A big day for Europe. Spain asked for that bailout and Cyprus said they’re almost ready, Greece’s new finance minister quits, and eurozone leaders are getting ready to meet to ram through that “fiscal union” German Chancellor Angela Merkel’s been pushing.
We’ve got more warnings of a eurozone collapse, numbers for the Spailout cost, a resignation, French budget cutting, Greek job cut dodging, weak German support for the euro, the return of the Italian Nixon [Bunga Bunga!], a French war on prostitution, a Cypriot downgrade and bailout plea, some Russian money moves, a Danish political shift, and a bleak closing note.
But first, a summary of some of the day’s highlights from Niki Kitsantonis, Stephen Castle, and Raphael Minder of the New York Times:
It was a tumultuous day for the euro zone, as Cyprus announced it would apply for a bailout — joining Greece, Portugal and Ireland — and Spain made a formal request for billions of euros in aid for a banking sector battered by the country’s real estate collapse.
Even before Cyprus announced that it would seek a bailout, stock markets plunged in Europe and the euro dropped amid doubts that E.U. leaders would achieve the far-reaching breakthrough needed to resolve the debt crisis. Stocks were also sharply lower on Wall Street in afternoon trading.
“This will be a decisive week for Europe,” the German foreign minister, Guido Westerwelle, said Monday at a meeting of E.U. foreign ministers in Luxembourg.
In its formal request Monday, Spain said it would seek up to €100 billion, or $124 billion, in aid for its banks, but the exact sum and how the money is to be disbursed are still the subject of negotiation. The Spanish government wants the aid to go directly from the euro zone’s bailout funds to the banks. Euro zone rules now require that the aid be funneled through the government in Madrid, which would add to Spain’s sovereign debt.
Likelihood of eurozone collapse increases
That’s the conclusion of a growing number of key players, including Deutsche Bank and the head of the European Central Bank, Spiegel reports:
It wasn’t long ago that Mario Draghi was spreading confidence and good cheer. “The worst is over,” the head of the European Central Bank (ECB) told Germany’s Bild newspaper only a few weeks ago. The situation in the euro zone had “stabilized,” Draghi said, and “investor confidence was returning.” And because everything seemed to be on track, Draghi even accepted a Prussian spiked helmet from the reporters. Hurrah.
Last week, however, Europe’s chief monetary watchdog wasn’t looking nearly as happy in photos taken in front of a circle of blue-and-yellow stars inside the Euro Tower, the ECB’s Frankfurt headquarters, where he was congratulating the winners of an international student contest. He smiled, shook hands and handed out certificates. But what he had to tell his listeners no longer sounded optimistic. Instead, Draghi sounded deeply concerned and even displayed a touch of resignation. “You are the first generation that has grown up with the euro and is no longer familiar with the old currencies,” he said. “I hope we won’t experience them again.”
The fact that Europe’s top central banker is no longer willing to rule out a return to the old national currencies shows how serious the situation is. Until recently, it was seen as a sign of political correctness to not even consider the possibility of a euro collapse. But now that the currency dispute has escalated in Europe, the inconceivable is becoming conceivable, at all levels of politics and the economy.
Investment experts at Deutsche Bank now feel that a collapse of the common currency is “a very likely scenario.” German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.
Gee, was that why France declared all those old francs worthless after 17 February?
Asking for bailout, singing in Merkel’s chorus
The name of the game is all power to Brussels, and the Spanish prime minister is more than eager to hand over his financial worries to the eurocrats.
Only thus, he’s relentlessly told, can austerity come to full flower in that wondrous desideratum, growth.
From Agence France-Presse:
Spanish Prime Minister Mariano Rajoy pressed European leaders Monday to set a timetable for closer eurozone integration and avert unforeseeable damage to the global economy.
Speaking on the day his government formally requested a eurozone rescue loan for the nation’s stricken banks, Rajoy urged a two-day European Union summit opening Thursday to quash concerns over the euro.
“We must dispel doubts over the eurozone,” he told business leaders.
“The European Union must strengthen its common institutional infrastructure so that investors regain confidence in the single currency as a stable, reliable currency,” said Rajoy.
“The single currency is, must be, irreversible.”
Real cost of Spanish bailout €110 billion?
That’s the conclusion of Open Europe, a British-based independent think tank, which also reports in a just-issued policy paper that European investors have nearly a trillion euros in Spanish holdings.
From the report:
Following this morning’s request by Spain for a rescue package for its banks which could total up to €100bn, Open Europe has published a new briefing looking at the funding needs of Spanish banks and the Spanish state. The briefing argues that, taking into account that Spanish house prices may drop another 35%, the country’s banking sector could need an immediate €110bn capital injection to withstand potential losses – substantially above the recent official estimates. Without substantial banking reform and an upturn in the state of the Spanish economy this amount could increase further. Open Europe estimates that total exposure of EU countries to the Spanish economy is around €913bn.
