Europe’s Problems Multiply

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Yves here. Notice how someone in the officialdom actually said “There is no alternative”. Nothing like being explicit.

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

Overnight, Greek Leftist leader, Alexis Tsipras, gave up on his attempts, or at least pretence of them, to form government. The gauntlet has now been handed to PASOK leader, Evangelos Venizelos, who again has 3 days to attempt the same.

Given that New Democracy, Venizelos’s potential coalition partner, has already failed to create a workable coalition it is doubtful PASOK will succeed. Neither Tsipras or Samaras used their fully allocated time suggesting there is little point dragging out talks as no comprises could be reached.

Greece appears to be heading back towards an interim technocrat government and new elections unless the Greek President is able to muster a workable coalition in the coming days. New elections may bring new alliances, but it is yet to be seen what the new political strategies will appear after the demolition of the centrist parties.

Overnight the EFSF board agreed to make an additional payment to Greece in order to keep it technically solvent for a few more weeks:

After a conference call, the board of the European Financial Stability Facility, the 700 billion euro bailout fund administered by the 17 countries that use the euro, agreed to make the scheduled payment, which will allow Greece to meet near-term bond redemptions and other obligations.

An initial 4.2 billion euros will be paid on Thursday, while the remaining 1 billion will be paid out later, “depending on the financing needs of Greece,” a statement said.

It said the remaining 1 billion was not needed before June.

This may appear as a back down but realistically it is just a payment in order for Greece to hand the money back again. Greece has approximately €3 billion worth of bonds held by the ECB maturing this month and also the non-greek law PSI bonds to sort out. This is very much a case of drip feeding money in order to protect greater Europe from the contagion of a default.

In the meantime the rhetoric from outside of Greece has ramped up a notch with European Central Bank Executive Board member Joerg Asmussen quoted as saying:

Greece has to be aware that there is no alternative to the agreed consolidation program if it wants to remain a member of the euro zone

The ECB currently holds €40 billion of Greek bonds and its banks have €140bn in repos. In that regard Mr Asmussen appears to be having an argument with a loaded gun, and this has very much turned into a game of chicken.

But members of the ECB aren’t alone in publicly announcing Greece’s choice. Until recently, speaking of a Greek departure from the Euro was completely out of bounds. But, as Bloomberg reports, the economic and political realities of the situation appear to have changed all of that:

From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro.

Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes.

“If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels today. “They will decide whether to stay in the euro zone or not.”

After 386 billion euros ($499 billion) in aid pledges for Greece, Ireland and Portugal, 214 billion euros in ECB bond purchases and another trillion euros in low-interest loans for banks, plus 17 high-level crisis summits, Greece’s political chaos thrust Europe into a perilous new phase.

The world is witnessing an “important moment in European Union history, a moment of crisis,” EU President Herman Van Rompuy said in Brussels on the 62nd anniversary of the declaration by Robert Schuman, then France’s foreign minister, that launched postwar European integration.

Let’s hope there is some form of compromise on both sides, but at this point in time it is very hard to say what is going to happen either way.

Greece, however, wasn’t the only problem overnight. Spain once again came to the fore as its 10 year bond yields rose 4.02% to reach 6.078%. Meanwhile the Spanish stock market indicator, the IBEX 35, closed down 2.77% overnight which took it back to levels not seen since October 2003 and it now sits lower than it did at the height of the GFC:

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Overnight rumours of plans to attempt to bolster the banking system, including huge jumps in capital requirements, hit the news wires:

Spain plans to partly nationalize BFA- Bankia group as Prime Minister Mariano Rajoy tries to restore investor confidence with his second overhaul of lenders in three months, a government official said.

The government will become the largest shareholder in the bank that has the biggest Spanish asset base, said the official, who declined to be named because the plan hasn’t been announced.

It’s also working on a plan to force banks to set aside more provisions on real estate loans that are still healthy, said a person familiar with the situation, who also declined to be identified. The rules, to be approved on May 11, will increase provisions on the loans to about 30 percent from 7 percent, creating an additional buffer of about 30 billion euros ($39 billion), the person said.

Rajoy, who said for the first time this week he may use public money to shore up banks, is trying to restore trust in the financial system without overburdening public finances.

As I have explained previously, Spain’s major economic issue the loss of private sector wealth from over exposure to a deflating housing bubble which, in the absence of a major push in counter cyclical fiscal policy, is leading to a surge in bad debts in the banking system.

Spanish house prices accelerated downwards in April with the YoY falls hitting 12.5%. The accumulative falls since the peak are now 29.8%

With asset devaluations like that it is very difficult to see how the Spanish taxpayer is going to stay unencumbered under any new plan.

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  1. jake chase

    The whole Eurofiasco is about privatization of National resources. In the case of Greece this must mean either the beaches or the goats. As to what it means in the case of Spain nobody seems to know. I give the Eurozone another six months.

    Since nobody will lend Greece money after it leaves the Euro, the country will have no choice but to print it. This could be the beginning of monetary sanity. Do we dare to hope?

    1. Marley

      I am fully back on with my plan to make Greek (flag) cupcakes (to celebrate Greece leaving the Euro)!! Greece will NOT be a part of the EZ by year’s end. My hope is that the election do-over in June will further weaken the ND/PASOK block. There was something like 36-38% abstention rate. I’m hoping that the rise of the left will give hope to those who felt hopeless, and that an anti-Euro block will coalesce. Start priming the drachma presses!!!!

