Jun 092012
 
 June 9, 2012  Posted by at 3:58 pm Finance





Photo: Jessica Smith

Production and exports are plummeting in Italy, Holland, Finland, Germany, just about anywhere; in China, production growth falls sharply. But your "leaders" will keep on talking about restoring growth, recovery etc. Spain will – secretly – ask for some $200-300 billion in bank bail-outs on Saturday (and get much less, the Wall Street Journal reports it will be €125), and 24 hours later play its first game in the Euro Cup, for which it's the great favorite.

The potential Spain bailout will need to be financed through EFSF bonds. The IMF has stated that the banks will need €40 billion, but that number looks ridiculously low. €40 billion every week over the entire summer sounds more like it.

Ambrose Evans-Pritchard quotes a few voices:

Is a Spanish bail-out viable?

Megan Greene, from Roubini Global Economics, says Spain's banks will need up to €250bn – a claim that no longer looks extreme. New troubles are emerging daily. The Bank of Spain said yesterday that Catalunya Caixa and Novagalicia will need a total of €9bn in new state funds.

JP Morgan is expecting the final package for Spain to rise above €350bn, while RBS says the rescue will "morph" into a full-blown rescue of €370bn to €450bn over time – by far the largest in world history.

But then there's always that nasty and inconvenient question:

"Where is the money going to come from?" asked Simon Derrick, from BNY Mellon. "Half-measures are not going to work at this stage and it is not clear that the funding is available."

In theory, the European Financial Stability Fund (EFSF) and the new European Stability Mechanism (ESM) can raise a further €500bn between them, beyond the sums already committed to Greece, Ireland, and Portugal. "There is sufficient firepower available. In addition, the EFSF/ESM can leverage resources," said Christophe Frankel, the EFSF's chief financial officer.

In theory, sure, Europe can further leverage and rehypothecate till Kingdom Come. But only in theory. The EFSF depends on international finance markets for their bond issues. Leveraging collateral won't exactly help it build or restore credibility there. And that's not all:

It may not prove so easy to convince global investors to mop up large issues of debt. "Our clients won't touch the EFSF because nobody knows what it really is. They have cut it out of their benchmarks altogether," said one bond trader.

The Chinese issued their own verdict yesterday. The country's sovereign wealth fund said it will not buy any more debt in Europe until the region takes radical steps to restore credibility. "The risk is too big, and the return too low," said Lou Jiwei, the chairman of China Investment Corporation. "Europe hasn't got the right policies in place. There is a risk that the eurozone may fall apart and that risk is rising," he told the Wall Street Journal. The EFSF had hoped to sell yuan "Panda bonds" but this may prove hard.

Eric Dor, from the IESEF School of Management in Lille, said Spain would have to step out of the EFSF as a creditor the moment it asks for funds. This has instant effects on the residual core. Italy's share rises from 19pc to 22pc, and Italy is in no shape to face extra burdens. France's share rises from 22pc to 25pc, and Germany's from 29pc to 33pc.

"The credibility of the guarantees given to EFSF bonds would collapse. This would cause an incredible turmoil on the European sovereign debt markets," he said. [..]

If you think this through, and include Italy ceasing to be a Eurozone emergency fund creditor, with other countries on the verge, you're left with Germany in the not too distant future paying over 50% of what's needed to "save Europe". If the Germans accept that at all (they probably won't), it will do so only with very stringent strings attached, like a much stronger political and fiscal union effectively run by Berlin. There is zero chance of a consensus for that in all member countries.

Any rescue must be a loan to the Spanish state, even if the money goes to the bank restructuring fund (FROB). The cost will push Spain's sovereign debt even higher .[..]

The EFSF had trouble raising funds last year. The spread on 10-year EFSF yields over German Bunds reached 177 basis points in November. Moody's said at the time that the EFSF "cannot meaningfully support the euro area's large government bond markets".

The fund placed a three-year bond last week at 1.116pc, compared with 0.15pc for German three-year debt, or 0.69pc for French debt. In effect, the EFSF is already paying a premium, and that was before the Spanish crisis had fully metastasized.

The permanent ESM may have more luck when it comes into force next month, since it will have €32bn of paid-in capital and a stronger mandate – but it still bears the stigma of EMU break-up talk. "If they want anybody to the buy the rescue bonds, they should make them redeemable in the German currency on the day of the redemption: let us call them D-Mark bonds," said Charles Dumas, head of Lombard Street Research.

The Spain bank bailouts, if they happen, will be a temporary "solution", more like a bank band aid, and it will, for one thing, do absolutely nothing to alleviate the (debt-)pressure on the Spanish government, let alone its regions, which are also miles over their necks in debt (re: China). Nor will it do anything at all to help the over 50% of unemployed young people find jobs.

