Cyrpus Deposit Grab Solution To Be Adopted In New Zealand

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It appears that the solution to the Cyprus banking crisis is appealing to TPTB. A few days ago Hanbelsblatt reported Commerzbank CEO Joerg Kraemer as saying the Italians should pay for bank robbery bailouts through their savings.

translationed version

net financial assets of the Italians therefore amounts to 173 percent of gross domestic product (GDP). This was significantly more than the net financial assets of the Germans, which corresponds to 124 percent of GDP, said Kramer Handelsblatt Online. “So it would make sense, in Italy a one-time property tax levy,” suggested the Bank economist. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product.”

Now it appears that the New Zealand government are also liking this idea of resolving banking debts by getting its citizens paying for it via their deposits as reported in the Green Party press release.

The National Government is pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.

“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

“OBR is not in line with Australia, which protects bank deposits up to $250,000.

“A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure.

“Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”

Even in the US there has been noise made in that line too last month as reported by Bloomberg. The U.S. Consumer Financial Protection Bureau is looking at gaining more power over retirement savings. After all there is over $19 trillion that can be tapped in an emergency.

The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.

“That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.

 

Source: Green Party (New Zealand)Handelsblatt, Bloomberg,   New Zealand Government’s Open Bank Resolution

How Russia Could Take Revenege Over Cyprus Deal

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Europe has already had a taste of what Russia can do in 2009, due to the dispute with Ukraine over an unpaid gas bill. That winter the tap was turned off and maybe that was point, to remind Europe not to cross Russia in future. Steve Keen in this CNBC article takes a look at the possible way in which an angry Russia can hit back.

putinGermany might be telling the world not to blame it for Cyprus’ bailout plan, but one analyst told CNBC that Russia could avenge the loss of billions of dollars it has invested and deposited on the island by cutting Germany’s energy supply.

As the Cypriot parliament prepares to vote on a controversial and unprecedented proposal to levy a tax on bank accounts held on the island, the deal has been described as a covert move by Germany and its euro zone partners to tackle what they perceive as Russian money laundering in Cyprus.

Twenty percent of total deposits of the Cypriot banking system are held by Russians and many Russian businesses are registered in Cyprus, making any plan to levy a 15.6 percent tax on deposits over 100,000 a moot point for Russia. The country has also given Cyprus a $3.3 billion loan that Cyprus wishes to extend.

Russia’s leaders have already condemned the European bank levy proposal, with President Vladimir Putin calling it “unfair, unprofessional and dangerous” on Monday. On Tuesday, Russian Prime Minister Dimitry Medvedev added to the growing Russian frustration over the move. “Quite strange and controversial decisions [are] being made by some EU member states. I mean Cyprus. Frankly speaking, this looks like the confiscation of other people’s money,” Medvedev said on Monday.

Steve Keen, professor of Economics & Finance at the University of Western Sydney, told CNBC that Russia could retaliate against the perceived proxy attack on its citizens, and their money.

“If you try to target the Russians, and there’s President Putin acting under the image of the ‘strong man’ of Russia, why would he not then decide to shut down gas supplies to Germany until that was righted?

“If you’re going to attack money laundering then attack it directly, don’t make Cypriot peasants and small businessmen collateral in your campaign against Russian oligarchs. Declare the campaign rather than doing it under the carpet like this too,” he added.

“Russia has been willing to play that card before,” Keen said, alluding to when Russia’s largest state-owned gas and oil supplier Gazprom reduced gas supplies to Europe in 2009 during a dispute with an Ukrainian energy company.

With 36 percent of Europe relying on Russia for its gas supply, the threat or act of limiting supplies gives Russia a powerful card to play should it wish to push home a political point against Germany.

“It is an explosive political situation,” Nick Spiro, head of Spiro Sovereign Strategy, told CNBC. “This is a rubicon which should have never been crossed…This bailout agreement has Germany’s political fingerprints all over it,” Spiro told CNBC Europe’s “Squawk Box.”

“If Germany’s aim was that the larger deposit holders, the Russian ones, were going to bear the brunt of this, then obviously it’s backfired,” he added.

Steve Keen told CNBC that the proposal was tantamount to “blowing the brains out of capitalism” and such a proposal would destroy the euro and the idea of a monetary system.

“It’s mind-boggling that German bureaucrats and politicians can think that this is a sensible way to share the pain,” Keen said. “If you destroy the trust that depositors have in their bank accounts, you fundamentally destroy the oil of capitalism.”

“This is an absurd decision which has to be blocked somehow. If the Russians block it or the Cypriots block, somebody has to block it,” he said, ahead of a crucial debate in the Cypriot parliament over whether to ratify the plan.

Approving the plan is central to Cyprus receiving a 10 billion euro bailout from the European Union and International Monetary Fund (IMF) but as yet, the outcome of the vote is uncertain.

The Cypriot President Nicos Anastasiades reportedly told German Chancellor Angela Merkel and the European Union’s economics affairs commissioner Olli Rehn on Monday that he would stand by what was agreed at a euro zone finance ministers’ meeting last week but “insisted that EU partners offer some additional help,” a state spokesman, Christos Stylianides, told state radio on Tuesday.

(Read More: Cyprus President Is a ‘Fool:’ Gartman)

Stylianides added that President Anastasiades is also likely to talk to the Russian President, Vladimir Putin, on Tuesday.

Against a backdrop of protests in Cyprus and sharp declines in global equity markets on Monday, the German finance minister attempted to deflect blame from his country, saying the solution had not been a German idea and that he was open to it being changed.

“The levy on deposits below 100,000 euros was not the creation of the German government,” Wolfgang Schuble told reporters in Berlin on Monday. “If one reached another solution we would not have the slightest problem,” he added. On Tuesday, however, Schuble said that Germany pressed for a “bail-in” of Cypriot depositors to protect European taxpayers.

Source: CNBC

Your Banks Mess Up, But Its Your Fault

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Wolfgang Schauble, Germany’s Finance Minister is not one for holding back when it comes to pointing out the ills of other countries. Schauble has clearly laid the blame for Ireland’s bank collapse at the hands of the Irish. While partly this is true, he neglects the enormous part played by the ECB. It was the ECB’s interest rate decisions which Schauble’s Germany benefited from, that caused credit bingeing countries all their problems. He also neglects the ECB’s decision to force the Irish taxpayer to pay back gambling bondholders and help keep German banks afloat.
If that’s the best analysis Schauble can do regarding Ireland then God help the German taxpayers because I wouldn’t trust this lawyer to run my finances. When it comes to German banks exploding, Schauble’s attitude is, it’s never the banks fault. I woudn’t fancy been forced to bail out German banks along with bailing out the rest of Europe.
Wolfgang Schauble, Germany’s powerful federal minister for finance, has said it is all Ireland’s fault its banks collapsed, plunging the economy into a deep recession, and absolves reckless European bondholders of all blame.

