Re: New EC Thread

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ECB WILL SPEND UNLIMITED AMOUNT OF MONEY ON SPANISH GOVERNMENT BONDS?

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ECB WILL SPEND UNLIMITED AMOUNT OF MONEY ON SPANISH GOVERNMENT BONDS?

No Badboy, there is a limit , it is hoped that the Purchase of the Bonds will be in tranches like Greece gets and enough to tide the country over until the resession improves.

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7 September 2012 Last updated at 07:12
Asian markets join global rally after ECB debt planContinue reading the main story

Market Data


Last Updated at 09:13

Market indexCurrent valueTrendVariation% variation

Nikkei 225	8871.65	Up	191.08	2.20%
ASX All Ords	4348.80	Up	17.20	0.40%
Hang Seng	19813.79	Up	604.49	3.15%
SSE Composite	2127.76	Up	75.84	3.70%
SSE SE 50	1619.21	Up	68.24	4.40%
BSE Sensex	17650.06	Up	303.79	1.75%

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Asian stock markets have risen, joining a global rally, after the European Central Bank (ECB) unveiled a plan targeted at easing the region's debt crisis.

The ECB said it would buy bonds of the bloc's debt-ridden nations in a bid to bring down their borrowing costs.

The implied borrowing costs for Spain and Italy fell after the announcement.

Japan's Nikkei 225 index rose 2.2%, Korea's Kospi gained 2.6% and Hong Kong's Hang Seng added 3.1%.

"We think this is a credible plan to addressing the issue, and while there are still political hurdles, we expect those will be addressed," said Alec Young, global equity strategist at S&P Equity Research.

'Ready to act'

Continue reading the main story
“Start Quote

The markets were looking for a strong decisive action and a commitment from the central bank that they are ready to act if any issues blow up in the region's bigger economies”

End Quote Justin Harper IG Markets
The borrowing costs for some of the eurozone's larger economies, such as Spain and Italy, had risen to levels considered unsustainable earlier this year.

That led to concerns that these nations would no longer be able to borrow money from international investors and, therefore, would not be able to repay their debts, further escalating the region's debt crisis.

Many investors feared such developments would not only hurt the eurozone's growth, but could also derail the global economic recovery.

That would have had a knock-on effect on Asia's export-dependent economies, which rely heavily on global demand.

However, the ECB's announcement, and the drop in borrowing costs of Spain and Italy thereafter, has helped allay those fears.

Markets in the US rose, with the Dow Jones index hitting it highest level in almost five years.

In Europe, Germany's Dax index closed 2.9% higher, while France's Cac 40 jumped 3% and the UK's FTSE 100 rose 2.1%.

"The markets were looking for a strong decisive action and a commitment from the central bank that they are ready to act if any issues blow up in the region's bigger economies," Justin Harper of IG Markets told the BBC.

"Last night they got that."

'Risk appetite'

The ECB announcement also provided a boost to the euro currency, which rose against the US dollar and the Japanese yen.

The euro was trading at $1.263 in Asian trading. It also rallied against the Japanese currency to 99.63 yen.

Investors have been wary of the impact of the eurozone debt crisis on Asian businesses
Analysts said that the ECB's plan had boosted investor morale and that they were more confident of investing in riskier assets.

"The ECB's actions afford time, allowing risk appetite to stage a comeback, for now," said Vincent Chaigneau, a strategist at Societe Generale.

However, they warned that while the ECB's plan had helped allay market fears, the crisis was far from over.

"Mr Draghi has won a battle, but cannot win the euro area crisis war by himself," Mr Chaigneau said.

"The hardest task of all - getting governments to drop posturing in return for leadership and deep reforms - still awaits us."

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Monetary Logic

By Linda Yueh

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| Sep. 6, 2012 1:40 PM EDT |








Photograph by Hannelore Foerster/Bloomberg

ECB President Mario Draghi in Frankfurt on Sept. 6, 2012

One of the most important lines uttered by European Central Bank President Mario Draghi in his news conference today — and there were many key statements — was that the bank’s new government bond buying program is within its mandate of price stability. However, the new OMT (Outright Monetary Transactions) program seems to be more of a crisis response mechanism. For instance, conditionality is not a common feature of monetary policy: It’s downright rare.

In other words, the ECB will only buy short-term government bonds of countries that are already under an EFSF (European Financial Stability Facility) or ESM (European Stability Mechanism) program, so they are subject to conditions on their fiscal policies. It’s, in effect, a rescue operation for crisis countries to ensure they have access to liquidity while undergoing reforms. This is what the International Monetary Fund (IMF) or the EFSF/ESM could do as part of a program. It’s not normally why a central bank buys bonds.

Central banks like the Fed and the Bank of England justify their bond buying programs or Quantitative Easing as bypassing clogged-up banking systems that aren’t transmitting rate cuts properly to the real economy. And they buy short and long-dated bonds (in fact, the Fed’s Operation Twist specifically targets longer-term debt to bring down borrowing costs) to do what monetary policy can’t when interest rates are effectively zero. This is presented as unclogging the monetary transmission mechanism to bypass banks.

So, the ECB could also justify its original Securities Markets bond buying program (SMP) for the same reason – bypassing banks that were rebuilding their balance sheets. But, more €200 billion later, it doesn’t seem to have worked: Yields remained elevated for problematic countries, lending remains sluggish, and credit conditions are tightened.

But the SMP (now terminated) largely fit the template – except for the sterilization of its purchases (e.g. pulling equivalent amounts of money out of the system to prevent inflation), which seems somewhat self-defeating in monetary stimulus terms. The new OMT, which will also be use sterilization, doesn’t fit so well.

Buying government bonds only of rescued countries seems unlikely to improve the euro-area monetary transmission mechanism. By the time those countries, like Spain, ask for EFSF/ESM aid, they are largely out of the market in any case.

There are good reasons for a central bank to have a crisis response. It’s just getting tougher to see the monetary logic.

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7 September 2012 Last updated at 12:16

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ECB plan pushes euro to two-month high against dollar

Continue reading the main story

Euro v US Dollar

Last Updated at 07 Sep 2012, 15:56 *Chart shows local time
€1 buyschange%

1.2797	+ +0.02	+ +1.31

The euro has strengthened to a two-month high against the US dollar, as the European Central Bank's bond-buying plans continued to please the markets.

The euro rose 0.3% to $1.2673 in early trading on Friday.

It also hit a two-month peak against the Japanese yen and a one-month peak against the Swiss franc.

Yields on Spanish and Italian 10-year bonds fell further, easing implied borrowing costs for the debt-laden countries.

Spanish 10-year bond yields fell to 5.77%, below 6% for the first time since May, while yields on the equivalent Italian bonds fell to 5.19%.
'Driving confidence'
On Thursday, ECB president Mario Draghi unveiled details of a bond-buying plan aimed at easing the eurozone's debt crisis.

Under the plan, the ECB would agree to buy a potentially unlimited amount of bonds of debt-stricken eurozone members on the condition that these countries made a formal request for bailout funds and stuck to the terms of any deal.

Continue reading the main story
“Start Quote

When the president of the Bundesbank openly disagrees with the president of the European Central Bank, you might think that something serious was happening. It is not the way central banks are meant to behave”

End Quote
Stephen Evans BBC News, Berlin

---

Mr Draghi said the scheme would provide a "fully effective backstop" and that the euro was "irreversible".

Alessandro Giansanti, a strategist at ING, said the plan was, "driving confidence through the market".

"You see the rally extending to longer [bond] maturities, whereas in previous times the rally was concentrated on the short end," he said.

George Saravelos, G10 FX strategist at Deutsche Bank, said: "Draghi has lowered the risk premium towards the euro."

However, Germany's Bundesbank remains opposed to the ECB's bond-buying plan

In a statement, Bundesbank president Jens Weidmann said the bond programme was, "tantamount to financing governments by printing banknotes".

Optimism

European stock markets also rose on Friday morning after their strong rally yesterday, as optimism grew about the prospects for the eurozone economy.

In Paris, the Cac40 index was up more than 1%, while Frankfurt's Dax index rose 0.65% in the first two hours of trading.

Markets were optimistic that US non-farm payroll figures, due later on Friday, would show a rise in employment

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Burki

In announcing that the ECB will buy up the debt of countries in distress, Mario Draghi is compensating yet again for the inaction of European leaders. And he is standing up again as the one who is changing the rules of the game – exactly what we needed, rejoices El País.

Santiago Carbó Valverde

The argument has been underway for quite some time now that the sole solution for the eurozone is to win a balance between those who demand uncompromising fiscal discipline and those seeking community backing or guarantees for their unsecured debt. More than three years on, the European bureaucracy has proved incapable of coming up with solutions to make that balance possible.

Meanwhile, the European Central Bank (ECB) has taken on some controversial work as an emergency liquidity provider for the most stressful market situations. However, each time the ECB carried out an extraordinary liquidity operation, European economic governance apparently won time to look for new solutions – yet, again and again, slumped into inaction and lethargy. This wearying dynamic has been replayed many times, threatening the very stability of the single currency. Then came Mario Draghi. And he changed the rules of the game.


Game changer



At first the ECB president took great pains to clarify that if the liquidity facilities were needed he would push them along like no one else, and, in fact, in December 2011 and February 2012 launched two programs of long-term refinancing of singular importance. And when it was revealed that the leaders in Europe were not responding in comparable scope, the ECB began to alter the discourse. In spring, but mostly over the summer, the European monetary authority imposed a few rules that would change this ineffective European economic governance.

On one hand, there were many reminders that the responsibility for correcting the debt crisis and finding that desired balance between fiscal compromises and financial solidarity could not rest with the monetary authority. On the other hand, in the end the ECB made an astute step forwards by imposing on the eurozone an agenda that the eurozone leaders proved reluctant to assume.

Draghi gave the best example this summer, and in doing so became the genuine creator of new rules of the game – the game changer that the euro needed. Thursday’s gamble by the ECB was a risky one, but it was more coherent than many are ready to take on. Some still recall, for example, that at the start of the summer Draghi declared that he would do whatever it would take to save the euro.

The reality is that he did it because it forced some to accept the necessary conditionality – for Spain, that will be a new bail-out – and others to accept that without financial solidarity there will be no future for anyone within the eurozone. The title of the debt purchase program – Outright Monetary Transactions – is sufficiently illustrative. It has laid the foundation of what seemed to be the impossible understanding between North and South in the eurozone. In advance the ECB has launched "unlimited" or “outright” aid, which should not be scorned.


Credible ratification of the euro



The ECB has, moreover, remained cautious from the monetary point of view as it seeks to sterilise the purchases it carries out to prevent them from being converted into a simple debt monetisation. That move, rather, is about establishing aid in return for conditionality – something that simple, which they have been looking for many months with no success. Because the exchange is clear – a precautionary or supposedly "soft” bailout, probably with tougher conditions than realised in Spain, but far from what it was for Ireland or Greece – it’s a step towards a more hopeful future.

With the steps that have been laid down, the initial outcome, if things are done right, will be a credible ratification of the euro and, on the other hand, a likely reduction in financing costs for vulnerable countries – conditions that are necessary but insufficient for investor confidence to return to countries like Spain. All this may happen if the opportunity given is not wasted.

And that applies to Spain, which will have to request the bailout with appropriate responsibility. This is no trivial matter, because our country will find itself through no will of its own in that cement that the euro needs, not least because speculators believe that the fabric of the currency will start to tear beginning in the south. Then will follow Italy, which will not escape from this and will have to respond.

The end is far ahead. Though it may seem optimistic, nonetheless, it may be the beginning of the end of the agony.

On the web

• Original article at El País es
  
• Il Sole 24 Ore article it
  

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Spain's Borrowing Costs Tumble Amid ECB Plan


News of the ECB's bond-buying plan eases immediate pressure on Spain as it decides how best to receive financial support.


10:05am UK, Friday 07 September 2012

Spanish people are furious with Angela Merkel over her austerity demands

Spanish vs UK 10-year bond yields from January 2012 to
September 7

SpainUK

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FusionCharts

Reuters

Graph: Spanish vs UK 10-Year Bond Yields In 2012
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  Spain's long-term borrowing costs have fallen further amid the broad welcome for the European Central Bank's new bond-buying programme to ease the euro crisis.
  
  The yield on the country's 10-year bonds fell to 5.644% at the close on Friday - well below the 7% level seen as unsustainable in the long term - while stock markets continued to build on the previous day's gains.
  
  There were similar moves downwards for the country's borrowing costs on Thursday in the wake of ECB President Mario Draghi's confirmation of the emergency Outright Monetary Transactions (OMT) scheme.
  
  Under the plan, the ECB can make unlimited purchases of troubled euro debt but they will be bought on secondary markets rather than from governments directly.
  
  The purchases will also be sterilised - meaning that the scheme does not amount to the ECB effectively printing money like the Bank of England has done via Quantitative Easing.
  
  In order to be eligible, governments must be involved in the EFSF or ESM bailout programmes or have what is known as a 'enhanced conditions credit line'.
  
  Spain does not currently meet those criteria, intensifying speculation that if Spain needed to access the OMT it would have to agree strict conditions, including deeper austerity, attached to the bailout and OMT programmes.
  
  The country has not admitted that it needs a bailout.
  
  Spanish Prime Minister Mariano Rajoy held talks with German Chancellor Angela Merkel in Madrid as details emerged of the OMT scheme - opposed by the German central bank.
  
  It is unclear whether he raised the prospect of a bailout with Europe's most powerful leader during the meeting, but demonstrators outside the talks vented fury over Germany's requirement of tough Spanish austerity in return for help.
  
  A quarter of the Spanish workforce is currently unemployed amid tough spending cuts.
  
  Mr Draghi had made it clear that governments had to do their bit in securing the single currency's future, as the ECB's actions alone would not be enough.
  
  Finding a solution to the uncertainties over Spanish and Greek finances are expected to dominate next month's EU summit.
  

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Barroso aligns with Merkel in push for treaty change


Published 05 September 2012
3 comments

integration” and a consolidation of “a truly political union” through a change of the EU treaty.

He admitted that “treaty change takes time”, but stressed that in order to restore confidence, the Union needed a two-track approach: action on the short term, but also a "horizon" for strengthening the bloc’s institutions.

