Around the horn in Europe - September 7 , 2012..... news items from Greece and reaction to Draghi bazooka

http://www.telegraph.co.uk/finance/financialcrisis/9528839/Nationalist-backlash-in-Italy-and-Spain-to-test-Mario-Draghi-bond-plan.html

By Ambrose Evans-Pritchard, in Cernobbio, Italy

4:46PM BST 07 Sep 2012

259 Comments

"The ECB move is helpful but is not a game-changer. The eurozone is still in crisis," said Nouriel Roubini, head of Roubini Global Economics.

"Unless Europe stops the recession and offers people in the peripheral countries some light at the end of the tunnel - not in five years but within 12 months - the political backlash will be overwhleming, with strikes, riots and weak governments collapsing."

Professor Roubini said the German Bundesbank and will insist that "severe" conditions are imposed on Spain once the country requests a rescue from the eurozone EFSF/ESM bail-out funds and signs a memorandum ceding budgetary sovereignty.

"Plenty of accidents can still occur. There is austerity fatigue in the periphery and bail-out fatigue in the core. Eveybody is restless," he said at the Ambrosetti forum at Lake Como.

It is unclear whether Madrid will accept conditions harsh enough to satisfy hardliners in the German parliament, which must sign off on any new rescue programme.

Spain's deputy premier Soraya Saenz de Santamaria said Madrid would not be rushed. "These decisions can't be taken overnight."

In Madrid, Spain's CEOE business federation called on the Spanish government to swallow its pride and request a rescue as soon as possible, saying the country is effectively in a state of "suspension of payments".

Former Spanish premier Jose Maria Aznar said the EMU crisis had poisoned relations between North and South. "We have a situation where one country has become the hegemon, and that is Germany. This is the first time we have seen anything like this since the Second World War," he said in Cernobbio.

The bitter clash was all too evident in press headlines on Friday. Germany's Die Welt ran with "Markets Cheer Death of the Bundesbank", playing on deep-seated German fears over the loss of monetary control.

Italy's Il Giornale - owned by the family of ex-premier Silvio Berlusconi - splashed with "ECB slaps Bundesbank in the face". Its lead story highlighted the risks for Italy if it accepts the Faustian Pact of an ECB bond rescue. "States have to renounce sovereignty and hand over the keys to the house to European bankers, who will obviously impose heavier sacrifices," it said.

Mr Roubini said the eurozone is already disintegrating, with de facto capital controls as German regulators prevent Italy's banks bringing money home from German subsidiaries.

It is still unclear what the exact terms of any deal for Club Med states might be. With youth unemployment surging to 54pc in Spain and 35pc in Italy, austerity is already threatening democratic cohesion.

For now markets have accepted that the ECB bond plan unveiled by Mario Draghi on Thursday, has greatly reduced the "tail-risk" of sovereign defaults. Yields on Spanish 10-year bonds have fallen 150 basis points this week, dropping to 5.74pc on Friday.

Mr Aznar, the leading intellectual force of Spain's ruling Partido Popular, said large parts of the middle class are "disappearing" in the crisis countries while the social welfare pillar of post-War Europe is crumbling before our eyes.

The Spanish statesman said the push for fiscal and political union to hold the euro together is deeply misguided. "It is a very serious mistake to try to destroy the nation states. You cannot go against the cultural beliefs of the people and the forces of history," he said.

