. This is needed to prevent even more private debt being put on government balance sheets. If orderly treatment of unsecured senior creditors requires a new, Europe-wide regime to close down insolvent European banks, such a regime should be implemented soon.
At the European summit last December, the EU decided that the much-needed reforms can be postponed until after 2013. But the markets’ reaction suggest that such reforms cannot wait any longer. What is at stake is the survival of the monetary union and the risk of disorderly defaults on public and private debts.
Nouriel Roubini is chairman of Roubini Global Economics, professor at the Stern School of Business at New York University, and co-author of “Crisis Economics”

It was agreed that European Banks will not be able to borrow from the EFSF Fund. They need E100 Billion Capitalisation which should be
obtained from their Governments and outside Investments. Some small banks are expected to fail but the danger is if the larger Banks sell off assets to try to get more liquidity their rating will go down. If they cannot lend to small businesses then the Economy will shrink so whatever
is decided should be done in an orderly fashion.

The major problem is still Greece, even if there is a 60% cut in Bond repayments, they will still have an enormous debt and new austerity
measures bring on more riots.

The EU is set against the IMF getting involved in their affairs even though the IMF sees the Greek crisis getting worse.

The EFSF Fund is to act as Guarantor.

Berlesconi singled out for failure to get Italy"s debt under control........he blames a bad Press.!!!!!

Sarcozy had a little sparring with Cameron over non Euro Nations discussing remedies.

BJC Market analysts are saying the IMF said months afo that Banks Capitalisation is roughly E200 Billion , not the EU suggestion of E100
Billion. The meeting yesterday was yet another fudge and it is hoped the meeting on Wednesday will be more productive. The problem with
EU Leaders is they do not understand Economics.

Eurointelligence says Euro will probably not survive , using the EFSF Fund half of which is funded by Germany is dangerous and if as Guarantor
any Country"s borrowing from outside investors defaults the German population would be in uproar . Greece will default , it should have been
allowed to do so months ago.

JP Morgan analyst says the EU is inching towards fiscal union whether the Members like it or not.Germany, which is the most disciplined about
it"s budget is promoting this, but several Countries will not like the idea.

When the EU was formed, Country borrowings were not supposed to be more than 3% above GDP, the first two Countries to exceed this
were Fance and either Italy or Spain as far as I remember but neither was fined and why didn"t the EU watchdog monitor all Countries
more closely, maybe they wouldn"t be in such dire straits now. Another reason the EU is too big and unmanageable , the whole concept
needs an overhaul.

This is a good Article.

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• 
  
  
  
