QEurope [angrybearblog]

I am generally skeptical about the importance of further QE in the USA, but I am definitely not skeptical about the effectiveness of the the leaked European Central Bank plan to purchase unlimited amounts of European Government debt.  The reason is that there are government bonds over here which terrify investors.  That means that the amount which private investors must hold should have a fairly large effect on the price (different European government bonds are not at all close substitutes).

The leaked plan is a compromise between the sane and the German (two of my best friends are German) .  Importantly the ECB will not place an upper limit on yields on bonds, that is promise to buy any amount if the price falls below some level.

The purchased bonds must be fairly short term bonds (the aim seems to be to make the intervention as ineffective as possible).  Jana Randow and Jeff Black  at Bloomberg report that up to three year bonds will be bought.  Again this is based on leaks.  Alarmingly Il Corriere della Sera reports both this claim and the dramatically contrasting claim (from a source identified only as “German speaking”) that the bonds will be of duration only up to 1 year.  That would be almost pointless.    I can’t get the corriere link (I read the article in the dead tree version and search ilcorriere is horrible).  The key passage is “Draghi ha citato l’esempio di titoli circolante sul mercato secondario con scadenze ‘fino a tre anni’ secondo alcune fonti, o ‘al di sotto di un anno’, secondo altre che parlano Tedesco.” that is “Draghi gave an example of bonds on the secondary market with maturity “up to three years” according to some source, or ‘less than one year” according to other sources who speak German.”

In comparison QE II consisted of purchases of 7 year notes and Twist of (sterilized) purchases of 30 year bonds.  My view is that QEII was totally pointless (didn’t even statisticall significantly affect the price of 7 year bonds) and Twist was at least better than QEII.  So 3 years is not long enough.  On the other hand, Spanish, Italian, Irish, Portoguese and especially Greek (PIIGS) bonds are not at all like US Treasuries.  They are not close substitutes for money at alllll (I personally will absolutely not exchange any of my money for any such bond with maturity over 3 months).

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Everything you need to know about the September 12 German court decision that could rock the entire world [Yahoo]

The eurozone is running out of bailout cash, and the German Constitutional Court now holds the fate of Europe in its hands.

The European Financial Stability Facility, the original euro area bailout fund established in the summer of 2010, is down to about €248 billion of lending capacity left after existing bailouts for Greece, Portugal, and Ireland are accounted for.

Spain and Italy – the next two countries expected to be in line for a bailout – could have combined financing needs as large as €703bn over the next two years, according to Citi estimates, dwarfing the existing capacity of the EFSF.

Those huge numbers underscore the need for the additional firepower of the European Stability Mechanism, the new bailout fund expected to replace the EFSF and make available hundreds of billions of euros in additional lending capacity to struggling member states.

However, the ESM has still yet to be ratified, which has many counting chickens before the eggs have hatched, so to speak.

The 16 judges that sit on the Federal Constitutional Court of Germany need to sign off on the fund’s constitutionality in order to make the fund operational – and the Court is widely expected to do just that when they deliver a ruling on ESM ratification on September 12.


President of the German Constitutional Court Andreas Vosskuhle (4th R) reads the verdict on the German government's European Stability Mechanism and the Euro Plus Pact in Karlsruhe June 19, 2012 file photo. REUTERS/Alex Domanski/Files


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Fate of the Euro [financialsense]

Europe’s long-term bailout measures for Spain and Greece depend on German ratification. After the German legislature gave final approval to the European Stability Mechanism (ESM) for establishing a European bailout fund, the German Federal Constitutional Court said it would rule whether the ESM compromises German sovereignty. The German high court will decide whether to impose a temporary injunction against the ESM on Sept. 12. How long will the injunction last? Supposedly, a final court decision could take several months.

The plaintiffs in the case argue that a $610 billion bailout plan effectively negates German budget sovereignty. Strictly speaking, such a measure is unlikely to be constitutional. German voters would be locked into a situation without remedy. Some portion of their money would go to other countries, at the discretion of the ESM. Germany would then be Europe’s cow, giving milk whenever needed. And a cow has no sovereignty.

