A downgrade for two surprising subjects, a very stark announcement from Europe’s central banker, a fateful hearing in a German courtroom, fast-tracking for the Spailout, an upcoming Irish bailout, soaring interest, a dark Spailout secret emerges, LIBORgate in Mekrel-land, a regulatory crackdown, bad numbers form Italy, and the troublesome roots of te European Union’s founders.
Rater expands target to the north
Two of the continent’s healthier economies have been downgraded, and for a reason that’s seemingly, well, reasonable.
Credit rating agency Egan-Jones on Monday cut the sovereign ratings for both Austria and the Netherlands, citing the ongoing euro zone sovereign debt crisis and the help those countries will provide to prop up fellow members of the monetary union.
The agency lowered Austria?s rating to A from A-plus and cut the rating on the Netherlands to A from AA-minus. Both ratings have a negative watch, according to Reuters.
Northern European countries will absorb the cost of shoring up ailing neighbors, Egan-Jones said in separate statements on each rating action.
And with Spain and potentially Italy looking for support, “two major economies will switch from providers to users of funds. Our view is that the longer the euro crisis continues, the lower the ultimate recoveries,” the statements read.
That last conclusion is reasonable. As the crisis endures, the chance of recovering all that cash will diminish.
Of course the purpose of the cash is to bail out private investors at the cost of the real capital of peoples and nations.
Crash II worse than Crash I, says eurobankster
And just how bad are things?
The word from the eurobank’s chief economist, via The Guardian:
The eurozone crisis is now “much more profound and more fundamental” than the collapse of Lehman Brothers.
That’s according to Peter Praet, the European Central Bank’s chief economist. Praet ratched up the pressure as today’s eurogroup meeting got underway in Brussels, by telling a conference in Lisbon that we are now in a more dangerous place than after the fall of the Wall Street titan in 2008.
Praet argued that EU leaders did make real progress at last month’s summit, by recognising that the ‘construction’ of the eurozone needs to be improved. He also hinted that the ECB could cut borrowing costs again, saying there was “no taboo” on interest rates.
German high court holds fateful hearing
At issue: The fate of Germany’s role in the new economic order Chancellor Angela Merkel’s done so much to advance.
From Daphne Grathwohl of Deutsche Welle:
It was just an oral hearing before a mere preliminary decision in summary proceedings, but it attracted intense scrutiny. The question for Germany’s highest court at the moment: is the German president permitted to sign into law two measures aimed at stemming the eurozone crisis, the European stability mechanism (ESM) and the fiscal pact? If not, those laws would be tabled until the court reaches a decision on the larger question of their compatibility with the German constitution.
But all eyes are on the Constitutional Court in Karlsruhe because its preliminary decision could indicate how the court will decide on the broader issue of the laws’ constitutionality. The tension was tremendous before and during the hearing; in the run-up, warnings came from Brussels and Berlin, should the judges declare the tools to rescue the euro to be unconstitutional.
In this preliminary hearing, judges assessed which of two offenses would be greater. If the measures were stopped temporarily, only to be determined compatible with the demands of the constitution, it could send financial markets into chaos in the meantime. But if the ESM and fiscal pact were to be initially ratified, but then be found to contradict the German constitution, they would already be counted as unbreakable international treaties.
A great deal of money hangs in the balance. The 17 signatories to the ESM would make a shared total of 700 billion euros ($860 billion) available. The ESM would replace the current European Financial Stability Facility (EFSF), and the ESM is intended to be a permanent means of supporting states that are in financial trouble.
The judges are ruling on actions brought by a cast of euroskeptic plaintiffs, including academics and a former finance minister.
The office of the president has one substantial power: To become law, all legislation must be signed by the president.
Finance ministers fast-track the Spailout
A process that looked months away just two days ago has been shortened to weeks after Europe’s panicked finance ministers recognized it was either cash now or catastrophe tomorrow.
From the London Telegraph:
Euro area finance ministers have agreed on the terms of a bailout for Spain’s troubled banks, saying that €30bn can be ready by end of this month to help save one of the largest countries in the eurozone from needing a full bailout.