Open Europe’s Head of Economic Research Raoul Ruparel said,
“Funding for the Spanish banking sector is an incredibly fluid target and could go well beyond €100bn if the situation in the Spanish and eurozone economy continues to deteriorate. Though it comes with merits, if not carefully managed and subject to the right conditions, this package could merely serve to deepen the dangerous loop between Spanish banks and government without offering a clear solution to the crisis. In turn, if more pressure is piled on Spanish banks and therefore government debt, it could force Spain into a full Eurozone bailout.”
“With Spain facing funding costs of €548bn over the next three years, the Eurozone’s bailout funds are not equipped to handle a Spanish rescue. To avoid such a scenario, the current bank bailout plan just has to come with the right conditions – including losses for bank bondholders and bank wind-downs.”
Bankster quits Greek cabinet
And the poor bloke hadn’t even been sworn in yet.
From Harry Papachristou and Karolina Tagaris of Reuters:
Greece’s new finance minister resigned because of ill health on Monday, throwing the government’s drive to soften the terms of an international bailout into confusion days before a European summit.
Vassilis Rapanos, 64, chairman of the National Bank of Greece, was rushed to hospital on Friday, before he could be sworn in, complaining of abdominal pain, nausea and dizziness. Greek media said he had a history of ill-health.
The office of Prime Minister Antonis Samaras, who himself only took office last Wednesday following a June 17 election, said Rapanos had sent a letter of resignation because of his health problems and it had been accepted.
According to a source from one of the three parties in the new coalition government, Rapanos had been under heavy pressure from his family to turn down the stressful job because of his health problems.
Greece broke memorandum labor provisions
That’s the claim of Greek weekly To Vima, breaking a story that’s certain to draw scowls and grumbles from Berlin and Brussels.
Among the sins ascribed to the previous governments are failing to fire doctors, nurses, cops, firefighters and — yes — folks in government administration.
From Greek Reporter’s A. Papapostolou:
Greece breached the rules of its EU-IMF loan agreement by taking on some 70,000 public sector staff in two years, undermining efforts to reduce the state payroll, a report said on Sunday.
To Vima weekly said the hirings in 2010 and 2011 were highest in local administration, health, and the police and culture sectors, where the number of employees actually increased.
It cited a report by a permanent mission to Athens of the so-called “troika” of international creditors, the EU, IMF and the European Central Bank, and data given by outgoing finance minister George Zannias.
An unidentified troika official told the daily, “While they legislated rules to reduce the number of civil servants, they were bringing people in through the window.”
The official added that over 12,000 people were hired by local councils even as a cost-cutting initiative merging municipalities was underway.
Zannias’ report to the new government coalition after the June 17 elections allegedly reveals that although over 53,000 civil servants retired in 2010, the overall number of state staff was almost steady at 692,000 people, To Vima reported.
For more on the findings, see this ANSAmed story.
Germans rank lowest in support of euro
A revealing poll on attitudes toward the euro conducted last week reveals that the peoples of Germany, Italy, Spain, and Italy, German’s care least about keeping the euro.
Gee, we wonder why?
Germans showed the lowest support for the euro among the four largest nations using the currency, according to Bloomberg citing a poll published in four European newspapers.
The poll shows 39 percent of Germans favor leaving the euro, versus 28 percent of Italians, 26 percent of French and 24 percent of Spaniards, according to the survey, conducted by Ifop-Fiducial and published in Madrid-based ABC, Germany’s Bild, Italy’s Corriere della Sera and Le Journal du Dimanche.
In all four countries, majorities said that loans to Greece will never be paid back, even as most said that not saving Greece would increase the euro region’s difficulties “dangerously,” ABC said. In France and Germany, most of those polled said Greece should leave the euro if it can’t pay back its loans, while in Italy and Spain about half shared that view.
He’s Tanned, Rested and Ready he’s rested: Bunga Bunga’s back
Back in 1988, the hottest item on sale at the Young Republican convention in Seattle was a T-shirt emblazoned with the grinning face of a former president and the words “He’s Tan, Rested and Ready. Nixon in ’88.”
Somewhere, someone in Italy must be preparing a similar T, this one with the grinning visage of another former leader and the words “He’s Tan, Rested and Ready. Berlusconi in ’12.”
Yep, while one politician is bowing out in Greece, another one’s planning a comeback in Italy.
And that would be billionaire media mogul and priapic playboy Silvio Berlusconi, the Baron of Bunga Bunga.
From the London Telegraph’s fortuitously named Nick Pisa:
Silvio Berlusconi has said he is once again ready to “take charge” of the Italian government as October elections in the struggling country look increasingly likely.
Mario Monti, a technocrat who took over in November, has seen the country’s public faith in him rapidly erode following the implementation of an austerity package.
