Advertisements

Bundesbank’s Report To German Court Could Torpedo Draghi’s OMT

Comments Off on Bundesbank’s Report To German Court Could Torpedo Draghi’s OMT

Draghi’s great plan to buy bonds of struggling eurozone countries through Outright Monetary Transactions (OMT) has taken a massive knock. A report issued by the Bundesbank on friday, to the German court which has yet to give its consent to OMT,  is damning to say the least.  The following line from the report says it best “It is not the duty of the ECB to rescue states in crisis”.

The hardline central bank – known as the temple of monetary orthodoxy – told Germany’s top court that the ECB’s pledge to shore up Italian and Spanish debt entails huge risks and violates fundamental principles. “It is not the duty of the ECB to rescue states in crisis,” it wrote in a 29-page document leaked to Handelsblatt.

  The Bundesbank unleashed a point by point assault on every claim made by ECB chief Mario Draghi to justify emergency rescue policies – or Outright Monetary Transactions (OMT) – unveiled last summer to stop Spain’s debt crisis spiralling out of control.

The Draghi plan mobilized the ECB as lender of last resort and led to a spectacular fall in borrowing costs across the EMU periphery, buying nine months of financial calm. The credibility of the pledge rests entirely on German consent. Analysts say the crisis could erupt again at any moment if that is called into question.

“The report borders on economic warfare,” said Harvinder Sian from RBS. “We think there is going to be fear and dread in the market that the court will reject OMT.”

The document said OMT entails the purchase of “bad bonds”, violates ECB independence and entails a high risk of heavy losses in the “not unlikely” event that debtor states are forced out of EMU.

 

It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is “very questionable” whether it is desirable to drive down the borrowing costs of profligate states.

To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.

While the Bundesbank’s president, Jens Weidmann, has openly criticised the Draghi plan before, the aggressive language in the report shocked economists. The document was submitted in December but was not revealed until Friday.

Germany’s constitutional court will rule on the legality of the bond rescue plan on June 12. It gave a provisional go-ahead last September for other parts of the EMU rescue machinery, but limited Germany’s bail-out share to €190bn (£160bn). Crucially, it warned that the Bundestag may not alienate its tax and spending powers to any supra-national body or be exposed to “unlimited” liabilities.

“If the court rules against OMT, it means the end of the euro. The stakes are so high that I don’t see how they could just pull the trigger,” said Mats Persson from Open Europe.

He said the Draghi plan is a legal hot potato because it is, by definition, unlimited. “The previous rulings by the court have all been predicated on this point.”

German historian Michael Stürmer said the tough report is a bid by the Bundesbank to “reassert its primacy”. “They have told the ECB in no uncertain terms that it is exceeding its mandate. Angela Merkel may be smiling because this helps her set limits in Europe.”

Prof Sturmer said the forthcoming ruling – wider than just the Draghi plan – is “much more serious” than last September’s judgment, limited to an injunction brought by eurosceptic groups. “This is about issues of sovereignty. I don’t think the Court will dare to issue a ruling before the elections in September. They will procrastinate,” he said.

The court has some jurisdiction over ECB policy because it intrudes on the German Grundgesetz, or Basic Law. “Once the ECB starts bailing out states it is moving into dangerous waters,” he said.

The court made a glancing reference to OMT in September, stating that ECB bond purchases “aimed at financing the members budgets is prohibited, as it would circumvent the ban on monetary financing”.

The bond markets ignored the leaked report on Friday, confident that the court will once again find some formula to avert a crisis. It could cite a clause in the Lisbon Treaty stating that the ECB has a duty to “support the general economic policies in the Union”, which would include saving the euro.

“They might refer the case to the European Court but that would leave the Sword of Damocles hanging over the market for another two years,” said David Marsh, author of books on the Bundesbank and EMU. “I think use of OMT is practically impossible until this is resolved.”

Sovereign bond strategist Nicholas Spiro said markets are “sick and tired” of the eurozone debt crisis and have stopped paying attention to the detail. “There is this ravenous hunt for yield and they think there is all this money coming from Japan. But it has long been unclear whether OMT is real or just a myth, and the eurozone’s underlying economic crisis is still getting worse. The window of opportunity created by Draghi has been wasted.

“If the court sides with the Bundesbank in any way the whole house of cards could come crashing down.”

Source: The Telegraph

Advertisements

Argentina Won’t Repay Bondholders From Default 10 Years Ago Despite US Court Ruling

Comments Off on Argentina Won’t Repay Bondholders From Default 10 Years Ago Despite US Court Ruling

Despite US courts ruling that Argentina must pay bondholders who own defaulted bonds (related to $100 billion default 10 years ago), the Argentinian Finance Minister has announced this won’t happen as debt payments are immnue to US laws.

BUENOS AIRES, Nov 18 (Reuters) – Argentina will not pay creditors who own defaulted bonds despite a U.S. federal appeals court ruling in favor of the holdout creditors, the economy minister was quoted as saying in an interview published on Sunday.

