The accelerating pace of the crisis and the parallel effort to strip national governments of sovereignty accelerates, with more bailouts now certain and a following a flood of downgrades.
With the Greek election coming [and French election, too], a growing sense of urgency rouses instincts of both fear and power.
Our report today is very long, starting with more bad news for Greece, the collapse of the Spanish bailout in the face of more downgrades and falling home prices, growing signs of a bailout need in Italy, downgrades and a bailout call in Cyprus, more grim economic numbers from Spain, a French bank’s plans for its own Grexit, a thunder of amens to Merkel’s all-power-to-Brussels demands, mixed signals for the German economy, and a sop to Dublin.
Two patterns have emerged: The ongoing economic devastation of Southern Europe and the demands of the North for an austerian consolidation of power at the center.
We’ll begin with Greece.
Unemployment soars in Greece
The latest Greek jobless figures are in, and the toll of austerity is becoming clearer.
The numbers can only get worse, since under the Troika-imposed austerity memorandum, another 150,000 government workers will lose their jobs — though Syriza leader Alexis Tsipras has vowed to stop the cuts if he can command a parliamentary majority in Sunday’s vote.
From Andy Dabilis of Greek Reporter:
Pro-austerity parties got bad news on June 14, three days before the critical elections that could determine whether parties opposed to pay cuts, tax hikes and slashed pensions win power and vow to end the punishing measures, as the country’s statistical service, ELSTAT, reported that the unemployment rate rose to a record 22.6 percent in the first quarter of the year, up 1.9 percent from the previous three-month reporting period.
The quarterly data was based on a bigger survey sample and provided detailed figures for each sector of the economy. ELSTAT said there were now officially more than 1.12 million people who are unemployed, with another 222,000 losing their jobs from January to May. The figures don’t include another 500,000 whose benefits expired after a year. To make matters worse for the jobless, New Democracy and PASOK agreed to terms that cut the unemployment benefits to less than $480 a month. The rate for those under 25 hit 52.7 percent while women were the hardest-hit sector, the figures showed.
The numbers represent people in private sector jobs who’ve lost their positions as a fallout of the economic crisis created by alternating New Democracy and PASOK administrations hiring hundreds of thousands of needless workers in return for votes. The government has so far refused to begin the layoffs of up to 150,000 public workers as promised and none have been let go while the jobless rate in the private sector continues to swell by the day.
More bad news for Greek workers
Both pensioners and those who still have jobs have been given new reasons to fear by Greek Minister of Labor and Pensions Antonis Roupakiotis, who’s serving until a new, elected government can be formed.
Roupakiotis warns that the country’s private sector pension funds could run dry next month.
And there’s more bad news for many current state workers, who will see there pensions cut.
From ANSAmed:
“All the finances of the national insurance funds, especially those handed out by the State budget, are in bad shape,” Roupakiotis said again, specifying that the OAED, the human resources agency (basically the employment agency) requires 260 million euros to pay the unemployment funds.
The minister also defined the unemployment subsidies as “humiliating” and pointed out that only one unemployed person out of five effectively receives it. Roupakiotis also said that about 500 union employees have spent months without salary and that the programmes of social tourism, which give the workers paid-for holidays, have been suspended.
There is also bad news for the state employees. Roupakiotis proposed a series of measures which concern the lowering of salaries for state employees by the body which is to release the funds, the institute for the Insurance of State Employees (TPDY). According to the proposal by the minister, from now on those who will have the right to the total salary will only be the ones with at least 25 years of service. For the employees who have between 12 and 25 years of service, the minister proposes to hand out the insurance gathered during the years worked with the addition of the interests but without the revaluation linked to inflation and other parameters.
The employees who have between 6 and 12 years of service will instead receive 70% of the insurance accumulated plus the interest. Lastly, those who have less than 6 years of service will be entitled to nothing.
Tsipras vows to end memorandum if elected
The reason for all the high-placed fear of the outcome of Sunday’s elections can be summarized in the latest declaration of Syriza leader Alexis Tsipras.
From Ekathemerini:
SYRIZA leader Alexis Tsipras says that if his party comes first in Sunday’s elections, it will signify the end of the EU-IMF memorandum but the leftist added that he is prepared to negotiate a new deal with Greece’s lenders.