In a frank interview for a new documentary called State Secrets and Bank Bailouts, Schauble dismisses claims that European bondholders should be made share in the responsibility for unsustainably pumping up Ireland’s banking system with billions.

“The cause in Ireland is something Ireland itself created – not Luxembourg, not France, not Germany, but Ireland – and it benefited from it for some time,” Schauble claims.

“Then everyone has to bear the consequences of a wrong-headed policy.”

In the documentary, presenter Harald Schumann, a former editor of Der Spiegel, asks Schauble to publish a list of the bondholders who cashed in from the German-backed decision by the European Central Bank not to make them bear the cost of banking recklessness but instead to shift this bill on to the citizens of peripheral European states like Ireland.

“Why don’t you publish a list of creditors so we can have an informed debate about it?” he asks. Schauble dismisses this view as being “naive.”

“[Banks are] very intermingled. And if one bank is not solvent anymore, then it will immediately trigger doubts about the solvency of the next bank because it may have credit at the other,” Schauble states.

“Everyone should solve their own problems. If everyone swept in front of their own door, the whole neighbourhood would be clean,” the German politician added.

“The Irish were very aware that their banks were less stringently supervised then the German banks,” he said.

Most economic common sense in Ireland unfortunately comes from independent politicians (the mainstream politicians are the best money can buy). In this case Stephen Donnelly easily dismisses Schauble’s argument.

In this major documentary, independent TD Stephen Donnelly disputes Schauble’s views of the Irish crisis, which are widely accepted in Germany.

“The gun was held by the European Central Bank,” Donnelly states, “The suspicion is that the European Central Bank said you will continue to pay these bondholders to whom you owe nothing or we will pull the emergency funding out of your banking system. Thereby collapsing your banking system, thereby collapsing your economy. To me, that is gunboat diplomacy.”

Former finance minister Brian Linehan backed up Donnellys claim before he died stating that Trichet made him bail out the bondholders. Even current finance minister Michael Noonan claims to have the letter from the ECB forcing Ireland to bailout the banks at the taxpayers expense, otherwise emergency liquidity would be withdrawn.

Source: Irish Independent

Germany On Verge Of Bailing Out Cyprus

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This euro crisis just gets better and better. Cyprus is locked out of the bonds markets for over a year now and is being kept alive by a loan from Russia but badly needs a bailout. Thats where the dilemma lies for Germany which will bear the brunt of any bailout. A lot of the depositors in Cypriot banks are Russian black money and with an election later this year, it would be very embarrassing for Merkel to be seen to supporting handing over German taxpayers money to pay back dodgy Russians.

When German officials said they would save the euro zone at all costs, the prospect of bailing out Russian oligarchs was not what they had in mind.

But eight months before a crucial election in Germany, Chancellor Angela Merkel is facing charges that Europe is doing just that as the tiny island of Cyprus, a haven for Russian cash, threatens to become the next point of contention in the euro crisis.

In recent days, Germany has signaled that it is reluctantly edging toward a bailout for Cyprus, after lifelines have been extended to Greece, Ireland and Portugal to prevent potentially calamitous defaults. While Cyprus makes up just a sliver of the euro zone economy, it is proving to be a first-rate political headache.

“I don’t think that Germany has ever in the history of the euro zone crisis left itself so little wiggle room,” said Nicholas Spiro, the managing director of Spiro Sovereign Strategy in London. “But Germany wants the euro to succeed and survive, and they are saying we can’t afford a Cyprus bankruptcy.”

But giving a bailout to Cyprus is trickier than it seems. Cyprus’s politicians would prefer not to take European money, which comes with the harsh austerity conditions that have spread misery in Greece. And they can argue that Cyprus was doing relatively well until Greece’s second bailout, when Greek government bonds — of which Cypriot banks held piles — lost considerable value.

The question of keeping the euro together had seemed to be conveniently fading for Ms. Merkel, who in the fall put her full backing behind the euro zone, quieting fears of a breakup. But Berlin seems to have been caught off guard by the political tempest stirred up by Cyprus, which has been shut out of international bond markets for a year but has been kept afloat by a $3.5 billion loan from the Russian government.

Here, is where it get hilariously funny 😉

With that money running out, Germany and its European partners have been locked in a fierce debate over whether and how to throw Cyprus a lifeline. The problem is, most of the money lost by Cypriot banks was Russian, and the worry is that most of the bailout money could wind up in the hands of Russian oligarchs and gangsters. That fear, backed by a recent report by German intelligence, has stoked a furor even among some of Ms. Merkel’s political partners. “I do not want to vouch for black Russian money,” Volker Kauder, a prominent member of her conservative bloc, said recently.

The Russian presence is thick on Cyprus, a picturesque Mediterranean island and a onetime British colony. The bustling, large city of Limassol has an enclave of restaurants, shops and fur boutiques so packed with Russians that locals call it “Limassolgrad.”

You know when something is true, when you get an official denial.

Officials in Cyprus say there is no proof that the Russian cash in its banks is of dubious origin, and they insist that they cracked down on money laundering before joining the European Union. The officials point to an evaluation by the Organization for Economic Cooperation and Development showing that Cyprus is compliant with more than 40 directives against money laundering.

With a population of slightly over 1 million, Cyprus is looking for about €22 billion for its banks.And  I thought Ireland messed up its banks bigtime.

While any lifeline for Cyprus would be small — about $22 billion compared with about $327 billion for Greece — the quandary has reverberated in Europe’s halls of power, and especially in Berlin, which appears to have been backed into a corner by Ms. Merkel’s commitment to keep the euro zone together no matter what.

The outspoken German finance minister, Wolfgang Schäuble, recently cast doubt on whether Cyprus should even be considered for a bailout, given its small size and the stark reality that it is not nearly as vital to the euro’s existence as the larger economies of Spain or Italy. His blunt assessment reportedly drew an admonishment from Mario Draghi, the president of the European Central Bank, which has spent hundreds of billions of euros on a program intended to discourage financial market speculators from attacking euro zone countries.

Already Cyprus is implementing austerity measures and they are having predictable consequences.

With Russia refusing to provide any further financing unless the so-called troika of creditors — the European Central Bank, the International Monetary Fund and the European Commission — provides most of the bailout, the Cypriot government has few options. It signed a memorandum of understanding in November with the troika, setting off a wave of austerity measures that are already starting to hit the enfeebled Cypriot economy.

The salaries of public sector workers have since been slashed by up to 15 percent, state pensions are to be cut by up to 10 percent and the value-added tax is set to rise. “The island has been hard hit, and there is an atmosphere of fear,” Mr. Faustmann said. “People are not sure if they will keep their jobs, and if they do, how long they will have them.”

