More signs of tensions emerging, with a British bankster effort to prepare for a eurozone breakup, more worries about a court ruling that could thwart Germany’s role in that sovereignty-stripping set of financial stabilization mechanisms, a rare expression of doubt by the Iron Chancellor, budget woes for Brussels, Vatibank hanky panky, troubling signals from Italy [including Sicilian woes], the latest from Spain [including a royal haircut], Greek memorandum struggles, and a bright spot to conclude.
Britain braces for eurozone breakup
It’s not just a Grexit that British regulators are telling banks to brace for; now it’s a multiple exit from the common currency zone.
The countries in question are the PIIGS: Portugal, Italy, Ireland, Greece, and Spain.
While the odds of a breakup are portrayed as minimal, we suspect that’s more for public consumption.
Britain’s banks have been told to test how they would cope if several eurozone countries exited the single currency, the UK’s Financial Services Authority watchdog said.
FSA Chairman Adair Turner said yesterday (17 July) that Britain’s banks needed to think about problems arising from their assets and liabilities being redenominated into another currency, even though the likelihood of this happening was still small.
“We’ve certainly encouraged them to run those scenarios for Greece, Spain, Italy, Portugal and Ireland,” Turner told parliament’s Treasury Select Committee.
“I think we consider the chances very low, very very low for at least some of those countries on that list, but I think it is sensible to encourage people to run extreme risk scenarios,” Turner added.
Eurobanksters sweat that German court decision
With as final decision not expected before mid-September, the threat of a court block to German Chancellor Angela Merkel’s plan to strip national sovereignty over key budget decisions is causing a lot of nail-biting in Frankfurt, home of the European Central Bank, that bulwark of the common currency.
The key concern is that a ruling blocking a presidential signature would destroy the effectiveness of the European Stability Mechanism designed to stave off further rounds of the eurocrisis and originally scheduled to go into operation 1 July.
From Agence France-Presse:
In remarks to the weekly magazine Stern made available ahead of publication on Thursday, ECB executive board member Joerg Asmussen said the fate of the 500-billion-euro ($613-billion) ESM hinged on Germany’s Constitutional Court.
In the interview, Asmussen said he did not wish to tell the court how to do its job, but that the fund was a “very important anti-crisis tool” for the 17 countries that share the euro.
A negative ruling would mean that “the ESM would fail in its proposed form,” Asmussen said.
So far, the court has never vetoed previous anti-crisis measures, but it has ruled that the German parliament ought to have a greater say.
Europe, Asmussen stressed, was “at a crossroads”.
“There is a perceived division between North and South that we haven’t seen in 10-15 years,” the ECB executive board member said.
Merkel drops the usual certainty
What’s most interesting about the German Chancellor’s latest pronouncements is the relatively uncertainty.
From Agence France-Presse:
German Chancellor Angela Merkel said she was “optimistic”, but could not be certain that the “European project” would work, in a video interview published on Wednesday.
“We have of course not yet organised the European project in such a way that we can be sure it will work, work well. That means we need to keep working on this. We have much to do, but I am optimistic that we will succeed,” she said.
Speaking in an interview broadcast on the website of her conservative CDU party, Merkel added Germany could only do well economically when its European partners are prospering.
“Therefore we are working so hard to overcome the debt crisis and the competitiveness crisis,” she said.
Merkel added that Germans largely shared the “fundamental principles” that she operated under, namely “no solidarity without corresponding effort and no guarantees without control”.
“This encourages me to continue with these principles when we are trying to shape the future of Europe,” said the chancellor.
More from the London Telegraph:
Ms Merkel said her time living under a dictatorship in the former communist East Germany continued to inspire her.
“The experience of freedom drives me. I lived for several years in East Germany. I know what it means when one cannot travel freely, speak one’s mind freely,” she said.
“I think it is great that we surmounted the Cold War, that we no longer have fear of war in Europe and that we can try to convince others of our values in the European community,” she said.
Yet another demand to cede sovereignty
The source, the same eurobankster who’s so worried about the German court decision, and his remarks are of a piece with his concern over the upcoming German court ruling.
Valentina Pop of EUobserver:
Eurozone states need to give up more sovereignty in order to fix the construction flaws of the euro, with the bailout fund possibly turning into a budget authority further down the road, European Central Bank board member Joerg Asmussen has said.
“We have construction mistakes of Economic and Monetary Union and it is time to correct them. It is clear that the core of the current debate has a name: further sharing of sovereignty,” Asmussen said Tuesday (17 July) at the European Policy Centre, a Brussels-based think tank.
