March 31, 2012 Leave a comment
EZONE CRISIS: Bundesbank slaps restraining order on Merkel, fires torpedo at EU peripherals. [The Slog]
Victory for Bankfurt over Berlin as Weidmann retaliates on firewall question
Yesterday afternoon’s decision by the German Bundesbank to refuse acceptance of Greek, Irish or Portuguese sovereign/bank bonds has dealt a blow to the Eurozone which few informed observers think it can survive. With the help of sources, The Slog digs into what’s really going on here.
As The Slog has always maintained – and Parisian sources have consistently affirmed – there are really three Germanies at the moment: Merkel Germany, Schauble Germany, and Banker Germany. Banker Germany has been led for several months now by Jens Weidmann, the Bundesbank President; and as the Slog’s Bankfurt Maulwurf has been alleging for weeks, this last schism’s power is in the ascendancy. Schauble Germany consists of the Finance Minister and some of his aides: these are the leading players who have become increasingly pessimistic about ClubMed’s chances, while coming under more and more pressure from parts of the Bundestag and the Karlsruhe consititutional Court. Merkel Germany consists of Angela Merkel and the woefully uninformed German electorate.
Despite widespread scepticism earlier this month, The Slog also reported a detailed US-inspired plan to ‘amputate’ Greece as a source of debt contagion after close of business on 23rd March. I later added to this further detailexplaining that the US felt ‘double-crossed’ by Germany, having given the ECB’s Mario Draghi the dollars to underpin eurobanks, but not seen Brussels ‘deliver’ by pulling the plug on Greece. What’s now becoming clearer is that Washington hugely underestimated both the power of Jens Weidmann, and the rift between him and the ECB. They weren’t double-crossed: the State Department had its lines crossed.*
The EU in general – and very badly shaken markets – now face the reality of a Spanish situation getting worse by the day; an effective civil war inside the EU’s biggest player Germany; and Greek bonds that have been rendered worthless. As Greek newspaper Ekathimerini reports this morning:
‘The development is very serious as it means that even the new bonds issued by Athens to replace the old ones after the private sector involvement in the haircut will have too low a value. Already their difference in yield compared to German bunds, known as spread, has grown by more than 200 basis points in fewer than 20 days, climbing to 1,940 bps….the credibility of the new bonds issued is no different to that of the old ones they have replaced. What is more, Greek banks will need to gradually seek funding from other sources and not the Eurosystem, which is not at all an easy proposition.’
Late yesterday evening I got this comment from the Bankfurt Maulwurf:
“As I said, by the wintertime there will be no eurozone as we know it. Merkel is now increasingly alienated. My guess is that, based on her history and personality, the Chancellor will switch sides.” [ie, and privately accept that FiskalUnion is doomed with any ClubMeds inside it].
Violence, Firebombings Erupt as Spain Announces €27 Billion Deficit-Cutting Plan; Spanish Economy Will Implode; Spain Headed for Bond Revolt and Bailouts [Mish]
My friend Bran who lives in Spain writes …
Here are thoughts from the last couple of days on the strikes, protests, and violence in the wake of more austerity plans by Prime Minister Mariano Rajoy.
Pro-government news played down the strike to a virtual non-event, giving much criticism of the unions methods and exaggerations. Reality however, is that there is enough support by strikers to shape future politics, especially as austerity starts to bite.
The unions have promised to step up protests. The Indignado 15 Million Movement also protested, but separately from the unions.
One comment stuck out – German Chancellor Angela Merkel said the protests did not represent Spain. Maybe she was trying to be reassuring, but she is taking sides against maybe a million or so people of a foreign population, not very wise at best and otherwise agitating.
Spain Announces €27 Billion Deficit-Cutting Plan
MarketWatch reports Spain Announces €27 Billion Deficit-Cutting Plan
The Spanish government on Friday delivered what it called the biggest fiscal adjustment in the country’s democratic history, unveiling a 27 billion euro ($36 billion) deficit-reduction plan that includes sharp spending cuts across government ministries and higher taxes for corporations.
With images of nationwide demonstrations and strikes against labor reforms still fresh, the weight of the budget appeared to fall on big companies and government spending. Labor unions said nearly 1 million took part in Madrid’s rally alone Thursday evening.
Corporations will be asked to pay higher taxes this year, and their tax breaks will be reduced while the government said value-added-taxes would not rise. It said tax receipts for VAT would fall 2.6% as a result of weak growth in Spain.