In an interview aired on Antenna TV on Thursday morning, Tsipras said that voters, not SYRIZA would decide if the terms of Greece’s bailout should be cancelled. “The memorandum will be repudiated by the people’s vote, not us,” he said.
Tsipras said that he wants the policy of internal devaluation to stop but that he is prepared to discuss all these issues with Greece’s eurozone counterparts.
“If they say ‘no’ to everything, it means that they want the end of the Greek people and the euro,” he said.
“If Greece’s doesn’t get its next loan instalment, the eurozone will collapse the next day.”
A Spanish scream for help
The Spanish banking crisis has reached the apocalyptic stage, despite last weekend’s much-celebrated bailout.
Without another bailout, the country’s banks will collapse, the government says.
And the crisis is stirring panic and rage in France, Spain’s neighbor to the north.
From Ambrose Evans-Pritchard of the London Telegraph:
“We’re facing maximum tension. The situation is unsustainable over time,” said the country’s finance minister Luis de Guindos. Yields on 10-year Spanish bonds yields punched to almost 7pc, above levels that triggered ECB intervention to back stop Spain last November.
“The ECB needs to intervene very quickly or it is game over,” said Nicholas Spiro from Spiro Asset Management. “There is a whiff of capitulation in the air.”
The dramatic escalation comes just days after the eurozone agreed a €100bn rescue package for the Spanish state to recapitalise its crippled banks. “It is very worrying. Markets are behaving as if the eurozone is heading for break-up,” said Jens Sondergaard from the Japanese bank Nomura.
France’s industry minister Arnaud Montebourg said the markets were flying out of control because the ECB was failing to take charge. “We need an ECB that does its job,” he said.
In an astonishing outburst for a French minister, he lashed out at German Chancellor Angela Merkel and the “German right” for driving much of Europe into slump. “Certain European leaders, led by Mrs Merkel, are fixated by blind ideology.”
Monti joins in the Spanish plea
Italy’s all but certain to be the next head on the financial chopping block, and Troika-imposed Prime Minister Mario Monti has joined with his counterpart in Spain in a call for intervention from Brussels and Frankfurt [home of the European Central Bank].
From the New York Times’ Stephen Castle and David Jolly:
The prime ministers of Italy and Spain appealed Wednesday to European leaders for help in bringing the euro crisis to a close, as borrowing costs in both countries rose, underscoring investors’ perception that the measures enacted so far were inadequate to the task.
>snip<
Spain’s prime minister, Mariano Rajoy, appeared before Parliament on Wednesday to answer questions about the bank rescue. He also published a letter he had sent last week to E.U. leaders calling for the European Central Bank to buy debt from the countries struggling to shore up their finances.
“That is the battle we have to wage in Europe,” Mr. Rajoy told Parliament. “I am waging it.”
Meanwhile, the Italian prime minister, Mario Monti, addressed the lower house of Parliament in Rome, underlining the need to shift strategies in battling the crisis. He said E.U. leaders, who are to meet in Brussels on June 28 and 29, needed to quickly take concrete steps for “a credible emphasis on growth.” Such steps, he indicated, should include more public investment and the eventual issuing of euro bonds that would pool some of the euro zone countries’ debt.
And the latest reason for Spanish panic
It’s those gol-dern rating agencies again.
From Reuters:
Credit ratings agency Moody’s cut its rating on Spanish government debt by three notches on Wednesday, from A3 to Baa3, leaving it just one notch above junk status.
Moody’s said the newly approved eurozone plan to help Spain’s banks would increase the country’s debt burden.
Moody’s also cut its credit ratings on Cyprus’s sovereign debt by two notches, citing rising risks of a Greek exit from the euro and an already strained fiscal position.
Moody’s said it could lower Spain’s rating further. It acted, it said, because of the Spanish government’s “very limited” access to international debt markets and the weakness of the its economy.
Spain’s overwhelming dependence on Frankfurt
Just how much does Spain — and its people — already owe the European Central Bank?
That would be $288 billion euros, and growing.