Given Germany’s position within the European Union, what defense of German sovereignty can be made? Hasn’t German sovereignty already been compromised beyond the point of redemption? Besides, the Germans have marched for decades under a European banner, desperate to shed Hitler’s nationalist legacy. Germany must do good deeds now and forever. Germany must be Europe’s cow.

Without any doubt, Germany’s commitment to Europe has something of atonement about it – as well as economic optimism. But now the economic optimism is evaporating, and the generation that lived through the war is passing away, and some Germans would draw a line in the sand. “Perhaps we shouldn’t feel guilty any longer,” they say. “Perhaps Germany isn’t obliged to bail out other countries.” The question, however, is whether such Germans are to be found in the German Constitutional Court. The astute observer does not think so. The high court judges are good Europeans. They are not German nationalists. Furthermore, they do not want to be blamed for a general financial collapse.


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What Happened After Europe’s Last Three Currency “Unions” Collapsed [Zerohedge]

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: “they all ended with disastrous hyperinflation.

Just in case anyone missed it, here it is again from VOX:

In the last century, Europe saw the collapse of three multi-nation currency zones, the Habsburg Empire, the Soviet Union, and Yugoslavia. They all ended in major disasters with hyperinflation. In the Habsburg Empire, Austria and Hungary faced hyperinflation. Yugoslavia experienced hyperinflation twice. In the former Soviet Union, ten out of 15 republics had hyperinflation (e.g. Pasvolsky 1928, Dornbusch 1992, Pleskovic and Sachs 1994, and Åslund 1995).

So… trying to pull infinite demand from the future to the present once the ability to fund said present deferred demand ends, has consequences? Oh yes, Virginia. It does indeed:

The output falls were horrendous and long lasting. The statistics are flimsy, but officially the average output fall in the former Soviet Union was 52%, and in the Baltics it amounted to 42% (Åslund 2007, 60). Five out of twelve post-Soviet countries – Ukraine, Moldova, Georgia, Kyrgyzstan, and Tajikistan – had not reached their 1990 GDP per capita levels in purchasing power parities by 2010. Similarly, out of seven Yugoslav successor states, at least Serbia and Montenegro, and probably Kosovo and Bosnia-Herzegovina, had not exceeded their 1990 GDP per capita levels in purchasing power parities two decades later (World Bank 2011). Arguably, Austria and Hungary did not recover from their hyperinflations in the early 1920s until the mid-1950s. Thus half the countries in a currency zone that broke up experienced hyperinflation and did not reach their prior GDP per capita in purchasing power parities until about a quarter of a century later.

What was the catalyst:

…systemic change, competitive monetary emission leading to hyperinflation, collapse of the payments system, exclusion from international finance, trade disruption, and wars.

It’s all good though: Europe has a beneficial donor with an endless sack of money – Germany – and 80 some million people who will never, ever consider voting out those politicians who jeopardize their standard of living (regardless how it was obtained, but hard work is a distinct possibility). Ever. Or maybe they will? Maybe they will realize, as they should have over a year ago, that each passing day that nothing changes, and the broken status quo persists, simply means the pain in the inevitable end will merely be that much greater? If recent elections are any indication, Europe should probably be very concerned. Of course, this being Europe, and the market being the market, the fact that there is reason to worry, will provide the market with reason not to worry. After all someone else will make everything better: the central planners made risk of failure illegal.


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Euro Crisis Morphs into Generational Conflict [SpiegelOnline]

“Que se vayan todos,” or “Away with all of them,” became one of the slogans chanted by the tens of thousands of “Indignados” in Spain at protests last year. In addition to their eponymous outrage, many had one thing in common: Most were young and viewed themselves as victims of the crisis.


Elderly Greeks at a political rally: Are older people partly to blame for Europe's debt crisis?

They might have been more specific and instead chanted: “All the old people must go!” This phrase would apply because, in many ways, the euro crisis is also a conflict between generations — the flush baby boomers in their fifties and sixties are today living prosperously at the expense of young people.


