It's ever more obvious, Greece must leave the euro

I've hardly been alone, but that's no excuse. For more than a year now, I've been regularly predicting the euro crisis's final denouement, yet still it hasn't arrived.

Wikimedia Commons Image

Jeremy Warner
Telegraph

So I've been forced to reach a different conclusion; perhaps it never will. Instead, the eurozone has entered a seeming state of permanent crisis. In desperation, European policymakers have adopted a very British characteristic – the hope that they can somehow just muddle through.

But though no one can know the exact timing of the endgame – that's ultimately for the politicians to decide, so no time soon might be a reasonable bet – it's now fairly clear what that endgame must be.

What's presently being played out among the GIPS (Greece, Ireland, Portugal and Spain) is final proof that you cannot have a monetary union of such size among sovereign nations without compensating fiscal union. That simple underlying truth leaves the euro facing a choice between two equally unappetising outcomes.

Either the richer countries carry on bailing out the poorer ones more or less indefinitely, rather in the manner that Germany subsidises its formerly communist East, or membership of the euro has to be reconstituted on a smaller and more sustainable basis. There's really nothing in between. The longer European policymakers remain in denial about this choice, the worse the situation will become.

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Arab Spring + European Summer = World Winter of Discontent

Greek protests AFP image

Gerald Celente
Trends Journal

KINGSTON, NY, 25 May 2011 — The biggest news this past week was not the rape accusation scandal embroiling International Monetary Fund chief, Dominique Strauss-Kahn. It was not President Barack Obama’s much ballyhooed Middle East speech, nor was it the historic floods devastating the Mississippi flood plain.

But these were the stories that preoccupied the US press. Whereas all were certainly newsworthy – and a cut above the usual obsession with the purely titillating and violent – the most trend-significant story of all got scant, or no coverage from the mainstream media.

While the downfall of Strauss-Kahn shattered his hopes to run for the French Presidency, the repercussions would be mainly confined to France. His resignation from the IMF, however, would have limited consequences. A new chief will quickly be found to replace him, and regardless of the Strauss-Kahn rape verdict, the IMF will continue raping countries that are forced into accepting their “aid.”

Europe Whispers “Crisis” While the Market Continues Screaming

Jason Kaspar, Contributing Writer
Activist Post

Last year the Europe Union (and the euro) teetered on the verge of collapse when the Greek financial crisis strained the viability of the EU construct. This year, as other EU countries domino in similar fashion, no one seems to care – certainly not the markets. Portugal’s government collapsed last Friday, and Standard and Poor has downgraded Portugal twice in the last week from A- to BBB-.  S&P then proceeded to cut Greece’s rating further from BB+ to BB-. Yet, defying all reason, the markets have gone up.

So, why is the market reacting positively to this news?

Well, in the perverse logic of a shortsighted market, debt spending is good.  Going into the European crises last year, there was no backstop for a European country in trouble.  The provisions for sovereign collapse were unclear and hotly debated.  Would Greece be kicked out of the Eurozone?  What would happen to the Euro?  Would bondholders suffer losses? How would this impact banks?

EU leaders reach deal on debt crisis

European leaders reached agreement in the early hours of this morning on how to tackle the debt crisis afflicting the nations using the single currency, with significant concessions from Germany.

Wiki Commons/Lars Aronsson

Philip Aldrick
Telegraph

"The fundamental path was hacked open," German Chancellor Angela Merkel said.

Along the way, Mrs Merkel made some serious concessions, which might cost her when she faces her electorate at home.

Together with her eurozone counterparts, Chancellor Merkel agreed to boost the region's bailout fund, the European Financial Stability Facility (EFSF), so it can lend the full €440bn (£380bn) that it initially promised.

Up to now, the EFSF was only able to lend about €250bn because of several buffers required to get a good credit rating - fanning fears that it would not be big enough to save a large country like Spain.

The fund will also be allowed to buy the bonds of governments in financial difficulties on the open market, but only if the respective country is locked into a national bailout program based on strict conditions.

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Bloomberg Files Lawsuit Against European Central Bank

UNC Biz Blog

Bloomberg LP, the parent of Bloomberg News, filed a lawsuit Wednesday that asks the European Union’s General Court in Luxembourg to overturn a decision by the European Central Bank not to disclose documents that show how Greece used derivatives to hide its fiscal deficit.

Bloomberg editor in chief Matthew Winkler appeared on Bloomberg Television on Wednesday to talk about the suit. Winkler said, “It’s very straight forward. We are seeking full disclosure of documents that show how Greece was able to finance itself into a predicament that became the European debt crisis as we know it. It’s entirely to the benefit of all the members of the EU, all of the citizens, all the taxpayers and for sure the financial markets. Transparency is something that has a way of enlightening perspective.”