Ministers also agreed to grant Spain an extra year until 2014 to reach its deficit reduction targets in exchange for further budget saving.
The decisions were aimed at preventing the currency area’s fourth largest economy, mired in a worsening recession, from needing a full state bailout that would stretch the limits of Europe’s rescue fund and plunge it deeper into a debt crisis.
“The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014,” ministers said in a statement.
No final figure was agreed for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of €100bn (£79.2bn) and some €30bn would be available by the end of July if there was an urgent need.
Spain’s PM: We deserve it because we’re disciplined
Discipline’s the byword for getting eurocash.
The Greeks have been repeatedly lashed with the whip of austerian anger for their alleged failure to embrace with all the enthusiasm your neighbor’s dog exhibits whilst humping your knee.
From the BBC:
Spanish Prime Minister Mariano Rajoy has hailed a decision by eurozone finance ministers to help Spain shore up its struggling banks as a victory for the European common currency.
“It was the credibility of the euro that won,” he told reporters.
“If we had not done what we have done in the past five months, the proposal yesterday would have been a bailout of the kingdom of Spain,” he said.
The rescue, Mr Rajoy added, would speed up the “flow of credit loans to families, to small and medium enterprises, to self-employed workers”.
But he warned that the near future looked bleak: “This year is going to be a bad one.” He said that the economy, which is in its second recession in three years, was still expected to shrink by 1.7%.
We’ll note here that we suspect there’ll be no happy landing. We’re encountering a Perfect Storm, born from the forces set in motion by the fusion of exponential forces that, if perpetuated, can only culminate in global conflict.
Chief among the peaking forces are energy consumption, resource exploitation, population growth, environmental degradation, and — fueling the entire process — the triumphal rise of corporate and financial power.
Euroministers to decide on Irish bailout
Ireland’s been faithful to the Brussels line and a majority of voters opted for the latest eurozone financial rules.
So the money ministers are getting ready for another bank bailout.
From Arthur Beesley of the Irish Times:
Euro zone finance ministers resolved early this morning to take a final decision in October to provide an unspecified amount of bank debt relief to Ireland.
The unanimous move to set the deadline, at a nine-hour meeting in Brussels, marks a step forward in the Government’s long campaign to reduce the burden of the State’s €60 billion-plus banking debt.
Although the mechanism to be deployed and the amount of relief in play remain unclear, the European Commission will develop concrete proposals to be submitted to the ministers in September.
“That’s very positive. It’s positive for Ireland, its chances of succeeding in its reform programme and thus it’s positive for the whole of Europe,” Mr Rehn told reporters around 3am in Brussels.
The move by the euro group came as Minister for Finance Michael Noonan pressed for a speedy deal to revise the bank rescue and linked the question to an International Monetary Fund review of Ireland’s bailout later this year.
This is a crucial procedure under the IMF’s own internal rules as it does not lend to countries judged to have an uncertain funding profile over a 12-month horizon.
A reminder of what the bailout rush
Just look at Monday’s bond market, when anxiety was peaking.
From Deutsche Welle:
Investors have started demanding 7 percent interest on Spanish 10-year bonds, a level considered unsustainable in the long term. Eurozone finance ministers are meeting later on Monday in Brussels.
Interest rates on benchmark 10-year Spanish sovereign bonds surpassed 7 percent early on Monday, a rate often considered the point at which government borrowing becomes unsustainable.
Fellow eurozone strugglers Greece, Ireland and Spain all said borrowing costs of over 7 percent were a key factor in their decision to seek emergency loans from eurozone partners and the International Monetary Fund.
Spain, the eurozone’s fourth-largest economy, has a gross domestic product greater than Greece, Ireland and Portugal’s combined. Some investors fear that the government in Madrid could not be rescued in the same way as these recipients of so-called bailouts.
Italian bond prices also jumped on the markets Monday, rising to more than 6 percent.
Masks falling from summit bank bailout deal?
The much-hailed summit endorsement of more bailouts for Spain and Italy was widely reported to possess one really significant feature: The banks and not the state [sovereign in legalese] would be obligated for the debt.
But is that the reality?