"A United States of Europe is an impossible idea"

http://www.zerohedge.com/news/when-unlimited-has-limits

When Unlimited Has Limits

Submitted by Tyler Durden on 09/07/2012 08:17 -0400

• European Central Bank
 
• European Union
 
• Germany
 
• Greece
 
• Italy
 
• Portugal
• Reality
 
• Recession
 
• Sovereign Debt

From Mark Grant, author of Out Of The Box

When Unlimited Has Limits

Euphoria

Everytime we get the next round of the “Great Cure” for Europe we get the same reaction which is a massive rally based upon the next new drug offered up by the Continent. Reality is reality and there is no denying the initial surge and hope springs eternal from the human breast and the jawboning done by Mr. Draghi has been quite effective and I acknowledge his performance. I also nod to the Southern countries in Europe that have ostensibly won this round and overcome and outvoted their neighbors that will have to fund if it gets to that. I continue to point out that under Mr. Draghi’s plan nothing will be done unless the Stabilization Funds are utilized which means that the ECB will do nothing unless the European Union agrees to it first so that the EU has a veto over any ECB action in effect but no one is paying any attention to that fact at present.

The ECB has shifted any move on their part to an approval process at the EU which will take months to be agreed upon while the ECB has tied their own hands and subjugated themselves to the EU as part of their stratagem but the markets obviously consider this to be a trivial fact. Perhaps this is why Germany has responded in such a benign manner; they know with certainty now that the ECB will do nothing unless the European Union agrees in advance and Germany can veto the entire process if it gets down to it and Germany actually now has more control over the ECB than they did in the past so that the Germans may secretly be quite pleased with the outcome. It is all games within games, a charade for the exhilarated crowd but that is Europe these days.

Nothing that has occurred has changed the financial positions of Greece, Portugal, Spain and Italy one whit but that is also not the focus of the moment. However I think it will be the focus again soon as the recession in Europe deepens and broadens and Spain and Italy both show up begging cups in hand. Then there is the German Constitutional court decision on September 12 and the decision whether to hand Greece another $50 billion or so or not. At some point the markets will figure out that the ECB just bound themselves in steel wire and that they can now do nothing without the reluctant agreement of the entire European Union where vetoes are possible and where Germany has a much greater sway but it often takes the markets awhile to figure things out and so be it. I have been here before a number of times during the European crisis and I always smile politely, nod my head and wait until the dawning of reality commences.

The Loss of Independence

In very real terms the ECB is now no longer an independent institution. The ECB has promised not to act unless the EU assents. The ECB is now totally subject to the whims of the politicians in Europe and whether the markets ignore this for the moment or not that is the truth of it. In promising redemption the ECB has also traded away its ability to act on its own and it will be interesting to see how this plays out.

The ECB Window

Maturities of 1-3 years for sovereign debt will now be viewed differently no doubt and a lot of money will be invested in the upfront years. They will be viewed as “protected maturities” with not only the backing of the sovereign nation but of the ECB as part of the credit considerations. Funding will also shift to these maturities to get a better rate but this will also cause a massive amount of roll-over in short maturities and failed auctions may occur because of the size of the short funding and the ostensibly lower interest rates that will append to these short maturities for a time. The Firewall concept obviously failed and here is the new, new plan and “unlimited” and “no cap” is only applicable if the EU agrees; otherwise it is a promise that may never be carried out or utilized but tell no one; it might upset them.

“Things are not always what they seem; the first appearance deceives many; the intelligence of a few perceives what has been carefully hidden.”

and...





http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_3753_06/09/2012_460090

Gov’t on edge ahead of troika's return

 Coalition partners at odds as PM prepares to receive Van Rompuy, inspectors
As Prime Minister Antonis Samaras braces for the arrival in Athens on Friday of European Council President Herman Van Rompuy and officials representing Greece’s foreign creditors, who are to inspect a proposed blueprint for 11.5 billion euros in new austerity measures, it was clear on Thursday that he must also win round his own coalition.
Tensions were growing between the camps of Samaras and socialist PASOK leader Evangelos Venizelos despite reports that officials in the premier’s office had proposed a meeting with coalition leaders on Sunday afternoon when Finance Minister Yannis Stournaras is due to meet with visiting envoys of the European Commission, European Central Bank and International Monetary Fund, the so-called troika.
Both Venizelos and Fotis Kouvelis of the Democratic Left are reportedly insisting on meeting with Samaras to sign off on the austerity package for 2013 and 2014 before government officials present the blueprint to foreign envoys.
Samaras is to meet with Van Rompuy at 4 p.m. on Friday -- though the details of the package are not on the agenda of talks -- while his meeting with the troika is not due until Monday.
Coalition officials are still trying to iron out differences regarding the content of the package. Venizelos and Kouvelis object to some of the more onerous measures, with the latter reportedly proposing additional cuts to defense and health spending so that pension cuts can be softened.
Meanwhile Venizelos appeared to take issue on Friday with Samaras’s behavior, suggesting that the premier was acting without his coalition partners’ endorsement. “This is not a one-party government,” Venizelos said during an interview on Real radio station, adding that PASOK’s role within the government was “encouraging, supporting and monitoring.”

