http://www.zerohedge.com/news/europes-new-new-math
Submitted by Tyler Durden on 06/20/2012 11:51 -0400
Submitted by Tyler Durden on 06/20/2012 10:59 -0400
http://www.zerohedge.com/news/germany-lashes-out-accuses-us-hypocricy
Submitted by Tyler Durden on 06/20/2012 08:45 -0400
Europe's New, New Math
- European Central Bank
- European Union
- Germany
- Gross Domestic Product
- headlines
- Italy
- Portugal
- Real estate
- Reality
- Recession
From Mark Grant, author of Out Of The Box
A Novel Approach
The focus of the markets these days is driven by the headlines that are pumped out by the European Union. Hope is promised, the next big summit to fix all issues is touted, Germany is going to come around any day is offered up as Ms. Merkel denies any such thing and “muddling through” holds up prices as the by-word of belief as the blinders of the great propaganda machine direct everyone’s attention away from what is most important. As one example of this is some firewall, no matter what size, that does not do one thing to address the core issues of Italy and Spain which both have too much debt and too many other liabilities in a time of recession where contingent liabilities become outright liabilities and hidden in a vast variety of ways. These firewalls accomplish nothing except to dissuade investors from being involved and their capitalization weakens the finances of the countries providing the capital, whether counted or not, and ends up weakening the balance sheets of the core countries of Europe as we roll from promises and guarantees to moments when real money must be put up. If you stand far enough back you can visualize what is going on; “look at our firewall and do not pay attention to the countries which are having severe economic declines” and so the head fake continues until it cannot any longer as the bills overcome the ability of a nation to pay them.
“Pay no attention to the man behind the curtain.”-The Wizard of Oz
Spain
The recent focus on Spain has been their banks. Europe is trying to come up with some approach which will not involve the sovereign credit. The talk is $125 billion for the troubled Spanish banks to come from some source that is either not yet in existence or that has no provisions to lend any money to anyone but sovereign credits. This, then, would all have to be changed of course and modified which would take weeks if not months but no one seems to mind this too much. This is Europe where reality gets slurred and, to be polite, no one is supposed to notice. The amount of money being contemplated is nowhere near what is really needed but then the assumption for the capital required is based upon balance sheets that do not accurately reflect the real losses in Real Estate of both value and defaults as so much is securitized and resides at the ECB under the cover of darkness. So it is garbage in and garbage out and the audit results promised by the end of June were just postponed yesterday to September as I laughed out loud when I read this because I had just commented to one large institution that this would surely happen just moments before. There was no wizardry exercised here just some understanding of how Europe operates so that expectations can match reality and not rest upon European promises that most times have all of the solidity of some passing wisp of cloud.
Back at the ranch, however, are the regions of Spain and their debt. Spain is talking about guaranteeing their debt in some fashion which will not be counted as part of Spain’s debt to GDP ratio because guarantees are not counted. Fascinating; this manner of arithmetic. One plus one can mean anything Europe likes and then everyone is offended when it is challenged. I never did well with spoon feeding my mother has told me and I suppose it has not changed in all of these years.
Spain’s regional debt is now $183 billion which is up about 4% in the last three months or 12% on an annualized basis. This represents 13.5% of Spain’s GDP. This is not all of their debt of course as many of the regions do not pay their suppliers who then borrow from the banks against the regional liabilities and so the charade continues. Now the largest region in Spain is Catalonia who debt burden is up by 15% in the last year. While no one is paying attention the two year debt for Catalonia is now trading at thirteen percent (13.00%) which is higher even than bailed-out Portugal. Bank debt, regional debt and whatever fancy schemes are proposed; Spain is going to have to be bailed out because they can no longer afford to pay their bills.
I formally apologize to Spain and Europe this morning. I offer my sincere confession to the Inquisitors and in public. I am unable, both ethically and morally, from using your new, new math and I am afraid that I am only capable of the old “one plus one equals two” type of arithmetic. Therefore, using the banal and the ancient, Spain is going to have to welcome the Men in Black and pay due homage. The new European math is a odd thing, it tells you one thing but then when you walk into the counting house to see your wealth; it isn’t there. Funny how that works.
and.......
http://www.zerohedge.com/news/finland-throw-wrench-europes-rumormill
Finland Throw A Wrench In Europe's Rumormill
Because if left unchecked Europe will likely talk the algos trading the market with flashing read headlines to 36,000, here comes Findland to put some things in order
- FINNISH PM KATAINEN REJECTS PROPOSAL TO USE ESM AND EFSF MONEY TO BUY GOVT BONDS
Yes, the same Finland who ten days ago made it perfectly clear that the EFSF is also subordinating, when they demanded collateral from Spanish banks courtesy of negative pledge language.
and ........Finland will demand collateral for its share of emergency loans to shore up the Spanish banking system should the money come from the euro-region’s temporary bailout fund, Finance Minister Jutta Urpilainen said.