From ANSAmed:
The Spanish financial system’s dependence on the European Central Bank (ECB) is growing. The net debt owed to the monetary organisation by Spanish banks reached 287.813 billion euros in May, a 9.2% rise compared to April. The amount is the outstanding balance that Spanish banking organisations must return to the ECB, according to figures from Spain’s central bank. Net financing provided by the monetary organisation in May to Spanish banks accounted for 82.9% of the total in the eurozone, a total that stood at 347.195 billion euros.
The growing difficulties for Spanish banks in financing themselves with other banks on the markets is illustrated by the fact that the amount of credit requested from the ECB increased fivefold compared to May 2011, when 53.134 billion euros were requested.
Spanish housing market collapse continues
The trigger for the collapse of the Spanish economy was the same as that which crashed Wall Street, a vast housing bubble created by a poorly regulated banking industry.
While the U.S. housing market crash has slowed, Spain’s residential deflation continues unabated, leaving banks were a huge supply of foreclosures.
And while a buyer’s obligations to a lender end with foreclosure, Spanish borrowers are still obligated to pay off their mortgages in full, plus interest and penalties — creating a depth of misery much greater than that suffered by foreclosed Americans.
From New Europe:
The latest housing data from the official statisticians of Spain showed house sales in the country plummeted further in April.
The 9.9% year-on-year drop was the 14th consecutive monthly decline, according to Spain’s National Statistics Institute (INE). House sales in April were at their lowest since the onset of the real estate crisis in 2008. But the monthly fall was slower than that of the prior three months, according to the agency. The continued fall came despite Madrid’s reinstatement of tax breaks for homebuyers in December and the freezing of VAT on house purchases at 4%.
The drop in house prices, down 7.2% during the first quarter, and the sharpest quarterly drop since the third quarter of 29, has so far failed to spur sales. Observers noted that the factors that banks restrict lending and unemployment remains an average 25% contributed hugely to the plummet.
The banks suffered a major hit at the time of the recession in 2008 and still hold a significant amount of distressed real estate. They are still struggling to adjust prices in an attempt to shift the estimated 800,000 residential units from their balance sheets.
Austrian minister says Italy’s toast
Those folks to the north are really putting on the pressure
Not that they’re saying anything that isn’t likely to happen, given the rules of the game of debt.
From EurActiv:
Austria’s outspoken finance minister said Italy may need a financial rescue because of its high borrowing costs, drawing a sharp denial yesterday (12 June) from Italy’s “worried” Prime Minister Mario Monti.
Maria Fekter’s assessment of the eurozone’s third largest economy stoked investors’ fears that Europe is far from ending 30 months of turmoil – a feeling reinforced by Dutch Finance Minister Jan Kees de Jager, who said the eurozone was “still far from stable”.
>snip<
“Italy has to work its way out of its economic dilemma of very high deficits and debt, but of course it may be that, given the high rates Italy pays to refinance on markets, they too will need support,” Fekter said.
She sought to soften her remarks yesterday, saying she had no indication Italy planned to apply for aid.
Another ratings agency predicts more bailouts
There’s no way Spain and Italy won’t need more bailouts, says the founder of one of the lesser-known raters.
From Capital.gr:
Spain and Italy need a full-scale bailout from the European Union because of their high levels of government debt and the credit quality of their banks, and will likely seek help within the next 6 months, according to Sean Egan, Founding Partner and President of Egan-Jones, an independent ratings agency.
Poor credit quality of banks usually goes hand-in-hand with poor government finances as the two institutions are “joined at the hip”, Egan told CNBC. That’s the case for most countries such as the U.S., the U.K., Switzerland and Ireland; Spain and Italy are no exceptions, he said.
“It makes little sense to separate the banks’ credit quality from the governments’ credit quality because quite often, they support each other and that’s certainly the case in Italy and Spain,” he said. “We think that Spain will be back at the table, asking for more than the 100 billion euros ($125 billion) that they just asked for, and we think that Italy will also come to the table within the next 6 months.”
Give me more austerity, Monti implores
This time the bankster-imposed technocrat is begging his legislators to abandon all reticence in imposing those Troika-demanded cuts in public benefits and services.
Needless to say, he’s got firm German support.