Mr. Faustmann estimated that it would take at least a half-decade for the Cypriot economy to recover — assuming that the conditions required by Germany and the troika do not send Russian money fleeing from the banks. “If that happens,” he said, “then Cyprus is dead.”

Source: NY Times

Cyprus Bailout MoneyTo Benefit Russia

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Cyprus is on the verge of a bailout from the EU but according to Testosteronepit it is Russian “black” money that will benefit. Either way, Cyprus needs €17 billion for its bankrupt banks following in the path of other Eurozone countries whereby the banks destroyed the nation and governments under orders, signed its citizens up to repaying the banks debts.

German Bailout Chancellor Angela Merkel, who is trying to avoid any tumult ahead of the elections later this year, has a new headache. Cyprus, the fifth of 17 Eurozone countries to ask for a bailout, might default and exit the Eurozone under her watch. Using taxpayer money or the ECB’s freshly printed trillions to bail out the corrupt Greek elite or stockholders, bondholders, and counterparties of decomposing banks, or even privileged speculators, is one thing, but bailing out Russian “black money” is, politically at least, quite another.

Cyprus is in horrid shape. Particularly its banks. Their €152 billion in “assets” are 8.5 times the country’s GDP of €17.8 billion. “Assets” in quotation marks because some have dissipated and because €23 billion in loans, or 27% of the banks’ entire credit portfolio, are nonperforming. That’s 127% of GDP! And then there are the Russian-owned “black-money” accounts.

A “secret” report by the German version of the CIA, the Bundesnachrichtendienst (BND) was leaked last November, revealing that any bailout of Cyprus would benefit rich Russians and their €26 billion in “black money” that they deposited in the now collapsing banks. The report accuses Cyprus of creating ideal conditions for large-scale money laundering, including handing out Cypriot passports to Russian oligarchs, giving them the option to settle in the EU. Much of this laundered money then reverses direction, turning minuscule Cyprus into Russia’s largest foreign investor [read…  The Bailout of Russian “Black Money” in Cyprus].

Now Cyprus needs a bailout of over €17 billion but Merkel faces an enormous task back home in convincing a sceptical public in bailing out Russian interests.

Now Cyprus needs €17.5 billion—just about 100% of its GDP—of which €12 billion would go directly to the murky and putrid banks. The package should be wrapped up and signed on February 10 at the meeting of the European finance ministers.

“I cannot imagine that the German taxpayer will save Cypriot banks whose business model is to abet tax fraud,” grumbled Sigmar Gabriel, chairman of the opposition SPD that has been a supporter of euro bailouts; and Merkel, hobbled by opposition within her own coalition, had relied on them to get prior bailouts passed. “If Mrs. Merkel wants to have the approval of the SPD, she must have very good reasons,” he said. “But I don’t see any….”

The Greens are resisting the Cyprus bailout for the same reasons. And 20 members of Merkel’s own coalition are categorically opposed to it. For the first time, Merkel has no majority to get a bailout package passed. The opposition smells an election advantage.

Before the German finance minister can vote in the Euro Group of finance ministers for disbursement of bailout funds, he must seek parliamentary approval. The German Constitutional Court said so, inconveniently. But without his yes-vote, which weighs 29%, the qualified majority of 73.9% cannot be reached. The bailout disbursement crashes. That’s what Cyprus is contemplating.

Fearing defeat, sources within the government now made it known that they wouldn’t even present a bailout package unless Cyprus agreed to “radical reforms,” including massive privatizations of the bloated state sector—precisely what communist President Dimitris Christofias has ruled out.

The Russian “black money” is so unpalatable that even the bailout-happy President of the EU Parliament, Martin Schulz, got cold feet. Before a bailout package could be put together, he said, “it must be disclosed where the money in Cyprus is coming from.”

Markus Ferber, head of Merkel’s coalition partner CSU, demanded a guarantee that “we help the citizens of Cyprus and not the Russian oligarchs.” In addition, he wants Cyprus to reform its naturalization law. If Cyprus wants to get bailed out, he mused, it must make sure “that not everyone who has a lot of money can get a Cypriot passport.

Source: Testosteronepit

Greece Once Again Threatens The Euro

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During the week the Greek finance minister was caught out lying about a troika bailout outcome but now Greece needs to face up to labour reforms over the weekend or else…

Tim Geithner’s carefully scripted plan to avoid European “reality” until the US election is unraveling. While previously Greece was not supposed to be an issue until after November 6, the recent escalation with the Greek FinMin openly lying about a Troika interim bailout outcome (which may or may not happen, but only following yet another MoU which would see Greece fully transitioning to a German vassal state in exchange for what is now seen as a €30 billion shortfall over the next 4 years, and which would send Syriza soaring in the polls in the process ensuring that a Grexit is merely a matter of time) has forced a retaliation. According to the Greek press, the Troika now demands that Greece resolve its objections to labor reforms (which as reported earlier have forced the ruling coalition to split) by Sunday night, or else… The implication, it appears, is that absent a compromise, the next Troika tranche of €31.5 billion is not coming, and Greece is out.

……

From Kathimerini:

The government is facing a Sunday deadline for a full agreement on the package of measures that will see it cash in the next bailout tranche of 31.5 billion euros. The three-day extension it got in order to get maximum backing within the three-party coalition will be necessary as minor partner Democratic Left insists on an improvement in the terms concerning labor reforms that it staunchly opposes.” Will Greece come through in the clutch? And if not, just what happens with the EURUSD on Sunday night as Greece calls the Troika’s bluff? Deja vu shades of early summer, and plunging European risk come to mind…

It will not be an easy agreement to reach and any fallout will be assessed on Monday by the Euro Working Group.

The Euro Working Group (EWG) of eurozone finance ministry officials will convene again on Monday to discuss whatever conclusions Athens has come to and prepare the blueprint that the Eurogroup of euro area finance ministers may discuss on Wednesday through a video conference that sources from Brussels say is likely to take place in order to discuss Greece.

The prime minister appears determined to have the measures passed immediately through Parliament, either in one or in two draft laws, ordering on Thursday the preparation of the bills required.

At the same time there are also disagreements within PASOK, the other minor coalition partner, as a number of deputies are threatening to vote against a Finance Ministry measure regarding privatizations.

Source: ZeroHedge

Spanish Minister Laughed At For Bullshitting

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At this stage nobody fully believes that Spain doesn’t need a bailout. For various reasons (don’t want to damage Obama’s re-election chances being one) it hasn’t requested one but its a matter of time. So when the Spanish Minister of Economy Luis de Guindos turns up at the London School of Economics and tells them everything is honky dory and there is no chance of Spain requesting a bailout, he got the response you would expect. Laughter !!