From Ian Traynor of The Guardian:
While the Germans and other north Europeans insist that direct bank injections can be contemplated only once a new regime of banking supervision is in place (likely to take a year), senior Eurogroup officials signalled that even in the event of bailout funds going straight to banks, the host country would still be burdened. If the main bailout fund, the European Stability Mechanism, took equity in troubled banks, the host government would need to underwrite the risk and be liable if the bank went bust, the officials said.
“The ESM is able to take an equity share in a bank, but only against full sovereign guarantees. It remains the risk of the sovereign. There’s some degree of mystification going on here,” said a senior official.
That was contradicted by the European commission, which stressed there would be no liability for the host state if its banks were rescued.
With the troika of the commission, the European Central Bank and the International Monetary Fund scrutinising the performance of Greece, Cyprus and Spain, the senior official added that it would be the end of August before any decisions were taken on Greece and Cyprus.
Needless to say, states have real capital, while banks have notional assets in the form of asset-entailing liens.
Since the whole purpose of the neoliberal agenda is the privatization of public wealth, we’re not surprised to hear that the reality may differ from the initial hype..
LIBORgate hits in Merkel-land
Word of a probe at a German banking giant gives yet another hint of the extent of the rate-fixing scam.
From The Independent:
Deutsche Bank suspended two traders after it brought in external auditors to look at whether its staff were involved in manipulating Libor interbank lending rates.
The German banking giant, which has extensive investment bank operations in London, admitted it had received subpoenas and requests for information about Libor from 2005 to as recently as last year from US and European regulators in its quarterly results in March. It declined to comment further yesterday after the German magazine Der Spiegel reported it had suspended two employees earlier this year.
Investigators around the world are examining more than a dozen big banks over allegations that the Libor rates were manipulated. Traders have been suspended, fired or placed on leave at banks including JP Morgan Chase, Royal Bank of Scotland and Citigroup as well as Deutsche.
While we’re on the topic, here’s another take on LIBORgate from Christopher Matthews, writing in Time:
So is the LIBOR scandal the crime of the century? The full extent of it has yet to be revealed, and if it is discovered that many more banks were lying about the rates at which they were borrowing, or worse, working together to defraud the greater public through LIBOR, then it’s hard to think of a recent corporate offense that’s more troubling. But, more important, the cumulative effect of these scandals is that the public and the government no longer trust the industry to set its own standards for acceptable behavior. Diminished confidence in the financial industry by businesses and the public will retard economic growth generally. And if an industry as vital as finance is unable to police itself, then government has the right — and perhaps the responsibility — to do more policing itself. Unfortunately, the price of that increased regulation, in whatever form it takes, will be borne by all of us.
Eurocrat to crack down on rate-fixers
That old post-equine exit agricultural structure enclosure art work.
Commissioner for the Single Market Michel Barnier is expected to bring forward changes to his market abuse directive and regulation within the coming weeks, the Financial Times said Monday.
In response to the Libor rate-rigging scandal, Barnier will amend reforms to European Union market abuse rules so that potential loopholes are closed and criminal sanctions specifically cover tampering with indices such as Libor and Euribor.
Barnier is cited as calling the falsification of such benchmark rates a “betrayal” with “potentially systemic consequences”.
Italy passes job, healthcare cuts
The austerian agenda at work, putting the health of the people at risk.
Italy’s government has agreed to cut spending by 26bn Euros over the next three years to plug the gap between spending and income. The cuts, approved after seven hours of talks, include a 10% reduction in the number of civil servants and cuts to healthcare and come as Italy struggles to keep the faith of investors.
They are increasingly asking for higher rates of return for lending to the country. The country’s budget deficit is 3.9% GDP. Italy’s Prime Minister Mario Monti has a target of cutting that to 1.7% this year.
The cuts will also halve the number of provincial governments across Italy to about 50. They aim to trim 4.5bn Euros this year, with a further 10.5bn Euros in 2013 and 11bn Euros in 2014.
Trades unions have already threatened to strike against the cuts, which are to be carried out through hiring freezes rather than sackings. Italy’s public sector payroll is suspected of showing a higher number of employees than are actually carrying out work for the state.
Italian pharmacists were quick to respond.