Budget Minister Cristobal Montoro said all ministries would need to reduce their budgets by around 17% this year, which was slightly higher than expected, saving a total of up to €65.8 billion. Salaries for public workers will not be reduced, but will be frozen this year.
Electricity prices will rise 7%, to pay off a €24 billion electricity-tariff deficit that accumulated due to the difference between consumer prices set by the state and producer’s costs. Tariffs paid by electricity companies will rise 5%.
Austerity Measures Prompt Spanish Workers To Strike
Workers walked off the job in Spain on Thursday, halting public transport, closing schools and leaving hospitals with emergency staff only. The general strike was called by unions in response to the conservative government’s labor reforms, which let companies opt out of collective bargaining agreements and fire workers more cheaply. But more punishing austerity could still be to come, as Spain tries to whittle down its budget deficit under pressure from Brussels.
Germany is Now Openly Engaging In Monetary Policies Against the ECB… What’s Next? [gainspainscapital]
March 30, 2012 By gpc1981
While the mainstream financial media and 99% of investors continue to believe that Germany will align itself with the EU, we’ve been pounding the table Germany will in fact look after its own interests rather than the EU’s and that it might in fact leave the Euro temporarily.
We’ll start with German Finance Minister Wolfgang Schauble, who was hinting that the EU was off-track in its policies and that Germany was focusing on a “political union” NOT a “monetary union” as far back as November 2011.
Wolfgang Schauble admits euro bail-out fund won’t halt crisis
Europe’s “big bazooka” bail-out fund is not ready and won’t stem the debt crisis that on Tuesday pounded Italy and the European Central Bank (ECB), admitted Wolfgang Schauble, Germany’s finance minister.
This is a pretty strong admission from the finance minister of the country that Europe looks to as a financial backstop. And the following is even more disconcerting for the future of the Euro:
Seeing in Crisis the Last Best Chance to Unite Europe
MR. SCHÄUBLE said the German government would propose treaty changes at the summit of European leaders in Brussels on Dec. 9 that would move Europe closer to the centralized fiscal government that the currency zone has lacked. The ultimate goal, Mr. Schäuble says, is a political union with a European president directly elected by the people.
“What we’re now doing with the fiscal union, what I’m describing here, is a short-term step for the currency,” Mr. Schäuble said. “In a larger context, naturally we need a political union.”
Critics say the spending cuts German leaders have demanded from other countries are hurting growth across the Continent, in the process making debts only harder to repay. And his proposals to give the European Commission far-reaching powers to enforce budgetary discipline have been likened by skeptics in Britain to an invasive new “super state.” Even some euro supporters fear that Mrs. Merkel and Mr. Schäuble are talking about long-term changes while panicked investors and practiced speculators are tearing the euro to pieces right now.
“There is a limited transition period where we have to manage the nervousness on the markets,” Mr. Schäuble said. “If it is clear that by the end of 2012 or the middle of 2013 that we have all the ingredients for new, strengthened and deepened political structures together, I think that will work.”
He sees the turmoil as not an obstacle but a necessity. “We can only achieve a political union if we have a crisis,” Mr. Schäuble said.
Note that Schauble repeatedly emphasizes the goal of a “political union,” NOT a “fiscal union” or “monetary union.” Indeed, his one reference to a “fiscal union” is in the “short-term,” while stressing that in a “larger context” the EU needs a “politicalunion.”
by Gary North
On Monday, April 2, the leaders of the United States, Mexico, and Canada will meet at what is billed as the North American Leaders Summit. Here is the agenda, as posted on the website of the White House.
On April 2, 2012, President Obama will host Prime Minister Stephen Harper of Canada and President Felipe Calderon of Mexico for the North American Leaders’ Summit (NALS) in Washington, DC. This meeting will build on wide-ranging and ongoing cooperation among the United States, Canada, and Mexico with a particular focus on economic growth and competitiveness, citizen security, energy, and climate change. The leaders will also discuss North America’s role in the Americas in anticipation of the Summit of the Americas in Cartagena, Colombia later in April, as well as other global economic, political, and security issues.
Note: This summit is preliminary to a hemispheric summit to be held later in April. Note these words: citizen security, energy, and climate change. Allow me to translate: police state, rationing, and regulation.
If you think I am exaggerating, consider the following.
TRILATERAL DEFENSE: STAGE 1
The Defense Department has posted a press release on steps leading up to this summit. A new system of multi-national defense has been created. It is called the North American Defence Ministry. Notice the way Defense is spelled: Oh, Canada! You can read the press release here.