The parties in the coalition are seeing their support plummet amid increasing austerity, according to two new opinion polls that also show the far-right Golden Dawn gaining ground. According to a survey by VPRC poll for the Ellada Avrio newspaper, the main left-wing opposition SYRIZA is polling at 30 percent, compared with 28 percent for conservative New Democracy, which leads the coalition, while Golden Dawn is polling at 12 percent. Another survey for the left-wing To Pontiki weekly by the Pulse polling firm put ND and SYRIZA at 25 and 24 percent respectively, with Golden Dawn at 10.5 percent. and..... http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_06/09/2012_460104 One in three shops have shut in Thessaloniki With just a few hours left before the opening of this year's Thessaloniki International Fair, the decline of the city’s commercial center is more than apparent as three in 10 enterprises have shut down. Popular streets such as Aghias Sofias (photo) have seen a succession of closures, at a rate, on this particular stretch, of 34.2 percent, according to data released on Thursday by the National Confederation of Greek Commerce (ESEE). Even on the city’s most popular shopping strip, Tsimiski Street, the closure rate has increased by 33 percent in the last six months, to 20.4 percent. Commercial property owners have resorted to reducing lease rates dramatically or to splitting their properties in two or even three so as to secure tenants. and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_06/09/2012_460087 Patience runs low in health row As government officials sought to avert an escalation of the crisis in the healthcare sector, a group of pensioners in Thessaloniki gathered outside the local branch of the National Organization for Healthcare Provision (EOPYY) and cooked a pot of gruel over a gas fire, reviving a common scene from Nazi-occupied Greece. “We made this occupation-era dish as a symbol, as a protest,” the head of the union representing pensioners of the IKA Social Security Foundation said. “It is the fifth time our pensions are being slashed. They are cutting medicines and doctors. We can’t take anymore,” he said in reference to a new round of austerity measures expected to be imposed by the government. Meanwhile in Athens, Alternate Health Minister Marios Salmas expressed his exasperation with the country’s pharmacists, who have been refusing to fulfill EOPPY prescriptions since the weekend in protest at unpaid arrears, as the ministry grapples to find the funding necessary to settle the bulk of its current debt. Salmas said that pharmacists would be paid the arrears for the month of May at once, and that the ministry will present them with a payment plan for the rest of the amount due either Friday or Saturday. “This is an honest and honorable stance, in view of the trials the country is undergoing,” Salmas said. The head of the EOPYY, Gerasimos Voudouris, also called on pharmacists to dial down their protest, provoking a reaction from the Athens Pharmacists’ Union, which accused the government of using the payment of debts due for the month of May to eclipse the bigger issue of some 350 million euros that EOPPY is owed from other healthcare providers that were put under its umbrella in the merger of social security funds. Pharmacists are not alone in turning up the pressure on the government to find a solution for the cash-strapped healthcare sector, as hospital doctors Thursday announced a 24-hour strike for September 12 after holding a half-day work stoppage this week, specialist and resident doctors said they will launch go-slow action as of September 17, and hospital suppliers said that as of September 11, they will stop extending credit. and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_06/09/2012_460086 Judges plan to strike over pay cuts  Vasiliki Thanou - Christofilou, president of the Union of Greek judges and advocates speaks during a protest against budget cuts at the Greek Supreme court in Athens on Wednesday. Judges and prosecutors are to meet Friday and Saturday to plan strike action after a meeting between unionists representing them and Finance Minister Yannis Stournaras ended in deadlock, with the latter insisting that plans for additional cuts of up to 25 percent to their salaries would go ahead as part of a broader austerity package. Judges did not determine Thursday what form their action would take but the president of the Athens Association of Magistrates and Prosecutors, Roussos