EuroWatch: The economic house of cards trembles

The news is coming at a furious pace, and the emerging picture is as we’ve been noting; The ‘Greek bailout’ is a farce.

What’s more, details are emerging on a confidential report that made clear Bailout II is merely as stopgap.

Then there’s more bad news from Spain and elsewhere on the continent.

The warning from on high

One of the clearest indications of the ridiculousness of the bailout banter come from the head of the European Council.

From Athens News:

European Council President Herman Van Rompuy warned against complacency in handling the euro zone debt crisis and stressed the need for meeting budget rules and reducing deficits.

“The crisis is not yet fully over. We have come into calmer waters, true, but the next two years we have to make sure this crisis can never repeat itself,” Van Rompuy told Dutch television program Buitenhof on Sunday.

An agreement for stricter budget rules, signed by European leaders on Friday, and a 1,000 billion euro ($1.3 trillion) liquidity injection by the European Central Bank (ECB) had helped to stabilize financial markets, Van Rompuy said.

Discussions about the euro zone’s disintegration had died down but governments still needed to reduce budget deficits and make plans to strengthen economic growth, he said.

“If a plan does not meet demands we will take sanctions. That has never happened in the union. We have to make this credible otherwise the crisis will repeat itself.”

Read the rest.

Third Greek bailout a certainty

The details are emerging, and the picture they paint is of desperation, despair, and duplicity.

First this from Agence France-Presse:

Greece might need a third international rescue package worth 50 billion euros ($66 billion) in 2015, the German weekly magazine Spiegel said on Sunday.

The troika of creditors – the European Union, the European Central Bank, and the International Monetary Fund – is said to have expressed strong doubt in a preliminary report that Greece would be able to return to the international money markets to borrow in 2015.

By then Athens is likely to require 50 billion euros to repay international loans.

Spiegel claimed Germany requested that this part of the report be edited out.

Read the rest.

More on the inevitable third bailout from a second Agence France-Presse story:

The country’s second bailout may prove insufficient and a topping up of the eurozone’s permanent bailout fund cannot be ruled out, the Austrian Chancellor was quoted as saying in a newspaper on Sunday.

“I would not trust anyone who says that (the help) for Greece is enough,” Werner Faymann said in an interview with Austrian paper Oesterreich. “For Greece it depends on whether they can stick to these measures over several elections.”

He also did not rule out extending the European Stability Mechanism (ESM), saying it “may be necessary”.

Read the rest.

So what’s the real reason for the bailout?

Greek default costs could top €1 trillion

Yep. That’s the conclusion of a secret report that found its way into the hands of the press.

From Costas Papachlimintzos of Athens News:

Greece is too big to fail: this is the main message of a confidential report by the analysts of the Institute of International Finance (IIF). The report, circulated on February 18 exclusively among eurozone heads of state, finance ministers and top bankers, describes in detail a horror scenario of the worldwide implications of a disorderly Greek default.

The bottom line is that the losses prompted by a Greek failure would exceed one trillion euros, making another “rescue” by the EU, ECB and IMF troika inevitable.

The 11-page report obtained by the Athens News is entitled “Implications of a Disorderly Greek Default and Euro Exit” and was drafted by “the world’s only global association of financial institutions”, as the IIF describes itself on its website.

Read the rest.

Greece’s got those Moody’s blues

First Fitch, now Moody’s. Call it a case of highly paid people stating the obvious.

From euronews:

The credit agency Moody’s has cut Greece’s rating again because it says there’s still a risk of a default despite the recent debt deal with private investors.

The arrangements amount to a 70 percent write-off for investors – 107 billion euros which Moody’s considers to be a default in all but name.

The downgrade, announced on Friday, comes despite the EU approval of a second bailout package for Greece.

The agency thinks that Greece still faces financial challenges in the medium term even though it has done all the politicians have asked with regard to austerity measures.

But cock-eyed optimists still survive

Yep, and it’s those same folks who authored that secret report, so grab a large grain of salt before reading.

From Ekathemerini:

Another crucial week for Greece begins as the government enters the final strait of a crucial debt swap involving private bondholders, with a decision expected on Thursday night as to whether participation in the exchange is adequate.

The chief negotiator for the International Institute of Finance (IIF), the body representing the bondholders, expressed optimism on Saturday that the exchange would be completed successfully by the end of the week. Noting that discussions with bondholders were “gaining momentum,” IIF Managing Director Charles Dallara told private television channel ANT1 that he was “quite optimistic” that participation levels would be “quite high.” He refused to speculate about the level of the participation.

The government is aiming to secure 90 percent but a participation rate below 70 percent could trigger a payout of credit default swaps, financial products that act as insurance against default.

Read the rest.

And Merkel pumps up the firewall?

Remember a few days ago when Angela Merkel was declaring she wouldn’t support another euro’s worth of German contributions to a massive “firewall” pool to stave off the continuing collapse of European economies.

Well, that was just so much blather, bafflegab, and just plain bullshit.

When the European firewall fund opens for business in July, it’ll be considerably fatter — thanks to a “change of heart” by the German, the lone holdout opposed to enlarging the kitty.

From EUbusiness:

The German government is considering accepting an increase in the size of Europe’s financial rescue fund, sources close to the government told the Welt am Sonntag newspaper.

According to an article to be published Sunday, Germany may be open to expanding the size of the European Stability Mechanism to 700 billion euros ($925 billion).

The ESM is the successor to the European Financial Stability Fund, which Germany has said it wants capped at 500 billion euros ($660 billion), despite pressure from Washington, European countries and the International Monetary Fund.

Read the rest.

And why is Germany finally acting?

