Category: Europe

Dungeons and Draghi*

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Someone has finally set up the Greek/Euro financial crisis as a choose your own adventure game:

Reading the media and blogs, it seems to me that left and right are united in the view that the Greek default is being handled appallingly, that the current attempts at a solution are childishly obviously wrong and that everything is the fault of someone, probably the Germans. My own view – that it is not at all clear what the direction of policy is, and that although I don’t agree with the troika plan, it’s recognizable as a good-faith plan made by conscientious international civil servants working under unimaginably difficult political constraints in an economic context that was irreparably broken before they got there – is, as always, unpopular.

I don’t have a solution myself – the more I end up discussing this with people, the more I am reminded of the London Business School proverb taught on some of the gnarlier case studies, which is “Not All Business Problems Have Solutions”. So, CT hivemind, what do you think the best outcome is? Below the fold, I note some talking points, aimed at preventing our commentariat from falling into some of the pitfalls and mistakes which appear to be dominating debate at present. Because the whole issue is a twisty turny maze which at times seems to consist of nothing but false moves, I am presenting it in the form of a “Choose Your Own Adventure” book. I would note at this stage that I could probably have presented it in a funky HTML way rather than making you scroll up and down, but I have convinced myself that this is a feature rather than a bug – the medium matches the message here, because international debt negotiations are cumbersome, inconvenient and irritating too. Also, it is probably easier than it needs to be for readers to end up at the wrong paragraph and get a confusing jumbled narrative which bears little resemblance to the decisions they thought they’d made. Again, this is a crucial part of giving you the authentic international financial diplomacy experience.

…………

It’s an inspired idea.

*Not my bon mot. One of the commenters on  the above post came up with it.

Greeks Vote to Approve Their Own Suicide While the Rest of the EU Applaudes

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Their parliament has approved the new austerity plan, which will allow them to borrow money and give it to German, French, and British banks.

If I were running Greece, I would start a program of aggressive instruction in German for the populace.

If the Germans want to make Greece uninhabitable, perhaps they should accommodate the refugees.

In the meantime, Athens burns:

After violent protests left dozens of buildings aflame in Athens, the Greek Parliament voted early on Monday to approve a package of harsh austerity measures demanded by the country’s foreign lenders in exchange for new loans to keep Greece from defaulting on its debt.

Though it came after days of intense debate and the resignation of several ministers in protest, in the end the vote on the austerity measures was not close: 199 in favor and 74 opposed, with 27 abstentions or blank ballots. The Parliament also gave the government the authority to sign a new loan agreement with the foreign lenders and approve a broader arrangement to reduce the amount Greece must repay to its bondholders.

The new austerity measures include, among others, a 22 percent cut in the benchmark minimum wage and 150,000 government layoffs by 2015 — a bitter prospect in a country ravaged by five years of recession and with unemployment at 21 percent and rising.

But the chaos on the streets of Athens, where more than 80,000 people turned out to protest on Sunday, and in other cities across Greece reflected a growing dread — certainly among Greeks, but also among economists and perhaps even European officials — that the sharp belt-tightening and the bailout money it brings will still not be enough to keep the country from going over a precipice.

It’s actually going to make things worse, because it will cause the economy to contract, and the last thing you want to do in order to get out of debt is to cut your salary.

OK, These Are Some Tax Collectors That I Could Love

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So, the Italian police have taken to staking out posh neighborhoods and pulling over drivers of expensive cars. They then take their personal information, and send that to the tax bureau to make sure that their lifestyle matches up to their declared income:

Police fanned out across Milan in late January halting more than 350 vehicles, mostly luxury SUVs and Porsches.

At checkpoints, including one adjacent to the fashionable Corso Como, the police got the driver’s license and registration, which they passed on to the national tax agency. The tax authorities will use the data to check if the cars’ owners had declared enough income — and of course paid the right amount of income taxes — to justify their lifestyles.

It was at least the fifth raid targeting wealthy Italians since a Dec. 30 sweep at the posh Cortina d’Ampezzo ski resort, where 251 high-end cars were stopped, including Ferrari and Lamborghini supercars, Bloomberg Businessweek reports in its Feb. 13 issue. Rome, Portofino on the Italian Riviera and Florence have also been targeted.