  • Simon Jenkins
    
  • guardian.co.uk, Thursday 15 September 2011 21.30 BST
  • Article history
  
  
  Illustration by Satoshi Kambayashi
  
  Perhaps I was wrong, after all. I thought Europe's governments would spend any amount of money and impose any amount of austerity to rescue any number of banks from their recklessness and folly. All banks were too big to fail. No debt was too big to bail. Europe was in the grip of a classic banker's ramp.
  Yet Greece's bluffing of the high priests of the eurozone may, after all, be called. The unthinkable may be unavoidable. The priests are suddenly talking of "when, not if," Greece defaults. Greeks themselves seem to regard devaluation as a less painful discipline than state-imposed austerity, and are probably right. Their partial default and de facto departure from the euro would be a truly seismic moment, requiring the instant restructuring of debts and possibly currencies across the periphery of the eurozone, covering Greece, Ireland, Portugal, Spain and Italy. It would be drastic, but since it has been predicted ever since Maastricht in 1992, it can hardly be regarded as unimaginable.
  At this point "pro-Europeans" have to stop talking rubbish and start on realpolitik. Alaric is not at the gates of Rome. Washington has not crossed the Delaware. Napoleon has not returned from Elba. All that may happen is that Europe's democracies, disregarded, distorted and corrupted for a quarter century by the oligarchs of Brussels, will crawl out from the shadow of the very Acropolis where democracy was born. For all sceptics of grand federations, gilded alliances, and upmarket mafias hatched down the ages in Europe's cloud-capped spas, this could be an exhilarating moment.
  There is nothing wrong in a currency zone of compatible political entities. There is a dollar union between the American states, and there have been attempts at using currencies to cohere earlier empires, with crowns, roubles and pounds sterling. But a union must reflect an underlying economic reality, with political institutions that can relate voting to taxing and spending, and borrowing to repaying.
  Where, as in Europe, this has become far from the case, the disciplines of a complex modern economy become unenforcible. Those in charge merely demand "ever closer union", which means ever more power over subordinate democracy.
  A good history of the euro was supplied by the Nobel economist, Paul Krugman, in the New York Times in January. He contrasted the US dollar area, with its federal government, common language and political culture, with the eurozone, which has none of these things. Krugman concluded that "this, from the beginning, made the prospects of the single currency dubious". Worse, it had floated up to "grip the imagination of European elites". The single currency became a passport to a bureaucratic utopia, a means to ever more glorious union. Practicalities were for nerds.
  I regard myself as a "good" European, but as far as the EU was concerned, that idealism was dented as each advance of Brussels power took ever greater liberties with Europe's taxpayers and legislators: regulating, subsidising and corrupting all it touched. A recent report showed the EU casually overpaying almost a billion euros to Greek farmers. It continues to throw more dead fish back in the sea than it takes out. It defaces Europe's countryside by subsidising half-built houses. It is still building itself a stupendous £280m palace in Brussels. The place is obscene.
  Because being "pro-Europe" is a faith cult rather than a policy, its adherents dare not raise a peep of protest at its outrages. Not for the first time in Europe's history, a centralised superstate stalks the continent with a retinue of uncritical appeasers unable to see the wood for the tax-free salaries. Sceptics are treated like Rhett Butler in Gone with the Wind – traitors to the great confederacy who should be shot for speaking home truths.
  That Germany should be the one country that can sensibly stage the euro bailout is doubly ironic. It is the one country that did not indulge in the housing bubble, most of its workers living happily in rented accommodation. Meanwhile, its constitution was crafted by the postwar allies to make its leadership of Europe near impossible. The German government is meant to be weak, at the mercy of its provinces and their electorates. If, as seems likely, Angela Merkel's voters grow fed up with bailing out Greece, or with bailing out banks, that will be an end to it.
  The euro lobby is now pleading, begging, goading Germany to brandish its old muscles and flash its old sword. It calls on Germans to tell Greece to knuckle under, slash spending and sack its workers. If this fails then Greece's benighted politicians should be stripped of power and made subject to fiscal union, with public spending controlled and political oversight to enforce it. Greece and the other weakened states of Europe should be put in hock to the gods of the euro.
  The postwar settlement was meant to liberate the smaller countries of Europe from this sort of overbearing treatment. It was meant to free their diverse histories, cultures and identities from centuries of great power victimisation. The symbol of such independence is the right to fix one's taxes, determine one's social security and value one's currency. There was no need for the euro. Even in the boom years, the best estimate is it may have boosted trade by 10-15%, but its bailout will more than wipe that out.
  The euro rescue packages now being mooted are eerily reminiscent of the reparations imposed so disastrously on Germany after the first world war. It may all be "just", but the forced impoverishment of Greeks, Portuguese and Italians to honour the paper value of German and French debts must be as close to revolutionary incitement as modern policy can get. Does nobody in Brussels read history?
  The former Tory chancellor, Lord Lawson, called the euro "among the most irresponsible political initiatives of the postwar era". Gordon Brown's most creditable epitaph is that he stopped the economically illiterate Tony Blair from joining it. Britain is free of its constraints, though not of its backwash. This is a true reformation moment in Europe's history, when a centralised and authoritarian Holy Roman Empire, grown fat and arrogant on the tithes of subject peoples, suddenly overreaches its power and faces a crisis of legitimacy.
  David Cameron here has a historic opportunity to draft a new European dispensation. This would involve a managed devaluation of the debts of the peripheral states, backed by rescue packages for individual banks that then find themselves in trouble. Their depositor arms should be bailed out, but not their casino operations. Alongside would be a managed restructuring of a eurozone of convergent northern economies, in which it is conceivable the UK might even take part.
  That may lead on to Cameron's ambition for a genuinely reformed Lisbon treaty, one that, unlike its predecessor, could pass the test of a referendum. Europe is clearly at a turning point, turning against the single-statism of the European movement, with its straitjacketed currency, its flows of economic migrants and counterflows of subsidies, its everlasting crises and its humiliation of democratic governments. It is turning back to national identity, and there is nothing the EU can do to stop it.
  
  
  

Investors have lost confidence in Italy and Spain because of Greece. Germany needs Europe because it is a big Exporter and needs a weaker
Euro.

the consensus among analysts is that Greece will default, if bonds are written off at 50%, it sends a poor message to any Foreign Country
buying Bonds in say Italy, Spain or Portugal .

Analysts are also sceptical that any firm decision will be reached on Wednesday judging by number of meeting which have just been talking
shops so far.Apparently, it is inevitable that France will lose it"s AAA rating.

The system was designed to try to avoid the kind of political trade-offs inevitable if the decisions were taken by EU governments.
Germany, as the EU's fiscal disciplinarian, was the strongest supporter of the automatic fines and the commission. Sarkozy led the opposition, arguing for the primacy of politics and elected governments over national budgets.
The Franco-German agreement said any sanctions applied would be "automatic", but made clear that any decision to fine would be by EU finance ministers and not the commission, increasing the likelihood of political dealmaking.
"Back in 2004 it was France and Germany that weakened the stability pact. Now they are doing it again," said a senior commission official.
The German media despaired of Merkel's concessions.
"The government has failed grandiosely," said FT Deutschland, "in its campaign to make the new stability pact a real instrument of budget discipline


Sam Leith The Guardian

Denmark is facing a banking crisis and there is division about the writeoff of Greek Bonds, the Banks want 40% and the Politicians 60%.

Whatever happens,, it will be difficult for Greece to implement more austere measures because their 20 yr Bonds have an interest rate of
24.7% wich is very high.

Italy too is in danger, it"s 10 yr Bond interest creeping up, 5.4%, 6% is considered the danger level.

Angela Merkel is to address the German Parliament today to get a vote on the following:- to set up a Fund for Foreign Investment where the EFSF will act as Guarantor. Germany currently owns 50% of the EFSF Fund.