“Short term is not enough because the so called markets know very well that in the longer term the stability of the currency depends also on the political construct and on the solidity of the institutions that are behind it,” he said. “That is why as the same time we are giving short term answers to the instability we need to have a horizon for the medium and long term. So these issues – short, medium and longer term – should not be seen as incompatible and we have to act on the several areas.”

Barroso is expected to develop his views on treaty change in his State of the Union speech, to be delivered on 12 September in the European Parliament in Strasbourg.

Other highlights of his speech are expected to include closer fiscal union and a full banking union, extending the powers of the European Central Bank (ECB), while creating a separate agency to supervise some banks (presumably derivatives and over-the-counter trading).

Divisions over ECB

On the ECB, Barroso acknowledged there were divisions on the role of this institution.

“Rightly, the ECB does not want to give the message that the member states can go on with, let's put it frankly, irresponsible fiscal policies, unsustainable levels of debt and lack of supervision as we have seen recently when we have discovered that the reality of the financial sectors was not exactly the one that they were pretending to be,” he said.

On both points, Barroso appeared to align with Merkel, who wants a new treaty for closer European political union to help overcome the bloc's sovereign debt crisis. The German chancellor hopes a summit of EU leaders in December can agree a concrete roadmap to launch the process.

Together with European Council President Herman Van Rompuy, Eurogroup President Jean-Claude Juncker and ECB President Mario Draghi, Barroso is expected to produce a concrete proposal at the 18-19 October summit of EU leaders. A final report and roadmap for further economic and monetary union is expected to be adopted by EU leaders at the 13 December summit.

The four leaders already presented a report, Towards a Genuine Economic and Monetary Union, at the June EU summit, and were tasked to continue their work. This report, however, focused on “the sorter term” measures, such as setting "upper limits" on member states' annual budgets, prior approval for issuing government debt beyond the level agreed in common, closer coordination on labour mobility and tax coordination.

But France appears hesitant to take the big federalist leap with a treaty change that would enshrine German fiscal austerity in stone. Instead, Paris wants to introduce eurobonds rapidly as a way to mutualise debt in the eurozone and reduce the borrowing costs of the most fragile economies like Spain and Italy.

The press in Ireland already notes that the new treaty change would require a referendum in the country, which had adopted the Lisbon Treaty at a second referendum in October 2009, after having rejected it during a first popular vote in June 2008.


Next steps:

• 12 Sept.: Barroso's State of the Union speech
  
• 18-19 Oct. 2012: Interim report on finalising the economic and monetary union to be presented at EU Summit in Brussels
  
• 13-14 Dec. 2012: Final report and roadmap for further economic and monetary union to be adopted by EU leaders at Brussels summit
  

EurActiv.com

External Links

• European Commission: Speech by President Barroso to European Union Heads of Delegation
  

• Irish Times: Crisis calls for treaty change, says Barroso
  
• 
  EurActiv Slovakia: Inštitucionálnu reformu EÚ žiada aj Barroso
  
• 
  EurActiv Turkey: Barroso da Merkel'den yana tavır aldı, 'AB antlaşmasını değiştirmek şart' dedi
  

COMMENTS

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  The Annex I to the Lisbon Treaty is based on Brussels nomenclature -- which does not exist any more. It seems, that the staff did not find it necessary to scrutinize the situation and irresponsibly has made the easiest choise -- to copy/paste from the text of previous Treaties. Though the reality is absolutely new... To say -- the new -- conditionally -- since the Regulation replacing Brussels nomenclature with the current "Combined nomenclature" has JUST appeared in ... 1987. So the EU lives with the defective Lisbon Treaty now.
  
  
  By : Current Treaty is defective -- it must be renewed
  
  - Posted on : 05/09/2012
  
  
  
  
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  You can't have it both ways: monetary union requires political union and the disappearance of the French and German parliaments. I'm sure the political elites of both countries have explained this in detail to their electorates over the years.
  
  
  By : David Stephenson
  
  - Posted on : 05/09/2012
  
  
  
  
  
  
  

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Eurozone
The independent ECB is dead



7 September 2012
PresseuropDie Welt, Süddeutsche Zeitung

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Rainer Hachfeld

The debt buyback programme announced by Mario Draghi is a sign of the European Central Bank's subjection to political power, laments the German press, which is alarmed by this new shift in European monetary policy.


“A seawall has been breached”, announces the front page of Die Welt. With the announcement that it is ready to buy up the debt of financially distressed Eurozone states, the European Central Bank has demonstrated that it will now restrict its role to one in which it acts as a lifeguard, complains the conservative daily –

Every time the politicians cry “Fire!", the central bank puts it out. Now it buys government bonds, now it plays the role of interim financer for a bankrupt Greece, because European governments and the International Monetary Fund are unable to decide whether they want to loan more money to the Mediterranean republic.

“But how can the ECB, withstand the pressure from governments and hold off from cranking up the money printing machine?” wonders Die Welt, which expresses its sympathy with the traditional German concern for the independence of central banks in nation states and on the level of Europe –

In referring to the possible collapse of the eurozone Draghi is trying to justify his trampling over the statutes of the ECB. That means he is doing the dirty work for the governments, which thanks to the backing of the central bank can again slow down the tempo of reforms. At the same time, the vaults of the ECB will be swamped with government bonds from the countries in crisis. [...] The dangers of this policy are enormous. Inflation is not the great problem of the moment. That problem is, rather, a completely non-transparent, politically illegitimate redistribution of wealth from North to South. And from those who save their money to those who profit from this irresponsible monetary policy. This is undemocratic and not in the best interests of society.

Süddeutsche Zeitung, which is usually more sympathetic to distressed countries appeals for flexibility, announces that the ECB is "rewarding economic mismanagement". The daily adds that a plan to buy-up unlimited quantities of debt will inevitably mean that the central bank will "finance states that are by no means solid". Worse still, with declarations to the effect that he will do "whatever it takes" and that the euro is "irreversible", Mario Draghi has clearly exceeded his mandate –

Only the representatives of governments can make such declarations. It is intolerable that an institution which has no democratic legitimacy should decide on living conditions in Europe. […] The ECB is emerging as the demonic dominatrix of Europe. It still has a chance to back down from this position, which is precisely the point of the persistent protests voiced by Bundesbank President Jens Weidmann. At the end of the day, Mario Draghi knows very well that the euro cannot be saved by going against Germany, which is the biggest economy in Europe. It is in Europe’s interest that the ECB and other unconditional saviours of the euro avoid measures that will result in Germans mounting the barricades. They are close.

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Greek Government and Public at Odds Over New Cuts






Kostas Tsironis/Agence France-Presse — Getty Images
Pensioners in Athens protested health cuts on Tuesday.

By LIZ ALDERMAN


Published: September 5, 2012

• 
  

ATHENS — Anastasia Kastaniotou, a struggling mother of three, stood near the Greek Parliament building on Wednesday and threw up her hands as she contemplated an €11.5 billion austerity package that her country’s government was trying to tie up this week to keep Greece in the euro.




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Tracking Europe's Debt Crisis








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Thanassis Stavrakis/Associated Press


The head of Greece’s Association of Judges and Public Prosecutors, Vassiliki Thanou, spoke on Wednesday during a protest by judicial officials of expected pay cuts.