From EurActiv:
Prime Minister Mario Monti made a dramatic appeal to Italy’s politicians yesterday (13 June) to back his tough economic medicine to avoid the country becoming the next victim of the euro debt crisis. Moody’s downgraded Spain and Cyprus, and panic mounted in Greece ahead of a Sunday vote that could see the country leave the eurozone.
Monti, whose approval rating has slumped as new taxes take hold and recession bites, told Parliament in Rome: “We should use these new difficulties to double our efforts both on the European front and within Italian politics.”
>snip<
European Union paymaster Germany urged Italians to implement Monti’s painful fiscal and economic reforms to stay out of the danger zone: “If Italy continues along Monti’s path there will be no risks,” German Finance Minister Wolfgang Schäuble said in an interview with La Stampa daily when asked whether Rome was next in the markets’ firing line.
Monti met Schäuble in Berlin later and said Italy was preparing to sell state assets but did not need a new austerity program to meet its budget goals.
In remarks aimed at those in Rome and other capitals who are wary of German calls for closer harmony among eurozone governments on their budgets, Monti, a former EU commissioner, said it was better to “share sovereignty” in a union that to be subjected willy-nilly to decisions made by bigger powers.
Grim Italian economic numbers continue
Translated into human terms, Monti’s German-backed austerity is a recipe for social disaster, given the current of the financial/political game.
The imperative for growth demands destruction of community, as all the resources of a country are harnessed to churning out revenue to feed the insatiable maw of debt.
Consider Italy’s plight in the realm of economic numbers, reported by Hans-Jürgen Schlamp of Spiegel:
Italy’s battered economy desperately needs stimulus, but the downward trend is continuing unabated:
Italy’s industrial output is falling almost every month. Since early 2008, the country’s total production has shrunk by about a quarter.
The unemployment rate has increased from 8 to 10 percent over the last 12 months. Among the under-25s, it has risen from 28 to 36 percent. These figures may even be understating the problem: Many of the unemployed no longer bother to register, meaning they are not included in the statistics.
Italy’s gross domestic product (GDP) will decrease this year amid the deepening recession. The Italian central bank has said it will be satisfied if the decline does not exceed 1.5 percent.
A raft of other indicators, including net national income, consumer demand and standard of living, are also falling.
The only thing that is growing is Italy’s mountain of debt, which is already at 120 percent of GDP and will probably exceed the €2 trillion mark this year. As long as the economy is shrinking, it is very difficult to break through the vicious circle of debt, which almost automatically produces more new debt.
Cyprus gets a downgrade
A island with an ancient and troubled history, contemporary Cyprus is split between the Republic of Cyprus in the west and the Turkish Republic of Cyprus in the east. The western country’s an independent state, and a member of the European Union and the eurozone.
The largely Greek republic has been hit by a series of ratings downgrade and speculation of a bailout call have been rampant, as we’ve noted many times before.
Now comes another downgrade, sparked by those Grexit fears.
From Capital.gr:
Moody’s Investors Service on Tuesday cut the credit ratings on two Cypriot banks and put another on review for a downgrade, citing the increased risks of a possible Greek exit from the euro zone.
Bank of Cyprus the largest lender on the Mediterranean island, had its deposit and senior unsecured debt ratings cut by one notch to B2 from B1 and the stand-alone credit assessment lowered to B3 from B2.
Moody’s also cut Hellenic Bank Ltd’s deposit ratings by one notch to B1 from Ba3 and the stand-alone credit assessment lowered to B2 from B1.
Both banks were also put on review for a possible further downgrade, Reuters reported.
Cyprus Popular Bank, the country’s second-largest lender, was also put on review for a downgrade.
And the inevitable Cypriot bailout call comes
And are we shocked. Shocked!
From Greek Reporter’s A. Papapostolou:
Cyprus’ Finance Minister warned Wednesday that the eurozone country could seek a European Union bailout to help recapitalize its banking sector before crucial elections in Greece this Sunday.
Vassos Shiarly said that the Greek elections – seen as a vote on whether the debt-wracked country stays or leaves the eurozone – are a key factor to Cyprus’ decision whether to become the fifth eurozone member to ask for EU bailout money.