  2. Hilary Barnes

    Listened this morning to Manual Valls, perhaps France’s next prime miniuster, Francois Hollande’s election campaign spokesman, saying that Hollande cannot go back on his demand for a renegotiation of the EU’s Stability Pact: he made an election pledge, he cannot renege. If this is correct, he will precipitate a major crisis in Franco-German relations. If he also tells Obama in a few days time that he cannot modify his pledge to pull French troops out of Aghanistan by the end of this year, people may wonder if we have a little de Gaulle at the Elysee. See more at

    1. Gerald Muller

      Good grief! Comparing de Gaulle and Hollande, whom a lot of people now call Flanby (the name of a sort of jelly-like custard), is like comparing Abraham Lincoln and George W.
      One had backbone and vision, the other none of the above.
      Please do not insult the name of the great general.

  3. Max424

    The way this is developing, China is going to be owning Europe a little bit sooner than I expected.

    I thought Europe would be a China Sub-Satellite somewhere around the year 2025. But now I think China will have bought the half the shebang (at rock bottom prices*), and be running most of the action, by no later than 2020.

    *At austerity prices!

    Note: It’s coming down to a great currency battle, between China’s Yuan and the Neo-liberals Dollar/Euro, and you know what, I’m rooting for the Chinese.

    Why not? At least there seems to a purpose to a least some of what they’re doing, whereas the neo-liberals exist only to pile money on top of money.

    1. Sufferin' Succotash

      Capture Tyre and kill or enslave all the inhabitants.
      That’s how they do it in the Big Time!,r:3,s:16,i:118

      1. Nathanael

        Indeed. The financial thugs don’t understand that they’re creating a situation in which they can be, and are likely to be, destroyed by REAL thugs.

  4. Sarah Furgenson

    Darn, just when you thought there was an effective resistance with heavy casulties vs the New York Junta, this type of nooze blows forth. I’ll bet the equivalent of David Brook’s house title we aren’t getting all the details.

  5. ella

    A long read but relevant to this post.

    “Waiting for Copernicus
    By John Feffer

    It’s happening in Buenos Aires. It’s happening in Paris and in Athens. It’s even happening at the World Bank headquarters.

    The global economy is finally shifting away from the model that prevailed for the past three decades. Europeans are rejecting austerity. Latin Americans are nationalizing enterprises. The next head of the World Bank has actually done effective development work.”

    1. readerOfTeaLeaves

      Yup, I think things are going to get really quite interesting. Possibly even in a good way.

      Hollande evidently needs the BRIC nations, and the Chinese apparently seem more comfortable with Hollande than they ever were with the egoist Sarkozy. So the French may make new relationships with the Chinese.

      But here’s the capper for this week: Hollande is evidently going to Brazil for the Sustainable Development conference in late June. Putin is also making noises about going to Brazil. So that’s 3 out of 4 BRIC contacts in one conference, plus the Chinese showing interest.

      Methinks the dollar as reserve currency is not a long term proposition at this point. And as for this Sustainable Development conference… Obama will likely miss it due to campaign pressures, which strikes this onlooker as tragically shortsighted.

      Hollande and the French civil service are front and center.
      They have tons of opportunity to make a significant, long term difference.
      Lucky bastards.

  6. LadyLiberty

    How To Get Revolution In Europe

    It’s pretty simple, really.

    Put in place a “treaty” that requires:

    That all governments involved fund it on demand within 7 days.
    That the amount of said funding is determined by the entity, with no right of review or veto, and can be increased at any time.
    That there are no rights of review, not even to see the work product of the entity.
    That the entity can sue, foreclose, prosecute, etc — but nobody can sue, prosecute, foreclose or investigate the entity.
    That the people working for that entity enjoy absolute immunity — even against unlawful acts.
    No, this isn’t a dream. It’s the ESM.

    And should any nation ratify this entity it is identical in form and function to selling the citizens into literal slavery, at which point said government’s legitimacy has been destroyed by its own hand and thus the citizens are well within their rights to refuse consent to further governance by that entity.


    1. Externality

      No, this isn’t a dream. It’s the ESM.

      It also resembles the original plan for TARP. From Wikipedia:

      The original plan would have granted the Secretary of the Treasury unlimited power to spend, proofing his or her actions against congressional or judicial review. Section 8 of the [Treasury Secretary Hank] Paulson proposal states: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” This provision was not included in the final version. (footnotes omitted.)

  7. Susan the other

    “Remaining a member of the EZ” (for Greece or Germany now) means guaranteed clever circular financing, yes, like a firing squad. I’m pretty sure, without any evidence except curious history, that Germany’s problems are our (US) problems. The EZ first cobbled together the EMU to survive, when we no longer infused them with cash. Then they held on for dear life and fudged the facts with the piousness of the guilty. And shrewd American banks took full advantage of their desperation. What we are going through now is choreography.

    No financial bankruptcy should be this hard to resolve. Is it possible that the secrets of WW2 are now paralyzing us? And how inconvenient at a time when we clearly prefer China. If Germany paid Greece for its theft of Greek gold in WW2, plus the sacred (why?) and obligatory accrued 80 years of compound interest, Greece would be debt free with a surplus. But there is no mention of this troubling little debt in the media. Why not? Since there is such an ominous silence favoring austerity over confession, I wonder if the US has stg to do with the Nazis’ misbehavior… certainly we held our noses and jumped in with them with our top hats on just to defeat Stalin and communism. And now we are accusing the EU of being half-baked.

    We need a new recipe for our favorite meal – financial sausage. Just put it in one end with a new twist, dry it for several decades, and eat it with avowed relish.

  8. Bob Morgart

    How do I log in to the website? Just updated to WIndows 7. I subscribe to N.C. $5/month. Want to be sure I get every posting & article.

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