Prime Minister Antonis Samaras has been scrambling to seal a deal with his coalition government for fresh cuts to pensions, salaries and other expenses before Greece’s so-called troika of international lenders returns to Athens on Friday to inspect his progress. The country’s next installment of bailout money will depend on his getting a passing grade.

But on the streets of Athens, there is a sense that this latest effort to placate Greece’s lenders may be a last straw for the public.

After two-and-a-half years of wrenching austerity, “they will not be able to get more money from us than they already have,” Mrs. Kastaniotou, 44, said as her three teenage daughters and husband nodded in agreement. “Mark my words,” she added. “In the coming months, there will be a revolution, and this government will fall.”

Greece had all but slipped from the radar screen during August, after financial markets went onto late-summer autopilot and troika inspectors from Brussels, Frankfurt and other North European cities headed off on their vacations.

But as investors start speculating once again on the euro’s future, this troubled country is returning to a central role in Europe’s long-running debt drama. And even as much of Europe awaits word Thursday on what steps the European Central Bank may take next to try to insure there are no more Greek-style collapses, the Athens government is already in a critical care category beyond the help of any new E.C.B. remedies.

Few people here expect or even want Greece to exit the euro. But the country is once again running out of cash. It continues to depend on loans from the troika: the International Monetary Fund, the E.C.B. and the European Commission. And despite Greece’s teetering on the brink of bankruptcy, the troika has been withholding €31.5 billion, or $39.7 billion, pending a review of Greece’s efforts to make good on pledges to repay its loans.

A preliminary review is expected to be conducted next week, with a final report card due in early October. Should that report be negative, a fresh wave of financial troubles would wash over this country. The broader concern is that the ripples would spread to other troubled euro zone countries, including Spain and Italy, which are struggling against a crisis of confidence by financial markets. (It is primarily those two big economies that any E.C.B. action on Thursday or in coming weeks would be intended to protect.)

Mr. Samaras, citing his country’s deep recession, is pleading with Greece’s lenders to give the country a couple more years to implement the austerity measure that Athens had pledged as a condition of receiving its rescue, and to meet its promises to mend its tattered finances.

Many German politicians and citizens in particular are loath to grant Greece any extensions if it means European taxpayers would have to lend Greece even more money to cover the interest payments that would be incurred.

All of which is why Mr. Samaras wants to push through €11.5. billion in new budget cuts right now, as a way to persuade Greece’s lenders to resume dispensing money to Athens from the €130 billion bailout that Europe and the I.M.F. agreed to. That money has been held largely in suspension since a caretaker government was installed in May following inconclusive elections, and a second round of elections held in June resulted in Mr. Samara’s emergence as prime minister.

A leaked draft of the budget-cutting blueprint foresees fresh cuts to pensions and state spending in the health sector, defense and local government subsidies, as well as plans to push up to 40,000 civil servants out of the public sector by 2014, chiefly through forced retirement.

Still, Mr. Samaras faces a stiff challenge in pushing those measures through his shaky coalition government. The two junior partners, the Socialist leader Evangelos Venizelos and the moderate chief of the Democratic Left, Fotis Kouvelis, have misgivings about proposed additional cuts to pensions and civil servants’ salaries fearing the social unrest it would cause.

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Interview
Paul Krugman: “The euro is a shaky construction”



6 September 2012L'Express Paris

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The American economist at Princeton in 2008.

AFP

To save the single currency beset by difficulties that stem from its initial design, Economics Nobel Prize laureate Paul Krugman argues that Europe should set its sights on low inflation but forget about implementing uniform austerity measures.

Philippe Coste

Your book End This Depression Now! appeals for an end to austerity and the dogmatic insistence on cutting public spending deficits. Do you think that Europe is fighting the wrong battle?

In the beginning it was just Greece. No one can deny that Athens had a problem with budgetary discipline and was responsible for many of the difficulties it faced. However, in what amounted to a moment of panic, the situation of Greece became the default explanation of the European crisis. It was perfectly in tune with central banks’ reflex for belt-tightening and the conviction that a lax attitude to social and budgetary targets was mainly responsible for the problems of the Eurozone. It also reflected the dogmatism of the Germans, who are always quick to highlight the faults of less virtuous countries. It was an explanation that overlooked the extent to which Greece was a unique and isolated case. But it nonetheless served to justify a general dogma of austerity and the belief in its universal application. And all other points of view were rapidly excluded from the ensuing debate which proved to be highly conformist.

So you believe the Germans were at fault?

Historically, their attitude is justified by a phobia of inflation, which they see as a major cause of past tragedies. But at the same time, they appear to have lost any collective memory of all the suffering caused by the terrible deflationist policies of the 1930s. Their influence at the ECB is, of course, a reflection of Germany’s dominant status in Europe but also of the long-standing aspiration for an institution that would act as an effective safeguard against a lack of budgetary discipline and inflation. […] As it stands, Germany is the creditor of a Europe which has lived through a period of extravagance. However, I would be curious to see what remedies would have been proposed, if, for example, capital had flowed from Spain into the German property market, rather than the reverse.

Have you been a eurosceptic from the beginning?

Yes, I think that the euro was a romantic idea, and a fine symbol of political unity. But when you give up your national currency, you lose a lot of flexibility, and it is not easy to compensate for the loss of room for manoeuvre. In the event of a localised crisis you have to rely on the mobility of labour to circumvent the decline in the jobs market, and more importantly, on fiscal integration to smooth over changes in tax revenue. In this regard, Europe is a much less suitable environment for a single currency than the United States. If we compare Florida and Spain: in both cases there was property bubble and then there was a crash. However, in the United States, people have the option of moving to another less affected state to find work. And benefits, health insurance, federal spending and banking guarantees for the entirety of the United States are all managed by Washington. This type of centralisation does not exist in Europe.

What do you think of the European response to the crisis?

My argument against austerity policies is addressed to countries that still have the choice. Spain and Greece had no option but to comply with Germany’s demands or run the risk of running out of funds. But to my mind, the budgetary situation in France is not quite so critical, and there is not the same need for austerity.

However, market confidence will continue to be vitally important … How can it be sustained?

The answer is an appropriate monetary response from the European Central Bank. On the one hand, I think there should be massive purchases of Italian and Spanish debt to prevent an excessive rise in interest rates. On the other, we need to see signs of a more flexible ECB policy: a pledge not to raise rates at the slightest sign of inflation, and realistic medium targets for 2% to 3% inflation instead of 0% to 1% which is what we have today.

What about Greece?

I cannot see how this country can remain in the euro. It is practically impossible. However, if it leaves there will be a massive withdrawal of deposits from Spanish and Italian banks, and the ECB will most definitely have to respond by providing unlimited liquidity. If it does not, within two weeks, the Bundesbank will throw in the towel, and that will be end of the euro.

What would be the consequences of the disappearance of the single currency?

Imagine all of those debts drawn up in a currency that no longer exists... I think the Eurozone would be plunged into a severe recession for a year while individual states find a means to continue trading, and countries like Spain and Italy recover some of their competitiveness. From a political point of view, it would be very serious: the failure of the biggest project in history would completely undermine the credibility of all of the leaders involved in the old regime and pave the way for populist and nationalist revolt.

What solution do you recommend for the Southern countries?