Maybe because of the first clear signs that the European crisis may be marching across the Rhine.

From Deutsche Welle:

German retail traders suffered a weak start in 2012 and were unable to match their December performance.

The sector’s turnover dipped one percent in January month-on-month (1.6 percent in seasonally adjusted terms), the Wiesbaden-based Federal Statistics Office (Destatis) reported on Friday. It meant the third consecutive monthly decline in sales.

Adjusted for inflation, real turnover dropped by 1.6 percent, the strongest decrease since May 2011.

But on a year-on-year basis, January 2012 appeared in a far better light for German retailers. They were able to post a 3.5 percent increase in turnover, compared with January 2011 levels.

But the available data are slightly distorted, because consumers in January of this year had one day more to shop than they did last year.

Read the rest.

Spain can’t close its deficit gap

No sooner had Spain’s prime minister signed the European Union pact to keep deficits in line with centrally set targets that he announced his own government could meet its target.

From EUbusiness:

Spain’s prime minister, speaking the day he and 24 others signed a treaty to end debt excess, said Friday that Madrid cannot hope to close a huge gap to meet an EU-agreed deficit target for 2012.

Mariano Rajoy said, after a two-day European Union summit, that soaring unemployment and a deepening recession would force his government to spend tens of billions more than it raised in taxes.

Blaming over-optimistic forecasts by his Socialist predecessors, he said Spain’s public deficit would blow out to 5.8 percent of output in 2012, nearly twice the EU limit and well above the 4.4 percent level previously agreed with Brussels.

Spain’s 2011 public deficit was supposed to come in at 6.0 percent of gross domestic product (GDP) but that has jumped to 8.5 percent, with the state spending 90 billion euros ($119 billion) more than it took in last year, Rajoy said.

The turn for the worse in Spain, which is far bigger than twice bailed-out Greece, hung over talks that EU leaders hoped would help turn a corner in the two-year-old debt crisis.

Read the rest.

In a second story, EUbusiness reports that Spain’s deficit problem could lead to major fines. Just how imposing major costs on an already burdened budget would help doesn’t enter the discussion:

Spain is at risk of a test case and possible fine under new EU rules for a “grave” breach of budget limits, the European Commission said on Monday.

The overshoot amounted to tens of billions of euros, it said.

“We need to shed full light on what went on Spain in 2011,” EU Economy Commissioner Olli Rehn’s spokesman Amadeu Altafaj said of what he called a “serious, grave” gap in the figures.

Altafaj said Madrid warned Brussels on December 30 of a slide of two percentage points compared with output on its deficit target for 2011, then another half a percentage point two days ago.

Read the rest.

More on Spain from regional news service ANSAmed:

The rate of unemployment will reach 24.3% of Spain’s population in 2012, while GDP will fall by 1.7%, seven tenths of a percent more than the 1% fall predicted by the European Commission, according to government forecasts released today.

The rise in unemployment will destroy around 630,000 jobs, but will not reach the 6 million mark overall, the Minister for the Economy and Competition, Luis de Guindos, announced today, following a meeting of the Council of Ministers. The latest employment figures released by Spain’s national institute of statistics put the unemployment rate at 22.85%, some 5.27 million people.

Read the rest.

Trying times for Iceland’s ex-Prime Minister

Trying, as in criminal trial for the 60-year-old former Independence Party leader who’s charged with negligence in failing to impose proper financial controls on his nation’s banks after three of them collapsed four years ago, resulting in huge payouts to foreign savers.

From the BBC:

The trial of former Icelandic Prime Minister Geir Haarde, on charges of negligence over the 2008 financial crisis, has begun in Reykjavik.

Mr Haarde is thought to be the first world leader to face criminal charges over the crisis.

He rejects the charges as “political persecution” and has said he will be vindicated during the trial.

The country’s three main banks collapsed during economic turmoil and the failure of Icesave hit thousands.

The collapse led to a dispute over compensation between the UK and Iceland, which remains unresolved.

The proceedings are being held at the Landsdomur court in the first case for the Reykjavik-based tribunal.


The former premier says he was only doing what he thought was best for the country at the time.

Read the rest.

Greek lawyers announce walkouts

You know things are bad when lawyers go on strike.

From Ekathemerini:

The country’s lawyers are to walk off the job on March 5 and 6 in protest at the government’s plans to overhaul the judiciary.

Lawyers, who have been opposing a new law opening their sector to competition, also object to a new bill aimed at ensuring fair trials but which they claim interferes with the judicial process.

The lawyers intend to repeat their action on March 15 and 16, and are planning to block the entrance to the Athens Court of First Instance on March 16 in a symbolic protest.

European housing market remains in collapse

Finally, a story of continent-wide scope on another component of Europe’s ongoing financial catastrophe, a problem very familiar here in the U.S.

Seems Europe went on a huge housing construction boom prior to the collapse, and the industry is in prolonged collapse, thanks to a combination of fallen prices and a massive reserve of vacant housing built during the boom.

From the BBC:

Europe is in the midst of “prolonged agony” of housing market decline with no obvious end in sight, a report by surveyors has claimed.

The downturn began five years ago, so had lasted longer than a typical 12 or 18-month dip, the Royal Institution of Chartered Surveyors (Rics) said.

The Irish Republic and Spain saw house price falls of 17% and 10% respectively in 2011, compared with 2010.

Germany, France, Switzerland and Norway all saw prices rise by 5% or more.

The Rics European Housing Review suggested that the future of the continent’s housing market depended on the scale of the economic downturn.

The future for the housing market would be “grim” if the eurozone crisis remained unresolved or came to a “painful conclusion”, it warned.

Read the rest.


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