Postcards from the edge of austerity.....
Arson , anger....
http://www.guardian.co.uk/world/2012/aug/31/spanish-wildfire-reaches-edge-marbella?INTCMP=SRCH
and another postcard from the edge.... rage , time for blood to flow.....
http://rt.com/news/italy-miners-crisis-sardinia-911/
A Sardinian miner stands during a protest by miners blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
Sardinian miners take a lift from underground during a protest blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
A Sardinian miner is pictured during a protest by miners blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
http://www.gata.org/node/11705
The issue at stake revolves around the estimated 10,000 tonnes of gold reserves that are held by eurozone governments. According to the council, "It is well known that some of the countries most affected by the crisis, including Portugal and Italy, are responsible for a significant proportion of these assets."
and....
Submitted by Tyler Durden on 08/31/2012 08:57 -0400
Submitted by Tyler Durden on 08/31/2012 03:36 -0400
and Spain still playing games.....
http://www.bloomberg.com/news/2012-08-30/spain-said-to-speed-eu-bank-bailout-on-collateral-limits.html
http://www.guardian.co.uk/business/2012/aug/31/eurozone-crisis-live-jackson-hole
http://www.athensnews.gr/portal/1/57923
Arson , anger....
http://www.guardian.co.uk/world/2012/aug/31/spanish-wildfire-reaches-edge-marbella?INTCMP=SRCH
Spanish wildfire reaches edge of Marbella
Thousands evacuated as blaze threatens tourist resort, fanned by strong winds
Email
A wildfire rages on the edge of Marbella after breaking out near Malaga on Thursday. Photograph: EPA
Several thousand people have been evacuated after a huge wildfire raging out of control in southern Spain reached the edge of the tourist resort of Marbella on the Costa del Sol, Spanish authorities say.
The fire broke out near the port city of Malaga late on Thursday and raced westward, fanned by strong winds and high temperatures.
Two people suffered minor burns when the blaze threatened a housing estate in northern Marbella, forcing the evacuation of thousands of people to a sports centre.
Millions of tourists visit the Costa del Sol, famed for its beaches and nightlife, every year and hundreds of thousands of expatriates from northern Europe live in the coastal belt.
The fire has defied the efforts of Spanish firefighters backed by aircraft and helicopters dumping water on the flames.
"The fire is horrific, with flames 10 to 15 metres high," Angel Nozal, the mayor of Mijas, an inland town between Marbella and Malaga, told the national daily El País.
"This is without a doubt the worst fire we've had in Malaga," Elias Bendodo, president of Malaga council, told Spanish national radio.
"Thousands of people have been evacuated … Two people are definitely injured and … lots of houses have suffered damage," he said.
Local authorities do not know how the fire started, but said they hoped to bring it under control later on Friday because the wind had dropped.
Unusually dry weather in Spain has resulted in wildfires burning thousands of hectares of land this summer, and temperatures have hit record highs in some regions.
Thousands of people were evacuated earlier this month in the Canary Islands, while four people died in fires in the border area between France and Catalonia, in north-east Spain, in July.
****
Costa del Sol wildfires - in pictures
guardian.co.uk, 31 Aug 2012Wildfires fanned by high winds sweep through the Sierra Negra near the Costa del Sol in southern Spain, prompting residents near Marbella to evacuate their homes…Costa del Sol wildfires - in pictures … Wildfires fanned by high winds sweep through the Sierra Negra near the Costa del Sol in southern Spain, prompting residents near Marbella to evacuate their homes…
Spanish wildfire on Costa del Sol leaves one man dead
The Guardian, 31 Aug 2012Agencies in MadridThousands are evacuated in Marbella as elderly man's body is discovered in tool shed…Spanish wildfire on Costa del Sol leaves one man dead … A wildfire raging out of control along southern Spain's Costa del Sol has killed one man, injured several and forced the evacuation of thousands on the edge of the tourist resort of Marbella.More than 300 firefighters were battling…Malaga wildfires forces thousands of evacuations – video
guardian.co.uk, 31 Aug 2012A raging forest fire in the southern Spanish province of Malaga forces the evacuation of 5,000 people on Friday…Malaga wildfires forces thousands of evacuations – video … A raging forest fire in the southern Spanish province of Malaga forces the evacuation of 5,000 people on Friday. Spain is suffering its worst wildfires in a decade, with more than three times as much forest being burned so far this year than in 2011…
- and despair , hopelessness.....
| Police rescue woman on ledge | |||
| |||
Police rescued the 50-year-old woman who was threatening to kill herself by jumping off the eighth floor of a building on Mesogeion Ave.