I’m Matthew Saroff, and I approve of this tactic.

Now They Tell Us

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One of the architects of the European austerity program is now saying that austerity is making things worse:

A leading architect of the austerity programme in Greece – one of the harshest ever seen in Europe – has admitted that its emphasis on fiscal consolidation has failed to work, and said economic recovery will only come if the crisis-hit country changes tack and focuses on structural reforms.

Poul Thomsen, a senior International Monetary Fund official who oversees the organisation’s mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009.

“We will have to slow down a little as far as fiscal adjustment is concerned and move faster – much faster – with the reforms needed to modernise the economy,” he told the Greek daily Kathimerini, adding that the policy shift would be “reflected” in the conditions foreign lenders attached to a new rescue programme for Athens.

Hoocoodanode?

Taking a pay cut makes it harder to pay off your debts.

That’ll Teach Him

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The British are finally cracking down on the Banksters.

What are they doing? They are rescinding knighthoods:

The former chief executive of the Royal Bank of Scotland, Fred Goodwin, has been stripped of his knighthood by the Queen for his role in the creation of the biggest recession since the second world war.

With unceremonial haste, a committee of five senior civil servants took away the knighthood given to Goodwin by the last Labour government in 2004 for services to banking.

The chancellor, George Osborne, welcoming the move, said: “RBS came to symbolise everything that went wrong in the British economy over the past decade.”

The move provoked a cacophony of calls for honours to be stripped from other miscreant bankers, politicians and regulators. The campaign to humble Goodwin was reignited by the Daily Mail a fortnight ago and then hastily backed in a highly political move by David Cameron as he sought to show he will side with the public against crony capitalists and bonus-seeking bankers.

You know, I thought that Geithner’s charades about supporting ordinary homeowners were lame, but the Brits have taken lame to a while new level.

Europe is F%$#ed

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Because the Germans have been allowed to force their self delusions on the rest of Europe:

Chancellor Angela Merkel cemented her political ascendancy in Europe on Monday when 25 out of 27 EU states agreed to a German-inspired pact for stricter budget discipline, even as they struggled to rekindle growth from the ashes of austerity.

Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and will enshrine balanced budget rules in national law.

The accord was eagerly greeted by the European Central Bank which has long pressed euro zone governments to put their houses in order.

The solution to problems caused austerity and overly aggressive efforts at European integration will be more austerity and overly aggressive efforts at European integration.

Yes, These Are Members of the Polish Parliament

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And they are protesting Poland’s signing onto the Anti-Counterfeiting Trade Agreement (ACTA):

Poland on Thursday signed an international copyright agreement, sparking more demonstrations by Internet users who have protested for days over fear it will lead to online censorship.

After the signing, protesters rallied in the Polish cities of Poznan and Lublin to express their anger over the treaty. Lawmakers for the left-wing Palikot’s Movement wore masks in parliament to show their dissatisfaction, while the largest opposition party — the right-wing Law and Justice party — called for a referendum on the matter.

Controversy in Poland has been deepening over the Anti-Counterfeiting Trade Agreement, or ACTA. Though many other industrialized countries have signed it, popular outrage appears to be greater in Poland than anywhere else.

This is actually significant.

It’s been growing slowly, but the almost universal consensus about the ability of IP holders to rent seek is now showing cracks, as more and more people start to see it as a drain upon society, rather than a benefit.

We are seeing this in the media, where we are seeing increasing coverage of patent trolls like Nathan Myhrvold.  (Here’s hoping that his f%$#ing cookbook is followed by people protesting his ass)

With a little bit of luck, we may eventually see the worm turn on all of this, and see the protections on IP seen through the lens of public benefit, and not the interest of the rentiers.

What Atrios Said

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The basic thinking seems to have been that it was wonderful for university to be free back when most people who attended were quite wealthy, but once the masses started getting ideas about going it was time to force them to pay. And there again is your generational divide.

—Atrios, on the institution of penury inducing tuitions at British colleges

It’s actually a bit more contemptible than that.

