With runs on banks in Greece and Roem and Italian banks under attack by the ratings agencies, the euro has plunged again and European stock markets are twitching in anxiety.
It’s beginning to look like another financial tsunami is about to strike, and the culture funds are plunging into the game, finding ways to suck out the last assets of stricken states.
We’ve saved the the real shocker for our final item, a call from Germany’s financial power for European nations to essentially surrender sovereignty to the European Commission.
A whole lot to report today, and rather than further summarize, we’ll cut straight to chase.
Fear sends euro, markets tumbling
We begin with a wrap-up of the latest developments today from Eubusiness:
Spain tumbled into recession and European stock markets and the euro fell Thursday as Greece installed a crisis government to tackle its crippling debt, EU leaders prepared for talks and analysts raised the spectre of a run on eurozone banks.
“Markets are worried about eurozone bank deposit runs and an escalating banking crisis,” London-based VTB Capital economist Neil MacKinnon told AFP.
Meanwhile, Europe’s single currency nosedived to a four-month low at $1.2667.
“Confidence in European equities (is) quickly depleting, this time after the European Central Bank admitted it had stopped providing liquidity to some Greek banks,” noted analyst Craig Erlam at trading group Alpari.
The ECB said Wednesday that it was no longer dealing with some Greek banks via the conventional credit window, Dow Jones Newswires reported, and has restricted the banks to “emergency lending assistance” from Greece’s central bank that must be approved from month to month.
Bank of England boss warns of Crash II
Meryn King minced few words, as The Guardian’s Larry Elliott, Jill Treanor, and Patrick Wintour reoprt:
The British government is making urgent preparations to cope with the fallout of a possible Greek exit from the single currency, after the governor of the Bank of England, Sir Mervyn King, warned that Europe was “tearing itself apart”.
Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London about the impact of a splintering of the eurozone on a UK economy that is stuck in double-dip recession. One estimate put the cost to the eurozone of Greece making a disorderly exit from the currency at $1tn, 5% of output.
Officials from the Bank, the Treasury and the Financial Services Authority are drawing up plans in the expectation that a Greek departure from monetary union – increasingly seen as inevitable by financial markets – could be as damaging to the global economy as the collapse of Lehman Brothers in September 2008.
With a second election in Greece called for 17 June, King dropped a strong hint that the Bank would take fresh steps to stimulate growth if policymakers in Europe failed to deal with the sovereign debt crisis.
“We have been through a big global financial crisis, the biggest downturn in world output since the 1930s, the biggest banking crisis in this country’s history, the biggest fiscal deficit in our peacetime history and our biggest trading partner, the euro area, is tearing itself apart without any obvious solution,” he said.
A bank run in Spain — or not?
A major Spanish newspaper is reporting that savers of a Spanish bank cobbled together from the runs of a half dozen failed banks is experiencing a major run on deposits.
Customers of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros ($1.3 billion) from their accounts over the past week, El Mundo newspaper reported on Thursday.
The newly appointed chairman, Jose Ignacio Goirigolzarri, informed a board meeting that customers had pulled out funds since the bank was taken over by the government, El Mundo said, citing information from the board meeting it had seen.
The government took over Bankia, the country’s fourth largest lender, on May 9 in an attempt to dispel concerns over the bank’s ability to deal with losses related to a 2008 property crash.
Uncertainty over the final cost of Spain’s banking reform has stoked investor fears that an expensive international bail-out could be on the cards, putting the survival of the euro zone at stake.
But Spanish officials are saying there’s no bank run, as The Guardian reports.
Once again, government pronouncements must be read with an arched eyebrow, since its in the interest of government officials to downplay bad news, especially the kind that could bring the economy down.
Spain spirals deeper into debt to fund government
That’s the real meat in this story about the the soaring costs Spain is having to pay investors on the bond market.
From the BBC:
Spain has paid sharply higher rates of interest to borrow money on the international markets, as worries grow about the state of its economy.
In total, it raised 2.5bn euros ($3.2bn; £2bn) through issuing a number of different types of bonds.
On bonds due to be paid back in January 2015, it had to pay an interest rate of 4.373%, up from 2.89% in April.
On debt maturing in April 2016, Spain had to pay an interest rate of 5.106%, up from 3.374% on 15 March.
On Wednesday, Spain’s Prime Minister Mariano Rajoy warned that borrowing costs could become “astronomical”.
Portugal braces for a Greek euro exit
Already staggering under the burdens of previous bailout agreements, a Greek pullout from the euro would have profound impacts on the ailing Portugese economy, so the Troika is heading for Lisbon to devise stopgap measures.