An officer was able to grab her off the ledge of the building that houses Geniki Bank, Enricos Dinan hospital and the Mega television channel before she jumped.
The woman had been demanding the immediate release of her son, who was imprisoned for a murder that took place in Zefiri on 21 October 2011. (Athens News)
| |||
and another postcard from the edge.... rage , time for blood to flow.....
http://rt.com/news/italy-miners-crisis-sardinia-911/
Austerity cut: Italian miner slits wrist on TV to protest coal mine shutdown (GRAPHIC VIDEO, PHOTOS)
Published: 30 August, 2012, 13:55
Sardinian miners block the entrance of Carbosulcis mine during a protest in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
A Sardinian miner stands during a protest by miners blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)Sardinian miners take a lift from underground during a protest blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
A Sardinian miner is pictured during a protest by miners blocking the entrance of Carbosulcis mine in Carbonia, west of Cagliari, August 29, 2012 (Reuters / Alessandro Bianchi)
http://www.gata.org/node/11705
Gillian Tett: Time for eurozone to reach for the gold reserves?
Submitted by cpowell on Fri, 2012-08-31 01:33. Section: Daily Dispatches
Unless the gold collateral was moved out of the vaults of the sovereign borrowers vault and into the vaults of the lenders, this idea would be just another government scam, especially insofar as the supposed gold of the anticipated borrowers probably already has been sold, swapped, leased, and hypothecated into oblivion anyway.
* * *
Time for Eurozone to Reach for the Gold Reserves?
By Gillian Tett
Financial Times, London
Thursday, August 30, 2012
Financial Times, London
Thursday, August 30, 2012
Is it time for some eurozone governments to start selling that metaphorical family silver? Or, more specifically look at their all-too-real gold reserves, to find a solution to Europe's crisis?
That is a question which has recently been buzzing around in some policy making and investing circles. For as autumn looms, it is clear that the eurozone remains under profound stress. However, it is also unclear whether the European Central Bank -- let alone the eurozone politicians -- will really be able to do anything soon to ease market fears and lower those borrowing costs.
Thus, as unease builds, the World Gold Council -- or the body that represents the gold industry -- has recently lobbed a new idea into the fray: It thinks it is time for eurozone governments to start using gold in a creative manner, particularly in places such as Italy, to cut those interest rates.
The issue at stake revolves around the estimated 10,000 tonnes of gold reserves that are held by eurozone governments. According to the council, "It is well known that some of the countries most affected by the crisis, including Portugal and Italy, are responsible for a significant proportion of these assets."
Unsurprisingly, this situation has prompted some to suggest that governments should sell some of that gold. The value of gold has soared in the last few years, and if there were ever a time that eurozone countries needed an unexpected windfall -- say, to pay interest on bonds -- it would be now.
But the gold council, for its part, insists this would be a mistake. For quite apart from the fact that a massive dump of gold would dampen the price, eurozone debt woes are now so large that gold sales would only scratch the surface of the problem. Or as the council notes: "The gold holdings of the crisis-hit eurozone countries (Portugal, Spain, Greece, Ireland, and Italy) represent only 3.3 per cent of the combined outstanding debt of their central governments."
Thus it favours an alternative idea: Instead eurozone countries should essentially securitise part of that gold, by issuing government bonds that are backed by gold. This could be done in a simple manner; or it could be structured to include tranches of different risks. Either way, the key point is that gold would be used to provide additional security for bonds -- and thus reassure investors who do not trust eurozone government balance sheets anymore.
"Using only a portion of those gold reserves as collateral could significantly reduce the rate at which each of these [periphery] countries could issue debt," the council argues, pointing out that this scheme has been employed on a few occasions in history before. In the 1970s, for example, Italy and Portugal used their gold reserves as collateral to get loans from the Bundesbank, the Bank for International Settlements, and other creditors. More recently, India raised a loan from Japan, which it backed with gold.
So is there any chance this idea could fly?
Don't hold your breath, or not soon. Personally -- and leaving aside the gold council's self-serving interest in pushing the scheme -- I think that the concept of gold-backed bonds certainly is worth debating. While gold-backed bonds would not be a full-blown solution, it could help in some respects.
But there is little sign that the idea has garnered any serious support from policy makers thus far. Even if eurozone leaders embraced the idea, there would be some big legal obstacles; most notably, much of the gold is held by central banks, not treasuries.
