Daniel Gros, Dirk Schoenmaker: a Sense of Urgency

What the EU or, more accurately, the EA, should do an what it will do are, unfortunately, not directly related.

In this context, a link provided by Seafóid on another thread is pertinent.

http://www.ft.com/intl/cms/s/0/5d62de3e-ab1c-11e1-b675-00144feabdc0.html

As is this blog contribution, also from the FT.

http://blogs.ft.com/brusselsblog/2012/06/ten-things-to-remember-about-a-banking-union/#axzz1wjFBT7wO

This Der Spiegal headline says it all…

The World from Berlin
Spain’s Bailout Refusal Is ‘Kamikaze Politics’

Steve from Hicksville

“Everyone on Planet Earth stuck with euros will want them changed into d-marks.

This is a laughable farce of an idea. If Germany repudiates all of its trans-Europe responsibilities denominated in euros, it will certainly not accept the same responsibilities denominated in d-marks.

What about people with euros in German accounts? Won’t they be entitled to d-marks? NO! The Germans will convert non-citizen currency accounts to domicile states’ currencies. The euro itself might vanish with in a cloud of dust but all the EU instruments of finance repression will remain in place. A Greek with a German account you will be given worthless drachmas. Spanish will be giving pesetas, Irish given punts and a kick in the pants: everyone else in the ex-eurozone will be frantically bidding for dollars with whatever they have in their fists. Gold is good but nobody buys groceries with gold.”

http://www.economic-undertow.com

DORK – look there was a credit inflation in Greece also… any look at the deposit figures will tell you that.
Even if the Greek banks were “responsible” the Greek economy was dependent on northern Banks hyper inflating credit and the Northerners spending hyperinflated euros in Greek islands.

Also NATO was / is dependent on fiscally non sovergin Greece to cover it south east flank with a air fore bigger then the RAF and buy its Hardware so that Germany and France could keep its discipline.!!!

These Guys cannot be taken seriously – the euro economy is semi integrated for Christ sake.

Greece should do a De Gaulle Pepsi Max and pull out of NATO stating it can no longer afford to keep its comitments.

CARTOON OF THE DAY [ITALY]

Also grappling with difficulties in finding funds to finance its debt, Italy continues to suffer from the aftermath of a series earthquakes that since May 20 have so far caused 25 deaths. The Italian government has estimated reconstruction costs of 2 billion euros and has asked Brussels not to figure these in when calculating Italy’s 2012 deficit. This is to avoid sanctions imposed by the fiscal compact.

http://www.presseurop.eu/en/content/cartoon/2129471-shaken

Der Spiegel Links

[1] View from Berlin on Spain

Pressure is growing for Spain to tap into European Union bailout money to stem its banking crisis, but the country has stubbornly refused. Instead, Madrid hopes to get around bailout conditions with direct aid to its banks. German commentators on Wednesday say that the time for pride has passed.

Both German Chancellor Angela Merkel and her Finance Minister Wolfgang Schäuble agree that Spain should be forced to accept bailout money from the European Financial Stability Facility (EFSF), the temporary euro bailout fund, to inject liquidity into the country’s struggling banks. The two settled on the strategy last week. Last Wednesday, Schäuble pressured his Spanish counterpart, Luis de Guindos, to accept the emergency funding.

http://www.spiegel.de/international/europe/spanish-bailout-refusal-is-no-longer-tenable-say-commentators-a-837318.html

[2] ‘Now, a compromise to the standoff appears to be taking shape. According to the center-left daily Süddeutsche Zeitung on Wednesday, European leaders are currently considering a plan which foresees euro bailout money being provided to Spain’s “Fund for Orderly Bank Restructuring”, or FROB, a bank bailout fund set up in 2009. In return, Spain would pledge to restructure its financial sector, but would not be forced into extensive economic reforms and austerity measures of the kind that have been imposed on Greece.

http://www.spiegel.de/international/europe/possible-compromise-deal-on-european-aid-to-spanish-banks-a-837313.html

Sorry, posted on wrong thread.

I think the problem with Spain and Germany is that when the real amounts come out (like Ireland, Spain will try to drip feed the bad news which is SOP in PR terms) it will be horrendous.

Germany has an inkling of the real size of the Spanish banking problem and doesn’t want that size of bailout happening without the ’strict conditions’ of a Troika programme and the sovereign on the hook (or with skin in the game as I believe some people prefer to say).

However, Spain wants to get the direct funding to the banks agreed by pretending it’s a smaller figure and then reveal the truth later…. by which time the deal will have been set and the ESM will just have to keep on putting money into the black hole without Spain accepting any further conditions – or else the Euro goes up in smoke.

They’re not daft the Germans. Spain is trying to pull a fast one…. we only need a small amount so let’s do it directly, before the full audit has been carried out, without any conditions on the sovereign and then we’ll let you know the real bill when the mechanisms and paperwork are all signed up.

Spain is toast. Don’t touch it or anything in it with a barge pole. Seriously.