Intergenerational equity — measured among other things by levels of direct and hidden debts and pension entitlements — is particularly low in Southern Europe. In a 2011 study of intergenerational equity in 31 countries by the Bertelsmann Foundation, Greece came in last place. Italy, Portugal and Spain didn’t do much better, landing in 28th, 24th and 22nd place respectively. Currently, the unequal distribution of income and opportunities is particularly distinct:


  • The employment market collapse has hit young Europeans much harder than older generations. In Greece and Spain more than half of those under age 25 are unemployed — twice the rate of older workers. Things are even worse in parts of southern Italy, where youth unemployment has risen above 50 percent.
  • One reason for this situation is unequal employment circumstances. Older Spaniards and Italians, for example, profit from worker protection laws preventing them from getting fired that are quite strong by international comparison. But almost half of young Italians and 60 percent of young Spaniards are on temporary employment contracts and can easily lose their jobs.
  • The burdens and risks of the euro bailouts are also mainly borne by young people. Ultimately, growing national debts and bailout funds worth billions will be financed through bonds that won’t be due for many years to come.


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Debt crisis: What could the ECB do to save the euro? [Telegraph]

The attention of world markets will be firmly fixed on the European Central Bank on Thursday, as it announces its monthly policy decision.

The declaration last week by President Mario Draghi that he will do “whatever it takes” to save the euro whipped markets into a frenzy. Investors took it as a signal that the ECB was poised to announce dramatic intervention to stem the eurozone crisis before policymakers take a summer break.

With expectations so high however, anything short of major action is likely to disappoint markets and trigger fresh panic. Here is a look at some of the possible options open to the Bank.

Banking licence

The ECB could grant a banking licence for the region’s permanent bailout fund, the European Stability Mechanism. This would allow the ESM to borrow from the central bank and take on a “lender of last resort” role for those sovereigns in difficulty but essentially solvent, like Spain and Italy. It would be a hugely significant move and likely have the most dramatic impact. Italy’s Prime Minister Mario Monti said yesterday such a move “will in due course occur”, but strong opposition from German policymakers makes it unlikely today.

Debt crisis: What could the ECB do to save the euro?


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How A Country Rationally Exits The Eurozone [Gonzalo Lira]

We are about to experience the Euro Exit Crisis.

Mish Shedlock and I have a private bet as to whether Italy or Spain will exit first—he says Italy, I say Spain. But either way, it’s gonna pretty much suck.

The whole point of exiting the eurozone is because a country no longer has the money to finance its continuing operations. Insofar as Spain, Greece and possibly Italy, that moment will arrive shortly—possibly within days in the case of Spain. So if a sovereign government reaches this moment, it will have no choice but to exit the EMU and revert to a local currency which the government can then devalue.

By doing this, the government simultaneously has all the cash it needs to continue operations, and also inflates away its debts. The private sector gets a shot of adrenaline insofar as foreign trade is concerned, because its goods and services become that much cheaper on the foreign markets. And the employment situation gets a boost, as those producers selling their cheap goods and services overseas begin to hire more workers to fulfill demand.

The downside is that the government gets shut out of foreign bond markets, its financial sector takes a huge hit, and prices for essential goods and services rise dramatically, hurting the poor, the lower middle-class, the elderly, and the unprepared.

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Draghi and Schäuble push for more European integration [LesEchos]

Translated By Google

“Any movement toward a financial union, fiscal policy and in my opinion is inevitable and will lead to the creation of new supranational entities,” said the President of the ECB. A view shared by the German finance minister who said “we must continue to work on closer cooperation on economic and financial policy.”

Mario Draghi, président de la BCE - AFP

Mario Draghi, chairman of the ECB – AFP

The President of the European Central Bank and the German finance minister pushing for a strengthening of European political integration, that France has no plans at this time with caution. Mario Draghi and Wolfgang Schäuble spoke Saturday in two French dailies, Le Monde and Le Figaro the first to the second-in the aftermath of the Eurogroup agreement on conditions of a European assistance to recapitalize Spanish banks . They leave the both agree that one of the lessons from the crisis of sovereign debt in the euro area is the need to strengthen European integration.