The skyrocketing college costs began with two things:

  • Collusion by the Ivies and similar elite institutions on tuition and financial aid.
  • It started in the 1960s, when the alternative to going to college was getting drafted, and playing hide and seek with a really angry guy with an AK-47 in rice paddies.

Sarko Gets One Right

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The French have passed a law making it illegal to deny the existence of the Armenian Genocide.

I don’t approve laws forbidding speech, but I DO approve of pushing back on the Turkish aggressive policy of denial and disinformation regarding historical fact.

The cynic in me thinks that Nicolas Sarkosy was motivated by the political calculus that bashing Turks would sell with the Neanderthal set in the upcoming election though.

One final note:  Serdar Argic, eat my shorts.

Another Example Why the Credit Default Swap is the Toxic Waste of the Financial World

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On an article about how Greek government debt may take down the Euro, we find this little gem:

Lagarde’s demand for a larger haircut smacked into an onslaught of leaks from the bond-swap negotiations between the government and private sector bond holders. First, there were rumors that the banks had largely agreed on a deal. Then there were rumors that hedge funds that had acquired some of these bonds at a discount were refusing to go along with anything. They were betting that they could profit from a default because it would trigger CDS payouts. And if the majority agreed to the haircut, they would also profit because Greece would eventually redeem the bonds.

Now, there are rumors that the government wants to compel these hedge funds to join the bailout majority. Tool: retroactive “collective-action clauses”—if a majority of bondholders agrees to the deal, the recalcitrant minority could be forced to go along.

Of course, the question is how you can make money for this.

It comes down to the fact that there is something called the “naked” credit default swap.

The nickel tour is that a CDS is an insurance policy, you pay your premiums, and in the event of “something” happening, you get a payout for the “loss”.

The reason that I put “loss” in scare quotes is because unlike most forms of insurance, there is no requirement to hold an interest in the continued existence of whatever you are insuring.

This has been case since 1746 (!) when Parliament passed the Marine Insurance Act.

Basically, if I purchase a CDS on something risky, like Greek sovereign debt, I have to pay a lot of money, but let’s engage in a little mental exercise:

  • Assume a billion dollars in a specific debt issue.
  • Buy $1 million dollars in debt at a discount from someone who is scared, let’s say it’s 50¢ on the dollar. So you spend $500,000.
  • You purchase a CDS on the whole issue, let’s assume that it’s a 30% payment, or $300 million.
  • Refuse to accept a haircut, triggering a default, and a full payout on the CDS.
  • So, you spent $300.5 million, and get a $1 billion payout.

This is vulture capitalism at it’s worse.  You don’t just wait for something to die, you figure a way to pluck out the eyes to hasten the demise.

This is a microcosm for everything that is wrong with “Anglo Saxon” hyper-capitalism.

We Are Doomed…

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A few days ago, I wrote about the wife of Switzerland’s central bank president engaging in insider trading.

Well what do you know, it ain’t the wife after all, it turns out that it was Philipp Hildebrand, president of the Swiss National Bank doing the insider trading:

Switzerland’s central bank was embroiled in an insider trading scandal after bank chief Philipp Hildebrand was accused of speculating on currency transactions only weeks before he instituted dramatic policy changes that shifted prices in his favour.

The accusations, which have rocked the Swiss banking industry, were made by Swiss weekly newspaper Die Weltwoche in a statement before its Thursday publication. It said that previous reports that Hildebrand’s wife was responsible for the foreign exchange transactions were misplaced and it was the bank chief who was behind the purchase and selling of currency that triggered an investigation by the Swiss National Bank (SNB).

The bank chairman also made several other dollar and euro transactions on the foreign exchange market between March and October last year, according to Die Weltwoche, which is close to the far-right Swiss People’s Party (SVP).

Let me explain just how f%$#ed we all are.

The guy in charge of regulations for the Swiss is engaging in insider trading.

If the Swiss are screwing with banking, it’s not just the end of banking as we know it, it’s the end of the the concept of money as we know it.

Stockpile canned goods and ammunition, because you can’t eat gold.

The Euro Crisis Starts to Hit Defense Contractors

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It looks like Italy is having 2nd thoughts about its JSF purchase🙁paid subscription required)

The Italian government is ushering in a new round of defense cuts in which, for the first time, the fate of Rome’s participation in the F-35 Joint Strike Fighter program will be seriously threatened.