“The chosen time (to seek a bailout) will be decided in cooperation with all European Union partners, either within the eurozone or the Union as a whole,” Shiarly told a business forum in the capital, Nicosia.
French bank plans for the Grexit
Here’s one of those well-timed leaks, handed to the world’s most-read financial paper.
Pardon us if we suspect a well-timed, carefully planned story designed to whip up more fears among the Greek electorate.
From Greek Reporter:
French bank Credit Agricole (CAGR.PA) is considering walking away from its Greek Emporiki Bank unit and letting it fail if Greece leaves the euro zone, the Wall Street Journal reported on Wednesday, citing a person with direct knowledge of the bank’s plans.
Credit Agricole, which has poured some 6 billion euros into Emporiki since buying the bank in 2006, could face some 5 billion euros of write downs if the bank failed, which could force it to undertake a capital increase.
Earlier on Wednesday the bank said it planned to name Xavier Musca, until recently the top financial adviser to former French President Nicolas Sarkozy, as executive vice president in charge of international retail banking including Emporiki.
The Union forever! Hurrah, boys hurrah!
European Commission President Jose Manuel Barroso, leader tenor in Merkel’s choir, declaring time and again that Europe’s crisis demands a surrender of national sovereign powers to Brussels.
Sure, there’s a crisis. But all the “solutions” seemed to be aimed at buttressing the very people and institutions that landed the continent in crisis in the first place.
No calls for a debt jubilee, for instance — a measure very much in the interest of the peoples of Italy, Greece, and Spain, but not of banksters of Berlin, London, and Paris. . .
And for those wondering about our subhead, hear here.
From Deutsche Welle’s Christoph Hasselbach:
The European commission president is watching the clock. The EU is at a “decisive moment” of crisis management, he said. High unemployment is a “social emergency” requiring both immediate steps and long-term measures, he said.
Addressing the European Parliament in Strasbourg, Barroso spoke out strongly in favor of a fiscal and banking union among the countries using the common euro currency. But many governments are opposed to both. A fiscal union would mean that member states could no longer absorb new debt independently. Their sovereignty, therefore, would be highly constrained, a fact which has met with stiff resistance from the affected national parliaments.
A banking union would make pan-European deposit insurance possible. That’s something Germany rejects, because it wants to defend itself against even more liability for weak banks and governments. Barroso appealed to the conscience of the reluctant governments: “I’m not sure if the urgency of this issue is understood in all the capital cities,” he said.
Barroso’s mantra is that greater European integration is necessary in order to solve the debt crisis. But, at the moment, he sees the opposite happening, even when it comes to Schengen, the treaty establishing free movement without border controls within the EU.
The Iron Chancellor weighs in, again
And the message is the same: More power to Brussels, or the eurozone dies;
From Ekathemerini:
Chancellor Angela Merkel warned that Germany alone cannot solve the eurozone crisis as Spain’s borrowing costs surged to a record high level on Thursday after a Moody’s downgrade.
With “all eyes” set to focus on Germany at a key G20 summit in a few days’ time, Merkel sought to play down expectations that Europe’s top economy and effective paymaster could conjure up all the answers.
“Germany is strong, Germany is an engine of economic growth and a stability anchor in Europe,” she said.
“But Germany’s powers are not unlimited,” Merkel warned in a speech to German lawmakers outlining Berlin’s position ahead of the June 18-19 meeting of G20 leaders in Los Cabos, Mexico.
>snip<
She stressed Europe would only find a way out of the crisis with a strong “political union” with greater fiscal coordination and oversight.
“Financing growth with new borrowing must stop,” she said.
Merkel’s cry echoed by European Parliamentarian
The latest plea comes from a French politician and ally of former President Nicolas Sarkozy who grew up speaking German in his native Alsatia. He’s a leading figure in the European parliament’s European People’s Party, originally created by German Chancellor Angela Merkel’s Christian Democrats.
From EurActiv:
[Parliament members] pleaded for a reform of the EU budget and warned European leaders that if no agreement is reached on boosting resources, the Parliament will not adopt the new multi-annual financial framework (MFF) for 2014-2020.