The EU, ECB and IMF, the so-called troika, will start to develop an emergency plan to protect Portugal in case Greece leaves the euro. The news is reported by the Portuguese economic newspaper Diario on its website. Next week envoys of the troika will visit Lisbon to revise the aid programme to Portugal for the fourth time, the newspaper adds.
Italy fumes after bank ratings downgrade
A familiar pattern is unfolding in Italy, with the imposition of austerity followed by further downgrades to the nation’s financial institutions, while the debt speculators circle overhead, waiting for the carcas to stop twitching.
And now even the man the Troika imposed on Italians as their prime minister is feeling the heat.
Italy’s banking and business leaders has attacked Moody’s mass downgrade of Italian banks, branding the move as an irresponsible blow to the economically-strapped country while it battles eurozone debt woes and economic recession.
Moody’s downgrade of 26 Italian banks is the first round of a wave of credit rating cuts that is expected to hit dozens of euro zone lenders, adding to their difficulties in raising funds and exacerbating an existing credit crunch.
The move, which Moody’s pinned on a weakening operating environment made worse by Prime Minister Mario Monti’s tough austerity cure, came amid growing calls within the eurozone for a shift towards growth after months of strict fiscal discipline.
“Moody’s decision is an assault against Italy, its companies, its families,” said Italian banking lobby ABI. “Once more rating agencies turn out to be a destabilizing factor for financial markets with their partial and contradictory statements.”
Eurobank puts the squeeze on more Greek banks
The European Central Bank, which has imposed strict conditions on loans to Greek banks, has just announced it’s cutting off further loans to some of that nation’s troubled financial institutions.
With a bank run already underway, we’d like to now how this latest ECB isn’t certain to accelerate the already heated pace of withdrawals
From Jeff Black and Jana Randow of Bloomberg:
The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled the ECB won’t compromise on key principles to keep Greece in the euro area.
The Frankfurt-based ECB said yesterday it will push the responsibility for lending to some Greek financial institutions onto the Greek central bank until they have sufficiently boosted their capital. “Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the ECB said in an emailed statement.
The move comes after Draghi acknowledged for the first time that Greece could leave the monetary union. While the bank’s “strong preference” is that Greece stays in the 17-nation euro area, the ECB will continue to preserve “the integrity of our balance sheet,” he said in a speech in Frankfurt yesterday.
“A Greek exit was seen as an absurdity up to now,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “It is gradually becoming the main scenario. The ECB is prioritizing its balance sheet over monetary-union geography.”
Syriza’s Tsirpas lashes out at Merkel, eurocrats
During a Wednesday interview with CNN’s Christine Amanpour, Tsipras fired back at German Chancellor Angela Merkel’s demand that Greece either play by the Toika’s rules or quit the euro, adding a stark warning of his own.
“I don’t know what Madame Merkel wants to do but I know what we want to do,” said Tsipras. “We don’t want outside the Eurozone. But we believe that Madame Merkel put the euro and the Eurozone in big danger by keeping these austerity measures.”
He added, “We want to change the austerity measures in Greece, also in Europe. We want to do this with the incorporation of other forces and people of Europe, the people who want a big change. Because everybody now understands that with this policy we are going directly to the hell. And we want to change this way.”
He was asked the consequences if Greece abandons the euro and returns to the drachma as its currency: “If Greece goes back to the drachma, the second day the other countries in Europe will have the same problem,” said Tsipras.
“I really disagree with a lot of the things that Madame Merkel say and do, “ he said gamely speaking in English, “but I agree with what she said before, that if Greece goes out of the euro, the second day the markets will find who will be the second, and the second will be Italy or Spain.”
Latest polls shows gains for Syriza, New Democracy
The 17 June election could result in yet another Grecian gridlock, if the latest poll numbers are correct.
If the numbers are even close, Greeks would give the most votes to the most radical party, while the Greek equivalent of the GOP would place second, with the formerly dominant Pasok left trailing in the dust.
One opinion poll shows the radical leftist Syriza party, which wants to drop the deal and its austerity measures, in first place with 24.5 percent of the vote, up from its 16.78 percent showing on May 6 when it came second.
A Pulse poll for Pontiki satirical weekly said the conservative New Democracy party and the socialist Pasok, the mainstream parties who supported the EU-IMF debt rescue, would get 21.5 percent and 15.5 percent respectively.
Syriza, if it comes in first, would get the 50 extra parliamentary seats awarded the first place finisher, so the outcome would depend on the stance of other parties towards Syriza’s demands that the Troika’s bailout be scrapped.
Greek privatizations on hold till election
This one’s an easy move to fathom.
Another wave of privatizations would drive more voters into Syriza’s camp, so the government’s decided to hold off on further expropriations of the national commons until after the election.
We suspect Greeks are smart enough to see through the pretense.