Papadakis, gave an indication of the mood in comments to reporters after the talks with Stournaras. “There were no points of convergence,” he said, adding that all 71 magistrates and prosecutors registered in Athens agreed to stop taking case work home, the only way most sector professionals manage to stay on top of their workload. Papadakis said that similar action would be taken elsewhere in Greece. Sources suggested that the sector professionals might stage a five-day strike which would paralyze courts. Unionists are to have talks Friday with Fotis Kouvelis, the head of the third party in the coalition, Democratic Left, and will reportedly try to secure a meeting with Prime Minister Antonis Samaras. Representatives of other sectors receiving the so-called “special salaries” that are coming under the knife in a new austerity package are also planning protest action. Thursday teachers at kindergartens and state middle schools said they would join their elementary school colleagues in a 24-hour strike called for September 12, the day after schools open. Also, police, fire service and coast guard officers held a protest rally at the Panathenaic Stadium in central Athens Thursday. and..... http://www.telegraph.co.uk/finance/comment/9526147/Mario-Draghi-promised-a-bazooka-but-produces-a-pea-shooter.html By Jeremy Warner 8:05PM BST 06 Sep 2012 60 Comments If, like me, you have come to see the single currency as unsustainable in its present form, both politically and economically, then plainly not. But, as with previous ECB initiatives, Mr Draghi has at least managed to buy a bit more time. The endgame has been pushed further, possibly quite a lot further, into the future. Markets responded accordingly. Without the conditional bond-buying programme agreed by the ECB governing council today, the show would certainly have been over by Christmas, with either Spain or Italy blowing it up in frustration. We can forget poor little Greece, which in its pride still manfully soldiers on with a project which condemns the country to permanent depression. Whether it leaves or stays no longer makes much difference to anyone else. Most of the preparation for its exit has already been done. But both Italy and Spain are core to the continued existence of meaningful monetary union in Europe, so they had to be placated in some way or other. The bond buying, Mr Draghi hopes, will help restore borrowing costs in the eurozone periphery to more sustainable levels. The one dissenting voice to what we must learn to call “outright monetary transactions” (OMT) was Jens Weidmann, president of the German Bundesbank. He’s already been very public in his opposition to bond buying, which he views as money printing to finance government spending, plain and simple. Not for nothing is the OMT programme being dubbed “on my tab”, for no-one in Germany is in any doubt about who will be bankrolling all this. Even so, Mr Weidmann’s opposition, principled though it may be, is something of a charade. To assuage public opinion at home, German policymakers must be seen to defend to the last the principles of sound money, even if they don’t in practice. Despite being over-ruled, Mr Weidmann will not be resigning in protest, still less will Germany be leaving the euro in disgust. Of that we can be sure. In agreeing the bond buying, the ECB has taken another small step towards becoming a proper central bank. We cannot yet call this fully fledged “quantitative easing”, of the type being practiced in the US, Britain and Japan, but it’s quite close. It also formally acknowledges for the first time that, despite the existence of the single currency, monetary conditions in the eurozone have been fragmenting along national lines in a highly destructive way, with tight money in the periphery and comparatively loose money in Germany and the rest of the core. Pre-euro spreads, not just for government debt but for household and business debt too, have been re-establishing themselves, a situation which is perfectly fine in a system of free floating exchange rates, where the consequences for competitiveness can be arbitraged away by devaluation, but is plainly intolerable within a single currency area. What’s the point of having monetary union if monetary conditions are widely divergent within it? Flight of capital from the periphery to the core is already estimated to have saved the German government nearly €70bn (£55.5bn) in financing costs, even as the periphery sinks under the weight of