The classic solution would be internal devaluation: the principle being that a reduction in wage costs enables countries to become more competitive. But no country, not even Ireland or Latvia, has succeeded in engineering a real reduction in private sector wages. At the same time, the resulting deflation would increase the burden of private debt in euros. When you factor in the risk of capital flight and the instability of governments obliged to implement such measures, it is clear that this solution is a dead end. As it stands, Spanish wages are overvalued by 30%, when compared with wages in Germany. Instead of trying to force wages down, which is politically impossible, why don’t we allow German wages to rise so as to boost Spanish competitiveness? Of course, this would imply a less stringent monetary policy, and an inevitable increase in inflation in Germany.

So what future do you see for the Eurozone?

If the ECB implements the right measures, things could start to improve three to five years down the line. But Europe will still be fragile. Its currency is built on shaky foundations, and that will continue to be the case until a common European bank guarantee scheme is established. In the meantime, the system can quite comfortably survive if it is treated to a sufficiently strong dose of inflation. Let’s not forget: Europe’s problem is not one of fundamental decline. It continues to be a productive and innovative continent. The difficulties that it faces have been prompted by inadequate governance and a failure on the part of the institutions that are supposed to exercise economic control.

All of this can be repaired.

[Panda]

Greek President Samares is to meet the TROIKA today to discuss austerity measures taken, not those proposed.

Draghi will meet Greece tomorrow , the new process will not help Greece because the Greeks need money.

Hollande is considering a new Tax for the rich , he suggested before the Election that he would impose a 75% tax increase but now he is President he realises this is not practical. BNP Paribas says Hollande committed himself to taxes to balance the budget within 5 years. Polls show 60 % unhappy with him.

Draghi says if Countries do not adhere to austerity why should the ECB continue to help.? "Conditionality" , a much used word means ALL Countries who sell Bonds to the ECB MUST do all they can to reduce the debt.

One Analyst suggests there must be more integration by the end of the Year and this should have been done sooner. The

EURO has been in existence for 14 years , but no thought was given to a proper modus operandi. He says National pride

is a big factor in stopping integration , Countries do not want to lose sovereignty.

Ollie Rhen says Draghi's move will help restore investor confidence.

George Soros says Germany should either lead or leave the EURO.

[Panda]

Ajubel 10th September 2012

European leaders are touting the concept of more integration as the key to overcoming the crisis, much to the annoyance of a Portuguese historian who takes issue with their insouciance and empty words.

Rui Tavares

Poor words! They are the first victims of our European leaders, who use and abuse them to the point where they are deprived of all meaning. For Germans, “solidarity” has now come to mean “those pesky Southern Europeans who are continually demanding more money.” For the Greeks, “solidarity” means “those pesky Germans who are continually demanding more sacrifices.” For certain political actors, “federalism” is an empty shell you flaunt if you want to appear modern; for others it is an empty shell you brandish if you want to inspire fear.

Hardly anyone acknowledges the original meaning of “federalism” as support for a decentralised democracy. Sarkozy even used the term as a synonym for the intergovernmental system that is its precise opposite. And when we run short of words, we can always demand “more Europe”, an expression that means absolutely nothing. Perhaps we need more democracy, more integration, or more cohesion – at least we know what these things mean. But more Europe, I have no idea what this is supposed to be.

Just before the summer, “growth” was all the rage. Our euro-chiefs got together for a “summit on growth”, where the socialists led the charge for “growth”. In particular, Hollande warned that he would not sign the new fiscal compact if it was not accompanied by a plan for growth. Then came the announcement that more than 100 billion euros was to be redeployed in projects to support growth and jobs. In just two days the drive for growth had been rewarded with a tenth of the sum that we had lent to banks, but finally…


Dutch rail has dodged taxes



Well they almost had us fooled, didn’t they? A few months later, France is preparing to sign a budgetary treaty, which makes a mockery of the European parliament, establishes unrealistic and even harmful objectives, and introduces a model which has the potential to destroy the European Union for the so-called good of the euro. And what has happened to the growth fund? If the latest rumours from the European Council are to be believed, France is refusing to stump up for its share. All of this is not only sad, it is pathetic. Individual EU countries are toying with the destiny of other member states without realising that their own fate is also hanging in the balance.

The most edifying example of this refusal to acknowledge the obvious is tax evasion. As we all know, virtually every one of the top 20 companies quoted on the Lisbon stock market is domiciled in the Netherlands so as to avoid Portuguese taxes and accounting obligations. The Netherlands turns a deaf ear to complaints from countries, like Portugal, that are the victims of this practice – and, if the truth be told, the countries themselves have done relatively little to address the problem.

However, in the Netherlands, the fact that the Dutch state-owned rail company has dodged taxes by routing a significant portion of its business through Ireland has now emerged as a major issue in the ongoing Dutch election campaign. Suddenly, the entire world of Dutch politics is waxing indignant about a practice that has never troubled the Netherlands when other EU states were the ones to suffer.


Easy to open a bank



And there are even more flagrant examples of this type of indecency. At the other end of Europe, geographically and politically speaking, Cyprus, which is governed by a communist-led coalition, has enacted a special agreement with Russia, which enables Russian oligarchs to escape taxes in their home country and to launder ill-gotten profits.

In Cyprus, it is not only easy to open a bank account, which can be done without giving your name, it is also very easy to open a bank – something that the Russians have been quick to use to their advantage. Of course, the fact that there is a large business in smuggling Russian arms into Syria is simply a fortuitous coincidence.

So is there anything that can be done? The rotating EU presidency could make addressing these issues a priority. Surely it would, were it not for the fact that Cyprus currently has charge of the EU Presidency, and that it will shortly be succeeded by Ireland

[fuzeta]

very good piece of writing, sums it all up well

[Panda]

very good piece of writing, sums it all up well

Yes fuzeta, and the rest of the world is sick and tired of the European Leaders that after 3 years they still havn't come up with a solution and to expect Countries to stick to these austerity measures in the middle of a worldwide recession is ridiculous. You can tell the atmosphere is changing, some Countries due to have Elections soon are too busy trying to cling to their seats than work for the good of their Country.

Soros, that investor who made £1 million in a currency deal because he surmised correctly that the £ would devalue in 1987 curtly announced recently that Germany should Lead or Leave.

[Panda]

10 September 2012 Last updated at 23:07

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Spain euro crisis: Rajoy rejects bailout conditions


PM Rajoy says no decision has been taken to request a bailout
Continue reading the main story

Eurozone crisis

• Crisis in graphics
  
• How eurozone crisis affects you
  
• What really caused the euro crisis?
  
• Q&A: Bonds and eurobonds
  

Spain's Prime Minister Mariano Rajoy has said he will not accept outside conditions over a possible bailout.

Mr Rajoy made the pledge in his first television interview since taking office. But he said no decision to request a bailout had been taken.

Last week, the president of the European Central Bank (ECB) unveiled plans to buy bonds from indebted countries - under bailout conditions.

Mario Draghi said the ECB would provide a "fully effective backstop".

The aim of the programme was to cut the borrowing costs of debt-burdened eurozone members by buying their bonds.

The Spanish government's implied borrowing costs fell sharply after the announcement.
Pensioners reassured
"I am absolutely convinced that everyone will be reasonable but I insist that we haven't taken a decision," Mr Rajoy told Spanish state television.

