The race to and over the brink continues, with more warnings of what lies ahead, including an especially ominous pronouncement from Dr. Doom.
There’s more on the Spanish bailout, troublesome economic signs from Portugal, major announcements from Italian politicians [Bunga Bunga's officially back], much more from Greece, and a bankster’s resignation in Cyprus.
The latest rendition of Apocalypse Now
After a running rating agencies and bankster pronouncements, now comes a stark warning from Finland’s prime minister.
The euro zone is in its most dangerous situation in more than two years, Finnish Prime Minister Jyrki Katainen was quoted as saying on Wednesday.
“This situation is dangerous, very dangerous,” Katainen said in an interview with Finland’s biggest daily, Helsingin Sanomat. He added that the last time the euro zone’s situation was so critical was in May 2010, when Greece was near collapse for the first time, according to Reuters.
Katainen said it was very difficult to imagine what kind of chaos there would be if the euro area were to collapse. “But we are not working for the break-up of the euro, but to preserve it and Finland’s euro zone membership every day,” he said.
Another warning, somewhat milder
This time it’s the European Banking Authority, warning that even recapitalization [i.e. bailouts] of ailing banks haven’t guaranteed that things won’t get worse down the line.
From Matt Scuffham and Steve Slater of Reuters:
The European Banking Authority said there remained significant challenges ahead for Europe’s banks after they successfully met new requirements to bolster their core capital buffers.
The EBA said that 27 banks had hiked their combined capital by 94.4 billion euros ($116 billion) to meet the expectations of the watchdog and fill a 76 billion euros shortfall to make them strong enough to withstand the euro zone debt crisis.
EBA Chairman Andrea Enria said the recapitalization had been a “necessary and important step” but cautioned that banks had a long way to go to recover from the financial crisis and comply with new global regulations.
“A lot still needs to be done. I’m very much aware this is not a silver bullet to resolve the difficult situation of the European banks,” he told Reuters in an interview.
The EBA’s recapitalization plan was part of a three-pronged approach that also deals with sovereign debt exposures and improving access to funding.
Dr. Doom lives up to his name
Now for the real gloomy prognosis: The New York University economist with the ominous nickname predicts a massive global meltdown next year.
Nouriel Roubini, or “Mr. Doom” who predicted earlier this year that a “perfect storm” scenario would play out in the global economy, has now said that his prediction is coming true, pointing to slow growth currently hitting the United States, Europe and China.
The “perfect storm” scenario spoken about by Roubini in May highlighted four elements that if coming together could cripple the world economy. They were stalled growth in the United States, European debt spiralling out of control, a huge slowdown in emerging markets such as China, and a military conflict in Iran. He predicted at that time that this scenario would play out and hit the global economy as early as 2013.
Data released Monday showed that China’s economy is grinding to a halt much quicker than most analysts predicted. Added to this last week’s timid jobs growth figures for the United States, Roubini now feels justified on his prediction.
And Roubini has said that global policy makers are “running out of rabbits to pull out of the hat.”
“Levitational force of policy easing can only temporarily lift asset prices as gravitational forces of weaker fundamentals dominate over time,” Roubini has announced.
He described the recent EU summit as a failure because rates on Spanish and Italian bonds remain too high and anticipated further problems with Euro debts. “Markets were expecting something more than mutualisation of the debt”, said Roubini.
The video’s posted online here.
Wall Street broker calls a global shift
Compared to Roubini’s prognosis, this one’s slightly more optimistic, while predicting the end of Western economic dominance and the emergence of a much different economic order by the time the dust settles.
From Gillian Tett of Financial Times [via CNBC]:
This month, [the wealth management arm of Merrill Lynch] is quietly circulating a memo which tells its affluent clients to reposition themselves — and their portfolios — for a fundamental geopolitical shift.
During much of the late 20th century, the broker says, the world was shaped by American-dominated institutions, such as the Group of Seven wealthiest nations. But during the financial crisis of 2007 and 2008, it became clear western dominance was crumbling, and the focus moved from the G7 to the G20, which includes emerging markets such as China.