“Any movement toward a financial union, fiscal policy and in my opinion is inevitable and will lead to the creation of new supranational entities,” said the President of the ECB. “In some countries, the transfer of sovereignty (…) this implies is a major challenge,” admits Mario Draghi. But “With globalization, it is precisely by sharing sovereignty that countries can better preserve.” For the head of the ECB, no doubt: “In the long term, the euro should be based on greater integration. “

Wolfang Schauble, ministre allemand des Finances - AFP

A view shared by the German finance minister, has long been an activist for more federal Europe. “We must continue to work on today which was not feasible at the time of the creation of the euro: closer cooperation on economic and financial policy,” he says in an interview Le Figaro. “In other words, a stronger political union, with changes in treatment,” said Wolfgang Schaeuble. May 17 at Aix-la-Chapelle, in the Charlemagne Award, which recognizes individuals for their commitment to European integration, he already called for a “political union”. It proposes a bicameral Parliament with greater powers, including a Chamber elected by direct universal suffrage, as well as the president of a European Commission turned into a true government of the EU.

“Alchemy complex”

The German finance minister is actually a repeat offender. In 1994, with another leader of the CDU, Karl Lamers, he proposed to France to go ahead with greater integration policy of the European Union by establishing a “core” with some other member countries. He was then struck with a blunt-received by French Prime Minister at the time, Edouard Balladur, who responded in an article in Le Monde: “There are only disadvantages to reopen the debate on federalism. “This allergy to the notion of federalism endures in a culture steeped in Jacobin France and intergovernmental.

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Even Counterfeiters Are Giving Up On The Euro [testosteronepit]

My first experience with a physical euro was mid-December 2001 when I travelled to Europe for preliminary discussions with potential partners for the startup I ended up launching later that year. First stop: Germany. Bank showcases were filled with euro feel-good agitprop. Euro bills and coins would enter circulation on January 1, and this was part of the long-running campaign to persuade Germans to surrender their Deutsche marks. People had some apprehensions, and some wanted to retain the D-Mark, but my business contacts were gleeful: the euro would become the dominant reserve currency in the world; oil would be priced in it.

To celebrate this unique moment in history, I entered a Deutsche Bank branch and bought several euro Starter Packs, as they were called in good German. The clear plastic pouches cost DM 20 and contained all denominations of euro coins. I handed them out as souvenirs when I came home. Here is the one I kept:



The following year, the euro was in every Eurozone wallet. OK, people were bitching. Things had gotten more expensive. Little but highly visible things. Merchants rounded up. An espresso in Germany might have cost DM 3 but then sold for €2, instead of €1.50 as it should have.

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More on the euro disaster and current account imbalances [creditwritedowns]

This post first appeared at “Great Leap Forward”, my EconoMonitor blog.

Last week we looked at the claim that MMT has ignored current account imbalances among EMU members. That turned out to be fallacious. We went on to examine the claim that the Euro crisis is a simple balance of payments problem. That, too, is fallacious. If the EMU had been designed properly, it would not matter whether some member nations ran current account deficits—much as many US states run current account deficits. Instead, the problem is that the EMU separated the currency from fiscal policy—all the members adopted the Euro, but each was separately responsible for its own fiscal policy. Further, and this is the point to be explored in detail here, each was responsible for dealing with its own banks should a financial crisis hit.

Warren Mosler had long argued that a very likely path to a Euro crisis would come from a bank failure. With no equivalent to Washington to come to the rescue, each individual nation would have to bail out its own banks. That would add to government debt, cause interest rates to spike, and lead to a run out of banks that could not be stopped. Except by the center—the ECB—which was not supposed to do anything of the sort.