Which means that all hope of recovery or growth in the Spanish economy remains a lost and lonely mirage for many years to come. Which in turn guarantees that all numbers used to figure out the right number of billions for the banks will turn out to be hugely over-optimistic. And that of course guarantees more talks and more bailouts in the future.

One of the smartest things I read the past week was the assertion that it doesn't make one iota of difference who wins the June 17 Greek elections; just like in Spain, Greece's economy is getting so much worse so fast that any and all treaties concluded in the past will need to be renegotiated regardless of what anyone claims.

The idea is that if the "traditional" parties win, which support the "Troika treaty", all will be fine, but that's just a load of doo-dog-doo. Everything Europe and the IMF have come up with so far has been one too many mornings and a thousand miles behind the reality that underlies what they're talking about in the first place. If they would address the actual reality, nobody would show up at the negotiating table anymore. And the Spanish people would perhaps not quite as peacefully stay home to cheer their team.

So reality is off the cards. No truth for you; word is you can't handle it. And if you can't handle the truth, what are the chances you can handle reality when it catches up with you?

And now that we're asking questions, answer me this one: where's the growth going to come from that your leaders are dangling before you?

Tick 'em off: not from Spain, not from Greece, that's the easy ones. Not from the PIIGS. And not from the FANG countries (Finland, Austria, Netherlands, Germany): their production numbers are falling as we speak. Not from the US, which are hopelessly stuck in their unemployment swamp (officially and unofficially), which have a housing market that has a long way down ahead yet even with (or because of) 40 million underwater "homeowners“, and which have so much government debt only divine intervention would offer solace (which is perhaps why so many Americans attend church). And not from China either, where numbers are falling so hard a soft landing looks like a faraway dream.

This is a classic Mexican stand-off. Europe can't afford to save Spain, and it can't afford to not save it. I've said it before: there is no solution for Europe. In its battle for credibility, it destroys that very credibility, since it has no choice but to expose its weaknesses in the process.

Weaknesses like Germany's potential inability to pay for bailouts. Satyajit Das writes this:

Germany and France can’t afford euro-zone bailout

The standard narrative states that Germany does not want to bail out troubled peripheral nations within the euro zone. The reality is that the more highly rated and larger euro zone members, Germany and France, may not have the necessary financial resources for the task.

• German Gross Domestic Product is €2.5 trillion and its debt levels are around 80% of GDP. French GDP is €2.1 trillion and its debt levels are around 90% of GDP.

• Germany and France’s greatest vulnerability is the large financial exposures arising from the current European debt crisis. Their exposures to the troubled peripheral economies are large. German and French banks have exposures of around €800 billion to the debt issues of peripheral nations.

• The German and French states have indirect exposure through support of various official institutions such as the European Union, European Central Bank, the International Monetary Fund and special bailout funds. As of April, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy was €918 billion and rising rapidly, driven by capital flight from these countries.

• German and French guarantees supporting the European Financial Stability Fund are around €200 billion each.

• Germany also has the additional burden via the Bundesbank’s €644 billion exposure to other central banks in the euro zone under the TARGET2 (“Trans-european Automated Real-time Gross Settlement Express Transfer System”), which is designed as a payment system to settle cross-border funds flows.

Surplus countries such as Germany have been forced to use TARGET2 to finance peripheral countries without access to money markets as a way of funding trade deficits and offsetting capital flight. Germany is by far the largest creditor in TARGET2. The Netherlands, Finland and Luxembourg are the other creditors, with all other euro zone countries being net debtors within the system.

.. [greater monetary and fiscal integration] would require mutualization of debt through the issue of euro zone bonds backed jointly or severally by all member states. Germany’s and France’s financial exposure would increase through their liability for euro-zone bonds.

• Germany’s TARGET2 exposure would also continue to increase, at a rate of €80-160 billion annually to finance expected trade deficits in the rest of Europe. The increase in exposure may be higher if needed to finance budget deficits of weaker euro zone members and the anemic banking sector.

• A credible deposit insurance scheme would have to be around €1.3 trillion in size. A European deposit guarantee system, provision of capital or further funding of banks would potentially increase Germany and France’s financial liability.

• If integration is not undertaken or the partial solutions fail, then some European countries will need to restructure their debt and potentially leave the common currency. Germany and France would suffer immediate losses. A Greek default would result in losses to Germany of up to €90 billion. France would suffer losses of up to €65 billion.

The BBC reports that Spain has restated again on Saturday morning that it doesn't need or want a bailout, at least not before a domestic stress test which will be made public 2 weeks from now. However, the EU and ECB want it all done in one week, before June 17, the Greek election. It will be. But once again, nothing will be solved when it is.