The European Parliament meeting in Strasbourg yesterday (13 June) approved by a large majority the assembly’s position for the long-term budget. The complex package refers to 60 legislative proposals and demands member states to agree on giving the EU its own resources to better match its 2020 strategic goals.
“We can win together or fail separately,” said Joseph Daul, leader of the centre-right European People’s Party (EPP) in an unusually heartened speech.
“The reality is that no European country can cope on its own with global challenges, whether they are economic, social, demographic, military or political,” Daul added, urging leaders to move from bold decisions to strong actions.
U.S. Treasury Secretary backs Merkel’s call
Gee, is this a pattern or what?
Wall Street’s man in the Obama administration, a man who started his career working for Henry Kissinger’s consulting firm and moved up through the Treasury Department, IMF, and Federal Reserve before landing a seat on Obama’s cabinet.
From Capital.gr:
U.S. Treasury Secretary Tim Geithner said Wednesday that European Union leaders have the political will to keep the euro currency union from breaking apart.
“They’ve decided that it’s in their interest to hold this together,” Geithner said at the Council on Foreign Relations in Washington, according to CNN. “They tell us privately that they will do whatever is necessary to hold it together.”
Geithner backed the steps EU leaders have outlined to form a banking union, boost crisis resources and revive the ailing European economy. But he stressed that the Europeans need to act quickly to enact those reforms as the crisis enters “another major escalation.”
“If you wait to move in these things, and you let market get ahead of you, then you increase the cost of the solution and make it harder to get there,” said Geithner. “There’s no argument for doing it slowly, you get there as quickly as you can.”
And Brussels moves forward
Merkel’s mandate won a decisive victory in the European Parliament yesterday, with the approval of draft legislation giving Brussels more power over national finances in the eurozone.
It’s not all that Merkel wants, but it’s a big start.
From Honor Mahony of EUobserver:
The European Parliament on Wednesday (13 June) approved draft laws that would strongly increase Brussels’ power over eurozone countries’ budgets. But they tempered the previously austere proposals with measures for growth, debt redemption and democratic scrutiny.
“This is the core of a fiscal union,” said Austrian MEP and socialist leader Hannes Swoboda.
“This is the first time that there is a structural solution [to the eurozone crisis] on the table,” said Liberal leader Guy Verhofstadt. His Green counterpart Daniel Cohn-Bendit called it a “milestone” for the strength of agreement among MEPs.
The pair of laws – also known as the two-pack – is among the most far-reaching ever proposed.
They enable the European Commission to call for revision of national budgets and place single currency countries either in, or approaching, financial difficulties under a tight monitoring regime.
Meanwhile, Brussels refuses transparency reform
If Merkel gets her way, as seems likely, Europeans will be governed by a central power with less transparency than mandated in many of their own nations.
We are not surprised.
From Andrew Rettman of EUobserver:
The Danish presidency has abandoned attempts to agree new rules on access to EU documents.
It took the decision on Tuesday (12 June) after EU countries and the European Commission last week rejected its latest draft of the law.
It still wants MEPs to back a commission proposal to extend existing rules on freedom of information to all EU institutions – including its 31 agencies – however.
The existing rules go back to 2001. Pro-transparency advocates say they allow too much secrecy. EU officials say they waste time by ambiguity on what is open or not.
Numbers signal trouble for German economy
One cause of Merkel’s desperate effort to whip Europe into shape is the plague of tremors rippling through her own country’s economy.
Given that Germany’s part of Europe, and that Europe is the prime customer base for the German economy, we can hardly be surprised at the latest numbers, reported by GlobalPost:
The latest economic news shows Germany may also be catching the euro zone virus.
Figures released on Friday show that German exports fell in April, decreasing by 1.7 percent, accelerating from a fall of 0.8 percent in March. There was even more concern about imports. Seasonally adjusted, they dropped by 4.8 percent, the worst decline in two years, indicating a possible slowdown in domestic demand.
These disquieting figures echo other bad news earlier last week. German industrial orders fell in April at their fastest rate since November 2011. The IFO business climate index fell in May for the first time in six months as concerns mount about contagion to Spain and Italy.
And the slump in Europe’s auto industry has started to affect Germany. Production fell by 17 percent in May compared to last year, while exports were down by 13 percent.