Swiss lifeboat still at the dock. Waiting. Some sense of urgency amongst the crew though. Maybe even panic.

On URGENCY:

Spain
Our time is nearly up
6 June 2012 La Vanguardia Barcelona

Until this week, Madrid thought it would have to wait for the Greek elections before getting any help to solve its national bank crisis. But panic is now growing with no easy solution in sight.

… On June 5 Cristóbal Montoro, the Budget Minister gave in his witty way the best summing up of the situation the Spanish government finds itself in – “The Men in Black will not be coming,” which was an amusing way of rejecting intervention – but he also had to admit that to clean up the banks need money. “The problem is where to find it”.

http://www.presseurop.eu/en/content/article/2127941-our-time-nearly

Oh the men in black are coming. It’s going to be a funeral.

@PR
Yeah I spent a year + of my life down there….. its both a healthy and unhealhty place…..but Carco is a bit of a tourist trap – especially behind the walls.
Go to Foix at the end of the Summer – theres a nice festival on every year or so.
http://www.youtube.com/watch?v=K0AdaWcLS9k

If not around then take the Yellow Train to the Cerdagne….I think you can still get a Train from Latour de Carol to Barcelona (it was once a very busy station , now very quiet)
http://www.youtube.com/watch?v=9RAV0FsDusg

test

@ the alchemist

the IT had a piece yesterday about the banks not looking likely to hit their targets of EUR 3.5 bn lending to the SME sector.
It must be a real nightmare out there in the real economy.

From Gros and Schoenmaker:

“Procrastination leads only to an accumulation of even higher losses and gives private creditors the time to escape any losses by offloading their claims at the government or the ECB.”

This will scare the living daylights out of private funds and those doing what they are payed to do will double and treble up on getting to hell out of this market by any means possible. It is suggestions such as this, regardless of whether you think they are right or wrong, that will cause the whole house of cards to collapse.

“Until now public sector employees and pensioners had an incentive to vote against ‘austerity’ to protect their income. With this partial and contingent deposit guarantee there would immediately be millions of depositors who might vote differently to protect their savings”

At what point does it become permitted for basic rational agent behaviour to be discussed openly in Ireland, with respect to the way people have acted and will continue to act in Ireland?

@grumpy

Methinks ‘rational agent behaviour’, in the supposedly economic decision making sense [and the highly dubious foundation of the odious efficient markets hypothesis]has caused more than sufficient mayhem as it is ….

Let’s take a more useful detour into ‘power dynamics’ …

Dastardly Deauville on the beach with MerKozy was designed to re-elect the CDU in Germany in 2013 and the little Emperor in France in 2012 – and they immediately destroyed a few sovereigns …..

Power in incompetent hands is as dangerous as the ‘rational efficient markets hypothesis’ but almost certainly more useful to keep an eye on at the mo ….. the matrixsquidesque elite in particular … to get this group to take notice, according to blind biddy, you gotta kick them suficiently hard in the balls that you knock them up against the wall ….

@ All

FYI

http://www.guardian.co.uk/commentisfree/2012/jun/06/europe-muddle-disintegration

There are a number of boxes in clear view with the notice “In case of emergency, break glass”. One of them, for example, would be to use the existing power in the TFEU to assign real supervisory authority to the ECB cf. FT blog list of ten points on the bankihg union.

Yesterday’s FT article by El Erian

http://blogs.ft.com/the-a-list/2012/06/06/spain-must-avoid-becoming-a-roach-motel/#axzz1x1ZvpjPA

concerning how the bailout regimes of P, I and G have driven away private capital and left the patients in a roach motel from which there is little prospect of escape reminded me of this gruesome story from India

http://www.tehelka.com/story_main39.asp?filename=Ne210608bloodthristy.asp

IT HAD BEEN a bad spell for Madhubani painter Hari Kamat, and it was about to get worse. Having had almost no sales for a year, he left his village in Bihar to look for a job and ended up in Gorakhpur, 200 km from Lucknow. He was offered a job as soon as he stepped down from the bus. Two months later, he was fired for no apparent reason. Local “friends” told him they would get him another and better job — all he had to do was go for a blood test. When the results returned, he was told the quality of his blood was so good he needn’t look for regular employment, but could make a living selling his blood, earning somewhere between Rs 500-1000 per unit.

Hari had no way of knowing he was about to fall victim to a well-organised blood trade centred around Gorakhpur’s numerous private hospitals and clinics. A short while later, he was to find himself along with 16 others — 25- to 40-year-old men from across north India — imprisoned in a slum in Shahpur, two km from the Baba Raghav Das (BRD) Medical College. For two-and-a-half years, the men were kept there, fed twice a day, and made to give blood thrice a week. Protest was impossible — the constant depletion of their blood had made them too weak

Of course you can’t do that to people nowadays but it’s fine for countries.
I am not surprised that the Spanish are saying WTF.