You know that something is seriously wrong with your economy when you tell an audience of learned academics and students at an elite university that your country doesn’t need a bailout, and the room rings with the sound of laughter.

Spanish Economy Minister Luis De Guindos Addresses Media
Getty Images
Spanish Economy Minister Luis de Guindos speaks during a news conference.

That’s what happened when Spanish finance minister Luis de Guindostook to the stage at the London School of Economics (LSE) and became an unexpected comic figure on Thursday evening.

“Spain doesn’t need a bailout at all,” de Guindos said, straight faced and somber, as mirth spread throughout the audience — even de Guindos’ assistant interpreter couldn’t mask a smile.

Not to be perturbed by the disbelieving audience, whose giggles audibly spread throughout the room, de Guindos said that Madrid’s reform program was sufficient to stave off a full sovereign bailout and that the European Central Bank’s (ECB) bond-buying program would suffice to help Spain recover.

“What we have is a proposal from the European Central Bank to trigger intervention in the secondary market with certain conditions,” he said. “They have demanded that in order to intervene … they want certain conditionality.”

De Guindos, speaking in broken but clear English, said that Spain supported the ECB’s bond-buying scheme and that there was a distinction between Spain seeking a full bailout that would be overseen by the troika (the ECB, the European Commission and the International Monetary Fund) and accepting the enhanced credit line that the ECB is offering through bond buying, called the Outright Monetary Transactions.

De Guindos stated that as well as the ECB’s actions it was important that “the commitment of European institutions for the future of the euro[EUR=X  1.3052    0.0035  (+0.27%)   ] was demonstrated in the form of a commitment to fiscal union.

 “Spain is going to actively support a banking union for the euro zone, a fiscal union for the euro zone,” he said. “In order for Spain to recover, it’s extremely important to dispel and to eliminate all doubts about the future of the euro.” 

As in comedy, timing is everything and de Guindos’ comments come after weeks of speculation and market frustration over whether or not Spain will seek a bailout. 

The nervousness and chagrin of European stock markets has been seen in Spanish bond yields edging up towards 6 percent and a week of choppy trade as Spanish Prime Minister Mariano Rajoy denied a report that he would seek a full bailout for Spain this weekend.

Descending from comedy to farce, the finance minister’s presentation was interrupted by protestors in the LSE audience holding a banner saying “Spain for Sale” and heckling the minister.  Unpopular austerity measures have caused several days of protests in Madrid as thousands of demonstrators called for the end of budget cuts and the dissolution of government.

De Guindos told the London audience that Spain faced no other choice.

“Sometimes governments have to take unpopular decisions,” de Guindos said. “I fully understand the discouragement of the population because of these measures, but we believe these measures are totally necessary to return Spain to a stable situation to return to growth in the future.”

Despite the laughter caused by de Guindos’ bailout comment, the economic reality confronting Spain is sobering. Unemployment now affects one in four people, and businesses, large and small, are abandoning the country in droves causing government tax revenue to tumble

Added to pressure on the government is a forthcoming decision by Moody’s, which could downgrade the country’s credit rating to junk status, along with warnings from Fitch and the country’s central bank governor issued on Thursday.

The chances of any light relief for Prime Minister Rajoy look slim as he attends the so-called Club Med summit in Malta this weekend.

Rajoy will meet his French and Italian counterparts, Mario Monti and Francois Hollande at the summit. 

Reuters reports that Italy and France, fearing contagion from Spain into their own beleaguered economies, will look to persuade Spain’s leader to cut to the punchline — and seek a bailout.

Source: CNBC

Spain To Request Bailout On Sept 13-14

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As ZeroHedge have put it, Goldman Sachs were on the button when it came to Draghi’s announcement yesterday regarding the new Outright Monetary Transactions (OMT) program. Since Goldman Sachs practically runs the ECB, their latest prediction is for Spain to request a bailout from the ESFS by Sept 13-14.

Yesterday, when Bloomberg leaked every single detail of today’s ECB announcement, which thus means today’s conference was not a surprise at all, yet the market sure would like to make itself believe it was, we noted that everything that was leaked, and today confirmed, came from a Goldman memorandum issued hours before. Simply said everything that happens at the ECB gets its marching orders somewhere within the tentacular empire headquartered at 200 West. Which is why when it comes to the definitive summary of what “happened” today, we go to the firm that pre-ordained today’s events weeks ago. Goldman Sachs.Perhaps the most important part is this: “September 13-14: Spain to make formal request for EFSF support at the Eurogroup meeting. With a large (and uncovered) redemption looming at the end of October (and under pressure from other Euro area governments), we expect Spain to move towards seeking support.” In other words, Rajoy has one more week before he is sacked and the Spanish festivities begin.

Looking ahead over the coming months are the predictions:

Looking forward, we expect the following time-line in our base case:

  • September 12: German constitutional court gives its blessing to the ESM. Although we expect some procedural riders to be attached to the decision, this would allow German ratification to be completed and the ESM to be established in relatively short order.
  • September 13-14: Spain to make formal request for EFSF support at the Eurogroup meeting. With a large (and uncovered) redemption looming at the end of October (and under pressure from other Euro area governments), we expect Spain to move towards seeking support.
  • Second half of September: Conditionality required by EFSF will have to be accepted by the Spanish authorities, presumably requiring a parliamentary vote. In parallel, approval of other Euro area countries for the provision of EFSF support will need to be obtained: in some countries (notably Germany), this will also require parliamentary approval.
  • By end-September / early October: Memorandum of Understanding (MoU) codifying conditionality is signed, formalising the availability of EFSF support for Spain. At this point, the necessary conditions established by Mr. Draghi for ECB purchases of sovereign debt will have been met, well ahead of the large Spanish bond redemption.

Source: ZeroHedge

ECB’s Threatening Letter to Ireland To Be Released

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The Irish Minster for Finance is talking of releasing the letter the ECB sent to Ireland which threatened to remove all ELA assistance unless Ireland agreed to a bailout. So much for euro nations being sovereign when an unelected official has that power. Its quite clear that the banks run the show.

Finance Minister Michael Noonan has said a secret “threatening” letter from the European Central Bank to his predecessor Brian Lenihan, which forced Ireland into the troika bailout in 2010, should now be released.

The letter has to date remained top secret and both the Department of Finance and the ECB have repeatedly refused to make it public.

Now Mr Noonan has said he favours it being made available, putting him on a potential collision course with the ECB, which is adamant that it remain “strictly confidential”.

The controversial letter from the then ECB president Jean Claude Trichet to Mr Lenihan dated November 19, 2010, is said to have threatened the withdrawal of emergency liquidity assistance (ELA) to Ireland if the then government refused to accept the bailout, that included a ban on burning bondholders.