Winkler also commented on the derivatives Bloomberg is seeking more information on:  “In this case, very complicated, intricate financing techniques were deployed to essentially enable Greece to put off consistently any kind of transparent reckoning of its indebtedness. That’s really at the heart of this case and that’s really why we are seeking these documents.”

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Euro slides as Portugal bailout pressure builds

Portugal is under pressure to accept an EU bailout in order to stop the eurozone debt contagion spreading to Spain, according to German press reports that pushed the euro to a two-month low.

Portugal General Strike - AFP image

Bruno Waterfield
Telegraph

The European Central Bank is pushing Portugal to become the third eurozone country to accept an EU-IMF “rescue” because of concerns that a Portuguese debt crisis will sink its Iberian neighbour Spain.

The EU and eurozone fears that Spain, Europe’s fifth largest economy, is too big to bailout and that a Spanish crisis would tear down the European single currency.

Major European stock markets fell sharply, unsettled by the news and talk of the EU bailout fund being doubled. Spain's Ibex led the way losing 2.3pc, while bourses in London, Paris and Frankfurt were down between 1.3pc and 1.7pc. The euro hit $1.3204, its lowest since late September.


Borrowings cost in Portugal and Spain climbed, with yields on the countries' 10-year bonds near record highs.

“If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal,” unnamed sources told the Financial Times Deutschland.

The rumours mirror similar leaks and briefings three weeks that Ireland was seeking an EU bailout and despite denials from all parties the reports were later confirmed.

Portugal, like Ireland before it, has denied it is being pressured by euro zone countries and the ECB. “This news article is completely false, it has no foundation,” said a government spokesman.

But Fernando Teixeira dos Santos, Portugal’s finance minister, has hinted euro zone are pushing Portugal to accept a bailout and the loss of sovereignty that allows the EU and IMF to take over a country’s fiscal policy.

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'The Euro Game Is Up! Who the hell do you think you are?' - Nigel Farage

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Former Manchester United Footballer Ignites Banking Protest

Eric Cantona - MPC/Rex features image

Thousands of French protesters have taken up the former Man United footballer's call for a mass cash withdrawal

Kim Willsher
Guardian

As students and public sector workers across Europe prepare for a winter of protests, they have been offered advice from the archetypal football rebel Eric Cantona.

Cantona was once a famous exponent of direct action against adversaries on and off the pitch. In 1995 he was given a nine-month ban after launching a karate kick at a Crystal Palace fan who shouted racist abuse at the former Manchester United star after he was sent off. But while sympathising with the predicament of the protesters in France, the now retired Cantona is urging a more sophisticated approach to dissent.


The 44-year-old former footballer recommended a run on the cash reserves of the world's banks during a newspaper interview that was also filmed. The interview has become a YouTube hit and has spawned a new political movement.

The regional newspaper Presse Océan in Nantes had asked Cantona about his work with the Abbé Pierre Foundation, which campaigns for housing for the destitute and for which he produced a book of photographs last year. But the discussion soon moved on to other issues, including the demonstrations in France and elsewhere against government cutbacks in the new era of austerity.

Cantona, wearing a bright red jumper, dismissed protesters who take to the streets with placards and banners as passé. Instead, he said, they should create a social and economic revolution by taking their money out of their bank.

He said: "I don't think we can be entirely happy seeing such misery around us. Unless you live in a pod. But then there is a chance... there is something to do. Nowadays what does it mean to be on the streets? To demonstrate? You swindle yourself. Anyway, that's not the way any more.

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Why the Irish Crisis is Going Global

Rick Newman
US News 

You may not have to worry about Ireland in a week, or a month. But at the moment, the Emerald Isle is causing global investors a whole lot o' anxiety.

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On the surface, it's reminiscent of the problem Greece had with its unmanageable federal debt early this year, which shook world markets, ended a global rally in stocks and ultimately led to a $146 billion bailout by the European Union and the International Monetary Fund. Greece spent more money than it took in for years, papered over the gap, and essentially became insolvent when it could no longer borrow the money needed to finance its debt.


Ireland is on the brink of insolvency too, which has helped drive down the S&P 500 stock index by nearly 4 percent over the last few days. But unlike Greece, Ireland is a relatively wealthy country, with per capita GDP of nearly $38,000. That's 21 percent higher than per capita GDP in Greece, and in the top third for European countries. Low corporate tax rates and a skilled workforce have made Ireland a haven for some of the world's biggest companies. And its public debt, about 65 percent of GDP, is far below Greece's crushing load, which is 126 percent of GDP. Ireland's debt levels are even lower than those in France, Germany and the United Kingdom.