The newly launched defense review not only has sweeping implications for Italy’s defense ambitions but also rings in a further belt-tightening in Europe among countries that are just beginning to come to grips with the scale of their budget and debt problems. Spain, where a new conservative government is grappling with greater-than-anticipated economic troubles, may follow with budget reductions. France is also expected to scale back defense spending after presidential elections in May.

In Italy, much of the work on the military review remains to be completed. Nevertheless, a sharp reduction in the number of F-35s Italy will buy is virtually certain, military officials say. At least a third of the 131 fighters slated for procurement will likely fall under the budget ax, with some minority parties arguing for an outright program termination.

Rome is one of the largest international buyers of the F-35—after the U.K. drastically cut its procurement objective in its 2010 spending review. Italy plans to spend €13 billion ($16.7 billion) to buy and sustain both the F-35A conventional-takeoff-and-landing and the F-35B short-takeoff-and-vertical-landing versions, though it has not ordered any aircraft yet.

I wonder how people are going to start feeling about the austerity fairy fixing everything now that it’s defense spending on the block.

The folks who endorse austerity always seem to think that it’s just things like healthcare and the social safety net that need to be cut, and that somehow, the bloated derfense procurement programs all over the world will somehow continue apace.

I think not.

Yes, the Complete Absence of Oversight of Central Bankers is a Good Thing…

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So there is nothing to worry about with the wife of head of the Swiss National Bank shorting the SFr just days before it’s devaluation by her husband:

My kind of story in the Swiss papers today. I love it when big shot central bankers get their dirty laundry made public.

Kashya, the wife of Philipp Hildebrand (head of the Swiss National Bank) sold Swiss Francs just a few days before the Swiss National Bank initiated exchange controls and devalued the Franc. The timing of the transactions was nearly perfect. The suggestion is that “pillow talk” between husband and wife lead to the trades.

Don’t expect heads to roll over this transgression. There has been a complete review by Swiss authorities and the conclusion is that there were no insider trading violations by the wife. That’s not to say that trades did not happen.

Apparently, Kashya Hildebrand bought ~$500,000 when she shorted the CHF. This relatively small transaction netted the Hildebrand family only ~$50,000 in less than one month. Being that the amount is so small, the conclusion is that nothing nefarious has taken place. ………….

Seriously, if I stole $50,000, I’d be in jail, with a prosecutor asking for a big chunk of bail money, but because this is one of the bankster elite, it’s no harm, no foul.

I’m, really beginning to think that we don’t need to just prosecute the financiers, but we need to go after the corrupt regulators, including the central bankers, as well.

To quote Sigourney Weaver, “I say we take off and nuke the site from orbit. It’s the only way to be sure.”

H/t Atrios.

Someone Gets It in Europe

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Vice President of the Portuguese Socialist Party has been taped saying that default is a preferable alternative to dismantling the social safety net:

“We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won’t pay,” said Pedro Nuno Santos, vice-president of the Socialist Party in the parliament.

“Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble,” he said.

Angela Merkel and the rest of the sanctimonious “Good Germans” can natter all they want about responsibility, but if one of the debtor nations says, “f%$#k you, we’re defaulting,” it’s game over for the German banking sector and their economy.

What the “Technocrats” and “Very Serious People” don’t realize is that their demands are going to make this scenario happen sooner, rather than later.

There is a saying, “If you owe the bank $1,000.00, the bank owns you, if you owe the bank $1,000,000.00, you own the bank.”

I Was Wrong, I Apologize

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For those of you have followed my blog for a while, I started it in May of 2007, I have been suggesting that the Euro was likely to supplant the US as the world’s reserve currency.

Well, I missed a couple of things:

  • The fact that the Euro was drawn up by a bunch of neoliberal (which means conservative) economists who has been railing against regulation and the welfare state, which, as the past few years have shown to be an unmitigated disaster.
  • That the Germans, would be … well … Germans.

Now, I’m inclined to believe that, absent a German exit from the Euro, that the unified currency is doomed, and the EU may be as well.