In the past two weeks, there has been growing pressure from within the Government, the opposition and leading economists to have his department release the contents of the letter.

Ireland should have pulled an Iceland and told the banks to cover their own debts but the Irish Finance Minister of the time gave in to the threats. Instead, no bondholders were allowed to be burned and the Irish taxpayer forced to prop up the euro least foreign owned banks have to take a hit or collapse under their losses.

Speaking exclusively to the Sunday Independent yesterday, Mr Noonan said that he had seen the “very direct” letter which left Mr Lenihan with “little or no option” but to admit defeat and lead Ireland into the €85bn troika programme.

It is now beyond doubt that Mr Lenihan was threatened directly by Mr Trichet, and that Ireland was bounced into the troika programme by unelected officials at the ECB.

In another example of how politicians clearly run the country for vested interests, the letter which confirms what a lot of people suspected was covered up for nearly 4 years by politicians.

Mr Noonan said he had no authority to order the release of the letter, given the decision of the Freedom of Information unit in his department to withhold it.

“The FoI unit is totally separate from the political side of the department, and it was decided that this letter was not releasable.”

But Mr Noonan, who returns to his office on Monday from his holidays, has said that the letter should be made available to whatever banking inquiry is established by the Government in the coming months.

 

Source: Irish Independent

 

ESM/EFSF In A Picture

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One picture says it all really.

What lies ahead courtesy of ZeroHedge

July

  • 30 July: Italy auction. Bonds.

August:

  • 1 August: Monti meets Finnish PM. Italian PM Monti is due to meet his Finnish counterpart in Helsinki.
  • 2 August: Spain auction. Bonds
  • 2 August: ECB Governing Council meeting. Our expectation is that 2 August is likely to be an occasion for non-standard (“quantity”) monetary policies. Standard (“price”) monetary policy, or the level of policy rates, we suspect will take a backseat this month. A monetary policy “price” response would in any case be more effective after a “quantity” response given the current impairments of the monetary transmission mechanism. We expect a further 25bp refi rate cut at the September meeting. We suspect the deposit rate will remain at zero for now. See “Eurostress” in this issue of Focus Europe.
  • 7 August: Italian Q2 GDP flash estimate. A weak figure would reignite the ‘austerity versus growth’ debate (DB forecast –1.0% qoq).
  • 13 August: Italy auction. Bills
  • 14 August: Italy auction. Bonds
  • 14 August: Euro area Q2 GDP flash estimate, from Eurostat.
  • Mid-August: French Constitutional Court/Fiscal Compact. In Mid-August the French Constitutional Court is due to rule whether  the Fiscal Compact, which euro area countries are due to endorse by the start of 2013, needs to be ratified into the French Constitution. If so, a joint vote by the French Assembly would be required. Signals are that this would happen in September if required. See accompanying article on France in this issue of Focus Europe.
  • 16 August: Spain auction. Bonds
  • 20 August: Greek bond redemption. Greece is due to repay EUR3.1bn of GGBs. Following the PSI, these would be GGBs owned  by the ECB and EIB. While agreement on how to reconfigure the second loan programme is unlikely before September, it is unlikely the EU will hold-out from paying funds to Greece to repay the ECB/EIB. In a consolidated sense, the official sector’s exposure to Greece remains the same, but the creditor changes (to the EFSF). Alternatively, Greece could issue T-bills and the  Greek banks could absorb them with the assistance of ELA from the Greek central bank.
  • 21 August: Spain auction. Bills
  • 28 August: Spain auction. Bills
  • 28 August: Italy auction. Bonds
  • 29 August: Italy auction. Bills
  • 30 August: Italy auction. Bonds
  • End-August: DBRS rating on Spain/Ireland. By the end of August, the DBRS ratings agency is due to have concluded its review  of Spanish and Irish sovereign ratings.

September:

  • September: Moody’s due to conclude review of Spanish sovereign rating. Logically Moody’s should wait until there is clarity on  direct recap before making a decision on Spain’s rating. Since governments have not made progress fleshing out a direct recapitalisation facility — indeed, have created some ambiguity as to whether it will be non-recourse — there is a distinct risk that Moody’s, in another move to be “ahead of the curve”, decides to downgrade Spain within the next 3 months. Moody’s currently rates Spain Baa3, the lowest investment grade rating.
  • September: Detailed bottom-up Spanish bank stress tests due for publication.
  • 6 September: Spain auction. Bonds
  • 6 September: ECB Governing Council meeting. If we are right about the outcome of the 2 August ECB meeting (dominated by “quantity” measures), we suspect that revisions to staff forecasts for growth and inflation are likely to be a basis for a 25bp rate  cut.
  • 11 September: Greece auction. Bills
  • 12 September: German Constitutional Court ESM ruling. The German Constitutional Court is to rule on the complaints lodged  against the ESM and fiscal compact. The chances of the ESM being vetoed are low. However, the Court might again strengthen the German Parliament’s prerogatives as regards future European integration (see Focus Germany, 20 July). Germany is the last approval needed for the ESM to come into effect. Then the first instalment of the capital has to be paid by the ESM members  within 15 days of the ESM treaty entering into force. There are three other countries where Constitutional Court queries are outstanding — France, Austria and Ireland. France’s Constitutional Court will be deciding by mid-August. Neither Austria (which  may take another 3-6 months) nor Ireland are large enough to hold back the ESM — the ESM will come into force when countries representing 90% of the subscribed capital have approved it. Both Germany and France have an effective veto power in that case.
  • 12 September: Dutch Election. In April, the VVD/CDA minority government failed when Geert Wilders’ PVV party withdrew its  support amid negotiations for the 2013 austerity budget. A crisis was averted when three smaller parties came forward to give support to a budget, but an early election was unavoidable. Domestic austerity and European crisis issues will likely play  important roles in the election. Compared to the configuration of parliament at the October 2010 election, the latest opinion polls (Maurice de Hond) show PM Rutte’s VVD liberal party vying with the Socialist Party for the dominant party position. Both would  gain 31 seats in the 150 seat parliament on the latest polls. This is an unchanged position for VVD, but a doubling of SP seats. SP are gaining at the expense of all other parties except VVD and neo-liberal D66. This may reflect a backlash against the  austerity for 2013 which has broad party political support. SP have also taken a stance against euro rescue initiatives, voting against the ESM alongside the PVV and extracting a pledge from Dutch FinMin De Jager that parliament will vote on any future  direct bank recapitalisation disbursements. Given the typical distribution of the vote among several parties, the questions are  what coalition emerges from this election, how long it takes to form a government and what policies will it support? Markets in particular will be watching the ramifications for domestic fiscal policy (the 2013 Budget is a week after the election) and euro  rescue initiatives.
  • 12 September: Italy auction. Bills
  • 13-14 September: G20 Finance Ministers and Central Bankers meeting. In Mexico.
  • 13 September: Italy auction. Bonds
  • 14 September: ECOFIN meeting. This is very likely the finance ministers meeting when adjustments to Greece’s second loan programme will be considered. The remaining EUR23bn recapitalisation of the Greek banks is due to complete by the end of September, assuming a positive review of the loan programme. This is also when finance ministers should have their first discussion on the proposals for a common bank supervisory regime under the ECB. Any delays, with knock-on delays for a direct bank recapitalisation mechanism, will disappoint the market. Options for a reconsideration of Ireland’s legacy bank bailout policies may also be discussed (decision not due until October ECOFIN meeting).
  • 15 September: Eurogroup meeting. Coinciding
  • 18 September: Greece auction. Bills
  • 18 September: Spain auction. Bills
  • 20 September: Spain auction. Bonds
  • 25 September: Spain auction. Bills
  • 25 September: Italy auction. Bonds
  • 26 September: Italy auction. Bills
  • 27 September: Italy auction. Bonds