Mr Berlusconi, 75, told a rally for his People of Freedom party on the outskirts of Rome: “This is no longer a situation of liberty. We are being governed by people who were not elected.”
Seizing on the tax hikes and a hated new property tax introduced by Mr Monti he said: “We can no longer spend freely or privately our money our rights as home owners are abused.”
Italy is not due to have elections until May 2013 but increasing rhetoric from Mr Berlusconi’s party has suggested they could come as soon as October.
From Three-card Monti to strip poker. But getting elected would be a major boost for Berlusconi, since Italian law halts criminal prosecutions [he’s facing at least two] until the term of office is over.
Nixon never had to worry about being prosecuted for crimes far worse than those facing Berlusconi, thanks to the pardon issued by his successor right after Nixon became the first American president to resign from office.
Chop, Chop! Says French finance minister
Yep, even France has a deficit problem, and they’re looking to pare up to €10 billion to meet those European Unions, which cap deficits at three percent of gross national product.
The only reason the budget’s over the limit is because the Sarkozy administration opted to spare health and social services from the chopping block.
Now we’ll get a chance to see how socialist the Socialists [sic] really are.
From Agence France-Presse:
France must find up to 10 billion euros to cut its public deficit to 4.5 percent of gross domestic product (GDP), Finance Minister Pierre Moscovici said on Monday.
Moscovici told iTele television that the new socialist government was looking for seven to 10 billion euros ($12.5 billion), and added: “We are somewhere in the middle I imagine, but I am waiting to see the official figures”.
The numbers given were slightly lower than the government’s previous estimate of about 10 billion euros.
In 2011, France posted a public deficit, which includes state and social services spending such as the public health system, of 5.2 percent of GDP, and in March the former government cut its 2012 target to 4.4 percent.
Under EU rules, eurozone countries are supposed to keep deficits below 3.0 percent of GDP, and work towards a balance or even a surplus in times of economic growth.
Dominique Strauss-Kahn, endangered species?
The IMF bankster who hoped to become the Socialist [sic] Party candidate for the French presidency saw his campaign crumble after allegations of sexual assault, and whatever hopes remained were dashed by his arrest on organized crime charges stemming from his allegation involvement in an international prostitution ring.
Now comes word that the Socialist [sic] French government is out to abolish prostitution.
From Tony Todd of France 24:
French prostitutes’ organisations on Sunday heaped scorn on the new minister for women’s rights after she said she wanted to eradicate the sex trade in France.
In an interview with the weekly Journal de Dimanche, 34-year-old minister Najat Vallaud-Belkacem (pictured) said: “My objective, like that of the [newly-elected] Socialist Party, is to see prostitution disappear.”
In December 2011, a cross-party initiative in the French lower house of parliament came up with a proposed law that would criminalise paying for sex.
Getting the proposal onto the statute books would be her immediate priority – but for Vallaud-Belkacem, who says she has the support of Interior Minister Manuel Valls, prosecuting clients is just the first step.
“This abolitionist stance is borne of the fact that there are insufficient means at our disposal … to protect the vast majority of prostitutes, who are victims of violence from organised crime networks and from their pimps,” she said.
Cyprus gets the old one-two combo
Yep, the old-downgrade-and-bailout plea routine.
First, the downgrade, reported by Capital.gr:
Fitch ratings agency on Monday cut its credit rating for Cyprus to “BB+” from “BBB-”, citing concerns over the amount of money needed to prop up Cypriot banks, which hold large amounts of Greek debt.
“The downgrade of Cyprus’s sovereign ratings reflects a material increase in the amount of capital Fitch assumes the Cypriot banks will require compared to its previous estimate at the time of the last formal review of Cyprus’s sovereign ratings in January 2012,” Fitch said in a statement.
“This is principally due to Greek corporate and households exposures of the largest three banks, Bank of Cyprus ,Cyprus Popular Bank (CPB) and Hellenic Bank and to a lesser degree the expected deterioration in their domestic asset quality,” it added.
Fitch assesses that Cypriot banks will require further substantial injections of capital, potentially up to 4 billion euros ($ 4.9 billion).
And the inevitable bailout request — already in the works — is now imminent.
Cyprus on Monday said it would seek financial assistance from the European Union’s EFSF/ESM bailout funds to curb exposure of its financial sector to Greece.
“The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spill over effects through its financial sector, due to its large exposure in the Greek economy,” a government announcement said.
No other detail was provided in the statement.
But the European bailout fund was Greece last resort, since the country had hopes of turning elsewhere, reports the New York Times’ Dan Bilefsky:
Cyprus needs to find €1.8 billion, or about 10 percent of its gross domestic product, to recapitalize its second-largest bank, Cyprus Popular Bank, by a June 30 deadline, according to Cypriot officials. In total, Cypriot banks have outstanding loans or other money at risk totaling €152 billion, or eight times the size of the country’s gross domestic product, according to the International Monetary Fund. Such exposure has made the country vulnerable to financial upheaval.