cripplingly high market interest rates. If the reason for such differences was divergent credit risk, then fair enough, but actually this is not the underlying problem. What it’s about is “convertibility risk”. Because investors believe there is some possibility of periphery countries leaving the euro, they demand a premium. This, in turn, further weakens the periphery’s fiscal position and raises the cost of private sector credit, thereby undermining the chances of economic recovery. The process then becomes self-fulfilling. Denied growth by scarce money, the periphery would eventually have no option but to leave. Mr Draghi’s OMT programme is intended to short circuit this dynamic. And for a while, it might actually work. To defuse Northern objections, Mr Draghi has made the bond purchases conditional on fiscal consolidation and structural reform for participating countries. He’s also said he will “sterilise” the new money. This certainly counters some of the positive impact of any bond buying but it doesn’t entirely negate it. To activate the bond buying, Spain and Italy will formally have to request a bail-out and agree the necessary conditions, including monitoring by the International Monetary Fund. But they don’t have to subject themselves to the humiliation of following Greece, Ireland and Portugal on to the programme. It would have stretched the bail-out funds to breaking point just to finance one of these economies, let alone two of them. As for the conditionality, even in Britain, QE is partly conditional on the Government meeting its fiscal consolidation targets. That was the deal struck with the Bank of England when the Coalition came to power. As for the conditionality, even in Britain, QE is partly conditional on the Government meeting its fiscal consolidation targets. That was the deal struck with the Bank of England when the Coalition came to power. It will be interesting to see whether the Bank cuts up rough if, as seems likely, the Coalition is judged this autumn to be reneging on the targets by the Office for Budget Responsibility. Probably not, as the Bank has already been perfectly prepared to sacrifice the inflation target in pursuit of the supposed greater good of supporting demand. Be that as it may, it doesn’t seem so outrageous that Mr Draghi should demand a more formal version of the same thing. The “sterilisation” is likewise no more than a bit of window dressing to make the whole thing more palatable to the Bundesbank. Sterilisation through the auction of one-week deposits is neither here nor there. The whole thing might as well be un-sterilised. As Simon Ward, chief economist at Henderson Global Investors, points out, bond buying as proposed is not the full monty. Fully fledged QE would see the ECB buying up government debt throughout the eurozone in proportion to each country’s share of GDP. The consequent boost to domestic demand in Germany, though possibly inappropriate for an economy which is still growing relatively strongly thanks to buoyant exports, would be just what the doctor ordered as far as the depressed periphery is concerned. But then that’s part of the problem, isn’t it? Monetary union is never going to work as a collection of fiscally and politically independent states. Draghi has bought time but he is still a million miles away from lasting resolution. Only the politicians can provide that and, so far, they’ve shown very little inclination to do so. and..... http://www.telegraph.co.uk/finance/debt-crisis-live/9527215/Debt-crisis-live.html 12.50 It's not just the German media which is criticising the ECB for writing what they regard as a "blank cheque" to indebted eurozone nations. A eurosceptic minority of Angela Merkel's own party has also criticised the plans, with several MPs vowing to take legal action to block the plans, according to Reuters. Klaus-Peter Willsch, a leading eurosceptic member of Mrs Merkel's Christian Democrats, told German radio: We should consider making legal checks on whether the ECB has hugely overstepped its mandate. I am convinced that this is the case. As the largest credit nation in the whole game Germany should have a right of veto (in the ECB). Frank Schaeffler, from Mrs Merkel's junior coalition partner the Free Democrats, said Germany should file a lawsuit with the European Court of Justice, saying the ECB was in danger of turning into a "bad bank for all the junk debt of Europe". 