Source: ZeroHedge

Spanish Regions Falling Apart

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First Catalonia followed this week by Valencia and now it looks like the rest are queuing up for their handout. Wisdom tells you to get in their first otherwise it may be too late. But if this is happening to Spain, is Scilly only the start of it for Italy? Its more likely we will also be hearing from Italy in a similar manner.

…now virtually everyone else is set to demand a bailout. From Bloomberg: The Balearic Islands and Catalonia are among six Spanish regions that may ask for aid from the central government after Valencia sought a bailout, El Pais reported. Castilla-La-Mancha, Murcia, the Canary Islands and possibly Andalusia are also having difficulty funding themselves and some of these regions are studying plans to tap the recently created emergency-loan fund that Valencia said it would use yesterday, the newspaper said, without citing anyone.”

“Spain created the 18 billion-euro ($23 billion) bailout mechanism last week to help cash-strapped regions even as its own access to financial markets narrows.” What Spain’s perfectly insolvent and highly corrupt regions also know is that the bailout money, like in the case of the ESM, will be sufficient for one, perhaps two, of the applicants. The rest will be out of luck.

Obviously everyone is going to be looking to the Germans to bail them out, but at what price to Germany?

Where the bailout money will come from? Ultimately from Germany of course. There is however one minor glitch. Some 80 millions Germans may soon be rather angry to learn that while they are working extra hours to fund the rescue of a few insolvent windmills, their own most legendary racetrack, the Nürburgring, is facing bankruptcy as soon as next week.

……

You want to piss a German off? Stand between them and their local Formula 1 race.

Spain is fast running  out of money and fridays metldown hasn’t helped. Its gonna be a tough summer in Spain.

What is most concerning however, as FAZ reports, is that “the money will last [only] until September”, and “Spain has no ‘Plan B”. Yesterday’s market meltdown – especially at the front-end of the Spanish curve – is now being dubbed ‘Black Friday’ and the desperation is clear among the Spanish elite. Jose Manuel Garcia-Margallo (JMGM) attacked the ECB for their inaction in the SMP (bond-buying program) as they do “nothing to stop the fire of the [Spanish] government debt” and when asked how he saw the future of the European Union, he replied that it could “not go on much longer.” The riots protest rallies continue to gather pace as Black Friday saw the gravely concerned union-leaders (facing worrying austerity) calling for a second general strike (yeah – that will help) as they warn of a ‘hot autumn’. It appears Spain has skipped ‘worse’ and gone from bad to worst as they work “to ensure that financial liabilities do not poison the national debt” – a little late we hesitate to point out.

Source: ZeroHedge

US Bails Out Foreign Banks

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I never knew how generous the US was until I read Alan Grayson’s account of the GOA report into how much the Fed has lent to banks. In particular non US banks did well and in some cases kept alive by loans from the Fed. This just demonstrates how flimsy the banking system is if the Fed is called on to prop up foreign banks. In the meantime US citizens were kept in the dark about a lot of the loans.

Some of the key points from the report are outlined below by Grayson.

The total lending for the Fed’s “broad-based emergency programs” was $16,115,000,000,000. That’s right, more than $16 trillion. The four largest recipients, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America, received more than a trillion dollars each. The 5th largest recipient was Barclays PLC. The 8th was the Royal Bank of Scotland Group, PLC. The 9th was Deutsche Bank AG. The 10th was UBS AG. These four institutions each got between a quarter of a trillion and a trillion dollars. None of them is an American bank.

Sixty percent of the $738 billion “Commercial Paper Funding Facility” went to the subsidiaries of foreign banks. 36% of the $71 billion Term Asset-Backed Securities Loan Facility also went to subsidiaries of foreign banks.

Separate and apart from these “broad-based emergency program” loans were another $10,057,000,000,000 in “currency swaps.” In the “currency swaps,” the Fed handed dollars to foreign central banks, no strings attached, to fund bailouts in other countries. The Fed’s only “collateral” was a corresponding amount of foreign currency, which never left the Fed’s books (even to be deposited to earn interest), plus a promise to repay. But the Fed agreed to give back the foreign currency at the original exchange rate, even if the foreign currency appreciated in value during the period of the swap. These currency swaps and the “broad-based emergency program” loans, together, totaled more than $26 trillion. That’s almost $100,000 for every man, woman, and child in America.

The Fed bailed out the Swiss National Bank.

In October 2008, the Fed gave $60,000,000,000 to the Swiss National Bank with the specific understanding that the money would be used to bail out UBS, a Swiss bank. Not an American bank. A Swiss bank.

Grayson makes reference to the Fed’s change in role.

There is one thing that I’d like to add to this, which isn’t in the GAO’s report. All this is something new, very new. For the first 96 years of the Fed’s existence, the Fed’s primary market activities were to buy or sell U.S. Treasury bonds (to change the money supply), and to lend at the “discount window.” Neither of these activities permitted the Fed to play favorites. But the programs that the GAO audited are fundamentally different. They allowed the Fed to choose winners and losers.

Finally, he makes some very interesting observations below

  • In the case of TARP, at least The People’s representatives got a vote. In the case of the Fed’s bailouts, which were roughly 20 times as substantial, there was never any vote. Unelected functionaries, with all sorts of ties to Wall Street, handed out trillions of dollars to Wall Street.

 

  • In the same way that American troops cannot act as police officers for the world, our central bank cannot act as piggy bank for the world. If the European Central Bank wants to bail out UBS, fine.

 

  • For the Fed to pick and choose among aid recipients, and then pick and choose who takes a “haircut” and who doesn’t, is both corporate welfare and socialism.

 

  • The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success.

 

  • During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn’t borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can’t find a full-time job?