But now the G20 is looking impotent too; thus the world is trapped in a scary limbo. China and the other emerging powers are wary of taking a leadership role, but the west is declining. The net result then, is that nobody is in charge; it is an unstable “G-zero” world, to use the phrase posited by Ian Bremmer, the political consultant.
Merrill Lynch is trying to tell its clients how to respond (other than panicking and burying gold in the ground). It suggests, for example, investors should put money into companies, not governments, since the former are more reliable, transparent and growth-orientated. It calls for a rethink of the traditional binary distinction between “developed” and “emerging markets” countries; the latter includes some countries (such as Ghana and Indonesia) which are likely to flourish for structural reasons, but others which are not.
German court withholds critical judgement
The fate of Angela Merkel’s hopes for a German presidential signature on the European Union financial pact and stabilization fund remains on hold after the nation’s highest court refused requests to make a quick ruling.
That leaves the über-eurozealot hanging in suspense and Germany’s role in question, and with it the viability of the new European order she’s done so much to bring about.
From Honor Mahony of EUobserver:
The tension between the need for quick eurozone reform and the necessities of democratic scrutiny took a further twist on Tuesday (10 July) when Germany’s highest court indicated it may delay a decision on the permanent bailout fund.
A ruling on whether to grant an injunction against the fund – the European Stability Mechanism (ESM) – and the fiscal treaty had been expected within three weeks but now may not be taken until autumn.
During Tuesday’s hearing, constitutional court President Andreas Vosskuhle announced he would undertake a “thorough constitutional examination” of the complaints, something that could run over normal quick injunction proceedings and last up to three months, according to Spiegel Online.
The court’s decision comes despite enormous political pressure.
German finance minister Wolfgang Schauble, also present at the hearing, warned of the “massive uncertainty on the markets” and “significant economic distortions” of a delay.
Rich must do more, says German think tank
Somebody’s finally said the obvious: Those who’ve benefitted most from the eurozone should bear a similar share of responsibility to help those hurt most by the system that’s done them so well.
Euro-zone citizens in the highest income brackets ought to pay more taxes, or be forced to offer their government loans as a way to combat the ongoing euro crisis, a leading German economics research institute proposed in a new report issued on Wednesday.
“In many countries the sovereign debt levels have increased considerably, and at the same time we also have very high amounts of private assets that, taken together, considerably exceed the total national debts of all (euro-zone) countries,” Stefan Bach, of the German Institute for Economic Research (DIW) in Berlin, said in an interview with the institute’s weekly publication.
In order to stabilize the countries’ finances and to reduce sovereign debt, the states could go after those private assets, said Bach, who authored the DIW study.
That could be done, Bach argued, either by issuing a one-time tax that could then be paid off over time, or by combining that tax with a forced loan that the wealthy would provide the governments. Depending on the progress made by the country in consolidation, these loans could then later be paid back, and with interest. When that is not the case, he said, the total would then turn into a wealth tax.
In Germany, the richest 8 percent of the adult population would be affected under the proposal. In calculating the mandatory contribution, all of an individual’s assets, including property and business assets, would factor in. Under the think tank’s proposal, a personal allowance of €250,000 ($230,000) for individuals and €500,000 for married couples would be given.
Compared to the tax rates the American rich paid during America’s boom years in thr 1950′s and ‘60′s, , the proposed amounts are relatively trivial.
More masks fall from the Spailout
Haircuts are ahead for troubled Spanish banks and their investors before any Spailout funds are doled out, leaving in question just how deeply Spanish taxpayers will be on the hook when the bill comes due.
From Agence France-Presse:
Spain will have to force investors to take losses and allow European Union inspectors to visit bailed out banks in return for a multi-billion-euro rescue, according to a draft deal published Wednesday.
The conditions imposed by eurozone partners, widely revealed by Spanish media, will force the government to reform its financial sector in the wake of a banking crisis that is threatening to drag Madrid into a full-blown bailout.
EU finance ministers offered on Tuesday to provide Spanish banks 30 billion euros this month, the first batch of a rescue that could reach as much as 100 billion euros ($123 billion).
With eurozone governments growing tired of tapping taxpayers to help out other nations, the draft deal compels Spain to impose losses on the banks and investors before any aid is disbursed.