Think about that. When US banks start falling like dominoes, who do you call? Not the Secretary of the Treasury of the State of North Carolina! Nay, you call Uncle Sam and Uncle Timmy and Uncle Ben. Please, Uncles, can you spare, say, $29 trillion dollars to bail us out? (http://www.economonitor.com/lrwray/2011/12/14/the-29-trillion-bail-out-a-resolution-and-conclusion/.)

When Irish banks started failing, who did they call? Well, not Fritz in Frankfurt. Let’s see. Total Irish debt was right about ten times Irish GDP (give or take a Euro or two) thanks to the most profligate bankers the world has ever seen. (The US only managed five times GDP—pikers!) Irish bankers had never seen a bad loan they didn’t like. So they politely asked the nice guys in the Irish Treasury to please, please, take over all our bad debts or the economy will crash. And recalling the potato famine, the government took them all. That busted the budget and the government delivered the famine, anyway.

Sergio (Remember him? This is a response to his argument that MMT’s predictive success is “spurious”—see last week’s blog.) sees all this as a current account imbalance. Those Irish and Icelander consumers just bought too many imports. Living the high life up north.

OK, here’s Ireland’s sectoral balances:

Before the GFC hit, we observe that the Irish government is following the neoliberal advice, running budget surpluses. It also has some very small current account deficits (shown as positive because the graph plots the mirror image capital account surplus). Both of these are “leakages” from the circular flow of income that has to be offset by an injection in the form of a private sector deficit. Now, you can, I suppose, blame profligate Irish consumers for their deficits or you could just as easily blame the government for its surpluses.

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The Euro and the Dollar [FinancialSense]

I’d like to do a short-technical piece today to discuss the euro and the dollar. Before I go into the technical picture, let’s first summarize the fundamental backdrop. Now, the U.S. equity markets rose heading into the EU summit and launched soon after the details were given on the Friday morning of June 29th, which were:

  • Single Pan-European bank regulator by year-end ‘12
  • Once the supervisory mechanism was in place, the ESM could capitalize banks directly
  • Ireland to get better bailout terms
  • Spain to get aid from the EFSF until the ESM is up and running, without gaining seniority status on the debt
  • ECB to act as agent for the bailout funds
  • €120B growth pact

euro supply zone

Since then, concerns have shifted to a weak Eurozone and the effect it will have on U.S. multinational companies. We had more negative preannouncements heading into this quarter than in the last earnings season and that has investors on edge. At the same time, we know that central banks are leaning hard in the accommodation direction. ISI Research counted 65 policy eases in the month of June, globally; in addition, we started July off with a quarter point cut in the ECB’s rate to 0.75%, England restarted QE with a £50B injection, and the People’s Bank of China cut rates a second time in the last month. As a bear, it’s a lot riskier shorting the market while central banks are easing. Central bank surprises are to the upside. Our own Federal Reserve Bank has extended Operation Twist, but that’s it. Investors are wondering what kind of jobs number or manufacturing number is it going to take to trigger QE 3. We’re already near similar price statistics the Fed used to initiate QE 2 in 2010. Look where oil is, look where the CPI is, and look where the CRB commodity index is as I mentioned last week.

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Euro Slumps to Two-Year Low [nasdaq]

The euro fell below $1.22 for the first time in two years during European trading hours Thursday, while the yen was broadly stronger after the Bank of Japan held off from expanding its asset-purchase program.

That was after an unexpected interest rate cut by the Bank of Korea and dismal Australian jobs data helped in Asian hours to reinforce the downbeat tone which held sway after minutes Wednesday from the Federal Open Market Committee had failed to signal another imminent round of U.S. quantitative easing.

The euro fell to a two-year low as the greenback extended its gains against a range of currencies. The ICE Dollar Index, which tracks the dollar against a basket of currencies, hit a fresh two-year high.

European equities were under pressure, while yields on peripheral euro-zone bonds began to nudge higher again by late- morning trade as worries about the economic outlook in the euro zone and the response of policymakers to the region’s crisis continued to nag, despite last week’s rate cut from the European Central Bank.