From Keep Talking Greece:
Greece will freeze privatizations until June-17 elections and a new government is being formed. This decision was taken by the board of the State Private Property Fund (TAIPD) on May 15, 2012. “We refrain from taking decisions that are binding for the future until the forming of the new government that will emerge from the fresh elections, the Fund said in a statement adding that the decision was taking by the majority of board members. Despite the efforts by the president of the board to continue making calls for interest in merely preparatory acts.
Observers appointed by the European union and the Euro Zone expressed concern about the decision of the board.
We can understand the eurocratic anxiety. If Syriza managed to form a government, there’d be no more loot left for their clients to grab.
Greek president installs caretaker regime
With parliament unable to form a government, that task was left to President Panayiotis Pikrammenos, who has now announced the cabinet that will run the nation until the election.
The president of the Council of State, Panayiotis Pikrammenos, was Thursday appointed to lead a caretaker government to take the country to fresh elections.
During his visit to President Karolos Papoulias, who gave him the mandate to form a government, the 67-year-old described his task as “a difficult burden” but thanked the president for entrusting him with it. “Our country is experiencing difficult times. We must safeguard its standing and its smooth transition to a new government,” he said. The eminent judge allowed himself some levity, noting that the media had decided that his name, meaning”embittered,” meant he was well suited for his role. Later Pikrammenos was sworn in at the Presidential Palace before meeting outgoing Premier Lucas Papademos for the handover.
Some details on the new cabinet from Deutsche Welle:
A caretaker Greek cabinet has been sworn in in Athens, comprising diplomats, retired military officers, and university professors, with a limited mandate until fresh elections on June 17.
Among the newly inaugurated ministers are George Zannias, the former head of the state’s council of economic advisors, as finance minister, and 83-year-old retired diplomat Petros Molyviatis as foreign minister. The former head of Greece’s army general staff, Frangos Frangoulis, has been named defense minister.
Members of parliament who were elected on May 6 were also sworn in on Thursday, but they will only serve for one day before parliament is dissolved again to make way for the fresh election.
Suddenly the Iron Chancellor sings a softer tune
Yep, Angela Merkel is saying she’ll be nicer to Greece, but only if they do what she tells them to do.
Call it just one more bit of electioneering from Northern Europe aimed at the Aegean in hopes of getting a government that will play ball.
From Nicholas Kulish and Melissa Eddy of the New York Times:
Chancellor Angela Merkel of Germany said Wednesday that she was ready to discuss stimulus programs to get the Greek economy growing again and that she was committed to keeping Greece in the euro zone, signaling a softer approach toward the struggling country.
The fierce rhetorical salvos out of Germany in the past week gave way to conciliatory gestures by Ms. Merkel, who throughout the crisis has shown a propensity for managing through brinkmanship. “I have the will, the determination to keep Greece in the euro zone,” she said in an interview on CNBC on Wednesday, in what appeared to be an attempt to relax an increasingly tense situation.
If Greek officials are looking for “stimulus to be pursued for growth in the euro zone, which we could pursue in the interest of Greece, we’re open for this,” Ms. Merkel said. “Germany is open for this.”
With the continuing instability, the rest of Europe would remain “in limbo” waiting for Greek elections, said Holger Schmieding, chief economist at Berenberg Bank in London, “which for financial markets means one thing: volatility.”
He added, “We are exactly in the situation where the rumors or the expectations could trigger a downward spiral.”
But while one German would give, another would take
And the object to be taken would be one of the last vestiges of national sovereignty left on the continent.
From Honor Mahony of euobserver:
The European Union needs to become more integrated with a common finance policy and a central government, German finance minister Wolfgang Schaeuble said Wednesday.
“I would be for the further development of the European Commission into a government. I am for the election of a European president, he said at an event in Aachen, reports Reuters.
“I am in favour of being more courageous on Europe,” said Schaeuble, who is one of the German government’s most pro-European ministers.
He said this is a longterm response to the current eurozone crisis, which many have said has been exacerbated by the fact that the EU lacked the tools – such as a central transfer system – to effectively deal with it.
“We certainly won’t manage it in this legislative period,” said Schauble referring to the creation of a finance ministry but noted that for a currency union, a part of finance policy needs to be harmonised.
That should be the “lesson” learned from the current crisis.
Keep Talking Greece comments on the latest from Wolfie:
I could have never imagined, German Finance Minister Wolfgang Schaeuble had a sense of humour. Reality proves me wrong. Apparently he has. Then it must be a joke when he proposes that the European Commission develops into an EU government! And this when a growing number of Europeans criticize in deepest frustration the path the EU and similar institutions have taken under conservative politicians, neo-liberal policies and EU bureaucrats living in ivory towers and pink bubbles made of EU taxpayers money.
All we can add, is “Amen!”