Part of the vision – which the ECB is shaping in a report drafted by EU council chief Herman Van Rompuy – is a cap on how much debt countries can issue, intervention in national budgets and fiscal corrections imposed if a country deviates from the deficit and debt limits imposed in the eurozone.
A common budgetary authority could also be formed, Asmussen said, with the upcoming permanent bailout fund, the European Stability Mechanism, a “starting point.”
“The ESM is a fiscal authority by definition because it deals with taxpayers’ money,” he explained, adding that it would have to be put under the scrutiny of the European Parliament – or a subdivision of it pooling MEPs from eurozone countries only.
Show us the money, says German money minister
Though the fate of Germany’s participation in the eurobailout machine remains in doubt, that’s not stopping the country’s finance minister from pushing legislators to endorse the latest bailout for Spanish banks.
From Agence France-Presse:
German Finance Minister Wolfgang Schaeuble called on opposition parties Wednesday to vote in favour of the rescue package worth up to 100 billion euros ($123 billion) for beleaguered Spanish banks.
“We hope the SPD (Social Democrat) and (environmentalist) Green parties will assume their European responsibility” when the vote is held in parliament on Thursday, Schaeuble told the regional daily Rheinische Post in an interview.
German MPs are being dragged back from holiday to vote on the rescue package for Spanish banks after the country’s constitutional court ruled that parliament must be consulted every time the eurozone’s current bailout fund, the EFSF, is pressed into action.
Even though a handful of Merkel’s own political allies may rebel, the package is expected to be passed with a large majority after opposition parties have already signalled they will vote in favour.
Schaeuble was similarly confident.
“We need a simple majority. But we want as great a degree of agreement as possible within our own ranks,” he said.
EU budget may not cover costs
And the reason that the budget is less than the eurocrats wanted is the insistence of folks who are already forced to labor under austerity memoranda who figured that sauce for the goose should apply to the gander as well.
From Deutsche Presse-Agentur
The European Union’s budget is to increase by 1.86 per cent next year, the European Parliament agreed Thursday, giving the final seal of approval to the bloc’s 2012 spending plans, a day after EU finance ministers gave their consent.
The EU’s executive, the European Commission, had first proposed an increase of around 5 per cent. The EU assembly suggested a similar figure, but the increase was slimmed down on the insistence of austerity-focused EU governments.
The EU will thus be able to spend 129.1 billion euros (174.2 billion dollars) next year, but EU Budget Commissioner Janusz Lewandowski predicted that it will not be enough.
“There is now a serious risk that the European Commission will run out of funds in the course of next year,” he said in a statement.
Vatibanksters need to clean up their act
Yep, revelations that the Holy See’s money machine has served as a conduiit for dirty mob money has led to yet another demand for a change in way the Vatican’s bank does business.
From the BBC:
The Vatican bank needs more reform in order to show it is effective at preventing financial crime, a report by a European banking watchdog has said.
The Vatican has tried to gain entry to a so-called “white list” of countries that are recognised globally as financially transparent.
The report said the Vatican’s measures for tackling money laundering and financing of terrorism were inadequate.
However, the bank had “come a long way” in addressing financial transparency.
The report by Moneyval – the European body that vets banks – graded the secretive bank in 16 key areas.
The Vatican bank was found to be falling short on seven of them and given a negative grade.
Sicily falls into the chaos zone
The problem? A burgeoning deficit — big enough that the Troika-installed Italian Prime Minister may take over control from the regional government/
From Ambrose Evans-Pritchard of the London Telegraph:
Italian premier Mario Monti is mulling emergency action to take direct control of Sicily’s regional government before the island spirals into a full-blown financial crisis, fearing contagion to the rest of Italy.
Mr Monti held an “urgent” meeting with the country’s president Giorgio Napolitano on Wednesday to grapple with the constitutional issue after it emerged that the region faces a deficit of up to €7bn (£5.49bn) this year and is in danger of default without sweeping cuts.
Sicily’s regional councillor Andrea Vecchio warned that the island has run out of money. “I’m afraid we will soon no longer be able to pay civil servants’ salaries,” he said.
“The developments in Sicily are very serious,” said Prof Giuseppe Ragusa from Luiss University in Rome. “It is just the sort of negative shock we don’t want right now. Everything has to go perfectly for Italy to pull through.”
And on to Spain. . .
Bad loans pose further threat to Spanish banks
Once again, the culprit is a real estate bubble fueled by reckless lending.
From the BBC:
Spain’s banks had 155.84bn euros (£122bn) of loans on their books in May that are at risk of not being repaid, the highest since 1994.