“Steps will be taken to minimise the cost to taxpayers of bank restructuring,” says the draft memorandum of understanding, which is expected to be finalised at a special meeting of eurozone finance ministers on July 20.
“Banks and their shareholders will take losses before state aid measures are granted and ensure loss absorption of equity and hybrid capital instruments to the full extent possible,” the document says.
Europols hail the Spanish austerity plan
The E.C. gives it thumbs up, with the usual rhetorical flourishes.
From Agence France-Presse:
The European Commission welcomed a new austerity package announced by the Spanish government on Wednesday, saying it was a key step in Madrid’s efforts to meet deficit reduction targets.
“We do welcome the announcement of the new fiscal measures by the Spanish government,” Simon O’Connor, the commission’s economic affairs spokesman, told a news briefing.
“It’s an important step to ensure that the fiscal targets for this year can be met,” he said.
He added that the European Union’s executive arm looks forward to receiving the details of the 65-billion-euro ($80 billion) packaged unveiled by Prime Minister Mariano Rajoy to avert financial collapse.
Spanish coast afflicted by flailout
If it’s not one thing it’s another.
With tourist season in full swing, the beaches along the Costa del Sol have been closed because of an invasion by nasty stinging jellyfish, their population exploding — probably because of things humans have done.
Fiona Govan of the London Telegraph:
Swarms of stinging jellyfish have been washed in to shore at popular resorts along Spain’s Costa del Sol closing down beaches as the summer tourist season gets under way.
More than a thousand bathers sought treatment from first aiders along the Malaga coast of southern Spain over the weekend as coastguards sought to contain the invasion. Several beaches were red flagged – prohibiting swimmers from entering the water.
This year scientists have detected an unusually large plague of the Pelagia noctiluca, commonly known as the “mauve stinger”, small purplish bell shaped creatures which deliver painful stings through hairlike tentacles that can reach three metres in length.
The jellyfish have proliferated after a winter that saw a lack of rain in the Mediterranean region and higher than normal temperatures.
Experts also blame overfishing in the region which has left the jellyfish without natural predators such as turtles, tuna and swordfish.
And on to Greece. . .
Greek coalition endorses hopeful compliance
The coalition pols have been saying it all along, and with the the vote of confidence that began the week, Prime Minister Antonis Samaras knew he had the votes tyo pass his agenda.
And now, after a meeting of the three parties led by New Democracy, the police is official: Greece will zealously work to fulfill the conditions of the Troika’s agenda in hopes they’ll get relief down the line.
The leaders of the three parties that form Greece’s coalition government agreed Wednesday to speed up the process by which Athens will ask its lenders for changes to the bailout.
Sources told Kathimerini that there was agreement between Prime Minister Antonis Samaras, PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis. Rather than leave the issue of renegotiating the loan agreement, or memorandum, until September, the three leaders concurred that Greece had to adopt a more proactive stance. As a result, it is likely that Finance Minister Yannis Stournaras will be asked to bring up the issue at a Eurogroup meeting, which is due to take place towards the end of July.
However, the task of renegotiating the terms will not be left up just to Stournaras. Samaras, Venizelos and Kouvelis are likely to form the key negotiating team but officials at other levels will also be involved.
Venizelos added that the best way for Greece to regain its credibility was to by implementing structural reforms and privatizations but he added that Greece’s lenders would also have to provide assistance.
But the leader of the party that’s emerged as the second most powerful in parliament had no kind words for the coalition, as Ekathemerini reported in a second story:
SYRIZA leader Alexis Tsipras accused on Wednesday the government of having “surrendered” to Greece’s lenders and of failing to act in the interests of its people following the coalition’s decision not to press for an immediate renegotiation of the country’s bailout terms.
Speaking to state-run NET TV, Tsipras said that the government had failed to take advantage of the window of opportunity opened at the European Union leaders’ summit on June 28, when Italy and Spain refused to sign the growth pact unless there was agreement on bank recapitalization via the European Stability Mechanism.