According to the three Ministers of Defence, North America is facing threats so enormous that the three nations must work together to thwart them. But what nation is strong enough to offer such a threat? None is mentioned. Nevertheless, those threats are out there, the three ministers oi defense assure us.
The first meeting of what they call “the trilateral collaboration” was held in Ottawa. Here is what they decided.
By virtue of our geography, our peoples, and our trading relationship, our three nations share many defense interests. Threats to North America and the hemisphere are increasingly complex and require non-traditional responses. Building upon the trilateral collaboration under the North American Leaders Summit process, we share a determination to enhance our common understanding of those threats and of the approaches needed to address them.
It would be helpful to know what these “increasingly complex” threats to North America are. It would be even more helpful to know which “non-traditional responses” are being contemplated.
Our countries are committed to working together to address challenges in the region. We know that transnational threats require transnational responses.
That word, “transnational,” needs clarification. What are some of these transnational threats? What nation might be planning transnational threats against Canada and Mexico, as well as the United States? What nation has identified these three nations as enemies? I have heard of none.
It turns out that the threats do not come from nations. They come from SPECTRE. You remember SPECTRE, the SPecial Executive for Counter-intelligence, Terrorism, Revenge and Extortion. Sean Connery’s James Bond battled against SPECTRE. Well, maybe SPECTRE isn’t the threat it once was, but something like it is.
With this in mind, we have agreed to enhance our cooperation to support efforts to counter transnational criminal organizations and to respond to natural disasters in the hemisphere.
The trilateral collaboration is determined not to let these criminal organizations get the upper hand. Neither is nature: natural disasters in the hemisphere. We all remember what the hemisphere was almost wiped out by. . . . By. . . . By whatever it was. Back then. Never again!
By Comstock Funds on Pragmatic Capitalism
A growing number of indicators suggest that the market is running out of steam. Equities have been in a temporary sweet spot where investors have been factoring in a self-sustaining U.S. economic recovery while also anticipating the imminent institution of QE3. This is a contradiction. If the economy were indeed as strong as they say, we wouldn’t need QE3. The fact that market observers eagerly look forward toward the possibility of QE3 is itself an indication that the economy is weaker than they think. We can have one or the other, but we can’t have both.
At the same time the problems in Europe have been put on the back burner, giving the market some temporary relief—-and we do mean temporary—-from the relenting dire headlines that have often dominated the financial news. This, too, is not likely to last very long.
The U.S. economy has benefited over the last few months from the inability of seasonal adjustment factors to account for an exceedingly warm winter and the distortions introduced by the fact that the worst of the recession in 2008-2009 occurred in about the same months. Although it is difficult to put a number on this, we suspect that the seasonal adjustments made the economy appear much stronger than it actually was, and that the payback is about to come.
Adding to these distortions, Fed Chairman Bernanke recently pointed out that Okun’s Law may have been a factor in the improving unemployment numbers. Okun’s Law, based on empirical observation rather than theory, states that for every 2% change in GDP, unemployment changes 1% in the opposite direction. Bernanke stated that at the worst of the last recession, unemployment increased by far more than it should have based on the decline in GDP. Recently, however, unemployment dropped by far more than it should have in relation to the increase in GDP, and that this was payback for the prior distortion. The takeaway is that the unemployment rate will not improve much in the period ahead, an assumption that is undoubtedly a major reason for the Fed’s continued caution on the outlook and promise of near-zero rates into 2014.
Norway’s $610 billion sovereign wealth fund, Europe’s biggest equity investor, plans to sharply reduce its European exposure while raising investments in emerging markets and Asia-Pacific, the financeministry said on Friday.
Of its entire bond, fixed income and real estate portfolio, European investments will be “gradually” reduced to 41 percent from 54 percent, while Asia-Pacific’s share will rise to 19 percent from 11 percent, Finance Minister Sigbjoern Johnsen told a news conference.
“We’re reducing our European exposure because we see that economic development in the global economy is changing and this should also be reflected in our investment strategy,” Johnsen said. “Most likely we’ll have to sell some assets in Europe.”
As a result, the share of emerging markets in the fund’s total portfolio will rise to 10 percent from 6 percent and the share of the Americas and Africa will rise to 40 percent from 35 percent.
“It is just not possible to say how long this will take … it should be gradual and taking into account market circumstances,” ministry State Secretary Hilde Singsaas said.