Italy’s pharmacies are threatening repeated action over cuts contained in the government’s contested spending review, which Federfarma chief Annarosa Racca on Tuesday described as “unbearable”. “(The cuts) go beyond the ability of a pharmacy working with the national health service to stay open,” she said, warning of further days of protest by pharmacies leading to the cancellation of contracts with health authorities if the situation does not improve.
Federfarma has already announced a probable shut-down on July 26. Rocca said the cuts will lead to the loss of around 20,000 sector jobs across the country’s 18,000 pharmacies.
Hollande holds a sit-down
With the French economy contracting, the French president whose party control both houses of the national legislature has been sitting down with business and labor to figure out just how much campaign rhetoric can be translated into reality.
From Tony Cross of Radio France Internationale:
French President François Hollande has summoned trade union chiefs and business leaders to debate social policy on Monday and Tuesday as the central bank warns that the country is sliding back into recession. The “social summit” is billed as a social democratic consultation but participants are unlikely to agree on how to tackle growing unemployment and shrinking incomes.
The two-day conference signals of “a new method”, Prime Minister Jean-Marc Ayrault on his arrival at the headquarters of the Economic, Social and Environmental Council at Paris’s Place d’Iéna.
[W]ith unemployment already at about 10 million, several large French companies, including carmakers PSA Peugeot Citroën and Air France, have announced plans to shed thousands more jobs.
And the economic crisis looks set to worsen. The Bank of France confirmed Monday its estimate that the economy shrank by 0.1 per cent in the second quarter of this year, the first negative growth since France pulled out of recession in 2009.
As British college costs rise, enrollments decline
Another inevitable outcome of austerity is tax-revenue-starved public colleges and universities, accompanied by a declining student body as tuition and other educational costs rise.
A tripling of costs in Britain has triggered a marked decline in enrollments.
From Alison Kershaw of The Independent:
The numbers of UK students applying to start degree courses this autumn
has slumped by almost 9%, as tuition fees triple to up to £9,000,
official figures show.
Just over 50,000 fewer applicants have applied for university compared with the same point last year – a drop of 8.9%, according to new Ucas statistics.
In England, the numbers applying slumped by 10%, a bigger fall than in Wales (2.9%), Scotland (2.1%) and Northern Ireland (4.5%).
Among 18-year-olds, the age when teenagers traditionally go to university, the numbers were down by 2.6%, while applications from 19-year-olds were down 12.1% and those from 25 to 29-year-olds were down 12.2%.
There was a 10.5% drop in applications from 30 to 35-year-olds, while the numbers of people aged 40 and over was down 10.9%.
Finally, a reminder from history
Writing in Rotterdam’s NRC Handelsblad [via Pressueop translation] Dutch historian Thierry Baudet makes a critical historical point: Throughout European history, attempts to build vast political regimes have inevitably led to wars and anti-democratic authoritarian regimes.
In that light, he offers some interesting perspective on two of the principal creators of the EU:
It is worth noting that until 17 July, 1940, Robert Schuman, one of the founders of the European project, was a Secretary of State for the Vichy regime which collaborated with the Germans.
In 1938, as an MP representing Lorraine in the French parliament, he actively supported the Munich betrayal thus facilitating the annexation of part of Czechoslovakia by Hitler’s Germany. At the time, he also recommended that Mussolini and Hitler develop closer ties. On 10 July, 1940, Robert Schuman was among the MPs who supported Pétain when he took power.
Jean Monnet, another one of Europe’s founders, spent the war years in London where he attempted to prevent the broadcast of De Gaulle’s daily radio news bulletins (something he succeeded in doing on 20 and 21 June, 1940).
In conclusion, he writes:
What we need is a Europe without a central regime: a Europe comprised of nation states, which are not afraid of national differences, and willing to cooperate with each other. The authority of nation states over their own borders should be restored, so that they themselves can decide who they want to allow in their territory.
In the service of their economic interest, they should opt for flexible visa regimes, which will nonetheless allow them to keep control of crime and immigration. We will also have to dissolve the euro to give nation states some monetary breathing space so that they can once again set their own interest rates in response to local conditions. Finally, we will have to get rid of harmonisation which undermines diversity.