Still, the Eurozone countries are stuck with each other and with nowhere to go. But down.

Greece can't leave, or be allowed to leave, because other countries (the PIIGS) would follow. Either of their own will or because the bond markets would force them. It's possible that Germany et al. could at some point think a Greek exit could be controlled, but that would be a huge miscalculation.

Germany can't leave either, and also because other countries would follow. The Netherlands, Finland, Austria, many one or two others. France would want to join this group, but the other countries wouldn't want it to. And France would never accept being in the PIIGS group.

The only thing that's certain is chaos.

It's a restless hungry feeling
That don't mean no one no good
When ev'rything I'm a-sayin'
You can say it just as good
You're right from your side
I'm right from mine
We're both just too many mornings
An' a thousand miles behind.
Bob Dylan

 

Home Forums Europe: A Thousand Miles Behind

This topic contains 0 replies, has 0 voices, and was last updated by  Raúl Ilargi Meijer 8 years, 3 months ago.

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  • #3945

    Actually, most institutions notably the Catholic Church, the Mormons, Billy Graham, Jimmy Swaggert, et al and numerous other promoters of various interpretations of Biblical MEANING are what led me to the conclusion anybody at all can pitch out their interpretation here. Exactly how LAZY I am in terms of research isn’t all that meaningful really, because I have no idea how much work anybody puts into developing their own interpretation of this stuff. Even if they DO put in a lot of work (and the Catholic Church has been working at this for CENTURIES now and Monks gave their entire LIVES to the task of buttressing their arguments), that does not mean they draw correct conclusions either.

    I am sure for every argument you put up there is some Jesuit or some Seventh Day Adventist who could cite another 1000 texts to refute an argument you cut and paste from somebody else. I am supposed to spend the rest of my days walking the earth sifting through this swamp of conflicting interpretations to make my decision on WTF has it RIGHT here?

    Please feel free always to knock down any argument I put up with reams of documentation from sources which meet your requirements for adequate research. I’m still looking for an argument in there which refutes the idea that the Babylonian Collapse of the Mesopotamian Era was a Monetary System Collapse. When I either find one on my own or you point me toward such an argument, I’ll read it in its entirety. What you did point me toward was just more of the same kind of bullshit I have read many times before, and I really did not need to go through all the pages to figure that one out.

    RE

    #3951

    ashvin
    Participant

    Reverse Engineer post=3574 wrote: I am sure for every argument you put up there is some Jesuit or some Seventh Day Adventist who could cite another 1000 texts to refute an argument you cut and paste from somebody else. I am supposed to spend the rest of my days walking the earth sifting through this swamp of conflicting interpretations to make my decision on WTF has it RIGHT here?

    It won’t necessarily take you that long, but, yeah, if you want to be straightforward and accurate about what you’re telling people, you need to first figure out what’s correct or what’s most likely to be correct. Sometimes it takes 5 minutes to weed out the BS and sometimes it will take much longer. The Papal (Apostolic) tradition of the Catholic Church is pretty easy to debunk as being a meaning contained within the Bible, but other views like the pre-tribulationist Rapture belief might be more difficult. As I stated in the other post, this is my faith:

    “As you may have guessed, my version is not the EASY one to follow. It is not even the one I practice in most aspects of my own life, because I find it much too difficult. Yet, it is still what I believe to be true. Faith is not about a care-free attitude or an unquestioning, dogmatic belief in certain laws or truths. It is about time, effort, logic, critical examination, emotional stability, and, ultimately, free will.”

    I’m still looking for an argument in there which refutes the idea that the Babylonian Collapse of the Mesopotamian Era was a Monetary System Collapse. When I either find one on my own or you point me toward such an argument, I’ll read it in its entirety. What you did point me toward was just more of the same kind of bullshit I have read many times before, and I really did not need to go through all the pages to figure that one out.

    This is simple, RE. You asked me what evidence I have to suggest the passage you quoted was not about the Babylonian civilizational collapse of the past, but rather about a specific future event in Jerusalem. Besides the obvious fact that it is contained in the Book of Revelations… I directed you to a detailed argument on the matter. You largely ignored it and now call it BS. No one said anything about Babylon not suffering from a monetary collapse (of course it did)… but WTF God’s wrath on the unfaithful inhabitants of Jerusalem, as described in Revelations, has to do with your monetary collapse arguments against GO is beyond me. You don’t even believe that specific event will happen, but you still use it as support. That was my issue all along, and it ended up with you saying it doesn’t matter what other texts actually mean, because anyone’s interpretation of them is just as valid as anyone elses’ and can be used accordingly. I said that’s nonsense.