Nevertheless, if nothing else, investors should take note of the debate as an interesting straw in the wind. A decade ago it seemed utterly old-fashioned to ever suggest that any investor -- or institution -- would post gold as a collateral; in the era of cyber finance, securities such as treasury bonds tended to rule. But in recent months groups such as a LCH.Clearnet, Intercontinental Exchange, and the Chicago Mercantile Exchange have increasingly started to accept gold as collateral for margin requirements for derivatives trades. And earlier this summer the Basel Committee on Banking Supervision issued a discussion paper that suggested that gold should be one of six items used as collateral for margin requirements for non-centrally cleared derivatives trades, alongside items such as treasury bonds.
This does not add up to a revolution, let alone the type of step toward gold-backed finance -- or a gold standard -- that gold bugs (and some American Republican Party members) would love to see. But it does suggest that a slow evolution of attitudes is underway – not so much in terms of the desirability of gold per se, but the increasingly undesirability and riskiness of other supposedly "safe" assets, such as government bonds. That pattern is unlikely to change soon, especially as markets wait to see what the ECB might unveil on September 6.
and....
Relying Upon The European Numbers
- Belgium
- European Central Bank
- France
- Greece
- Gross Domestic Product
- International Monetary Fund
- Italy
- Morgan Stanley
- Reality
- World Bank
Via Mark J. Grant, author of Out of the Box,
The Numbers
Our business revolves around the understanding of numbers and decisions based upon them. There is gaff, hype and fluff in great abundance, no doubt, but in the end the numbers generally tell a more accurate story. Most of us have been schooled to perform various analysis on the data presented and to draw conclusions from them but if the figures are inaccurate then, as the computer Geeks say, it is “garbage in and garbage out.”
Recently I have uncovered the fact that Spain, since 2000, has engaged in “dynamic provisioning.” This is well documented in a World Bank Report by Jesus Saurina who was the Director of the Financial Stability Department of the Bank of Spain. His paper is an academic one and makes the argument for the use of this process which is actually an admission that the books of the Spanish banks, and I would guess also the sovereign nation of Spain, have been manipulated on the basis of procyclicality. It is an interesting argument that he makes but my take is that it is little more than an academic justification for providing inaccurate data when it suits the bank or the country.
You may recall the two European bank stress tests. The first one was faulty as the data was manipulated and the second one was faulty because the methodology was manipulated. You may alsoremember that the Spanish banks were stated to be in good health, that Dexia was declared one of the safest banks in Europe and that the banks of Greece passed the tests with flying colors. The passage of time and the oft dreaded face of reality has proven my accusations of the time correct and it is pretty tough to argue with the actual results.
I have examined, in some detail, the actual debt of a number of European countries where only the use of simple addition and then division was employed. All that I did was count what Europe did not wish to count which were the actual liabilities, including the contingent ones, of the various nations. My work was exactly what is applied to any corporation in America which included derivative contracts, guarantees of other entities and so forth. My methodology was simple and applied the standard accounting practices of the United States to the sovereign nations of Europe. Material deviations in these practices in America would result in charges of Fraud while they are the accepted norm in Europe for the sovereign countries.
The resident institutions in the world where one thinks that accurate data may be found for Europe are Eurostat and the Bank for International Settlements. I have gone to the websites often to uncover data or to ferret out liabilities of various sorts. I have always accepted the numbers provided by these two institutions at face value but I am beginning to think this was a mistake. Spain and her official admission of “dynamic provisioning” has raised all kinds of questions in my mind and has unsettled my belief in the data provided by Europe to such an extent that I have been forced to totally re-examine the numbers that these two institutions have provided.
It is now quite apparent that the numbers for all of the Spanish banks, all of them, are inaccurate if American standards are applied. I also wonder aloud if the same is not true for the Italian Banks, the French banks as the experience of audits by the IMF has taught us that the figures for the Greek banks, the Portuguese banks and the Irish banks were not exactly Kosher. I find myself further forced to ponder whether the numbers for Spain, Italy and France also have been left to the imagination as Spain is trying every known strategy to avoid the Troika from coming in and examining the books. It may well be that the EU or the ECB could bury what may be found but it would be awfully tough for the IMF to hide any material breaches. Even when considering the IMF however, certain questions are raised. Their projections for Europe and each and every country in Europe have been wrong, dead wrong and far too optimistic. There is such a strong pattern here than I wonder if it is the methodology employed by the IMF or that the data provided by the European nations has been more fantasy than reality. Either option would provide a reason why the projections have been so incorrect and it may not be just one option or the other; but both.
I fear that the data given to us by Europe is erroneous. I know that in the case of the liabilities for the sovereign nations that it is wrong on the basis of the methodology employed. I know that the debt to GDP ratios are inaccurate because of what is not counted. I further know that contingent liabilities often become real liabilities as proven time and time again, that guarantees of bank debt, as in the case of Bankia in Spain or Dexia in Belgium, can become liabilities of the country if the bank falls by the wayside, that regional debt in many European countries is the responsibility of the sovereign, that nationally guaranteed derivative contracts, as in the case of Italy with $211 billion of such contracts, can get called upon as in the recent payment to Morgan Stanley. On a macro basis for Europe I am now forced to stop and wonder just what I am looking at and then realize that many of the financial calculations made and stamped with official by some country or the Press are exactly as stated by the Geeks; “Garbage in and Garbage out.”
A careful reading of the methodology utilized at Eurostat and the Bank for International Settlements reveals what I suspected; they accept the data from each country in Europe prima facie; nothing is checked or audited. Whatever is presented is accepted as fact. Consequently if a country, any country, has engaged in fairy tale arithmetic to protect their own national interests the financial calculations for any given nation and for Europe as a whole are inaccurate and no reliance can or should be made based upon their figures. We know, for certain, that Spain purposefully engages in fantasy accounting and so we know that we cannot rely upon their figures. This then would explain why Europe is in such trouble because if the data is not truthful then the truth, as most often happens, leaks out from underneath that which is hidden and provides the outcomes that the Europeans have tried so hard to avoid. I have wondered, many have wondered, why the crisis in Europe is so severe and I believe that I have found the answer; we have been staring at numbers that are not real and, whatever the real numbers are, they are providing the consequences that result from their actuality.
Bundesbank's Weidmann Wanted To Resign Last Week, Bild Reports; Is Goldman's "Ambassador" To Germany In Play?
Confirming that the ECB soap opera must go on, German Bild reports overnight that Bundesbank head, and most vocal critic of Goldman's pro-inflationary European policy, conducted by the firm's Italian alum Mario Draghi, last week considered joining other such German luminaires as Axel Weber and Jurgen Stark in following the red Egress signs at the Bundesbank headquarters, ironically located in downtown Frankfurt. From Bild: "In recent weeks, Bundesbank President Jens Weidmann has repeatedly seriously considered his resignation." Citing unnamed sources, which is merely a polite way of denying the other side's just as credible "unnamed sources", Bild says Weidmann discussed the possible resignation with the Bundesbank's board. Bild concludes that Weidmann has decided against resignation for now because he wants to fight against the ECB’s bond-purchasing program at next week’s meeting, and that the German government has urged Weidmann to remain in post. In other words, just as has been expected all along Merkel may say this, or that, but in the end she will adamantly fight Goldman and its inflation spreading tentacles in Europe as long as she has to (with recent German data of accelerating inflation and unemployment merely helping her cause).
And confirming that this report is not merely typical Bild yellow journalism, is the Buba's "no comment" response. From Reuters:
A Bundesbank spokesman declined comment on Friday on a report in German mass circulation Bild newspaper that Bundesbank President Jens Weidmann had considered resigning several times in recent weeks.Bild cited financial sources as saying Weidmann had discussed his possible resignation with other top members of the central bank's leadership.Weidmann opposes plans being promoted by European Central Bank President Mario Draghi to embark on a new programme to buy government bonds of debt-ridden southern European countries to help quell the euro zone debt crisis.However, Weidmann indicated to Der Spiegel magazine this week that he planned to stay at his post."I can do my task best if I stay in office. I want to work to ensure that the euro is just as hard as the mark was," Weidmann told Der Spiegel magazine in an interview released on Sunday.
Commerzbank was quick to chime in with a 100% incorrect interpretation, via Bloomberg:
- Markets would interpret a resignation from Weidmann as a “positive sign for euro periphery and negative for bunds,” says Commerzbank rates strategist Alexander Aldinger in an interview.
- Says Weidmann represents “the strongest voice against bond buying’’
- Would be better for Weidmann to stay at the Bundesbank and actively represent Germany’s stance within the ECB
- Sees lack of change in stance from Bundesbank in the event of Weidmann resigning
Actually no. If the third time is indeed the charm for Buba execs who have given up hope on Europe, and let's not forget that in Europe everyone else's asset is now a German contingent liability via the Bundesbank, this would be the first step to the realization that it is not Greece, or Spain, or even Italy that has the right of first refusal to the euro with threats of departure, but Germany, and that an exit from the theater is now being actively planned. Because we are sorry to disappoint Commerzbank: if everyone at the German central bank says "9", it is game over... unless of course the US' long-term ambassador to Germany, Philip Murphy, who as it so happens worked at Goldman for 23 years prior to his current post, is now in play (using the diplomatic parlance of our times) and already has the wheels in motion to replace Weidmann with another Goldman puppet (as a reminder, the United States diplomatic cables published by Wiki Leaks contained negative statements signed by the ambassador about senior German politicians, including Chancellor Angela Merkel and Guido Westerwelle, the German foreign minister). Which certainly would not surprise us: how could one possibly not trust this face?
All that aside, in the immediate future, all of the above means that while the market is slowly accepting the reality that Bernanke will almost certainly disappoint in just over 6 hours when he delivers his J-Hole statement, it will soon have to turn its attention to the ECB, where Draghi's credibility, already shaken to the core, is about to be destroyed all over again, and that, just as Zero Hedge said, the market's initial reaction to the last ECB press conference, in which Draghi disappointed everyone, sending risk plunging, was indeed the right one.
and Spain still playing games.....
http://www.bloomberg.com/news/2012-08-30/spain-said-to-speed-eu-bank-bailout-on-collateral-limits.html
Spain is considering pumping its own money into Bankia group to re-capitalize the country’s biggest nationalized lender rather than use the emergency portion of a 100 billion-euro ($125 billion) bailout from the European Union, two people with direct knowledge of the matter said.
Bankia SA , the listed unit of the Madrid-based group, fell 63 percent this year to 1.34 euros, valuing the lender at 2.68 billion euros, data compiled by Bloomberg show. Photographer: Angel Navarrete/Bloomberg
This would allow Spain to put off forcing Bankia group’s junior debt holders to bear part of the rescue cost, said the people, who asked not to be identified because the negotiations are private. European officials backed burden sharing in the talks because it would limit the need for public money, the people said.
“The EU is telling the Spanish government that if they don’t produce this haircut, the money will have to put up by” Spain, said Alejandro Ruyra, an analyst at Kepler Capital Markets in Madrid, speaking on Bloomberg TV’s The Pulse. “The question is, does the Spanish government have that much money?”
The EU agreed to set aside 30 billion euros of contingency cash as part of the July 24 rescue of Spain’s lenders as they hemorrhage deposits, though the government said it hasn’t yet officially requested the funds. Prime Minister Mariano Rajoy meanwhile said a decision on Spain’s sovereign rescue is being delayed until it’s clear what aid the country will receive under European Central Bank plans to help debt-ridden nations.
An alternative to Spain using its own money to bolster Bankia group is to wait for the first scheduled payments under the financial-sector bailout due in November, borrowing more from the ECB in the meantime, according to the people. Spain’s cash would only cover some of the 19 billion euros of capital the lender needs, so European money will still have to be used, one of the people said.
No Request
An official at Spain’s Economy Ministry in Madrid denied any delay to the banking-sector bailout as a result of talks with the European Commission, the EU’s executive arm. The initial payment hasn’t been requested because it wasn’t considered necessary, said the official, who asked not to be named in line with government policy.
An official at the commission in Brussels, and Madrid-based officials at Bankia and the Bank of Spain, declined to comment.
Bankia SA (BKIA), the listed unit of the Madrid-based group, jumped 4 euro cents, or 2.9 percent, to 1.38 euros as of 12:10 p.m. in Madrid. That pared its decline this year to 63 percent and valued the lender at 2.75 billion euros, according to data compiled by Bloomberg.
Burden Sharing
So-called burden-sharing for holders of Bankia group junior debt is controversial because a large portion of the notes, known as preferred shares, are owned by retail customers. The securities will still have to take losses at some stage because it’s required by the terms of Spain’s agreement with the EU.
Bankia group, which is reporting results after today’s market close, was formed in 2010 from the merger of Spain’s troubled savings banks. It has more than 3 billion euros of preferred shares, mostly issued by Caja Madrid in 2009, which last traded on Aug. 24 at 36.45 percent of face value, according to the Bolsas y Mercados Espanoles SA stock exchange.
Concern over the fourth largest euro-region economy’s ability to fund the rescue of its banks and regional governments sent Spain’s 10-year bond yield surging to a record 7.751 percent on July 25. The rate increased nine basis points today to 6.69 percent.
http://www.guardian.co.uk/business/2012/aug/31/eurozone-crisis-live-jackson-hole
De Guindos says the bad bank will be in place for 10 to 15 years, and he will seek private investors to take stakes in the bank. Preference shares in rescued banks can be exchanged for shares and convertible bonds. Those who have debt instruments in the bailed-out banks can exchange for no more than the market price plus 10%. He says the banking reform aims at making shareholders and bondholders - rather than taxpayers - pay for the banks' rescue.
Our Spain correspondent Giles Tremlett in Madrid says:
Deputy prime minister Soraya Sáenz de Santamaría and finance minister Luis de Guindos are explaining the new finance law approved today by the Spanish cabinet. Sáenz de Santamaría says that it will mean Spain complies with its European obligations - presumably meaning the conditions laid out in the memorandum of understanding for Spain's bank bailout of up to €100bn. She also says it will not cost taxpayers anything at all. That will be Spanish taxpayers, then.De Guindos confirms that the new law sets up a so-called "bad bank", though he says he does not like the term - as it will be a company that absorbs real estate assets, rather than a bank.
Headlines flashing on Reuters: the Spanish government has approved a decree for banking reform, according the country's deputy prime minister María Soraya Sáenz de Santamaría. She says the new rules should complete the clean-up of banks and get credit flowing again. The government will set up a bad bank to hive off banks' toxic property assets.She also says that investors will be protected from hybrid instruments such as preference shares in future. Several hundred thousand Spaniards bought preference shares in crisis-hit banks and some could lose up to 80% of their investments.Bond purchases now, rate cut later?
Bond purchases now, rate cut later? asks Philip Shaw, chief economist at Investec. The ECB governing council meets next Thursday, with two major aspects to the meeting. First, there is the governing council’s decision on rates. Second, it is expected to release many of the details of its forthcoming bond buying plan to reduce strains in dysfunctional sovereign markets.Clearly the bond scheme is by far the more urgent of the two and something which the ECB cannot afford to mess up.The broad framework is already known. Comments during ECB president Mario Draghi’s August press conference, plus subsequent remarks from various other ECB officials, have shed some light on a broad framework for the programme.Shaw says this seems to be essentially: i) the ECB will buy sovereign bonds, but only at the request of a country and if certain conditions are agreed to; ii) that the ECB will operate in the secondary market and will only take part providing that the EFSF/ESM buys bonds in the primary market (i.e. at auction); iii) that it will buy short-term bonds, in contrast with the scheme’s forerunner, the SMP, which purchased paper with a maturity of up to 10 years; iv) that there will be full transparency with respect to which countries participate and the amounts which the ECB buys.
But there are a number of questions to be answered, Shaw says.
• First, will the ECB announce a yield target beyond which it will intervene, as was rumoured? We doubt it. Officials will surely consider levels beyond which they will intervene. However publicising these would potentially expose the ECB to intervening in unlimited quantities. Also, the central bank would have to make an open judgement over the justified level of yields for each country taking part. This would need to vary across countries on factors such as credit risks etc., possibly unleashing a political furore.• Second, what will the conditionality be? This we do not know, but we very much doubt that it will be as stringent as that for a full sovereign bailout programme. Indeed if this were the case there would be little incentive for any country to sign up. Rather we suspect that they will be related to each participant’s adherence to existing Excessive Deficit Procedures.• Third, will there be a challenge on unconstitutionality? We doubt that the ECB will be challenged, despite objections by the Bundesbank and the stories that BUBA President Jens Weidmann mulled his resignation. Draghi has insisted that the plan will be consistent with the ECB’s mandate, partly on the grounds that intervention at the short end of the curve is related to the monetary transmission mechanism.• Fourth, exactly how will it team up with the EFSF/ESM (assuming that the German Constitutional Court gives the ESM the green light on 12 September)? Our guess is that the ECB will intervene on the curve up to two, perhaps three years. Arguably this would be less effective in lowering countries’ borrowing costs than buying longer dated paper. However it would help to prevent curve inversions, which in the present circumstances are considered to be a key warning light that a bond market is in serious trouble. Moreover it is possible that the EFSF and ESM act further along the curve in primary purchases (i.e. at auctions).
• Fifth, will the ECB insist on seniority over private creditors? Nothing has been said explicitly, but we do expect this to be the case. However the other side of the coin is that insisting on seniority risks diluting any positive effects from intervention.
ECB bond purchases must be subject to "strict conditionality," Benoît Cœuré, a member of the central bank's executive board, said today.
We are working on the possibility of intervening in the bond market, in the short-term bond market, subject to a strict conditionality. From my point of view, this means a request for support from the EFSF and the ESM [bailout funds] on the primary debt market.
His comments came after Germany's executive board member, Jörg Asmussen, said last night the ECB should only buy sovereign bonds if the International Monetary Fund is involved in drawing up an economic reform programme as a condition for intervention.
The European Commission plans to create an agency to wind down problem lenders, the EU's top regulatory official told Reuters today.
The issue is central to the blueprint of a European banking union. Decisions on whether to close down laggard banks are usually left to national governments, which also have to shoulder the cost. The creation of a central agency might change that.
Michel Barnier, the European Commissioner in charge of financial regulation, said:
I intend to propose further steps later on building on the common supervision. It is clear to me that we need to create a European resolution authority separate from the supervisor, as part of my commitment to make sure that banks themselves and not taxpayers pay for failing banks.
The blueprint for a banking union is due to be finalised by the EU's executive and announced in mid-September. The plan envisages handing powers of supervision to the ECB, which would potentially unlock direct aid to banks from the eurozone's permanent rescue scheme, the European Stability Mechanism.
Barnier added:
It is crucial that we raise responsibility for banking supervision in the euro area to the ECB. And it is essential that the ECB gets supervisory powers for all matters related to financial stability for all banks in the euro area.
Higher eurozone inflation - the annual rate picked up to 2.6% this month from 2.4% in July - reduces the chances of an interest rate cut at the ECB's meeting next Thursday.
François Cabau, European economist at Barclays Capital, said rising energy prices were the culprit, adding:
This is the first time the euro area inflation rate has accelerated since September last year, and we think that it should rise further in September.
The ECB targets inflation below but close to 2%, and has been expecting the rate to fall below 2% by the end of the year.
Economists in a Reuters poll earlier this week were evenly divided over whether there would be a rate cut next week. An October cut was seen as equally likely.
ING economist Peter Vanden Houte has crunched the eurozone jobless and inflation figures:
The unemployment rate in the eurozone stabilised at 11.3% in July. A year ago the unemployment rate still stood at 10.1%. Youth unemployment rose to 22.6%, coming from 20.7% in July 2011.
The divergence between the core and the periphery remains striking, with the unemployment rate in Germany, the Netherlands and Finland turning around 5%, while in peripheral countries like Greece, Portugal and Spain , it ranges between 15.7% (Portugal) and 25.1% (Spain). For the stability of the eurozone, this is an unsustainable development.In a separate report the flash estimate of the HICP inflation came out at 2.6% in August (above the 2.5% consensus estimate), compared to 2.4% in July. The increase is probably due to the rise in oil prices and to a lesser extent higher food prices over the summer months. Underlying, there are still little inflationary tensions to be found. With the negative output gap only widening, deflationary forces should remain in place. That said, at the current level of crude oil prices, it might last until the second half of 2013 before headline inflation falls below 2%. As inflationary expectations remain well anchored, the current inflation report shouldn’t be an impediment for more decisive action from the ECB. For next week we expect the ECB to sketch the broad lines of a plan to support the short end of the yield curve, to facilitate the monetary transmission mechanism. While a rate cut looks less likely now, the unfolding recession will still warrant one, probably towards the end of this year.
Japanese government warns it could run out of money
Meanwhile in Japan, the government has laid out plans to suspend some state spending as it could run out of cash by October, after a deficit financing bill was blocked by opposition parties which are trying to force prime minister Yoshihiko Noda into an early election.
In a last-minute appeal to opposition parties to pass the bill, finance minister Jun Azumi said at a press conference:
and.......The government running out of money is not a story made up. It's a real threat. Failing to pass the bill will give markets the impression that Japan's fiscal management rests on shaky ground.
More on those German retail sales numbers, which showed a surprise drop in July, falling by 0.9% month on month versus expectations of a small gain. But economists weren't overly concerned.Christian Schulz at Berenberg Bank said:Fuel prices are reaching record levels and this is the kind of inflation that people really feel, which in the very short term leads households to save money on other expenditure.It doesn't mean that household consumption overall goes down but that retail sales suffer so I think the key driver behind this decline is fuel price inflation.Data earlier this week showed annual inflation picked up to 2% in August due to higher energy prices.
A new term has entered the eurozone debt crisis lexicon: Weixit - prompted by reports that Bundesbank chief Jens Weidmann had been close to resigning.
The German tabloid Bild reported that Weidmann repeatedly considered stepping down in the last few weeks, and discussed this with the Bundesbank. He vehemently opposes plans by ECB chief Mario Draghi to buy up bonds of troubled eurozone members. However, the Bundesbank president decided to stay on and fight this plan at the ECB governing council's meeting next Thursday. Apparently the German government has urged him to stay.