Cyprus has asked the European Union not to impose demands for harsh austerity and to focus the rescue package on the country’s banks, Cypriot officials say. The country has been so determined to avoid Draconian caveats — including calls from some countries that it suspend its 10 percent corporate tax rate — that it had recently sought aid from Russia and China.
Michalis Sarris, a former World Bank economist and finance minister who is now chairman of Cyprus Popular Bank, said Monday that Cyprus was in talks with China over a possible loan. China was potentially interested in a stake in a Cypriot bank, in return for a toehold in the country’s burgeoning gas industry, officials said.
But with time running out, officials said Cyprus, which has been shut out of international markets for more than a year, had little choice but to request aid from the European Financial Stability Facility.
Russia moves to extend its financial reach
That the Cypriot request is being direct to the E.U. has to be a relief for some in Brussels, since Cyprus had hinted that they might turn to Russia instead — an option that, as Le Monde reports, really rankled the eurocrats.
There’s another Russian financial deal in the works that could also give headaches to the Obama administration.
Russian investment bank VTB Capital and Brazilian peer BTG Pactual, two of the fastest-growing emerging market challengers to more established US and European rivals, are joining forces to help them to expand further.
The groups said on Friday that they had established a strategic cooperation agreement to explore opportunities between Russia and Latin America, though they did not expand on how the alliance would work.
“We are pleased to be working together to explore the growing trade and business links between Latin America and Russia,” BTG Pactual chief executive Andre Esteves said in a statement.
Both firms have been rapidly gaining market share in their home markets and expanding in surrounding regions, opening offices or snapping up smaller capital markets firms.
Major political shakeup in Denmark
The once marginal Red-Green Alliance [Enhedslisten, or Unity List], formed in 1989 by the fusion of three leftist political parties, is the new rising star of Danish politics, with support growing as the economic threat grows across Europe.
While the conservative Liberal Party remains strongest with 31.2 percent followed by the Social Democrats of Prime Minister Helle Thorning-Schmidt with 17.8 percent, the Red Greens now poll at 13.3 percent, doubled their standing of eight months ago according to a new Gallup Poll.
The Red Greens rise in the polls stems in part from their opposition to tax “reforms” backed by both the Liberals and Social Democrats, and consisting of tax cuts, a retreat on a proposed mortgage tax deduction decrease, and an eight-year property tax freeze — along with an increased deficit.
From Politiken.dk in Copenhagen:
The tax reform agreement between the government, Liberals and Conservatives seems to have made the situation worse for the Socialist People’s Party, according to a Gallup poll for Berlingske which gives the SocPpl a mere 5.5 per cent of the vote.
At the last election in November 2011, the Socialist People’s Party garnered 9.4 per cent of the vote.
The poll was taken following the agreement between the six parties on Friday, and following intensive but aborted negotiations with the Red Green party, which would have resulted in agreement between the two sides, but which gave way for a broader agreement with the centre-right.
The drop in the Socialist People’s Party poll projection to 5.5 per cent compares to the last Gallup poll carried by Berlingske on June 8, which showed a following of 7.4 per cent.
Hints of lost decades ahead
While Angela Merkel and her allies insist that Europe must grow its way out of crisis, the nightmares of bankers invoke images of decades of stagnation.
And given that only economic expansion can hope to pay for the ever-increasing interest on that ever-accumulating iceberg of debt threatening to sink economies and ships of state.
From Simon Kennedy and Rich Miller of Bloomberg:
Central bankers are finding it easier to support their economies than to spur expansion as the prospect of Japanese-like lost decades looms across the developed world.
Another round of loosely correlated global stimulus has begun after the Federal Reserve extended its Operation Twist program and counterparts from Japan to Europe consider more monetary easing of their own. The Bank of Israel today joined those injecting stimulus by reducing its benchmark interest rate for the first time in five months, in part to insulate its economy from “potential negative consequences” elsewhere.
The rub is that even as they renew their rescue efforts, policy makers are postponing forecasts for fuller recoveries and run the risk that their latest actions pack a smaller punch. This raises the prospect of longer-term anemic expansion akin to the doldrums Japan has suffered since the early 1990s.
The ECB also is downgrading its outlook before meeting on July 5. President Mario Draghi said June 15 the 17-nation economy faces “serious downside risks” and conditions have worsened since the ECB estimated June 6 that the euro zone would contract about 0.1 percent this year. The central bank ended last year projecting growth of about 0.3 percent, a percentage point lower than it forecast in September 2011.
A contraction of about 0.5 percent is more likely, according to new forecasts from BNP Paribas SA. Euro-region manufacturing output shrank at the fastest pace in three years in June, data showed last week.