“It remains undecided whether the bailout will be granted via the temporary facility, in which case Finland will require collateral,” Urpilainen told reporters in Kokkola, Finland, yesterday. The other alternative is to grant the loan through the European Stability Mechanism, the “permanent crisis mechanism, which will provide better security for taxpayers” and won’t result in demands for extra guarantees, Urpilainen said.Still dreaming the Spanish bailout will bepari passu to bonds and not subordinate anyone? Then wait until Germany pulls the negative pledge card next and the whole European house of cards tumbles (just as Germany wants), and comes begging to Merkel for any bailout on any terms, all the while pushing EURUSD to parity, generating record profits for all German exporters. Just as Germany planned all along.
http://www.zerohedge.com/news/germany-lashes-out-accuses-us-hypocricy
Germany Lashes Out, Accuses US Of Hypocrisy
There are those (such as the entire world) who have in recent months ganged up on Germany, see "In The Case Of The World Vs Merkel, The Broke Prosecution Proposes Eurobonds Lite", and are now openly demanding that the German population shoulder even more of the broke continent's bailout costs, and not only that but implicitly foot the lowering of the French retirement age from 62 to 60. Nowhere is there any discussion of how Germany should go about achieving this: by raising its own retirement age to 100 maybe? Nor is there any discussion that Germany is now very actively engaged in bailing out Europe one day at a time to the tune of €2 billion each 24 hours via TARGET 2. Well, it was only a matter of time before Germany, having long kept radio silence, lashed out at its accusers. Spiegel summarizes: "Merkel was certainly in the hot seat, once again, as many nations pressed her to do more for the euro -- at a time when many Germans feel their country has already done too much." And finally the instigator of it all, TurboTaxCheat Tim Geithner, gets exposed: "It is rather hypocritical when the Americans and the British, whose own mountains of debt have reached a high point, try to lecture the Europeans. One number is sufficient to reveal what a bad tactic this is. At a time when the budget deficits of the US and Great Britain are about 8 percent, the euro-zone members have almost managed to bring their deficits as a whole down to 3 percent." And they are spot on: Europe may be going through a painful time but at least it is doing something to address its problems. America continues to rely on one simple, and very much transitory thing: reserve status. Newsflash:reserve status ends. And when it does: run.
From Spiegel:
'The US Is Hypocritical when It Lectures Europe'
The closing group photos from the G-20 meeting in Mexico show the world's top leaders smiling in a show of unity. But German observers say the happy family shots belie the serious problems the world economy faces -- and the mudslinging that went on during the summit.
It's another wait-and-see game for the euro, as world leaders wait for euro leaders -- in particular German Chancellor Angela Merkel -- to come up with further proposals to shore up the common currency. Though there are lots of other economic problems in the world -- including the expanding US debt and trade barriers that have yet to fall -- the leaders of the industrialized world and key developing countries managed to concentrate nearly exclusively on the euro crisis during the G-20 summit at the Mexican resort of Los Cabos.
Merkel was certainly in the hot seat, once again, as many nations pressed her to do more for the euro -- at a time when many Germans feel their country has already done too much.
European leaders were also annoyed that their problems consistently grab the headlines, while many other countries have equally serious issues to deal with. They were quick to point out the financial crisis did not start in Europe, but in the United States.
But in the end, the leaders attempted to gloss over their differences, praising Merkel for her efforts as the two-day conference ended on an upbeat tone. Now Merkel's partners -- and the markets -- are waiting for the EU summit at the end of this month to see what else is in store to save the common currency.
On Wednesday, German commentators defended the country against foreign critics but also argued that little or no progress was made at the G-20 summit. They say such gatherings are not conducive to serious political debate, which is sorely needed these days.
The center-left Süddeutsche Zeitung writes:
"The euro crisis, which has a large destructive potential for the world economy, was reduced to a hiccup-sized problem in the summit declaration -- for one simple reason: When it comes to economics alone, the Americans, the Chinese, the Japanese and the Brazilians are all mired in their own problems. This creates a situation in which one country is always the sinner and the others only get a mild rebuke for their own misdeeds."
"The G-20 is actually the appropriate group in which to speak openly about major global problems. But now the summit has become so ritualized that it looks less like a serious discussion and more like a school classroom in which the children read their homework out to each other."
Financial daily Handelsblatt writes:
"It is rather hypocritical when the Americans and the British, whose own mountains of debt have reached a high point, try to lecture the Europeans. One number is sufficient to reveal what a bad tactic this is. At a time when the budget deficits of the US and Great Britain are about 8 percent, the euro-zone members have almost managed to bring their deficits as a whole down to 3 percent.
"Was Los Cabos for Angela Merkel all talk and no action? The G-20 cannot fulfill its proclaimed goal, made when the organization was founded, of being a world economic government. And that's a good thing, because we in Europe cannot reach agreement on a single joint approach. Still, the forum is important because it gives the chancellor and the other Europeans a beneficial reality check."
The center-right Frankfurter Allgemeine Zeitung writes:
"Despite a lot of dramatic words, the G-20 countries have for the time being postponed the rescue of the global economy. A few days before the next EU summit, the group of industrialized countries and developing nations have to powerlessly wait for what the Europeans will come up with now to save the euro."
"The G-20 is only as strong as the will of its members to work together cooperatively. That goes for the United States, which is resisting pressure to sort out its finances. That goes for the Europeans who, in the third year of their debt crisis, have still not convinced the financial markets that the euro in its current constellation can survive."
"The differences over the path to growth -- in America it's about demand, in Europe it's more supply side -- will immediately resurface if the Europeans, in the view of the Americans, don't deliver quickly."
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