The 2nd U.S. Circuit Court of Appeals in New York last month ruled that Argentina discriminated against bondholders who refused to take part in two debt restructurings as the nation tried to recover from a $100 billion default a decade ago. The decision upheld a ruling by U.S. District Judge Thomas Griesa.

The South American country appealed that ruling, and on Friday told Griesa that sovereign debt repayments made outside the United States are immune to U.S. law and seizures by holdout bondholders.

“Argentina is responsible and will fulfill all commitment it has made to its creditors. … Our creditors are all those who participated in the two restructuring proposals in 2005 and 2010,” economy minister Hernan Lorenzino told newspaper Pagina 12.

“We’re going to continue to oppose any alternative that goes beyond that. We’re going to continue presenting and defending our position to each legal entity.”

The judge is expected to give a speedy response, given that Argentina is due to start making $3.3 billion worth of payments to exchange bondholders starting Dec. 2.

Argentina and holdout bondholders that refused to join massive debt swaps in 2005 and 2010 are in a long-running battle over payment, an outgrowth of the country’s roughly $100 billion default nearly 11 years ago.

“Argentina reiterated to judge Griesa that the decision taken about pari passu (equal treatment) cannot prejudice creditors who entered the debt swaps,” Lorenzino was quoted as saying.

Last month’s ruling sparked fears that U.S. courts could ultimately inhibit debt payments to creditors who accepted terms of the restructuring, out of consideration for investors who rejected Argentina’s terms at the time.

“We’re going to continue our legal defense in all areas possible, including in the United States’ Supreme Court,” Lorenzino added.

 

Source: Reuters

Spain To Request Bailout On Sept 13-14

Comments Off on Spain To Request Bailout On Sept 13-14


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

Celente: German Court Ruling on ESM Could Be Bullish For Gold

Comments Off on Celente: German Court Ruling on ESM Could Be Bullish For Gold

Gerald Celente gave an interview with King World News on the German Supreme court ruling whether the Germans can participate in the ESM. The decision on 12th September, if it goes against the ESM, this  could result in the euro collapsing shortly afterwards. Celente outlines his bullish opinion on gold and points to the recent signs that the insiders know whats coming.

“The German Supreme Court is going to rule upon whether or not Germany can continue to put funds into the stability pacts and bailout program, and whether or not there is going to be a euro bond program at all.  Bigger than that, whether or not the Bundestag is going to lose control of their own government and take some of the financial decision-making out of their hands and move it into Brussels.”

“This is a huge day.  Everybody will remember September 12th.  It’s a really easy day to remember because it’s right after September 11th.  I recommend everyone tune in because what the German court decides on that day will affect the future of the euro almost immediately because Germany is what’s holding this whole thing together.

 If Germany doesn’t keep pumping in money to bailout these failing economies in Greece, Spain, Italy, into the European Central Bank so they can keep buying up these worthless bonds, and keep giving money to the banks that have failed in Spain and Greece and that are going under in Italy, without Germany there is no euro….

 You could see the euro start to unravel, if they decide it’s unconstitutional, within weeks, if not days.  So what I’m saying to people, this is a warning, but I would want to know where my money is, and for me my money is in gold.

 

They are not going to be able to solve the European debt crisis, but, again, if the German courts don’t rule that this is unconstitutional, they could keep this thing afloat for another several months by dumping more money into it and making it appear everything is okay, (in order) to keep the Ponzi scheme going.”

 Celente also added: “Why wouldn’t anybody believe in gold?   Look at the people that are now investing in gold, the central banks around the world.  Look at the George Soros’s that are investing in gold, and the Paulson’s.  I guess they don’t know either?

Why would anyone put their faith in digital money?  Why would people put faith in a euro, when after only ten years the whole eurozone is threatening to collapse.  Why wouldn’t anyone pay attention to the Finnish Finance Minister, who says that they are ‘making plans in case the euro collapses.’

Why wouldn’t they believe that?  So I’m continuing to buy gold.”

Source: KingWorldNews

Court Ruling Potentially Devasting For Greek Banks

Comments Off on Court Ruling Potentially Devasting For Greek Banks

A court has ruled in Greece that an employed woman can have her untenable debt owed to the banks written off. Normally this has only been allowed for Greeks who have found themselves unemployed. This could have massive implications for the Greek banks and many people could now follow a similar route and force the troubled banks to write off their loans.

Sunday’s Kathimerini understands that the Justice of the Peace Court in Hania based its decision on a 2010 law that allows judges to give protection to people struggling to meet their financial commitments. Until now, the legislation has only been used to give debt relief to unemployed people or those with no substantial income.” This means that virtually every indebted person in Greece, regardless of employment status will rush into court rooms, demanding equitable treatment and a similar debt write down. It also means that the Greek bank sector, already hopelessly insolvent, is about to see its assets, aka loans issued to consumers, about to be written off entirely. And since the ultimate backstopper of the entire Greek financial system is the ECB, the creeping impairments will have no choice but to impact, very soon, the mark-to-market used by both the ECB and the various national banks. Finally, how long before other courts in Europe express solidarity with their own citizens and proceeds with similar resolutions?  

Source: ZeroHedge

%d bloggers like this: