We open with the latest bailout request — from Cyprus, then it’s on to a bit of refreshing news, an angry Spanish judges decision to throw out arrests of protesters caught in the violence of the massive 25 September protests.
Most of our items focus on the welter of questions and divisions emerging as Spain continues to hold out against the inevitable. It’s the divisions that are becoming most apparent, including a deepening of the North/South divide that plays such a dominant role in Greek tragedy.
Private equity firms are threatening to leave France over that 75 percent tax rate on million-euro-plus incomes, while government is halving its growth predictions, and we learn the price of buying a French politician.
The Irish central bank is calling for more pay cuts, while Irish teachers are suffering some of the worst impacts of any of their calling in Europe. And German industry is watching orders fall.
We close with some interesting musings on the real impacts of the continetnal banking regulatory scheme being pushed by German Chancellor Angela Merkel and her pals as an essential for More Europe.
Cyprus finally opts for the bailout
With Spain still playing coy on opting for the Spailout [and more on that below], it’s Cyprus that finally bit the bullet, asking for a combined banking and sovereign bailout.
We can only presume they’re awaiting the inevitable memorandum with considerable dread.
From ANSAmed:
Cyprus has asked for an 11-billion-euro international bailout, of which five to recapitalize its banks and the rest to redeem bonds and pay its bills, sources close to the Cypriot finance ministry said on Thursday.
The country’s banks, which lost more than 4 billion euros in Greece’s debt restructuring earlier this year, need 5 billion euros of fresh capital, the sources said. But the troika (EU-ECB-IMF) that oversees euro-area rescues puts Cypriot banks’ recapitalization needs at about 10 billion euros.
Cyprus on June 25 became the fifth country in the euro area to seek external aid, but no amount was specified at the time. The island has been shut out of international market financing since May 2011, and faces 4.7 billion euros in bond redemptions through 2015. Also on Thursday, government sources said the Cypriot Cabinet last night approved an austerity proposal for the troika that it plans to discuss in a meeting tomorrow with political parties, unions and business groups.
Cyprus may receive the first installment of aid at the end of December, Finance Minister Vassos Shiarly said.
And on to Spain. . .
Judge throws out protester arrests
The brutal police actions in suppressing the 25 September arrests of the massive anti-austerity protest in Madrid have met with a stunning judicial rebuke.
From Manuel Altozano of El País:
High Court Judge Santiago Pedraz has thrown out a case brought by the police against eight organizers of the September 25 protest outside Congress in Madrid.
Shelving the case with some scathing observations, Pedraz refuted the claims of the authorities that the protestors had attempted to invade the national assembly or to impede the normal function of government. The judge also noted that the stated aim of the demonstration — to demand the resignation of Mariano Rajoy’s government and the dissolution of parliament — are protected under the fundamental right of freedom of expression.
The judge launched his investigation due to the seriousness of the charges brought by the police, which maintained that the intention of the protestors was to “occupy one of the most important public institutions of the state.” Pedraz ordered the identification of the demonstration’s organizers on Facebook and Google, as well as the owners of two bank accounts opened to finance the event and those that had deposited funds therein.
>snip<
Pedraz noted that the demonstration had been authorized by the central government delegate in Madrid, Cristina Cifuentes, who also stated that the aim of the protestors was not to occupy Congress but to remain outside. Therefore, ruled Pedraz, the “seriousness of the risk described by the police was not such.”
The judge also told how the Interior Ministry had tried to get the case heard at the High Court, rather than applying to a lower court as would be normal in a simple case of public order offenses. On Thursday morning, a police report landed on his desk accusing five of the protestors of crimes against public institutions. Pedraz maintained that “no evidence exists” that the protestors intended to gain access to Congress, that government was able to function with normality and that no deputy’s access to the building had been impeded in any way.
In a second El País story, the paper reports that the Directorate General of Police is conducting am internal investigation of the actions of riot police during the same protest, focusing on their actions at the Atocha rail station:
In another video, the officers are seen running down a platform with smoke pellets detonating around them. “You’re mad! You Thugs!” people shouted at the police.
“There are images of people waiting for a train and being beaten [by police],” complained regional deputy Ricardo Sixto, a member of the United Left coalition.
In the longest video, agents are seen beating a man about the legs and then the body. More explosions and shouting are heard as the camera follows an officer to a bench where a senior citizen is shielding a young man. Another officer nearby is captured hitting another man with his baton.
One man later speaks to the camera, explaining that he was struck by the police despite having had nothing to do with the protests, and, he claims, was simply waiting for a train in the station.
Deficit questions augur ill for the Spailout
The essence of austerity is the transformation of nations into efficient siphons for sucking public wealth into the engines of private profit by subjecting governmental obligations to citizens to the demands of the investing class.
In today’s Europe, the common currency renders national governments subject to the European Central Bank, as well as the European Commission and the Internal Monetary Fund — severely restricting options in dealing with crises.
In Spain, the inevitable round of pay, pension, and job cuts has been bring throngs to the street, like those assaulted by police 25 September.
And now comes a clear sign that the bailout that the eurobank’s so eagerly pushing will come with a very high price tag.
From Ben Sills of Bloomberg:
European officials’ concern over’s Spain’s ability to reach its 2013 deficit-reduction target may obstruct Prime Minister Mariano Rajoy’s path toward a possible bailout.
Olli Rehn, the European commissioner in charge of policing budget rules, told Spanish officials their plans to reduce the shortfall to 4.5 percent of gross domestic product next year are based on excessively optimistic assumptions about economic growth, two people familiar with the issue said. Central bank governor Luis Maria Linde, who met Rehn on his Oct. 1 visit to Madrid, echoed that view in comments to lawmakers yesterday.
There’s “a potential slowdown in Spain’s application for a European program,” Thomas Costerg, an economist at Standard Chartered Bank in London, said yesterday by e-mail. “There is a rising fear that the 2013 budget and the stress tests may have been some sort of window dressing to get European assistance.”
While European Central Bank President Mario Draghi said yesterday the ECB is ready to start buying bonds of sovereigns that qualify for aid, Spanish officials have backed away from the offer this week. Rajoy on Oct. 2 denied reports a rescue request was imminent. Economy Minister Luis de Guindos last night said no bailout was needed.
The eurobankster pushes harder for the Spailout
Mario Draghi really wants Spain at his door, hat in hand.
First, the video from from EurActiv:
And more on the storyfrom Valentina Pop of EUobserver:
The European Central Bank is ready to deploy its new bond-buying scheme if Spain requests it and signs up to “conditionality,” which would not be any harsher than what the country is already doing, European Central Bank (ECB) chief Mario Draghi said on Thursday (4 October).
“We are ready to undertake Outright Monetary Transactions, once all the prerequisites are in place,” he said at a press conference after the monthly meeting of the bank’s governing council, which took place in the capital of Slovenia, Ljubljana.
The so-called “OMT” programme was first hinted at in August and would provide an unlimited backstop to countries like Spain struggling with too high borrowing costs but which are not under a full bailout.
For the bond-buying to take place, however, the Spanish government has first to ask for the financial assistance and to sign a memorandum of understanding with eurozone finance ministers, outlining deadlines for ongoing fiscal and labour market reforms.
And he’s really, really flattering to the reluctant prime minister:
From Agence France-Presse:
European Central Bank chief Mario Draghi on Thursday lauded what he called “remarkable” progress made by Spain as the debt-wracked country reforms its labour market and banking sector.
The progress made by Madrid is “really remarkable when you think how many measures have been announced, legislated and implemented in such a short time,” Draghi told reporters after the ECB’s monthly rate-setting meeting.
He cited progress made on fiscal consolidation, structural reforms and the struggling banking sector but warned that “significant challenges remain ahead as well.”
Spanish central bankster seconds Rehn
And he’s also warning of “slippage.”
What a wondrous vocabulary these money lords employ!
From Louise Armitstead the London Telegraph:
The Governor of the Bank of Spain warned that Madrid’s financial forecasts are “optimistic” adding to the mounting pressure on Mariano Rajoy from European Central Bank and the International Monetary Fund.
Luis Maria Linde, who was appointed as Governor in May, said Madrid’s official forecasts seemed out of step internationally and there was risk of “slippage.”
He said that Spain needed to impose more austerity measures, on top of the billions of euros of cuts already announced, in order to meet the 2013 deficit target of 4.5pc of GDP.
“The information now available for the state up to August indicates there are risks of slippage on the goal fixed for this year,” he told a parliamentary committee. “This outlook…is certainly optimistic in comparison with the outlook shared by the majority of international organisations and analysts.”
His comments clashed with Luis de Guindos, Spain’s finance minister, who insisted that the country “doesn’t need a bail-out at all.” In a speech in London that was interrupted by anti-austerity protesters, Mr Guindos said Spain was “doing its homework”. He said it was “crazy” to suggest the eurozone would fall apart.
Warning: North to impose harsh Spailout austerity
The North/South divisions are growing sharper, exposing the inherent contradictions of the More Europe agenda even as it begins to take shape.
From Ambrose Evans-Pritchard of the London Telegraph:
Senior officials from Germany and other parts of the eurozone’s AAA core have warned Spain privately that angry parliaments are likely to impose stringent conditions on any further rescue loans.
Fear of escalating demands by Germany, Finland and Holland is a key reason why Spanish premier Mariano Rajoy continues to drag his feet on a full sovereign bail-out.
Spain’s refusal to act has frozen the eurozone rescue machinery and begun to rattle markets. The European Central Bank will not buy Spanish bonds until the country requests aid from the European Stability Mechanism (ESM) and signs a “Memorandum” giving up fiscal sovereignty.
Finance minister Luis de Guindos told Spain’s parliament Wednesday that there will be no bail-out until the terms are clear. “The government will take the best decision for Spain and its European allies when it knows all the details,” he said.
Spanish Spailout questions multiply
As well they should, given the delicacy of the political and economic realities.
From Ben Sills and Angeline Benoit of Bloomberg:
Spain has been deterred from triggering the currency union’s rescue mechanisms because of concerns about how, and even whether, the process would work, Deputy Prime Minister Soraya Saenz de Santamaria said today.
“We need to have all the elements on the table and also the certainty that it would materialize” before making a bailout request, Saenz said at press conference in Madrid following the government’s weekly Cabinet meeting.
Her comments help explain why Spanish officials have sought to damp expectations of a bailout request amid rising criticism of their plans to tame the budget deficit. Prime Minister Mariano Rajoy has said he is considering a request for European Union bond buying to try to bring down borrowing costs that remain more than 100 basis points above their average for the last decade.
EU deficit enforcer Olli Rehn and Spanish central bank governor Luis Maria Linde this week both questioned the math that the government says will deliver the country’s deficit- reduction commitments over the next 15 months. Spain’s high funding costs are complicating the debt-reduction effort.
And the inevitable enigmatic anonymity
We pass this along not for the truth of the allegations but simply as one more example of the way the anonymous sourcing game is playing out these days.
This is the sum total of the story.
From Reuters:
Market conditions are not bad enough to make Spain request any kind of financing help from the euro zone, a senior euro zone official said on Friday.
“If you look at the current market situation, I see no need for Spain to apply for any program. The market situation is far away from any need for a full macroeconomic program,” the senior official, with knowledge of preparations for euro zone finance ministers discussions, said.
Draw you own conclusions.
And then there’s another question: Does a Spailout even matter if the euro itself collapses?
From the Economic Times:
Spain’s economy cannot recover while doubts remain over whether the currency bloc will remain intact, Spanish Economy Minister Luis de Guindos said on Thursday.
“For Spain, in order to have a recovery, it is important to dispel all the doubts about the future of the euro,” he said, responding to questions following a lecture at the London School of Economics.
De Guindos also said he was confident the country’s proposed bad bank would succeed.
“The price that we are going to apply will be extremely cautious and we are convinced that we will be able to bring private investors (in),” he said.
Spanish bank bailout months away
In addition to a sovereign bailout, there are those pesky bankrupt Spanish banks to contend with, in yet of yet another capital infusion.
But even with an application today, there’s be no cash coming this year.
From Reuters:
It is difficult to say when exactly direct recapitalization of Spanish banks by the euro zone permanent bailout fund, the European Stability Mechanism (ESM), will be possible, but it will not be as soon as the start of next year, a senior euro zone official said on Friday.
Insurance scheme mulled for Spanish debt
No doubt another scheme that’s certain to stir debate: Instead of buying Spanish bonds directly, the eurozone would insurance the debt bought by private investors.
We suspect there’ll be lots of conditions demanded by the North.
From Julien Toyer and Paul Taylor of the Irish Independent:
The eurozone is considering aiding Spain by providing insurance for investors who buy government bonds in a move designed to maintain Spanish access to capital markets and minimize the cost to European taxpayers, European sources said.
One senior European source said the plan could cost about €50bn for a year. It would enable Spain to cover its full funding needs and trigger European Central bank buying of Spanish bonds in the secondary market.
If the gamble succeeds, it would achieve two important aims. Spain would be rescued without draining Europe’s entire bailout fund and there would be no contagion to Italy.
Under the scheme, which officials say is under consideration in Madrid, Paris, Berlin and Rome, the euro zone’s new permanent rescue fund (ESM) would guarantee the first 20 to 30pc of each new bond issued by Spain.
And on to France. . .
Investing firms threaten to flee France
Because they don’t want to pay more taxes.
We are shocked.
From Art Goldhammer of French Politics:
Private equity firms are threatening to leave France because of Hollande’s 75% marginal tax on high incomes, which will apparently apply to “carried interest,” the private-equity term for gains by fund managers. Some 280 such firms are housed in Paris, and France is the second-largest European market for leveraged buyouts, after Britain, according to the Bloomberg report.
Entrepreneurs in (mostly high-tech) startups have also protested other proposed changes in the French tax code. The government’s announcement of reduced charges on firms’ payrolls may have been rushed to counter these attacks from self-styled pigeons.
French growth figure downsized
The official prediction has been halved.
From Xinhua:
French national statistics institute Insee late Thursday revised down its 2012 growth forecast for the country to 0.2 percent from a previous projection of 0.4 percent.
Due to dim performance of industrial activities and weakening consumption, the country’s main growth engines, France was set to report zero growth over the third and fourth quarters of the year, compared to an initial forecast of 0.1 percent and 0.2 percent respectively, Insee said in report.
New data showed that the already struggling French economy would stagnate for the five consecutive quarter since the post-war period, adding more pressure on the socialist government to realize its promise of growth recovery in 2013.
Officials seek to expand growth by 0.8 percent in next year’s budget. But economists considered the budget too ambitious in the face of the fragile economic activities and deteriorating business climate.
France has the best politicians money can buy
But the purchase didn’t help the candidate whose backers put up the cash. Nicols Sarkozy lost anyway.
From Radio France Internationale:
A French right-wing Catholic politician claims that Nicolas Sarkozy’s party owes her 300,000 euros, the balance of 800,000 she says she was promised when she withdrew from this presidential race and declared her support for the outgoing president. But Christine Boutin indignantly denies charges that she has been bought off.
Boutin has received 500,000 from Sarkozy’s UMP, she told the weekly Valeurs actuelles published Thursday, and is to receive three cheques for a total value of 180,000 before the end of November.
That leaves a balance of 120,000 euros and she intends to have them.
“After receiving those three cheques, the UMP will still owe me 120,000 euros, a debt that [former prime minister François] Fillon will have to honour if he is elected president of the movement,” she told the magazine.
There’s something refreshing about such frank corruption. It’s done all so slickly on this side of the pond, helped on by the Supreme Court and a media that depends on the same sources of cash as the politicians.
And on to Ireland. . .
Irish central bank calls for pay cuts
That’s not the language they use, but it’s the reality.
It’d be hard to find a more concise debunking of that old “globalization lifts all boats” chestnut.
From Ed Carty of the Irish Independent:
The Central Bank has warned that more needs to be done to drive down labour costs and reinforce competitiveness, in its latest report.
“One important way to do this would be to press ahead with public sector reforms to deliver the maximum possible level of public services from the reduced resources available for expenditure,” the report said.
It added that this would help a sustainable recovery.
“More generally, pay remains high in both the public and private sectors, adding to costs and prices in the economy, and no doubt discouraging expansion and investment projects by exporting firms.”
The bank also revised down its expectations for economic growth for both this year and next.
Irish teachers hard hit by austerity
Ireland, like Spain, suffered from a real estate collapse and reckless lending, drawing in the Troika to help patch up the ruins.
The inevitable memorandum followed, imposing the austerity regime, with costs hitting the nation’s teachers especially hard.
From Kitty Holland of the Irish Times:
Irish teachers have been among the worst affected in Europe by pay cuts and freezes, according to a new report from the European Commission.
According to the Teachers’ and School Heads’ Salaries and Allowances in Europe 2011/12, some 16 European countries have reduced or frozen teachers’ salaries in response the crisis. Teachers in Greece, Spain, Portugal and Slovenia, as well as Ireland have been the worst affected.
This report was published to coincide with World Teachers’ Day and looks at the pay and allowances across 32 countries.
While teachers in Greece have been hit hardest with pay cuts of 30 per cent and the end of Christmas and Easter bonuses, new Irish teachers’ salaries were cut by 13 per cent last year, and new entrants after 31st January this year have had a further 20 per cent cut in their starting salaries due to the abolition of qualification allowances.
German industries feeling the pinch
Once again, no surprises.
From Xinhua:
German industrial orders dropped 1.3 percent in August largely due to weak domestic demand, official statistics released on Friday showed.
According to figures from the Economy Ministry, monthly domestic orders for industrial products dropped 3 percent despite a 2.4 percent increase in orders from other eurozone countries, while overall foreign orders remained unchanged.
“Orders for German industry have weakened, as expected in an overall weaker economic environment,” the ministry said in a statement.
And to close, some thoughts on banking union. . .
The dark side of the More Europe banking union
The More Europe demand for a central banking regulatory machine that would take away most of the power of national governments to control their own banks poses some fundamental questions about the nature of power in Angela Merkel’s dream world.
From Andrew Wagaman for New Europe:
The proposal is controversial for a few reasons. Though there are 6,000 banks in the EU, approximately 90% of all assets are held by about 200 of them. Germany hesitates to see its state-owned Landesbanks fall under ECB control and for the ECB to lose its independence from EU politics. The citizen-elected Parliament would need to have final oversight if the banking union were to have a semblance of a democratic institution. Meanwhile, London fears a banking union not under the roof of its European Banking Authority (EBA) would perpetuate the perception that Frankfurt (home of the ECB) is the new European financial capital.
More on point, a banking union would polarize the 17 states in the Eurozone from the 10 which are not. The Commission’s proposal says states outside of the Eurozone would be encouraged to enter into “close cooperation” agreements with the ECB that would allow it to use the same supervisory powers (requiring documents, unannounced inspections, etc.) as in Eurozone states.
Legally, though, non-Eurozone states would not be allowed any representation on the supervisory council. Therefore, those states would be ceding regulation of its banks without having any say in how the regulation would work. It’s difficult to see why any states would opt in to the plan.
[European Parliament delegate and Green Party co-leader Philippe] Lamberts said that contrary to popular belief, there are euro-empathetic states not within the Eurozone and Eurosceptic states within the Eurozone. A banking union might push both to the fringe in the larger debate about integration.
“We don’t want to build a two-speed Europe,” he said. “Seventeen and 10 would not be healthy.”
He also doubted the likelihood of the ECB both maintaining its independence to the satisfaction of Germans while also meeting democratic standards.