But Ireland has one huge problem that may soon make it a supplicant to its European brethren: A failed banking sector that Ireland's government can no longer rescue on its own. Ireland is in the midst of a real estate bust that could trump even the ruinous downturns that turned parts of southern California and Nevada into suburban ghost towns, with home-grown banks stoking it all. Now, those banks are trying to manage catastrophic losses. The Irish government has effectively nationalized the nation's biggest banks by guaranteeing their debt, which would be akin to the U.S. government taking over Citigroup, Bank of America, J.P. Morgan Chase and Wells Fargo.

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That means the Irish government is also on the hook for the losses those banks endure--which have risen far beyond initial estimates, and may have a lot farther to go. So far, the Irish government is obligated to cover losses amounting to 175 percent of Irish GDP, which is becoming an unsustainable burden. "If the Irish banks go down, the Irish government also goes down," says economist Jacob Kirkegaard of the Peterson Institute for International Economics.

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Europe stumbles blindly towards its 'Great Depression' moment

It is the European Central Bank that should be printing money on a mass scale to purchase government debt, not the US Federal Reserve.

Ambrose-Evans Pritchard
Telegraph

Unless the ECB takes fast and dramatic action, it risks destroying the currency it is paid to manage, and allowing a political catastrophe to unfold in Europe.

If mishandled, Ireland could all too easily become a sovereign version of Credit Anstalt - the Austrian bank that brought down the central European financial system in 1931, sent tremors through London and New York, and set off the second deeper phase of the Great Depression, the phase when politics turned ugly.

“Does the ECB understand the concept of contagion?” asked Jacques Cailloux, chief Europe economist at RBS. Three EMU countries have already been shut out of the capital markets, and footloose foreign creditors hold €2 trillion of debt securities issued by Spain, Portugal, Ireland and Greece.



“If that is not enough to worry about financial contagion, what is? The ECB's lack of action begs the question as to whether it is fulfilling its financial stability mandate,” he said. That is a polite way of putting it.

The eurozone’s fiscal fund (European Financial Stability Facility) is fatally flawed. Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them. This lacks political credibility and may be tested to destruction if – as seems likely – Ireland is forced to ask for help. At which moment the chain-reaction begins in earnest, starting with Iberia.

It was a grave error for Germany’s Angela Merkel and France’s Nicolas Sarkozy to invoke the spectre of sovereign defaults and bondholder “haircuts” at this delicate juncture, ignoring warnings from ECB chief Jean-Claude Trichet that such talk would set off investor flight from high-debt states.

EU leaders have since made a clumsy attempt to undo the damage, insisting that the policy shift would have “no impact whatsoever” on existing bonds. It would come into force only after mid-2013 under the new bail-out mechanism. Nobody is fooled by such a distinction.

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IMF expert warns Ireland to 'seek bailout now'

Harry Leech and Nick Webb
Indepedndent

A FORMER chief economist at the IMF has warned that Brian Lenihan must immediately ask the IMF for a bailout or risk bankrupting the Irish state.

Simon Johnson, Professor of Entrepreneurship at Massachusetts Institute of Technology and a member of the Congressional Budget Office's Panel of Economic Advisers, has a stark message for the Irish Government.

"For the sake of the Irish people, it's time to go to the IMF. If you go in now and if you go in with your partners, you will get a good deal. You may not get such a good deal next week. It would have been a much better deal if they'd gone in February because Ireland wouldn't have had to go through all this discretionary tightening along the route."

While he agreed with the Governor of the Central Bank, Patrick Honohan that the IMF might not change the policies already being implemented by the Government, he warned that this situation would not last.

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Nation states are dead: EU chief says the belief that countries can stand alone is a 'lie and an illusion'

Daniel Martin
Daily Mail

The age of the nation state is over and the idea that countries can stand alone is an ‘illusion’ and a ‘lie’, the EU president believes.

In one of the most open proclamations of the goal of a European superstate since the heyday of Jacques Delors, Herman Van Rompuy went on to denounce Eurosceptism as the greatest threat to peace.

Tory backbenchers condemned the inflammatory comments in the speech made by Mr Van Rompuy to mark the 21st anniversary of the fall of the Berlin Wall.

They said it proved that David Cameron would have a battle on his hands if he is to prevent extra powers being handed to Brussels.

Last night 23 Conservative MPs, including former leadership contender David Davis, rebelled in the Commons by demanding a referendum if the Lisbon Treaty is amended – even if ministers argue the changes do not affect the UK. Their call was defeated.

Mr Van Rompuy’s speech in the German capital told his audience that ‘the time of the homogenous nation state is over’.

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