“We would have fought the battle at the summit, where the government was absent,” said Tsipras. “When Spain and Italy use their veto, it is inconceivable for Greece, which has been brought to its knees over the past 2.5 years, not to say a word.”
Tsipras said that the pre-election positions of the three parties in the coalition had proved a myth and that they never carried through with their pledges to renegotiate. He accused the government of having a “clear lack of feeling for patriotic responsibility.”
And there’s still that €3.5 billion the finance minister says they’ve got to pay creditors now.
As for any substantive changes to the memorandum, the Samaras coalition will have to wait until September, when the Troika finishes with their on-the-ground and meets again in September.
There were two pieces of encouraging news: The 50,000 civil service job cuts over the next three years will be made by attrition, not layoffs, and Finland’s Minister of European Affairs gave the Greeks a pat on the back to the austerity discipline.
Prosecutors move on tax corruption allegations
In this case, those alleged to be corrupt were tax collectors, with suspicions arising because a group of civil servants owned real estate way above their pay grades.
From Greek Reporter’s Andy Dabilis:
In the shadow of another report on tax evasion – this one using bank records – that shows tax cheats are robbing Greece blind of critical revenues, seven retired and active tax officers, including four high-ranking administrators, were sentenced to more than 70 years in jail for embezzlement of up to 28 million euros ($34.3 million) – then promptly released on bail.
The newspaper Kathimerini reported that the convicted were granted conditional release, but authorities would not release their names despite the seriousness of the crime. Their case went before a three-judge panel after investigation by financial crimes prosecutor Grigoris Peponis launched in January into whether their ownership of large real-estate holdings and their participation in off-shore companies was legal or the product of embezzlement and graft.
According to a report in Ethnos, the tax officials first came under suspicion in 2001 after a retired inspector, Aliki Kyriakaki, made claims that she had come under pressure from certain members of the group to reduce tax fines against a large company that she had been auditing and found to have arrears of 36 million euros, or $44.2 million. She said they offered to write off the debts if they were paid bribes.
Lest anyone be overly harsh on the Greeks, bear in mind that such things alaso happen much closer to home, like in, say, Los Angeles County.
Most. Honest. Official. Ever.
Our hat’s off to a very candid Greek deputy cabinet minister for her very frank portrayal of her job.
From Keep Talking Greece:
Greek Deputy Health Minister Fotini Skopouli is claiming the “Oscar for Sincerity”. She appeared in the morning magazine of state broadcaster NET TV on Tuesday. What the professor for Pathology-Immunology at the Harokopio University said stunned the journalists and the viewers alike – and more than those, Samaras’ government as well.
“I came to your show, because I have nothing to do at the ministry,” Skopouli said in a disarming and yet critical tune. “I have no responsibilities yet and it is good that the people know how the situation is,” she added.
If this was not enough, Skopouli criticized the Health Ministry for not having records and own data about drugs and medicine but using the data issued by the pharmaceutical companies.
She expressed her discontent about the delays in the allocation of responsibilities in a ministry that has to deal with very crucial issues like the prescription medicine, the pharmacists boycotts and several austerity cuts in the country’s health sector.
As expected the controversial statement of the deputy minister sparked a debate, with some saying “she should leave the office, if she has nothing to do and thus she disagrees with the government.”
And now, on to Portugal. . .
Portuguese physicians stage anti-austerity walkout
The economic for Portugal’s no better than Spain’s, but the sheer scale of their neighbor’s economy has diverted attention from the ongoing crisis on the Iberian Peninsula’s Atlantic coast.
From Emilio Rappold of the German DPA new service:
A strike by doctors on Wednesday paralyzed Portuguese hospitals, with some 4,300 operations postponed and more than 400,000 consultations cancelled, according to television reports.
Unions put the participation in the strike at more than 90 per cent.
The doctors were protesting salary and spending cuts forming part of Prime Minister Pedro Passos Coelho’s austerity policies. The cuts in the health sector amount to about 10 per cent this year alone.
Passos Coelho is struggling to trim Portugal’s budget deficit in agreement with the European Union and the International Monetary Fund, which have granted the country a bailout worth 78 billion euros (96 billion dollars).