“The markets have been fairly disappointed by central banks’ timid policy response,” said Ian Stannard, senior currency strategist at Morgan Stanley. “With many questions still surrounding the Greek situation and the German court’s decision on the constitutionality of the European Stability Mechanism, we do not see room for the euro to make gains over the next several weeks.”

The euro’s drift lower came in spite of a surprise rise in euro-zone industrial production data for May, which showed output climbing 0.6% on the month, compared with expectations for a 0.2% fall. However, the year-on-year drop was the biggest since December 2009, highlighting the weakness of the sector.

The euro also failed to get a boost from a sharp fall in Italian borrowing costs at a 12-month treasury bill auction.

The Australian dollar was the biggest loser among the major currencies. After falling sharply on the Australian jobs data to below US$1.02, the Aussie extended its losses in European trading to fall more than a cent on the day.

European emerging-market currencies held broadly steady, but some Asian currencies such as the Singapore dollar and South Korean won were under pressure after the Bank of Korea’s surprise rate cut renewed investors’ regional concerns ahead of a stream of Chinese economic data due Friday. Chinese second-quarter economic growth and June industrial output are scheduled for 0200 GMT.

In the session ahead, there is the U.S. weekly jobless claims report, which economists expect will show a fall of 4,000 to 370,000. San Francisco Federal Reserve President John Williams speaks at 1940 GMT.

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The Euro’s Latest Reprieve [Joseph Stiglitz]

NEW YORK – Like an inmate on death row, the euro has received another last-minute stay of execution. It will survive a little longer. The markets are celebrating, as they have after each of the four previous “euro crisis” summits – until they come to understand that the fundamental problems have yet to be addressed.

This illustration is by Tim Brinton and comes from <a href="http://www.newsart.com">NewsArt.com</a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.
Illustration by Tim Brinton

There was good news in this summit: Europe’s leaders have finally understood that the bootstrap operation by which Europe lends money to the banks to save the sovereigns, and to the sovereigns to save the banks, will not work. Likewise, they now recognize that bailout loans that give the new lender seniority over other creditors worsen the position of private investors, who will simply demand even higher interest rates.

It is deeply troubling that it took Europe’s leaders so long to see something so obvious (and evident more than a decade and half ago in the East Asia crisis). But what is missing from the agreement is even more significant than what is there. A year ago, European leaders acknowledged that Greece could not recover without growth, and that growth could not be achieved by austerity alone. Yet little was done.

What is now proposed is recapitalization of the European Investment Bank, part of a growth package of some $150 billion. But politicians are good at repackaging, and, by some accounts, the new money is a small fraction of that amount, and even that will not get into the system immediately. In short: the remedies – far too little and too late – are based on a misdiagnosis of the problem and flawed economics.

The hope is that markets will reward virtue, which is definedas austerity. But markets are more pragmatic: if, as is almost surely the case, austerity weakens economic growth, and thus undermines the capacity to service debt, interest rates will not fall. In fact, investment will decline – a vicious downward spiral on which Greece and Spain have already embarked.

Germany seems surprised by this. Like medieval blood-letters, the country’s leaders refuse to see that the medicine does not work, and insist on more of it – until the patient finally dies.

Eurobonds and a solidarity fund could promote growth and stabilize the interest rates faced by governments in crisis. Lower interest rates, for example, would free up money so that even countries with tight budget constraints could spend more on growth-enhancing investments.

Matters are worse in the banking sector. Each country’s banking system is backed by its own government; if the government’s ability to support the banks erodes, so will confidence in the banks. Even well-managed banking systems would face problems in an economic downturn of Greek and Spanish magnitude; with the collapse of Spain’s real-estate bubble, its banks are even more at risk.

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Nigel Farage on the Failings of the EU Summit and an Antidemocratic Europe

Merkel: ‘No Eurobonds as Long as I Live’, Hollande: ‘Eurobonds will take up to 10 years’ [snbchf]

From http://snbchf.com/

German chancellor Angela Merkel today confirmed the content of our article that Eurobonds are pure utopia. She vows  ”No Eurobonds as Long as I Live”. More on Spiegel Online

Again we urge our English-speaking investors to stop believing that Germany will bail out the euro zone, as stated in the Financial Times or the Economist, and to use google translator instead and read e.g. www.faz.net (conservative) or the english version ofSpiegel Online (rather left-wing).