"I will look at the conditions. I would not like, and I could not accept, being told which were the concrete policies where we had to cut," the prime minister added.

And he promised that pensioners would not be affected by any decisions.




ECB president Mario Draghi: "We will have a fully effective backstop to avoid destructive scenarios"

Under Mr Draghi's plan, the ECB would agree to buy a potentially unlimited amount of bonds of debt-stricken eurozone members on the condition that these countries made a formal request for bailout funds and stuck to the terms of any deal.

Mr Draghi said the ECB would engage in outright monetary transactions, or OMTs, to address "severe distortions" in government bond markets based on "unfounded fears".

OMTs will be carried out only in conjunction with European Financial Stability Facility or European Stability Mechanism programmes, he said.

In other words, countries will still have to request a bailout before the OMTs are triggered.

The maturities of the bonds being purchased would be between one and three years and there would be no limits on the size of bond purchases, he added.

The ECB will ask the International Monetary Fund to help it monitor country compliance with its conditions.

[Panda]

Bailout fund under pressure in Germany



10 September 2012
PresseuropSüddeutsche Zeitung, Frankfurter Allgemeine Zeitung

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Süddeutsche Zeitung, 10 September 2012

“Another last-minute move could block ESM ratification in Karlsruhe”, announces Süddeutsche Zeitung in the wake of the filing of a complaint with the German constitutional court by MP Peter Gauweiler. Judges at the court are to announce a ruling on the compliance of the European Stability Mechanism with German basic law on 12 September. Gauweiler is now demanding that this ruling, which would authorise the ratification of the ESM, should be postponed if the European Central Bank does not suspend its 6 September decision to buy sovereign debt.

For this representative of the CSU, the Bavarian branch of Angela Merkel’s CDU (Christian Democrat), the ECB lacks the democratic legitimacy to take such a decision. He argues that the latest plan amounts to “an ultra – and hyper – unlimited bailout” which will effectively put the ESM beyond the reach of control by Germany’s parliament the Bundestag.

For Süddeutsche Zeitung columnist, Heribert Prantl, the conflict highlights the “political cowardice” of a Germany that has failed to find a solution to the problem of the democratic deficit in Europe –

When it comes to the euro, European law doesn’t have wheels, but wings. These are special wings that enable it to take off and soar beyond the reach of controlling agencies and mechanisms. In the case of bailout measures for the euro (which are necessary and for the good of Europe, its saviours say) it flies very high, there where the air is rarified and democratic control is problematic. (...) In this situation, it would be nice to have a European parliament that could take action, but it has been sidelined. And it is precisely the constitutional court that contributed to this in 2009 by relegating this institution to the status of an inferior parliament.

According to Frankfurter Allgemeine Zeitung, the argument over the ESM’s lack of democratic legitimacy has also been raised by the legal service at the Bundestag. In response to an action filed by left-wing party Die Linke, the service ruled that contributions to the EU’s permanent bailout fund were contrary to the German parliament’s budgetary rules and in imposing constraints run the risk of “undermining the legitimacy of public authorities”.

[Panda]

This is not the most recent on the crisis but interesting.There us a meeting tomorrow in Germany to discuss the legality of the ESM and the Draghi proposal

Big Trouble for U.S.? Europe's Banking Crisis Moves Closer to a Lehman Brothers Moment





The recent euro summit did nothing to alleviate the problems that created the crisis in the first place.

July 2, 2012 |







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The recent euro summit in Brussels was supposed to make things better for the European economy. And if you listen to the mainstream press spin, you hear that a growing Mediterranean alliance, led by France's new president, Francois Hollande, Spain's Mariano Rajoy and Italy's Mario Monti, forced Germany to cave. We are led to believe that Germany has capitulated on things like less fiscal austerity, the sharing of debt, and direct recapitalization for ailing banks through the European Stability Mechanism (ESM). We are also supposed to accept at face value the claim that the European Union as a whole will work toward some form of common deposit insurance to arrest the prevailing bank run.

This is all bunk. But why does that matter to you? Well, recall for an instance what happened to the global economy when Lehman Brothers went bust in 2008. The world’s entire credit system froze up. Now consider the implications for the U.S. if the currency union in the world’s largest economic bloc was to blow apart. Do you think the fallout might wind up in your backyard? Economist Simon Johnson recently gave a warning on the impact on U.S. banks in the event of a dissolution of the euro:

n recently released highlights from its so-called living will, JPMorgan Chase & Co. revealed that $50 billion in losses could hypothetically bring down the bank. .. The Fed is convinced that its recent stress tests show U.S. banks have enough capital even though these tests didn’t model serious euro dissolution risk and the effect on global derivatives markets. The striking thing about JPMorgan’s recent London-based proprietary trading losses is not the amount per se. If the world’s largest bank can lose $2 billion to $3 billion in a relatively calm quarter through incompetence and neglect on the fringes of its operations, how much does it stand to lose when markets really turn nasty across a much broader range of its activities? And how might that harm the U.S. economic recovery?

So, measures designed to save the euro are something we should pay attention to here in the U.S. They also help to explain why President Obama remains in persistent contact with Europe’s key political players, notably German Chancellor Angela Merkel.

In contrast to previous summits to "save the euro," expectations for this one were set [i]very low by the time this meeting started, leading you to assume that any bit of good news would be sufficient to induce a market rally. At the same time, if you ignore the spin and actually read the text of the statement released after the summit, it does not appear that the package announced does anything to alleviate the problems that created the crisis conditions in the first place, especially the bank run.

So what was actually agreed? Let's concede one positive point at the start: It seems to be that any monies used to recapitalize Spanish banks (which are now at the heart of Europe’s systemic instability) won't rank higher than other forms of bonds, which removes one disincentive to buy more Spanish bonds, which in turn could mitigate Spain's own funding strains.

However, the decision to award private creditors the same status as the Eurozone bailout fund in the Spanish rescue means that German taxpayers will have to join the queue to get their money back, which in turn threatens Germany's own credit rating. Accordingly, the German media were quick to howl that Merkel was putting the German taxpayer on the line for the success or failure of banks in Madrid. The concession might also be unconstitutional, given recent rulings by Germany’s Constitutional Court.

[Badboy]

I READ YESTERDAY,METHINKS THAT IN THE LAST WEEK GREEK AUTHORITIES ARRESTED 11 PROFESSIONALS FOR TAX EVASION,MANY PROFESSIONALS ARE AVOIDING PAYING TAXES(BANKERS,LAWYERS,DOCTORS,ENGINEERS ETC)

[malena stool]

I READ YESTERDAY,METHINKS THAT IN THE LAST WEEK GREEK AUTHORITIES ARRESTED 11 PROFESSIONALS FOR TAX EVASION,MANY PROFESSIONALS ARE AVOIDING PAYING TAXES(BANKERS,LAWYERS,DOCTORS,ENGINEERS ETC)

I've read somewhere that Greek ministers were paying themselves for working an 8 day week.

[Badboy]

I READ YESTERDAY,METHINKS THAT IN THE LAST WEEK GREEK AUTHORITIES ARRESTED 11 PROFESSIONALS FOR TAX EVASION,MANY PROFESSIONALS ARE AVOIDING PAYING TAXES(BANKERS,LAWYERS,DOCTORS,ENGINEERS ETC)

I've read somewhere that Greek ministers were paying themselves for working an 8 day week.