Unlike my hairier brother,* I do not think that another war in Europe is inevitable, though I think that an EU breakup has a potential of leading to some shooting, or, more likely, some sort of a “Cold Peace.”

*The Indians call him “Carpet who walks”.

Gripen Scores Another Win

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The Swiss Military has decided to purchase the Gripen for its air force:

Switzerland has chosen to replace its fighter jet fleet with Swedish defence and aerospace group Saab’s JAS-39 Gripen, Swiss newspaper Tagesanzeiger reported on Wednesday, citing unnamed sources close to the government.

Neutral Switzerland has wrangled for the past three years over whether to replace its ageing Northrop F-5E/F Tiger fighters, purchased in 1976 and 1981, with up to 33 new aircraft.

Saab shares were up 8.5 percent to 117.10 Swedish crowns by 1345 GMT after the newspaper report.

The newspaper said the cost of purchasing 22 jets would be about 3 billion Swiss francs ($3.3 billion), 1 billion less than the same number of rival models would cost.

I would also add that the Gripen is about ½ the weight and ½ direct operating costs.

When juxtaposed with the exemplary short and austere field performance, and the generally short distances involved, it’s the best choice for the Swiss.

Well, it’s the best choice except for not getting anything. After all, who’s going to attack them, the French, the Italians, the Germans? I don’t think so.

Stephen Trimble confirms this. Both SAAB and the Swiss government have confirmed the deal.

Italy’s Cancer of the Body Politic Offers to Step Down

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Silvio Berlusconi has offered to resign:

The European debt crisis appeared to claim its most prominent victim on Tuesday when Prime Minister Silvio Berlusconi of Italy, cornered by world markets and humiliated by a parliamentary setback, pledged to resign after Italy’s Parliament passes austerity measures demanded by the European Union.

Although Mr. Berlusconi’s exit was not immediate — weeks of political wrangling over the austerity measures probably lie ahead — political commentators said they could see no escape this time for the prime minister, whose Houdini-like ability to wriggle free from scandals is legendary.

“A season is over,” said Mario Calabresi, the editor in chief of the Turin daily newspaper La Stampa, who said Mr. Berlusconi told him that he was not only stepping down, but also would not run for office again.

In the end, it was not the sex scandals, the corruption trials against him or even a loss of popular consensus that appeared to end Mr. Berlusconi’s 17 years as a dominant figure in Italian political life. It was, instead, the pressure of the markets — which drove Italy’s borrowing costs to record highs this week — and the European Union, which could not risk his dragging down the euro and with it the world economy.

It’s good that he’s going, but the bigger picture is that Berlusconi’s continued political success has been almost entirely due to his near complete dominance of Italian television.

Self-serving clowns like Silvio are the inevitable result of media consolidation, whether it’s the Italian monopoly on commercial TV (and effective control of state TV), or the media oligopoly in the United States.

The problem is that while one can have free and fair elections, but without an independent and heterogeneous media, you stand a real risk of not having a free and fair campaign.

Reuters Gets It

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In describing a new, “informal leadership directorate” in Europe, the “leaders of Germany and France, the presidents of the executive European Commission and of the European Council of EU leaders, the heads of the European Central Bank and the International Monetary Fund, the chairman of euro zone finance ministers, and the European Commissioner for economic and financial affairs,” is described as a “New Politburo“.

Heh.

Not Enough, But a Step in the Right Direction

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The European Central Bank, in the first meeting since Mario Draghi replaced the clueless Jean-Claude Trichet as president, the ECB has chosen to cut rates.

Seeing as how the whole world, and in particularly the increasingly desperate cluster f%$# that is the Euro Zone, are in the the midst of a liquidity crisis/debt overhang where cheap money won’t do much.

That being said, the fact that Draghi did not wait a few months in order to save face for the ECB, and that he’s actually warning of an upcoming recession indicates that he is a bit more of a “reality based” than your typical central banker, who typically only give a sh%$ about inflation.

It should be noted that this is actually a significant departure from prior ECB policy, because Draghi appears to be sending a message that he will, at least temporarily ignoring the (under the current circumstances absolutely absurd) 2% inflation target.