Source: Huffington Post,   GOA Report

€750 Billion To Bailout Spain & Italy

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I’m not sure where the money is going to come from but €750 billion is the figure it looks like to build one of those EU firewalls around Italy and Spain. As the Irish Independent reports

EUROPEAN leaders are poised to announce a €750 billion deal to bail out Spain and Italy, it emerged at the G20 summit on Tuesday night.

Two rescue funds are to be used to buy the debts of the troubled economies, the cost of which have reached record highs in recent weeks.

It is hoped that the move, which represents a substantial shift in policy for Germany’s chancellor, Angela Merkel, will send a strong signal to financial markets that Europe’s biggest economy is finally prepared to back its weaker neighbours.

Mrs Merkel and other European leaders have come under intense pressure at this week’s G20 summit to take radical action to stem the growing euro crisis which has pushed up the cost of Spanish bonds to unsustainable levels. The communiqué issued at the end of the G20 summit, which finished in Mexico last night, said that European leaders had agreed to take action to bring down borrowing rates.

Under the proposed deal, two European rescue funds – the €500 billion European Stability Mechanism (ESM) and the €250? billion European Financial Stability Facility (EFSF) – will buy bonds issued by European countries.

The Slog as usual has his own viewpoint

Worse still, two-thirds of it doesn’t exist

Every penny of it represents completely wasted money. Why?

Because it is a muddle-through hybrid like everything Sprout & Kraut Inc do: it won’t stop the financial forest fire engulfing Europe, and it isn’t a bailout: it’s simply designed to buy up the bond debt for which Spain and Italy are liable.

Because it will do nothing for the EU economy: this is a financial banking mega-play for sure, but once again the bankers are let off the hook of crazy lending policies by…you and me. (Can we have their profits and bonuses back for the last five years please?)

Because it still doesn’t address the problem of derivative obligations associated with both bank and sovereign default. Without money within the next fortnight – a lot of money – Greece will default. When Greece defaults, at least two French banks and one German bank will be blown away.

Wait, isn’t there a slight problem to the G20 plan? The ESM doesn’t exist yet and may not. The German courts in their wisdom ruled against Merkel’s plans to ratify it this week. They said it needs to be debated first rather than being rammed through as Merkel wants. Anyone bother to ask the German people what they want?

It has not been ratified by Germany and Italy…and following yesterday’s Karlsruhe judgement, it must be debated by the full Bundestag. Even when it does come into being, its paid up capital will start at just €22bn. That represents the sum total paid towards the EU’s Steeple Restoration fund.

And remember…one of the signed-up backers is….Italy. Hurrah!

What a farce.

How long more will the euro crisis keep going, as slowly the markets are beginning to see through the bullshit.

The Emporer has no clothes !

Spanish Bailout Imminent

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Its been coming a long time, but with rising bond cost a bank bailout and worsening economy it’s just a matter of time now for Spain to formally look for a bailout. It looks as if that has been discussed at the G20 meeting if you read between the lines. Time will tell but I believe Mario Monit’s quote below sums it up. The Slog discusses as follows:

WORDS: “The G20 wishes to express its alarm about the eurozone crisis”

(Opening statement)

“We can see that the markets are not convinced. We must draw up a definitive and clear road map with concrete actions that make the euro more credible.” (Mario Monti)

With Spain perhaps days away from requiring a full sovereign bailout, its bond yields rising above 7%, persistent rumours of a time bomb waiting to go off inside La Caixa, and Slog sources in Madrid of the opinion that “a full bailout is imminent, there is not a chance Rajoy can beat the markets. A total bailout is now unavoidable”, the anodyne quotes from Mexico floated unsteadily about like ethereal gloop on the air.

The Slogs source in Spain commented as follows:

“Spain can only wait another two weeks, unless Rajoy gets some under-the-table money from the [European] Central Bank. That’s possible of course, you never know any more.”

It seems hard to imagine that any money coming from that direction will be real: given that Greece was bailed out with some paper signed by Mario Draghi, the best Madrid could hope for would be some used Frankfurt bus tickets.

Finally, here is one I wasn’t expecting.

Is there any upside? Oddly enough, yes, there is: at long last – with the time at 3 seconds past midnight, Scameron is hinting darkly at moving away from european markets, and re-establishing a strong commonwealth relationship. This tells us just how impossibly bad things are in the eurozone, and that the EU as we know it today is crumbling into dust. For our Prime Minister lacks the courage to back anything that isn’t a certainty. (Except the rapidly disappearing HS2, of course).

 

 

 

Spanish Bailout Won’t Work

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Charles Dumas (Lombard Street Research) proposes a good explaination of why the Spanish bailout won’t work.

The Spanish bail-out was a typical example of half-measures. It seemed clever to insulate Spain a week ahead of the Greek elections, so that “Grexit” could be possible without immediate major contagion into Spain. But Spanish banks needed equity, not debt funding that would leave them as insolvent as before. So the provision of debt funding by the Eurozone required the Spanish government as intermediary, to turn the debt – now effectively national debt – into equity for its banks. So private holders of Spanish government debt have effectively been subordinated – and will be for each further tranche of aid that is needed in future. Thus contagion was worsened, and quickly spread to Italy, which can only too clearly not afford its share of the Spanish bail-out.

Cyprus The Next Domino?

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It’s increasingly likely that Cyprus is the next domino in the euro crisis. Today, Reuters announced the country is looking for a bilateral loan rather than bailout aid from the Troika to recapitalize it 2nd largest bank. Good luck with that one 😉

Cash-strapped Cyprus has shifted its focus onto a bilateral loan instead of an EU bailout to recapitalise its second largest bank although both options are still open, media reported on Wednesday.

The euro zone minnow, shut out of capital markets for more than a year, must find the equivalent of 10 percent of its GDP by June 30 to recapitalise Cyprus Popular Bank if no private investor comes forward.

Bilateral lending, which the island’s finance minister has repeatedly described as “not the preferred option” is coming back to the forefront as a likely scenario.

Cyprus is looking for a rich uncle. Failing that, they’ll have to resort to checking down the back of the couch again.

Russia, which bailed Cyprus out last year, was back in the frame as a potential lender, newspapers reported.

Efforts were underway to borrow from a third country with “more favourable terms”, Haravghi, the mouthpiece of Cyprus’s ruling AKEL Communist party, reported in a front-page headline. It did not offer more details.

Asked whether the prospect of bilateral lending was distant, Finance Minister Vassos Shiarly told state TV in an interview on Tuesday night; “I would say not.”

The cause of the banks losses was Greece’s writedown of its debt earlier in the year. It just show how fragile european banks are and begs the question which bank is next as we are hearing more and more now of banks needing assistance.

