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http://theautomaticearth.com/Finance/hungary-says-the-imf-and-eu-want-to-make-it-a-colony-of-slaves.html

Hungary Says The IMF And EU Want To Make It A Colony Of Slaves

WEDNESDAY, SEPTEMBER 19, 2012 9:42 PM

Banner demonstration Budapest, September 4, 1012

After publishing Hungary Throws Out Monsanto AND The IMF 10 days ago, I've been keeping an eye on what goes down along the twin Buda and Pest shores of the Danube river.

That's how I came upon a video from Johnny Miller for PressTV, which is sort of Iran's version of Russia Today and Al Jazeera, news channels that find their niche and viability "behind the biases" of western media, in much the same way that the Automatic Earth and numerous other websites do. Of course, there is no lack of people who declare exactly those alternative voices to be biased, but wherever the truth may lie, fact is that many readers and viewers in the west are fed up with, and no longer trust, their traditional media, let alone their political systems. Hungary may prove to be an excellent example of why that is and how it all plays out.

Now, first, let me state once again that I don't know much about Hungary, and I happenstance upon the things I view and read about it with the eyes of an innocent child. I do have a long history, however, of not believing a word I read at first glance - or The Automatic Earth would not exist. Which is why, when I picked up on the ideas US and European media hold up as undeniable truths about Hungarian PM Victor Orbán and his Fidesz party, what a vile and crazy man he basically is, I questioned them off the bat. It's obvious he's made enemies of Monsanto and the entire GMO industry, as well as the IMF/EU/ECB troika, and therefore western media have plenty incentives to paint him off as a lunatic.

And also, let me repeat that he may well be a bully himself, like he is being bullied by the troika, the seed industry and the media they control. All I said was, certainly in light of the fact that I know little about him, I did - and do - tend to give him the benefit of the doubt, for the moment, because of his refusal to kowtow before those who act as if they rule the entire planet.

I urge you to please watch the video, 20 minutes or so, but I'll write down some key points below.

Since the fall of Communism, Hungary has been doing everything the Western institutions have asked, privatizing and selling off state assets, which resulted in heavy debts and low living standards. Now, the new government is hitting back by raising taxes on foreign companies and trying to protect its domestic market. However, it has been criticized by the EU, IMF and the Western media. Hungarians have also taken to the streets of Budapest and the Western media is championing the views of the protesters and damning the government. On this week's INFocus we will tell the real story of why the new Hungarian government is becoming a new bogeyman of the West and how fake protests can be started under foreign influence.

The opening quote is poignant: A destitute Hungarian mother of a young boy says this about the IMF and EU involvement in Hungary:

The problem of the poor can be solved by killing them but it is not allowed. This is a holocaust without a gas chamber. There is no future here.

• In January 2012, there were protests in the streets of Budapest against government policies with regards to press freedom. The organizers called themselves "One Million For Press Freedom". But only 40.000 show up. Still, the protests got extensive coverage in the west. One of the organizers now admits that maybe they were used for western propaganda, which aimed at depicting the government as a dictatorship. He is interviewed without any semblance of fear of government retaliation, which leaves one wondering what exactly he was protesting, especially since later he says he was protesting higher education laws.

• According to Hungarian economist Imre Boros, the Orbán government declared that foreign banks and corporations, who hardly paid any taxes at all before, would have to pay more. 13 foreign multinationals and 5 major global banks then went to the to EU to complain about the new taxes, and the financial markets attacked the Hungarian economy. Plus, rumors are being spread about anti-semitism and lack of freedom for the press, rumors which Boros says are simply not true ("Everybody writes here whatever they wish").

• At the same time of the anti-government protests, there was another rally in support of the government, and against the EU and IMF policies. This protest, rather than 40.000, numbered in the hundreds of thousands (500.000), and was mainly ignored by the west.

• TV host and Fidesz founder Zsolt Bayer: What is a dictatorship? Is that when a country doesn't serve the interests of the EU and IMF? Is that a dictatorship? He says the pro-government demonstration saved the Orbán government, because nobody dares resist a half a million people in the streets.

• The socialist government that preceded Orbán was praised by the likes of visiting Tony Blair in 2006, executed EU/IMF policies and had the police beat up on demonstrators, one of whom was Attila Lavai, who we first see beaten up in 2006 and then interviewed by PressTV in 2012.

By the way, in a lovely side story, and don't even try to tell me you could have made this up yourself, if you allow me to veer off track for a moment, the PM at the time, Ferenc Gyurcsány, was in the news last week:

[Former] Hungarian Prime Minister Ends Hunger Strike For Voters Rights

The former prime minister of Hungary, Ferenc Gyurcsány, has ended a week-long hunger strike that he said was aimed at ensuring free and fair elections. Gyurscany has expressed concerns over plans by the government to overhaul the election system in the young democracy of this European Union nation.

In front of the neo-ghotic parliament building of Budapest, several tents emerged this week. Some carried slogans referring to Prime Minister Viktor Orbán's government as a "regime". Former Prime Minister Gyurcsány and three fellow politicians were camping in two small green-colored army tents, without food.