The figure for “doubtful” loans is 8.95% of total lending extended by Spanish banks, the Bank of Spain said.
Much of the potential bad loans relate to the bursting of Spain’s property bubble and decent into recession.
The figure underlines the weakness of many Spanish banks, which in 2008 had doubtful loans of 3.37% of all lending.
Last month, eurozone countries agreed to provide up to 100bn euros to support Spanish banks and put risky loans into a “bad” bank.
Full metal bailout, or just bits and pieces?
For Spain it’s a big deal, since a full-scale bailout means a much more comprehensive memorandum with the full menu of austerian discipline to be imposed on an already highly restive populace.
Hence the pronouncement from a key figure in the conservative government.
Spanish Economy Minister Luis de Guindos said Spain’s economy remains solvent and will not need a total bailout despite the high debt levels of its banks and housing market crisis.
In an interview with Barcelona daily La Vanguardia published today, the minister also spoke about the country’s indebted regions saying the government would only intervene as an extreme measure ‘under exceptional conditions’ which is currently not necessary. He also cited the 18 billion euro fund allocated by the government for the country’s regions.
Speaking about Spain’s nationalised banks through the Fund for Orderly Bank Restructuring, the minister said their privatization will take place on an individual basis by injecting capital for their financial recovery.
The royals take their own haircut
With the public restive over cuts to annual Christmas bonuses mandated under the austerian regime of Prime Minister Mariano Rajoy, the Spanish royals have opted to take their own pay cut.
Given the rash of bad press that followed the revelation that Juan Carlos had bopped off to Botswana while the economy was crumbling in December, it’s probably a good PR move.
From the BBC:
Spain’s King Juan Carlos and his family are to take a pay cut following a recent bitterly contested cut to public sector wages, the royal palace says.
The king will lose 20,900 euros (£16,400; $25,660) from his salary of just over 292,000 euros for the year – a cut of 7.1%.
In total, the 8.3m euro royal budget will be cut by 100,000 euros in 2012.
Public sector workers have been outraged by a recent announcement that Christmas bonuses are to go.
The bonuses saw public sector workers paid double their usual salaries in December, and their removal equates to a cut of about 7%.
His son and heir, Prince Felipe, will lose about 10,450 euros from his salary – also about 7.1% – putting him on an annual wage of about 131,000 euros, said palace sources.
But the gesture has received a mixed reception on websites and social media, with some quipping that the royal family might now struggle to make ends meet.
Growing numbers of Spaniards emigrate
Given unemployment rates of 50 percent for the younger members of the Spanish workforce, it’s not surprising to discover that the country’s best and brightest are leaving in growing numbers.
Young and educated Spaniards are emigrating in droves, with 44.2% more leaving in the first half of 2012 than in the same period last year, according to data released on Wednesday by national statistics bureau INE.
Out of a total of 269,515 emigrants in the first semester of this year, 40,652 were highly educated Spaniards aged 28-45, INE said. Of the 195,539 new arrivals in the same period, 17,518 were Spaniards and more than 178,000 were foreigners. In 2006, two years before the real estate bubble burst driving the world into recession, Spain welcomed over 1 million immigrants. As of 2011, more Spanish citizens are leaving their country than coming back to it.
Approximately 17% of respondents have thought about seeking their fortunes abroad in the past year, with Germany followed by the UK, France, and the US as favorite destinations, according to a survey by Spain’s Center for Sociological Research (CIS).
And on to Greece. . .
Nailing down that Greek austerity package
Members of Prime Minister Antonis Samaras’s cabinet are busy hacking away, trying to come up with the €11.6 billion in cuts the Troika demands before the country can receive any more cash.
From Harry Papachristou and Lefteris Papadimas of Reuters:
Greek coalition leaders agreed to meet next week to hammer out almost 12 billion euros worth of austerity cuts demanded by the near-bankrupt country’s lenders after a deal proved elusive at an initial round of talks on Wednesday.
Greek officials have spent the past week scrambling to identify the savings for 2013 and 2014 before European and IMF officials visit next week and decide whether Athens merits another tranche of aid from its latest bailout package.
But final agreement on the cuts is expected only after much bargaining among the three party leaders in the conservative-led government, each of whom is keen to avoid appearing in favor of cuts that heap more misery on austerity-weary voters.
“We had a very good discussion,” Finance Minister Yannis Stournaras told reporters after a three-hour meeting between Prime Minister Antonis Samaras and his two coalition allies.
“We agreed on the basic direction.”
More from ANSAMed:
Greece will not undergo new austerity measures in 2012, ruling party leaders said after meeting with Premier Antonis Samaras on Wednesday.