More from the BBC:
Many hospitals had rescheduled appointments ahead of the action, which was announced last month. Emergency services are unaffected.
The head of the National Federation of Doctors, Mario Jorge Neves, told AFP that he was certain the strike would be a “resounding success”.
A spokesman for a patients’ rights group in Lisbon, Carlos Braga, told the news agency the number of people who could not pay for healthcare was rising.
“Thousands of people are now deprived of care because they cannot afford the prices that were put in place in January,” he said.
And now, to Italy. . .
Italy’s Monti on right track, needs more discipline
The Troika-installed technocrat heading the Italian government is on the right track, says one arm of the Troika. All that’s needed, says the IMF, is more vigor.
The International Monetary Fund said on Tuesday that Italy still has a long way to go to turn around its economy, which has had the slowest growth rate in the EU over the past decade.
Prime Minister Mario Monti’s government has an “ambitious and wide-ranging agenda (which) aims to revive growth,” the Washington-based institute said in its annual report on Italy’s economy, the euro zone’s third biggest, Reuters reported.
Monti’s pension reform, his limited deregulation of services, his labor market reform, and newly announced cuts to state spending go in the right direction, but to break Italy’s low-growth, high-debt spiral, more must be done, the IMF said.
“This is a process that must continue and must continue forcefully and expeditiously if it is going to succeed,” said its Italian mission chief Kenneth Kang in a conference call.
So where does Italian rigor lead?
Consider the plight of one worker who retired only to discover that he couldn’t retire, thanks to that wonderful world of austerity.
From the Washington Post’s Ariana Eunjung Cha:
Vincenzo Di Vita celebrated his retirement after nearly 40 years with the Italian postal service with a modest toast given by his co-workers in early December. He planned to hold a party at his home a few weeks later — but by then, he could no longer afford it.
Just days after Di Vita accepted a buyout designed to carry him until his government pension kicked in, Italian Prime Minister Mario Monti unveiled a program of tough measures to rein in public spending in the deeply indebted nation. Among the most radical changes: raising the minimum retirement age for men with Di Vita’s work experience from 62 to 65.
Di Vita was suddenly without a job and without a pension.
As many as 390,000 older Italians are in a similar predicament, and these “esodati” have moved to the center of the debate over whether austerity cuts are going too far.
As countries in Europe and beyond grapple with ballooning deficits and debts, government spending on pensions has become a popular target. The International Monetary Fund has recommended raising retirement ages to ease the financial burden associated with rising life expect-ancy.
More than four-fifths of the countries in the Organization for Economic Cooperation and Development, which represents advanced and emerging economies, are raising retirement ages or planning to do so. Fourteen countries — including several on the front lines of the European financial crisis, such as Italy, Spain, Greece and Ireland — are looking to increase their retirement ages to between 67 and 69 by 2050.
Monti won’t run for election
He’s stepping down next year regardless.
And twixt now and then, he’s not ruling out the need for additional bailout funds.
Premier Mario Monti on Tuesday confirmed that he has no intention of standing at next year’s general elections after the end of the term of his emergency government of non-political technocrats. He also refused to rule out the prospect of Italy using EU rescue funds, but stressed this would only be to support its bonds in the case of soaring borrowing costs and that there was no question of it needing a Greek-style international bailout.
“I exclude the possibility, at least as far as I’m concerned, of considering taking the experience in government beyond the deadline of the next elections,” Monti, who is also Italy’s economy minister, told a press conference at the end of an Ecofin meeting of European finance ministers. Monti said he believes that Italy will not need to use a bond-support mecanism agreed at a EU summit in June, but said he could not rule out doing so in future. “It would be bold to say that Italy will never need this or that fund. The prudential principle suggests that it is better to refrain from saying it,” he said.
In late June EU leaders agreed to make European rescue funds available under what Italy calls the “anti-spread shield” to support countries with high borrowing costs. The agreement was subsequently confirmed at a meeting of eurozone finance ministers in Brussels on Monday.
More from DPA’s Peter Mayer:
Monti’s appointment initially had a calming effect on markets jittery over Italy’s debt. But yields on Italian bonds have again risen to near unsustainable levels in recent weeks.