8 DAY WEEK,YOU CANNOT BE SERIOUS.MAN!
ISN'T THERE ONLY 7 DAYS IN A WEEK,METHINKS?

[Panda]

Regulators in Bank-Crisis Fight
By Rebecca Christie and Jim Brunsden - Sep 11, 2012 11:00 PM GMT+0100

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The European Union today will unveil proposals for euro-area bank oversight that require unprecedented cooperation between the European Central Bank and national regulators.

The Frankfurt-based ECB should expand its role as financial-system guardian by becoming the top-level supervisor of every lender in the 17-nation currency region, EU officials said in interviews. At the same time, the central bank would depend on national regulators for day-to-day supervision and ensuring that banks comply with European rules, according to the proposals.

Safeguards for the U.K. and the other 9 nations that don’t use the euro are included, to protect them from being drowned out by their neighbors during rulemaking. Today’s plans aim to phase in the new system by Jan. 1, 2014, and all 27 EU members will need to sign off.

“What’s good about this proposal is it puts some distance between the cops and the gangsters,” Philippe Lamberts, a lawmaker in the European Parliament, said in a telephone interview. “There initially won’t be that coziness between banks and their regulator that has encouraged the regulator to turn the other way.”

EU leaders decided to press for a single bank supervisor in June as a condition of allowing euro-area banks direct access to the zone’s firewall fund. EU taxpayers have provided 4.5 trillion euros ($5.8 trillion) in capital injections, guarantees and other forms of support to their lenders since 2008, exacerbating strains on public finances that have led Greece,Portugal, Ireland, Spain and Cyprus to seek aid.

Euro Crisis


“The euro crisis turns around the ECB,” Carsten Brzeski, senior economist at ING Group in Brussels, said in a telephone interview. “Somehow this is the only institution which is regarded to be able to solve the crisis. At the same time, it will also mean there’s a risk the ECB will be overburdened by tasks.”

German Finance Minister Wolfgang Schaeuble has said that national regulators should continue to play a strong role after the new supervisor is set up. The ECB should focus its direct supervisory effort on banks that pose a systemic threat to the financial system, while delegating other tasks to local authorities, Schaeuble said.

ECB President Mario Draghi and the Brussels-based European Commission want the single supervisor to be the first step in separating bank backstops from national balance sheets. The Europeans’ long-term vision also includes cross-border deposit guarantees and pooled funds to stabilize troubled lenders.

‘Tortuous Process’


Today’s proposals would grant the ECB the power to impose sanctions including fines on banks that refuse to apply its decisions, according to the draft texts. The central bank may also carry out raids on lenders’ offices.

“These proposals mark the latest step in what will be a very long and tortuous process of discussion and argument,”said Richard Reid, research director for the London-based International Centre for Financial Regulation, in an e-mail.

If the proposals are enacted, the ECB would add bank supervision to its current roles setting monetary policy and, along with the commission and the International Monetary Fund, taking part in the so-called troika that administers bailouts.

The draft supervision law gives the ECB power over the granting and withdrawing of banking licenses in the euro area, as well as over bank capital requirements. The central bank would also be able to instruct lenders to carry out internal stress tests, and take so-called early intervention measures for lenders at risk of financial difficulties, according to the officials, who couldn’t be identified because the plans aren’t yet public.

‘Institution Building’


“The ECB is being leaned on in every direction, fromcrisis management to medium-term institution building,” Mujtaba Rahman, an analyst at Eurasia Group in New York, said in an e-mail. “It’s unclear whether they are going to be able to successfully navigate these new tasks, especially as it puts the bank in the middle of a difficult conversation between creditor and debtor states.”

National regulators would implement ECB decisions and carry out day-to-day oversight of banks. They would also retain responsibility for consumer protection issues.

Under the draft proposals, the ECB would be expected to answer questions from the European Parliament on its supervisory decisions. It also would present an annual report to members of the assembly and finance ministers.

EBA Role


The plans foresee that the ECB would coordinate euro area policy positions in the European Banking Authority. The London-based EBA drafts financial rules that apply across the 27-nation EU, leading to calls from the U.K. that the authority’s rules should be changed to prevent the authority from becoming dominated by the euro area.

The EBA would set up independent panels to rule on disputes between regulators, under the plans. A majority including both euro-area and non-euro-area regulators would be needed to strike down its decisions.

A U.K. Treasury spokesman, who couldn’t be cited by name in line with government rules, said that the U.K. would ensure that the supervisory law didn’t damage the EU’s common market.

[Panda]

Portugal Gets More Time to Cut Budget Gap, Raises 2012 Goal


By Joao Lima and Sandrine Rastello - Sep 11, 2012 6:54 PM GMT+0100

• 
  

Portugal was given more time to narrow its budget deficit as the government set a wider target for borrowing this year after tax revenue missed forecasts and the economy heads for a third year of contraction in 2013.

The government aims to reach a deficit of 5 percent of gross domestic product in 2012 instead of the previous goal of 4.5 percent, Finance Minister Vitor Gaspar said in Lisbon today after European Union and International Monetary Fund officials agreed on the new targets. It aims for a deficit of 4.5 percent in 2013 rather than 3 percent. It will only cut the deficit below the European Union’s 3 percent limit in 2014, when it targets a 2.5 percent gap.

Gaspar now projects GDP will shrink 1 percent next year. He previously estimated GDP growth of 0.2 percent for 2013. He kept a forecast for a contraction of 3 percent this year.

Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of the 78 billion-euro ($100 billion) aid plan from the EU and IMF. As the country’s borrowing costs surged, Portugal last year followed Greece and Ireland in needing a bailout.

“Portugal’s economic adjustment program avoided the bankruptcy of the Portuguese state,” Gaspar said in Lisbon today at a press conference on the completion of the fifth quarterly review of the country’s aid program. “The program opens the way for the return to the bond market, in normal financing conditions.”

‘On Track’


The Portuguese government plans to carry out debt market operations as it aims to regain access to bond markets by September 2013, said Maria Luis Albuquerque, the secretary of state for treasury and finance.

The IMF, EU Commission and European Central Bank said in a joint statement today that the program of measures attached to Portugal’s bailout is “broadly on track.”

“Overall, this review confirms that the program is making progress, albeit against strong headwinds,” the so-called troika said. “Provided the authorities persevere with strict program implementation, euro-area member states have declared they stand ready to support Portugal until full market access is regained.”

To meet the new deficit targets, the government plans to increase taxes on real-estate assets valued at more than 1 million euros from this year. For 2013, it plans to raise taxes on dividends, capital gains and private airplanes. It will also set new rules for awarding unemployment benefits and pensions will be cut, Gaspar said.

Tackling Unemployment


Portugal on Sept. 7 announced plans to raise the social-security rate paid by workers while curbing the charge on companies as the government tries to narrow the budget deficitand fight surging unemployment. The social-security rate paid by public and private-sector employees will increase by 7 percentage points to 18 percent next year, while the rate companies pay will drop to 18 percent to encourage hiring.

The government forecasts the unemployment rate will rise to about 16 percent in 2013 from 15.5 percent this year. Economic growth has averaged less than 1 percent a year for the past decade, placing Portugal among Europe’s weakest performers.