12.40 Portugal's economy has shrunk for a seventh quarter. During the second quarter, the country's gross domestic output declined 1.2pc from the first three months of the year, when it fell 0.1pc, according to the National Statistics Institute. 12.23 With Germany's constitutional court set to rule on the eurozone's new bailout fund and budget rules next week, Reuters has carried out a poll of legal experts to find out what they think the verdict will be. The poll was unanimous. All 20 of those public and constitutional law professors surveyed predicted that the ruling would throw out the the temporary injunction request against the European Stability Mechanism (ESM) and the fiscal compact for budget discipline in Europe. They did, however, expect the court to quality its approval of the measures, with 12 of the professors saying it will set strong conditions, in part to limit German exposure to bailouts and strengthen parliamentary oversight, Reuters reported. 11.48 Francois Hollande has promised the most drastic budget cuts in 30 years as the French government gears up to present its 2013 budget on 26 September. The president said the French government will stick with its commitment to slim the fiscal deficit to 3pc of economic output next year. Last year, the deficit hit 5.2pc. He added that the €33bn of savings needed to hit the target will include €10bn of spending cuts: Part of our increased deficit comes from the crisis, but the crisis does not explain everything. The worsening of our public accounts is in large measure structural. Alluding to the ECB's plans to buy the debt of crisis-hit countries, Mr Hollande said the move did not “absolve governments of their responsibilities”. 11.18 Like the UK, Germany saw a strong rise in industrial production in July. According to Economy Ministry figures, German production climbed 1.3pc on the month in July. Manufacturing output rose 1.7pc while construction activity ticked up 1.9pc. The ministry said sentiment was "subdued", but that output had "picked up a bit" and "orders remain stable". 10.15 These figures probably weren't what the Greek government wanted to see with the Troika inspectors in town. Data this morning shows thatGreek gross domestic product shrank 6.3pc year-on-year in the second quarter of 2012. The contraction was slightly deeper than a previous 6.2pc flash estimate published last month. 10.15 These figures probably weren't what the Greek government wanted to see with the Troika inspectors in town. Data this morning shows thatGreek gross domestic product shrank 6.3pc year-on-year in the second quarter of 2012. The contraction was slightly deeper than a previous 6.2pc flash estimate published last month. 08.41 Germany's conservative newspapers have apparently not taken too kindly to Mario Draghi's plan. Reuters has a round-up of their reaction, saying they have accused the ECB chief of writing a "blank cheque" to troubled eurozone states that could put the entire currency at risk. Top-selling Bild warned his policies could make the euro "kaputt". Reuters writes: For the country's conservative newspapers, many of which have taken an increasingly euro-sceptic stance as the three-year-old euro zone debt crisis wears on, Draghi's latest measures went too far. "Help without end for crisis countries," said Bild on its front cover, adding that Draghi had signed a "blank cheque" and that his policy endangered the independence of the ECB. It cited German politicians saying the ECB had gone beyond its mandate of safeguarding the stability of the currency. "Draghi sets off Germany's alarm bell," was the headline in the conservative daily Die Welt. Business daily Handelsblatt, which often voices concern at the financial burden of the bailouts on German taxpayers and business, had a cover story on "the Rise, Fall and Resurrection of the Bundesbank" and gave prominence to Weidmann's warnings. ... The Frankfurter Allgemeine Zeitung, a sounding board for Germany's monetary hawks, wrote that "the border between monetary and fiscal policy has been blurred" and called the argument that bond-buying was within the ECB's mandate "far-fetched". 08.16 There is still plenty of reaction filtering through to Mr Draghi's pronouncements yesterday: Joerg Asmussen, a member of the ECB's executive board told German radio that it is important that the bank's bond-buying programme has clear conditions attached to it. He told Inforadio rbb that bond-buying will only take place when the country "undertakes tough reform measures". "That is a necessary precondition for the ECB to act," he added.