Katie Martin, currencies & bonds editor at Dow Jones, tweeted:
http://www.athensnews.gr/portal/1/57923
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1. AUSTERITY The package of 11.7bn in spending cuts – to include drastic cuts to salaries in public utilities, cutbacks in subsidies, ending holiday payments for pensioners and increases in public transport fares – will be presented to cabinet on Fridayfor approval at noon before receiving the final sign-off on Monday by the leaders of the three government parties.
2. TROIKA RETURNS Troika inspectors will return to Athens next week to complete the first review of the country’s economic programme and to discuss with the government on the country’s next steps, IMF spokesman Gerry Rice told reporters on Thursday. Rice said he was not in a position to determine the time of the troika’s stay, adding that this would depend on the discussions and progress made. He noted he was unaware of when the troika’s report would be published. He reiterated that the IMF will continue to support Greece, adding that the Greek government was working towards presenting fair and balanced measures. The mission, he continued, would focus on reducing Greece's deficit and structural measures to boost employment, and ensure lasting and higher growth. IMF chief Christine Lagarde spoke to Prime Minister Antonis Samaras by telephone on Wednesday to discuss the situation in Greece and in the eurozone, Rice said, although he declined to elaborate on the conversation.
3. FRENCH BACKING European leaders should show support for Greece at an October 19 EU summit if the government shows commitment to move ahead with economic reforms, French President Francois Hollande said on Thursday. "If the Greeks demonstrate this, we should, at the European summit in October, allow the application of the programme to go ahead so there is no doubt about the future," Hollande said after talks with Spanish Prime Minister Mariano Rajoy in Madrid.
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4. EURO A complete collapse of the euro would shave up to 10 percent off the German economy and even just the departure of Greece from the currency club bears substantial risks to business, according to German government economic advisor Lars Feld. He said recent estimates suggested Germany's gross claims from the eurozone are about 3.5tr euros. A Greek exit could also not be achieved without substantial costs, Feld said and added that the risk of contagion via the banking system had been reduced, but there was still a strong risk that Greece's exit could prompt investors to expect other countries to follow suit.
5. DRUGS A 40-year-old man collapsed and died in the village of Korakiana, on Corfu, soon after he was informed that police were about to search his house for drugs, it was announced on Thursday. The man was rushed to a hospital where he was declared dead from pathological causes. A postmortem has been ordered. Five cannabis plants and a small quantity of the drug were found in the house of the deceased. Meanwhile, a police search of an adjacent house turned up revealed 1.9kg of cannabis and roughly 10,000 euros in cash. In a farm close to the house, police found and uprooted a total of 20 cannabis plants. The 55-year-old was led before an examining magistrate.
6. PRESIDENT GAP Former prime minister George Papandreou was reelected president of the Socialist International (SI) at the organisation’s 24th congress in Cape Town, South Africa. The onetime Pasok leader was the only candidate in the running for the post. Addressing the congress, Papandreou said there was a lack of political will for "progressive reforms" at the European and on international level. Papandreou claimed he encountered “ideological dogmatism, incorrect assumptions and special interests represented by conservative powers” in his efforts, noting that “an oligarchy of bankers is now more powerful than elected governments, prime ministers and even nation-states.”
7. WILDFIRES Two residences were destroyed and several more were in danger at Neos Voutzas, in eastern Attica, in a wildfire that broke out on Thursday afternoon. Plumes of smoke covered a wide area and with surrounding districts also evacuated.
8. UNI ENQUIRY Education Minister Kostas Arvanitopoulos on Thursday held a two-hour meeting with the rector of the Aristotle University of Thessaloniki, Yiannis Mylopoulos, who was called on to answer recent press reports alleging extravagant spending and mismanagement of university funds. Mylopoulos rejected the reports as unfounded,s claiming the figures mentioned were “untrue, inaccurate and distort reality”. According to the Eleftheros Typos daily, the university administration spent 1.3m euros in 2011 to renovate the university camp site in Halkidiki; 235,000 euros to reconstruct the university shop and no less than 30,000 euros to renovate a lavatory in the university administration building. A preliminary investigation into the allegations has been ordered by the Thessaloniki first instance court.
9. BLUE MOON a total of 120 archaeological sites and museums will be open free of charge on Friday evening under the light of the full moon, the month’s second one. Eighty-five sites will feature music and theatre performances, guided tours and film screenings on the same night. However, the major archaeological site of the Acropolis will remain closed to the public so as to avert possible injuries due to overcrowding and poor visibility. The New Acropolis Museum will host an evening of moon-inspired romantic melodies performed from 9.30pm onwards in the museum’s courtyard by the Volos Musical School.
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