More investors are now of our opinion, Ray Dalio doesn’t assume that Germany will bail Europe out. “Be careful when betting against human nature”.

The first German full-blown bailout, namely the integration of the Eastern German part (only 17 million people) caused the German debt (see right) to triple from 430 bln. euro in 1989 to 1200 bln in 1999, a decade during which even the US managed to reduce debtfor a couple of years. Germany greatly underestimated the integration costs.

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Barroso is a deluded idiot and the whole thing’s a giant ponzi scheme

Mario Draghi was there when Greece books got cooked

Skip at 11:30  for the fragment where BrotherJohnF discusses the article: http://www.zerohedge.com/news/just-what-mario-draghi-hiding-ecb-declines-respond-bloomberg-foia-request-greek-goldman-swaps


Open Europe demonstrates its true credentials. [Martin Cole]

Open Europe has for long been a good source for “selected” material on the EU. Its true agenda and backing has always been suspect.

The first entry of its daily press briefing today destroys any doubts as to its main agenda, read here!

It seems to this blogger a very good thing that as the evil EU approaches the point of collapse, one of its secretive fellow travelling operations has thus chosen to come clean!

A quote from the opening of the Press Summary:

New Open Europe report: Leaving the EU would raise more questions than answers 
Open Europe has published a new report today which outlines the potential alternatives to EU membership if the UK decided to the leave the EU altogether, and their implications for British economic and political interests.

Euro Breakup Precedent Seen When 15 State-Ruble Zone Fell Apart [Bloomberg]

It was a currency union of 15 states in 1992. Two years later, as budget deficits spiraled out of control, hyperinflation reigned and economies shriveled, just two members of the Soviet Union’s ruble zone were left.


As Greek politicians threaten to break terms of the country’s bailout with international lenders, Spain calls for financial help, and northern European nations balk at funding the south, historians are asking whether the euro region is about to face a similar exodus. They take a longer view of the European Union’s crisis than economists, and it’s much bleaker.

The Soviet experience tells us “an exit like this is messy and leads to loss of income and inflation, and people are right to be scared of it,” said Harold James, a professor of history at Princeton University whose books include “The End of Globalization: Lessons From the Great Depression.” “It isn’t an attractive analogy at all because the Soviet Union states all had serious troubles for the whole of the 1990s.”

While differences between the Soviet Union and the EU are greater than their similarities, there are parallels that may prove helpful in assessing the debt crisis, historians say. Both were postwar constructs set up in response to a collective trauma; in both cases, the founding generation was dying out as crisis hit and disintegration loomed.

Forgotten Bond

“The Soviet Union and the European Union both lost a generation that remembered what the union was about, a sense of collective experience,” Ivan Krastev, chairman of the Centre for Liberal Strategies in Sofia, said by telephone from Vienna. “The Soviet Union was formed after World War I and the EU after World War II. At least the Soviets had a common language.”

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Eurozone citizens moving billions to Switzerland [SoberLook]

From soberlook.com

Bloomberg/BW: – Switzerland saw its foreign currency reserves balloon by 66.2 billion Swiss francs ($69.5 billion) over the past month as the country’s central bank spent heavily to prevent its currency from appreciating against the euro, according to data released Thursday.

The franc is considered a safe haven for investors concerned about the euro-zone debt crisis.

The Swiss National Bank held foreign currency reserves worth 303.8 billion francs in May, an increase of 28 percent from the 237.6 billion francs in April.

“A large part of the increase in foreign currency reserves between the end of April and the end of May can be traced to the purchase of foreign currency to enforce the minimum exchange rate,” said SNB spokeswoman Silvia Oppliger.

Indeed we had a big spike in foreign currency reserves of the Swiss National Bank in May.