A la recherche du temps perdu

December 2011

Resolving payments crises inside a large, closed economy requires huge adjustments, on both sides. That is truth. All else is commentary.

http://www.ft.com/cms/s/0/396ff020-1ffd-11e1-8662-00144feabdc0.html#ixzz1frlKHalY

@DOCM

“Outstanding contribution from Seamus Coffey.” Sorry – me thinks not. Far from it in fact.

It seems that Seamus Coffey agrees with the notion that repaying the €25bn remaining PN over an extended period is a sensible policy. Unfortunately the only sensible policy here is take the view that the decision the Irish Govt made in providing a dime to Anglo was a wrong one. In the words of Leo Varadker ‘not a red cent more’. Despite SC arguing the ECB policies and strategies over the past number of years in relation to banking matters is generally flawed I can’t see why if most other ECB policies are deemed deficient then why the repayment, at all, of the PN is seen as sensible. This is a bizarre conclusion.

Seamus also suggests that Senior Bank Bond investors invested safe in the knowledge that in the event of the bank going bust they would always be repaid in full – no questions asked.

“The bailing-out of bank creditors has meant those with the money could provide funding to banks safe in the knowledge that public funds would be provided to make good any losses incurred The bailing-out of bank creditors has meant those with the money could provide funding to banks safe in the knowledge that public funds would be provided to make good any losses incurred”

As a long-term bank bond investor I can readily assure Seamus that his interpretation of the world of bank bond investors is seriously misplaced. Nobody can seriously suggest that a fund manager buying a 5-year AIB bond in 2005 for instance had a deep insight into the likely movement of Govt and their stance in the event of an AIB failure in the intervening period. Most sensible investors would have assumed the worst i.e. wipeout and importantly bought on that basis otherwise why would there exist a spread at all between the sovereign and the bank?

Seamus believes managers bought these instruments knowing the safe hand of the State was always on had to cushion the blow if AIB had blown up. This is simply untrue and is not representative of the facts on the ground at the time. The breathtaking stupidity of the State has ensured that Seamus’ theory has since become fact but this was not the expected outcome back in 2005. Far from it. Bondholders simply can’t believe their luck, and that’s the real truth.

Seamus also suggests that:

“Ireland can repay the money. What we need is for the ECB to wait until we are in a position to do so. Some of the costs of banking mistakes in the future will be covered by senior bondholders and possibly depositors. Ireland needs to allowed time for growth and inflation to help reduce the real cost of banking mistakes from the past”

This sounds awfully like a Mick Wallace financial strategy i.e. delay and hope. Hope is never a clever business strategy and many have learned that the hard way. We don’t need more time. We need a deal today. That deal is simple and very clear.

We the people are embarrassed by the incompetence of our elected leaders in agreeing to this daft idea that repaying the bond holders of the most insolvent banks in the world in full was naïve, stupid and long term economically suicidal. We the people have decided that it is now in fact in Irelands and Europe’s long-term interest to call a spade a spade. Bank Bond investors (of all colours) are not depositors, they are a much more sophisticated animal and they understood the risks in lending to Irish banks who themselves thought lending into property transactions at less than 1% net rental yield was a sensible business strategy. Bond investors who undertook these investing decisions should get zero when the institutions they risked their cash to fail. Repeat Zero. Nothing else will do to cleanse the system. If the ECB was stupid enough to believe otherwise and support the no bondholder left behind policy then sadly they also deserve their fate. Stupidity is not a money making scheme. Never was, never should be. Seamus knows this.

@Colm McCarthy

Actually, scratch that. Nobody has a crystal ball.

@Dr Angela Merkel

GO. You are in breach of the founding principle of European Solidarity.

GO NOW.

‘German chancellor Angela Merkel doused expectations that the summit will produce a major breakthrough towards a tighter fiscal and banking union in the 17-country currency zone, saying progress would take longer.

In a television interview broadcast today, she said the euro area was moving inevitably towards a political union ceding more national sovereignty, and that would lead to more of a two-speed Europe, with non-euro states in the slow lane.

“I don’t believe that there will be one single summit that will decide on a big bang,” Dr Merkel told ARD. “But what we have been doing for some time, and on which a working plan will certainly be presented in June, is to say we need more Europe.

“Whoever is in a currency union will have to move closer together. We have to be open to make it possible for everyone to participate. But we cannot stand still because some do not want to go with us,” she said.

Most EU officials see the process of integration taking five-10 years at best, a timescale much longer than the view of the markets, although economists also argue that agreeing steps towards closer union will itself help boost market sentiment.

As the EU’s biggest economy and largest contributor, Germany holds the key to how the union comes to Spain’s rescue, and

whether Europe is able to agree on a banking union with a joint deposit guarantee and a bank resolution fund, as envisaged by the European Central Bank and the European Commission.

http://www.irishtimes.com/newspaper/breaking/2012/0607/breaking5.html

@ ALL

Der Spiegel has now accepted and posted comment on their story “Banking Woes: Ireland Still Long Way from Overcoming Debt Crisis”.

http://forum-international.spiegel.de/showthread.php?p=113916

Please join in and communicate the Irish people’s understanding – views which Germans don’t hear often enough.