    #3958

    ashvin post=3580 wrote: [quote=Reverse Engineer post=3574]I This is simple, RE. You asked me what evidence I have to suggest the passage you quoted was not about the Babylonian civilizational collapse of the past, but rather about a specific future event in Jerusalem. Besides the obvious fact that it is contained in the Book of Revelations…

    I think here is the source of confusion, and this is really my fault for not explaining the issue clearly enough.

    Revelation is a prediction of a future event, I don’t dispute that. Whether that future event will occur in Jerusalem or the City of London or on the site of the original Babylon I don’t know.

    What I do know is that any good science fiction writer who makes predictions about the future bases it on events that occurred in the past or present. So whoever it was that was writing Revelation in making his predictions about the future would likely base that on things he knew of from the past, which others of his time likely were aware of as well, as stories passed on through oral tradition. Those folks were a lot closer along the timeline to the collapse of the REAL Babylon than we are now, and stories about it likely still circulated, as currently stories still criculate about say Vlad the Impaler. For the reader of Revelation in that time, drawing the analogy of a Future event to one known of in the Past would have driven home the likelihood that similar (but worse) could occur in the future.

    Hopefully this clarifies and resolves our dispute on this point.

    RE

    #3960

    FrankRichards
    Participant

    >>but the articles of, let’s say, Stoneleigh or Ilargi actually mean what the writers intended them to mean, or what the written words suggest they mean.

    Just FWIW, I’ve had exactly that problem with Ilargi several times. What I read was not what he meant to write. Sometimes it has been obvious from context, but in others, eg the famous “you may not recognize your home town”, it was most certainly not.

    Also, FWIW, I have seen the issue arise between native speakers of English. One of the many reasons I no longer work for the Irish company I fondly refer to as Dysfunctional Ltd. is the number of times I told my boss, “I am bilingual. What the prospect heard is not what you think you said.”

    And possibly relevant here, 150 years after “The Late Unpleasantness”, people from Dixie and Mr. Lincoln’s Union can still hear each others statements and feel, “Honorless craven” and “Lying hypocrite”.

    #3967

    ashvin
    Participant

    Reverse Engineer post=3587 wrote: Hopefully this clarifies and resolves our dispute on this point.
    RE

    OK, yeah, that does make it a lot more understandable for me.

    Obviously, those of the Christian faith would still take issue, because they do not believe Revelations was written by some random sci-fi author, but a prophet who was literally inspired by the Word of God. If you don’t believe that, then there is more room for you to think that he was simply borrowing stuff from past accounts to come up with random prophecy.

    Still… it is odd to rely on Revelations 17 at all for your argument with GO about how PMs will fare in the future. If John was just making shit up about what will happen in the future, that hurts your argument. If you think it is good because it sounds like the account of money collapse in historical Babylon, then why not just use the latter as your support? We all agree (me, you, GO) that the current monetary system will eventually collapse, but it’s unlikely Biblical John would know anything about our present troubles 2000 years ago (unless he was, in fact, inspired by an all-knowing God). So why rely on the passages written by a “good science fiction writer” instead of historical accounts of Babylon? I guess just because they sound cooler!

    #3973

    ashvin post=3597 wrote: [quote=Reverse Engineer post=3587]
    Still… it is odd to rely on Revelations 17 at all for your argument with GO about how PMs will fare in the future. If John was just making shit up about what will happen in the future, that hurts your argument. If you think it is good because it sounds like the account of money collapse in historical Babylon, then why not just use the latter as your support? We all agree (me, you, GO) that the current monetary system will eventually collapse, but it’s unlikely Biblical John would know anything about our present troubles 2000 years ago (unless he was, in fact, inspired by an all-knowing God). So why rely on the passages written by a “good science fiction writer” instead of historical accounts of Babylon? I guess just because they sound cooler!

    Actually, it’s Revelation 18 I used, not 17.

    Why use that instead of some other historical text? First off, because I haven’t found so far another text which describes the monetary aspect of this collapse. Lots of stories about the sack of the City, the various and sundry rulers that took over and so forth, but nothing about money.

    Second, this is a very concise passage overall describing many of the phenomena we see today. Kings of the Earth and Rich Merchants fornicating basically describes a weekend in the Hamptons.

    The Bible is also well regarded and accepted as a Historical source. So if you do make the assumption as I do that most of the stories in there have some basis in historical fact, this particular bit of history is very relevant to us. It has a very specific reference in it to Gold & Silver, which of course is why it applies in any argument with GO.

    Then of course also, as a big FAN of my writing 😉 you know how I use metaphors and go way over the top all the time, and good grief you can’t get more OTT stuff to use than comes out of the KJV Bible in Revelation. That is pretty much the best Fire & Brimstone writing ever done, and I hold it in as much esteem as I do the work of Dr. Hunter S. Thompson B)

    RE

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