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Taleb Says Euro Breakup ‘Not A Big Deal’ As U.S. Scariest [Bloomberg]

Nassim Taleb, author of “The Black Swan,” said he favors investing in Europe over the U.S. even with the possible breakup of the single European currency in part because of the euro area’s superior deficit situation.

Europe’s lack of a centralized government is another reason it’s preferable to invest in the region, said Taleb, a professor of risk engineering at New York University whose 2007 best- selling book argued that history is littered with rare events that can’t be predicted by trends.

A breakup of the euro “is not a big deal,” Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. “When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of theUnited States.”

The budget deficit as a proportion of gross domestic product in the U.S. amounted to 8.2 percent at the end of 2011, government figures show. That’s twice the 4.1 percent ratio for euro-region countries, according to data compiled by Bloomberg.

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Europe’s debtors must pawn their gold for Eurobond Redemption [Telegraph]

Southern Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany.

By , International business editor

The German scheme — known as the European Redemption Pact — offers a form of “Eurobonds Lite” that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.

The plan is drafted by the German Council of Economic Experts and inspired by Alexander Hamilton’s Sinking Fund in the United States — created in 1790 to clean up the morass of debts left by the Revolutionary War. Flourishing Virginia was comparable to Germany today.

Chancellor Angela Merkel shot down the proposals last November as “completely impossible”, but Europe’s crisis has since festered, and her Christian Democrat party has since suffered crushing defeats in regional elections.

The Social Democrat opposition supports the idea. The Greens say they will block ratification of the EU Fiscal Compact in the German Bundesrat — or upper house — unless Mrs Merkel relents.

“The Redemption Pact cleverly combines the advantages of lower interest rates through joint European borrowing with a reduction of debt,” says Green leader Jürgen Trittin. “Joint liability would be limited in both time and scale.”

Southern Europe’s debtor states must pledge their gold reserves and national treasure as collateral under a €2.3 trillion stabilisation plan gaining momentum in Germany.

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Lloyd’s of London preparing for euro collapse [Telegraph]


The chief executive of the multi-billion pound Lloyd’s of London has publicly admitted that the world’s leading insurance market is prepared for a collapse in the single currency and has reduced its exposure “as much as possible” to the crisis-ridden continent.

Richard Ward said the London market had put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandoned the euro.

In an interview with The Sunday Telegraph he also revealed that Lloyd’s could have to take writedowns on its £58.9bn investment portfolio if the eurozone collapses.

Europe accounts for 18pc of Lloyd’s £23.5bn of gross written premiums, mostly in France, Germany, Spain and Italy. The market also has a fledgling operation in Poland.

Lloyd’s move comes as a major Franco-German provider of credit insurance for eurozone trade, Euler Hermes, said it was considering reducing cover for trade with Greece because of the risk the country might leave the eurozone.

When a company goes bust, it is often sparked by withdrawal of credit insurance for suppliers wanting to trade with it.

Lloyd's of London preparing for euro collapse

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William Dartmouth – The EU is funding corruption in other countries using British taxpayer’s money.

Mario Draghi urges eurozone leaders to take “courageous leap” to economic integration if euro is to survive [Telegraph]

The head of the eurozone’s central bank urged the region’s leaders to take a “courageous leap” to safeguard the future of the single currency as clear divisions continued and a Greek exit remained in focus.

Mario Draghi urges eurozone leaders to take

Mario Draghi, president of the European Central Bank, warned that governments must take urgent action towards greater economic integration if the euro is to survive.

“We are living a crucial moment in the history of the EU. We have reached a point in which the process of European integration needs a courageous leap of political imagination in order to survive,” he said during a speech in Rome.

He made the comments following an underwhelming European Union summit in Brussels, where leaders failed to make progress on Greece or reach an agreed position on the controversial subject of eurobonds.

Economists at Citigroup said the most likely date for a Greek exit was January 1 2013, assuming that by then it will have run out of money following a failure to elect a government on June 17 that is willing to stick to austerity.

Citi analysts said the Greek currency would immediately plunge 60pc against the euro.

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