Monti has ruled out the possibility of staying in power beyond 2013, when the mandate for his technocratic government expires.
According to some analysts, the recent rise in Italian borrowing costs has been partly fueled by uncertainty over whether the next government would continue on the path of tough austerity reforms initiated by Monti.
Monti quits as finance minister
When the Troika brought in the technocratic Monti after forcing out the plutocratic and priapic Silvio “Bunga Bunga” Berlusconi, they gave him two cabinet portfolios, prime minister and finance minister.
Now’s he’s stepping down from the latter post, with his former deputy assigned to fulfill the vacancy.
From Agence France-Presse:
Italian Prime Minister Mario Monti on Wednesday stepped down as finance minister to be replaced by the current deputy minister Vittorio Grilli but signalled he would keep a tight grip on economic policy.
The government said in a statement that Monti would preside over a new committee for economic and financial policy that will include Grilli, Economic Development Minister Corrado Passera and Bank of Italy governor Ignazio Visco.
A former European commissioner and economics professor, Monti replaced Silvio Berlusconi at a time of financial market panic in November 2011 when he also took the post of interim finance minister in a bid to reassure investors.
The nomination announcement appeared to have little impact on the markets, with Milan down 0.41 percent in line with other European stock exchanges.
Bunga Bunga says he’s ready for a comeback
Yep, it’s official now. Silvio Berlusconi wants to be prime minister again.
From Corriere della Sera:
Berlusconi has spend the past few week poring over opinion polls, analysing scenarios for the 2013 election and listening to People of Freedom (PDL) grandees, business leaders and international figures. At last, he has come to a decision. He will stand again for the premiership.
Mr Berlusconi’s role as the party’s grand old man has failed to excite PDL voters, who want him to have the more hands-on commitment he ruled out at the time of Angelino Alfano’s investiture as party secretary. The latest polls to land on Mr Berlusconi’s desk reveal findings that he feels that cannot ignore. Interviewees were given three scenarios. A PDL bereft of Berlusconi would scrape less than 10% of the vote. Alfano as candidate for the premiership with Berlusconi onside as party chairman would garner about 18%. But if Silvio Berlusconi were to run for the premiership on a joint ticket with Angelino Alfano and a team of younger party leaders, the polls predict that he could pick up as much as 30% of the vote. That might not be enough to form a government but it would ensure “il Cavaliere” [“the Knight”, Berlusconi’s nickname – Trans.] held the balance of power if a broad-based coalition were formed to carry on the job of balancing the public accounts and pulling Italy out of the economic crisis.]
More from Nick Squires of the London Telegraph:
One of Mr Berlusconi’s closest confidantes and most loyal supporters said he thought it was very likely that the three-times prime minister would contest the next election.
“There’s a big groundswell of support behind him becoming a candidate,” said Angelino Alfano, whom Mr Berlusconi anointed as his successor before having to step down late last year.
“I believe that he will decide to offer himself for re-election,” said Mr Alfano, a Sicilian who is chairman of the PDL party.
“Many people are asking him to do it, including me.”
The billionaire businessman believes he has a good chance of winning office, despite all the sex scandals, corruption trials, international gaffes and broken promises to the Italian electorate that have marred his reputation domestically and made him an international figure of fun.
And on a final note, Bank of Cyprus boss quits
With the prime minister seeking bailout cash both from the eurozone and Russia, it’s still too late for the CEO of the country’s largest bank, who bit the bullet and tendered his resignation Tuesday.
Chief executive of Bank of Cyprus Andreas Eliades has announced his resignation over a crisis rocking the island’s largest lender.
In a resignation letter dated July 9 and made public on Tuesday, Eliades cited a lack of co-ordination and co-operation in dealing with the banking crisis in Europe.
However, media reports said Eliades, who became chief executive of the country’s largest lender in 2006, was under pressure to resign over big losses by the bank in 2011 because of its extensive exposure to the write-down of Greek debt and over the failure of the bank’s management to reveal its real situation.
The bank reported a loss of 1.37 billion euros (1.68 billion U.S. dollars) over depreciated Greek bonds.