A video report on Germany’s worried business sector
From Deutsche Welle:
German fears of a bank run
As the crisis deepens and more banks fail, people begin to wonder just how long the crisis will continue, and, in Germany’s case, just how exempt their own financial institutions are from the slow-motion bank runs underway in Greece and Spain.
From Deustche Welle’s Dirk Kaufmann:
After the banking crises of the past several years, and in view of the public debt crises in Europe, a bank run in Germany can not be ruled out, despite the politicians’ promises. Hans-Peter Burghof, a bank expert at Hohenheim University, is certain that “the danger is there. But when it will strike, we do not know.”
If investors and savers feel uncertain, only a small, seemingly inconsequential event is needed to trigger a bank run. The straw that breaks the camel’s back could be the collapse of a large company or an unexpected economic downturn. This, Burghof says, could provide the spark that explodes the powder keg: “Some politician says something awkward, and then it happens.”
Then we would see. Are the deposits of savers really safe? Is it even conceivable that the government could stand up for German deposits totaling 626 billion euros? What happens to my money saved if the government starts up the money machine, prints new bills, and simply “inflates away” the debt? My money would be still there – but it would be worth nothing.
If in the event of a bank run, a scenario of worried, irate depositors forming long queues at the counters, could become reality, Burghof says. Then the bank could simply close, so that no one could withdraw any more money. “Then they could relax and say everyone may withdraw one hundred euros a week now to live off.”
But for now, Germany’s profiting from chaos
A very important and very revealing story from Spiegel:
The European sovereign debt crisis has plenty of losers, but arguably one clear winner: Germany. Demand for German bonds, seen as the safest haven in the euro zone, has pushed Berlin’s borrowing costs so low that some investors are effectively paying Germany for the privilege of lending it money.
Now German economists have calculated that Germany could reach its cherished goal of a balanced budget by as early as next year, as a result of its bargain borrowing costs — provided, that is, the euro crisis doesn’t escalate.
According to calculations conducted for the Financial Times Deutschland by the private research company Kiel Economics, a spin-off of the respected Kiel Institute for the World Economy (IfW), Germany will save a total of around €15 billion ($19 billion) in 2011 and 2012 as a result of low interest rates on government bonds. Berlin will save at least €10 billion in 2012 alone, the economists calculate. “We are expecting a balanced budget in 2013,” the IfW’s Jens Boysen-Hogrefe told the Thursday edition of the newspaper.
The economic research institute RWI also foresees a balanced budget for Germany in 2013 in its latest economic report, published Wednesday. That prediction, however, is based on the assumption that the euro crisis does not escalate, which could leave Germany with costly liabilities — for example, in the event that Greece leaves the euro zone.
So while her businesses are slowing down, Germany’s banks are booming, and to Merkel’s great momentary advantage.
Yet one more reason for her insistent demands for austerian order.
Ireland rewarded for playing ball
Uniquely, Ireland gave its people the right to vote on acceptance of the EU austerity pact, and despite a low turnout, the austerian plan prevailed at the ballot after a campaign that mirrored in a lesser degree to pressures now being placed on Greeks by the lords of austerity.
And having played ball, the Irish are being rewarded — and the timing, we suspect, has a great deal to do with Sunday’s elections in Greece.
From Agence France-Presse:
The International Monetary Fund on Wednesday released a 1.4 billion euro ($1.8 billion) loan instalment to Ireland, saying its economic program under a three-year bailout was on track.
The IMF executive board said that Ireland’s implementation of reforms under its three-year rescue loan program has been “steadfast.”
“Ownership of the program remains strong despite the considerable challenges the country is facing,” the IMF said.
The latest release brings the IMF’s total disbursements under the 2010 loan to about 18.2 billion euros ($22.8 billion).
The IMF loan was approved on December 16, 2010, as Ireland was grappling with a banking crisis. It is part of 85 billion euro financing package ($106.5 billion) supported by the European Union and bilateral loans from Britain, Sweden and Denmark, as well as Ireland’s own contributions.
“Approaching the half-way mark of its EU/IMF-supported program, Ireland has once more met all program targets,” said David Lipton, the IMF’s deputy chief.