Popular and the other main bank, Bank of Cyprus were hit heavily by the writedown on Greek debt. Bank of Cyprus has almost completed its recapitalisation privately.

Moody’s Investors Service on Tuesday cut the credit rating of Bank of Cyprus, and put Popular on review for a downgrade, citing the increased risks of a possible Greek exit from the euro zone..

Spanish Bailout – Nigel Farage & Ken Livingstone

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Nigel Farage and Ken Livingstone give their take on the Spanish bailout.

Spanish Bailout Opens Can Of Worms

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It was a long time coming but many independent economists and analysts were vindicating in their analysis of Spain. The bank bailout details have yet to be fleshed out but Bloomberg reports that the bailout Spain is looking for is €100 billion which is a staggering 10% of GDP. This is to be injected into the FROB, or the Fund for Orderly Bank Restructuring. There have even been reports of up to €250 billion is needed to shore up the banks.

Spain asked euro region governments for a bailout worth as much as 100 billion euros ($125 billion) to rescue its banking system as the country became the biggest euro economy so far to seek international aid.

Spain’s true debt/GDP is 134% already as reported by Mark Grant. This will surely overload Spain’s economy.

Already Ireland is demanding the exact same deal. After accepting their original bailout deal in return for extreme austerity, it looks as if Spain is to escape that part. What a can of worms Germany has just opened as surely the Greeks will also demand similar treatment.

Ireland wants to renegotiate its rescue plan to benefit from the same treatment as Spain, which looks set to win a bailout for its banks without any broader economic reforms in return, European sources said on Saturday.

“Ireland raised two issues: one is the need to ensure parity of the deal with Spain retroactively on its bailout from EFSF,” one European government source told AFP, referring to the temporary rescue fund, the European Financial Stability Facility.

Another European government source confirmed the information.

Ireland secured an 85-billion-euro ($112 billion) rescue deal from the European Union and the International Monetary Fund in November 2010, but only after agreeing to draconian austerity measures.

Unlike Ireland, Spain’s economy minister said a deal on financing for the country’s troubled banks would not impose any conditions on the wider economy.

Where is the money to come from. The Germans have had problems ratifying the ESM, and the ESFS is looking a little bare.

The problem with this is that the ESM has yet to be ratified by Germany, whose parliament said previously it is sternly against allowing the ESM to fund a direct bank bailout, something which just happened. Thus, the successful German ESM ratification vote, whenever it comes, and which previously was taken for granted, now appears to be far more questionable.

Which leaves the EFSF. The problem with the EFSF is that there is about €200 billion in dry powder. And this includes the Spanish quota of €93 billion, which we can only assume is now officially scrapped.

As the economic hitmen make their way across the eurozone, its only a matter of time before Italy is next. Where then, does the money come from to bail them out as over €500 billion is already commited to the other PIIGS.

And ironically, what just happened, is that the Eurozone, with the tacit agreement of Germany, essentially gave insolvent banks a green light to short themselves into a full bailout.

How long until Italian banks get the hint, and proceed to short each other, or themselves, either with shares of stock or , better yet, through CDS which unlike in the sovereign case, can be held without an offsetting cash basis position. In other words: is it time for the Italian bank suicide trade?

Because only when they are on the verge of nationalization, will Italian banks be rescued. And remember: he who defects (or in this case drops the fastest), first, reaps the biggest benefits of the resultant action.

Finally for any Spanish readers, check out what Mariano Rajoy said on May 28( a few weeks ago) : “No va a haber ningún rescate de la banca española“, “There will be no rescue of Spanish banks”. WHAT A LIAR. Comes with video footage so you can see how he looks when he lies(for future reference).

 

 

 

Previous Related Stories:

Spain Heading For Full Collapse Of Economy (ZeroHedge)

Gonzala Lira – Spain Needs To Exit Euro And Devalue

Gonzalo Lira Believes Spain Will Exit The Euro

Spain Final Nail In euro Coffin

Spains Debt/GDP At 134%

Spain’s Woes Caused By Euro

Source: France24, Bloomberg, Zerohedge, neuvatribuna.es

Portugal Bails Out 3 Banks

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I wasn’t expecting that, but Portugal has just bailed out 3 banks when all the focus has been on Spain. They are pumping in nearly €7 billion but as usual, thats only the start of it. We will get the drip, drip feed for here.

The past two weeks it was Spain, now it is back to Portugal, which overnight announced it is bailing out three banks to the tune of €6.65 billion. If at this point who is bailing out whom is becoming a confusing blur – fear not: that is the whole point. From AAP: “Portugal will inject more than 6.65 billion euros ($A8.49 billion) into private banks BCP and BPI, and the state-owned CGD to meet criteria established by the European Banking Authority. “In all, the state will inject more than 6.65 billion euros in these banks,” though five billion euros is to come from an envelope worth 12 billion included in a financial rescue plan drawn up in May 2011, the finance ministry said. Portugal last year became the third eurozone country after Greece and Ireland to be bailed out, receiving an EU-IMF package worth up to 78 billion euros in return for a commitment to reform its economy and impose austerity measures.” And surely that will be it, and Portugal will be fixed. Just like Spain was fixed, until someone actually did some math and found a hole up to €350 billion out of left field. Funny how those big undercapitalization holes just sublimate into existence, usually moments before client money is vaporized.

 

Source: ZeroHedge

IMF Denies Bailout Talks With Spain

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The Spanish Deputy Prime Minister Soraya Saenz de Santamaria flew into Washington for talks with IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Timothy Geithner under the guise of talks about bailing out Spanish banks, admit rumours of bailout talks, to which the IMF have denied. Bit of a coincidence 😉 

WASHINGTON (AP) – The International Monetary Fund says it has not been asked by Spain for a bailout and has not begun preparing one.

IMF spokesman Gerry Rice spoke Thursday as Spanish Deputy Prime Minister Soraya Saenz de Santamaria flew into Washington for talks with IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Timothy Geithner. The officials were discussing how Spain can finance an overhaul of its banking sector.

Saenz de Santamaria said that it was coincidental that she was coming to Washington in the midst of the banking crisis because her meetings were scheduled months ago.

The government nationalized a major bank earlier this month. It now says it will need to inject $23.6 billion in public money into the bank – more than twice what the government had estimated.

Doubts over how recession-hit Spain will handle the bailout have sparked concerns that the country will soon follow Greece, Portugal and Ireland in asking for financial assistance.

Lagarde called her meeting with Saenz de Santamaria productive. She also denied a Wall Street Journal report that the IMF was drawing up plans for a rescue loan for Spain.

“There is no such plan,” she said.

Saenz de Santamaria said that she discussed with Geithner some of the ideas being discussed in Europe about how to set up a fund to recapitalize European banks.

You know what they say

…it isn’t true until its officially denied ….

Source: MSNBC

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