Greek Socialist Party (PASOK) leader Evaghelos Venizelos and Democratic Left Party leader Fotis Kouvelis also said the government is debating ways to find the 11.6 billion euros needed to fix the Greek economy by the end of 2014.
And still more from Ekathemerini:
Greece’s coalition leaders have agreed on some of the 11.5 billion euros of cuts being demanded by the country’s lenders and that no more additional fiscal measures would be needed this year.
Prime Minister Antonis Samaras held a meeting lasting almost four hours with PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis after Finance Minister Yannis Stournaras held two days of talks with ministers to discuss spending cuts.
Stournaras briefed the three leaders on where the savings would be made. Sources said that about 7.5 of the 11.5 billion euros have been identified.
After leaving the meeting, Stournaras said the leaders agreed on the cuts and talks would continue in order to pinpoint further savings.
A mild dissenting voice from a coalition partner
The protest comes from the head of the party that headed the earlier coalition government, the Pan-Hellenic Socialist Party [PASOK].
PASOK fell from first place to third in the course of the last two parliamentary elections, and the latest move seems more like a symbolic attempt to salvage some of the credibility lost during the course of the crisis.
From Greek Reporter’s A. Papapostolou:
The head of a party in Greece’s new coalition government says the country’s recession made it “almost impossible” for it to achieve the 11.5 billion euros in cuts over the next two years demanded by its rescue creditors.
Socialist party leader and former Finance Minister Evangelos Venizelos made the comment in a radio interview on Tuesday, a day before he is to meet conservative Prime Minister Antonis Samaras to discuss the cuts.
“It is very difficult, almost impossible for anyone to put cuts together worth (euro) 11.5 billion in 2013 and 2014,” Venizelos told private Vima radio.
“That difficulty has always been there, but the (situation) has deteriorated because the predictions for the recession in 2012.”
Greece? We could do without it, says German
Yet another signal from Merkel’s finance minister hinting that Berlin wouldn’t be sad to see the Grexit.
German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out, raising pressure on Greek political leaders struggling to form a government amid a rise in anti-bailout sentiment.
“We have learned a lot in the last two years and built in protective mechanisms,” Schaeuble told the Rheinische Post newspaper , when asked whether the euro area is girded for a Greek exit.
His comments were confirmed by the Finance Ministry in Berlin. “The risks of contagion for other countries of the euro zone have been reduced and the euro zone as a whole has become more resistant,” Schaeuble said.
“The notion that we wouldn’t be able to react in a short time to something unforeseen is wrong.” “The future of Greece in the euro zone now lies in Greece’s hands,” German Foreign Minister Guido Westerwelle said in a speech in the lower house of parliament in Berlin.
“Solidarity is not a one-way street” and aid to Greece can only be disbursed if Greece sticks to its part of the deal”.
Warning signs from Portugal
The other Iberian country has been hit almost as hard as Spain, but it’s somehow kept a low profile during the months that Greece and Spain were grabbing headlines.
Generally held up as a suitably submissive austerian acolyte, Portugal may be reemerging as a problem for the eurozone.
Agence France-Presse reports:
Portugal can still reach its 2012 budget targets but the risk of failure has grown significantly, officials from the European Commission and International Monetary Fund said on Tuesday.
The goal of reducing Portugal’s public deficit to 4.5 percent of gross domestic product this year is achievable but might be hampered by a large drop in tax revenues in the slowing economy, the European Union’s executive arm said.
It was reporting on progress made since Portugal was thrown a lifeline worth 78 billion euros ($96 billion) in May 2011 to prevent it from going under.
The Commission acknowledged that Portugal was generally on track with respect to the terms of the bailout, which was a joint effort by the EU and the International Monetary Fund.
Auditors from the EU, IMF and European Central Bank completed a fourth audit Portuguese finances last month, approving the release of a 4.0-billion-euro tranche in bailout loans to bring the total aid disbursed to 57.1 billion euros.
And one brief bright spot: French tourism
Tourists are still flocking to the Hexagon, but what’s changing are the countries they’re coming from.
Can you say BRICS?
From Radio France Internationale:
A record number of tourists visited France last year with the greatest increase coming from Russia, China and Brazil. Over one million Chinese sampled the delights of French hospitality in 2011 but the largest source of tourists remained the rest of Europe.
2010 was already a record year for French tourism with 77.6 million visitors heading for the beaches, châteaux and restaurants.
But 2011 topped that with 81.4 million foreign tourists defying economic uncertainty, staying on average 10 days longer and spending an estimated 33.4 billion euros, 8.4 per cent more than in 2010.