Gaspar reaffirmed a plan to complete the sales of airport operator ANA-Aeroportos de Portugal SA and carrier TAP SGPS SA by the end of this year. In the first quarter of 2013, Portugalplans to start the sale of postal operator CTT-Correios de Portugal and of a waste-management unit of water utility Aguas de Portugal, followed by rail freight company CP Carga in the second quarter.

Debt Path


Portugal’s debt will peak below 124 percent of GDP,“remains sustainable and will be on a firm downward trajectory after 2014,” the troika said in their statement.

The IMF in July said it projected Portugal’s debt would peak at about 118.5 percent of GDP in 2013. The projection assumed annual economic growth of 2 percent and medium and long-term borrowing costs of 7 percent when the country regains access to markets in 2013, declining gradually to 5 percent over the next four years.

The approval of the conclusion of the fifth review will allow the disbursement of 4.3 billion euros under the bailout. That could take place in October, pending approval of the IMF board and of European officials, the statement said.

[Panda]

Let’s hope Germany thinks hard about George Soros’s proposal that it should lead the euro system or leave it. The more carefully Germans study this choice, the more eager they will be to make the present system work.

Many German voters are understandably sick of their euro adventure. The next phase of crisis management, following theEuropean Central Bank’s promise last week to buy the bonds of struggling economies, will demand new fiscal outlays from German taxpayers and expose them to greater risk of losses later. Their growing resentment of Greece, Ireland and Portugal -- and soon Spain and Italy, whose appetite for assistance is vastly bigger-- calls into doubt Europe’s efforts to stem the crisis and threatens the euro’s viability.



About Clive Crook


Clive Crook is a Bloomberg View columnist and member of the Bloomberg View editorial board. His column appears on Thursdays. A former chief Washington commentator of the 'Financial Times,' he previously worked at 'The Economist.'
More about Clive Crook



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Clive Crook




Elizabeth Lippman/Bloomberg



Photographer: Elizabeth Lippman/Bloomberg

Germans might reconsider their nostalgia for the deutsche mark, though, if somebody -- their own government, for instance-- had bothered to spell out the alternatives to the bailouts. Maybe Soros’s intervention will help that to happen.

Up to now, the obvious alternative to keeping Greece and the others afloat within the euro system has been for them to leave or be ejected. This used to be unthinkable but isn’t any longer. The doomsday option has become a bargaining chip that weak and strong countries alike are trying to use.

Irreversible Mistake


Europe’s governments made a big and irreversible mistake when they accepted that a euro breakup was possible. This further undermined the system and made the European emergency harder to manage. Still, ejecting the weak remains unlikely because everyone understands it would cause immense damage, and would start an unraveling that might be hard to stop.

Ejecting the strong is a better idea. It isn’t a new one, by the way. In a column for Bloomberg more than a year ago, Anil Kashyap of the University of Chicago Booth School of Business argued that Germany and a small group of other strong performers should break away to form an uber-euro. Kashyap and Kenneth Griffin, of Citadel LLC, an investment firm, then wrote anarticle for the New York Times saying Germany should go it alone and gradually reintroduce the deutsche mark.

There’s a big difference between those two ideas --dividing the euro system into two multinational blocs, and letting Germany gradually bring back the deutsche mark. Consider the second, which presumably has the greater appeal for German voters who miss having a currency all their own under the guardianship of the Bundesbank.

Resurrecting the deutsche mark has one main thing in common with ejecting the weaklings, and one decisive difference. What they have in common is a currency realignment that would improve the weaklings’ competitiveness -- boosting their exports, encouraging inward investment, and helping them to grow. True, the improvement in Greece’s competitiveness, say, would be much bigger if Greece left the system than if Germany did. (If Greece exited, its labor costs would fall relative to costs in France,Finland and other countries, whereas if Germany left, Greek labor costs relative to France and the others would be unchanged.) Nonetheless, Germany’s exit would help the Greek economy.

The crucial difference is that Germany’s exit would not require wholesale redenomination of financial contracts and the mayhem that would result. Suppose Greece is kicked out. With their rapidly devaluing drachmas, Greeks would be unable to settle their euro-denominated debts. Contracts would have to be recast or repudiated, inflicting large and uncertain losses on creditors. And the question immediately arises: Which weakling will be next to go?

Weak Links


If Germany brought back the deutsche mark, it would have both its strong creditor status and a rapidly appreciating currency, so its euro-denominated contracts could all be left in place. As Kashyap and Griffin explained, “Germany would be able to reintroduce the mark without altering the form of any current asset, liability or contract. For example, euros deposited in German banks would remain euro-denominated. So would outstanding German sovereign and corporate debt now denominated in euros.”

There would still be complications, to put it mildly. (One of many questions: What becomes of the enormous surpluses the Bundesbank has built up at the ECB as a part of the bank’s settlement process, called Target2?) Nonetheless, a German exit would improve the weaklings’ competitiveness without the risk of contagion or of instantly throwing the entire euro system into turmoil -- without starting, as Barry Eichengreen called it,“the mother of all financial crises.”

What’s the catch? Unforeseen complications aside, mainly this: The counterpart of growing exports and higher employment across the rest of the euro system would be falling exports and higher unemployment in Germany. The new deutsche mark would probably appreciate enough to push Germany into a deep recession.

That’s why Germans should ponder Soros’s suggestion, and be careful what they wish for. They look at the euro system and see only impositions. But surrendering the deutsche mark (and before that, fixing their currency’s value relative to other European currencies) gave them an export performance and enormous balance-of-payments surpluses that they otherwise wouldn’t have enjoyed.

And let’s not forget those surpluses were recycled as unsafe lending to Europe’s weaklings. It takes bad lending as well as bad borrowing to build a debt crisis. The bailouts that German taxpayers resent so bitterly were necessary partly to protect Germany’s undercapitalized banks from the consequences of their own actions. So far, the division of the burden of adjustment between bad borrowers and bad creditors has been much to Germany’s advantage. The Irish economy was crushed to keep creditors whole. Ask the Irish who has been treated unfairly.

Germany’s economy is an impressive performer, to be sure, but the Germans’ posture of moral superiority in this crisis is false. If a sense of shared responsibility -- to say nothing of the European solidarity Germany has been prating about these past decades -- isn’t enough to bind Germany to its neighbors, maybe naked self-interest will do the trick. Think about it, Germany. Resurrect the deutsche mark, and do the rest of Europe a favor. You’ll be the biggest loser.

(Clive Crook is a Bloomberg View columnist. The opinions expressed are his own.)

[Panda]

Spain may not need bail-out because Bond Yields are reducing and Bonds selling well.

Greece is leasing some of it's Islands as part of the austerity measures.

The German top Court has started and allows the ESM ratification with conditions. Germany must set a cap for liability under the ESM when ratifying. This was set at E190 Billion. There is no indication on how long this will take to become Law and until it is, the existing Funds in the ESM cannot be used. It has avoided a constitutional crisis in Germany but will E190 billion be enough. Merkel is due to speak to Parliament this afternoon , expected to be a discussion on Barosso's announcement that ALL Euro Banks will be monitored, something Germany does not want.

Dutch Election takes place today, apparent deadlock .

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