Gyurcsány, who leads the leftist Democratic Coalition, told BosNewsLife that he was on a week-long hunger strike to protest against government plans to introduce voter registration ahead of the 2014 parliamentary elections. He views that as another attempt by the center-right government to intimidate voters.

Yet, Prime Minister Viktor Orbán's Fidesz party has denied wrongdoing. It says registration is needed in part to keep track of the hundreds of thousands of ethnic Hungarians living in neighboring countries, who have obtained citizenship. Under a recent law they also have the right to vote, a move the opposition claims is aimed at boosting support for the ruling Fidesz party.

However, opposition leader Gyurcsány, himself is not without controversy. He was forced to resign as prime minister in 2009 after a recording emerged in which he admitted to have lied "night and day" about the status of the economy to win reelection.

The former Communist youth leader-turned politician acknowledged to BosNewsLife that this speech will "probably follow" him the rest of his life. He has also said he is not seeking to become prime minister, again.

It is stories like that which make life worth living. I'm sure you can all just imagine George W. Bush or Gordon Brown in a tent without food for a week in front of their parliament buildings. About the issue itself: As far as I know, it is quite common in democracies to have voters register. Since Hungary looks to add voting rights for 1 million Hungarians who live abroad, and apparently until now had no such rights, it all doesn't look that crazy or bad or anything, not from where I'm sitting. Back to the video:

• TV host Bayer: "When are we going to be good guys? If we sell them the remaining energy sector and privatize everything? That's the conditions of the loan. Let's sell the energy sector, let's sell public transport. So if we are willing to behave like a colony, we get a loan, that we will never be able to pay back. Thanks, but I don't want this"

• Economist Boros then says that after the "Russian Consensus", what the IMF has attempted to do - often successfully - in the former Eastern Bloc is what Naomi Klein describes in The Shock Doctrine. It's called "Reform", and it means privatization, which in turn means selling key assets to global big players (it also means cutting jobs, salaries, pensions, benefits, health care and so forth). Hungary MP Márton Gyöngyösi says privatization has been disastrous for Hungary.

• Mihály Varga, the minister in charge of the talks with the IMF, when asked: "Are you going to stand up to the IMF?", responds: "Absolutely".

But, as PressTV notes, the same government threw out the IMF last year, "and now, they're back".

• "Out in the country side, it's easy to see the changes in Hungary since signing up to IMF and EU enforced policies. Hungarians used to be intensely proud of their agriculture; the soil here is very fertile, and great for growing fruit and vegetables. SInce 2004, when Hungary joined the EU, the EU forced Hungary to stop subsidies to agriculture, therefore devastating the industries. Now Hungary imports a lot of fruits and veg, rather than growing it themselves. Obviously, a lot of jobs lost as well. A lot of Hungarians simply cannot believe how that policy could possibly have been good for the country."

• Zsolt Bayer again: "In the past twenty years, all our industry has disappeared. We got our world class agriculture impoverished by the West. We are a small country, these 10 million people are only a market for the West. We are not needed for anything else. The EU has no future because the EU has no ethos. It is all about money. Nothing else".

• "My most important message for the East, for Africa and South America, all nations, is that you are obliged to save yourselves. Those who give up their customs, their culture, if they give up everything they won't be a nation anymore."

• The mother of a young boy: "I think we will be a pothole of the EU, a transit country.We will be a colony, slaves again.

The IMF and EU are no less vampire squids than Goldman Sachs is. If anything they're more dangerous, since they can make people believe that they are somehow democratic institutions, and have their best interests in mind. People may have reservations about what is happening in Budapest, but I have to say that the more I read about Victor Orbán and his government, the more I tend to sympathize with what they are trying to accomplish, and the more I understand what they are up against.

I get the feeling that if we in the West treat him with suspicion, and believe the stories our media feed us about him as a monster, the more we leave the only country I know with the courage to stand up for itself in the face of the most brutal of bullies, alone in its quest. Which happens to be a quest many of us feel a strong connection with. The stories aim to confuse us about that, and they largely seem to accomplish what they're aimed at so far. And that is a shame.

Hungary and Orbán, partly because of the wide coverage of the small demonstrations against him, and, though for totally different reasons, partly because of the mass demonstrations in his support, which received no coverage, is now back at the table with the EU and IMF. Whose intention it is to make him an offer he can't refuse. If he doesn't accept, they'll declare financial war against him. And his people. Until they all give in. This happens in our name. While many of us would want to have our name, our beliefs and convictions, to be with the other side, his side. As long as we don't make that choice, and do it openly and loudly, we will remain the de facto schoolyard bullies. And we don't get a free pass from that just because we don't do or say anything.

Reuters ran a large piece yesterday on the Hungarian situation, in which Krisztina Than and Gergely Szakacs appear to be on an uncomfortably wobbly trail between the default western picture of their country and the search for a sort of balance in reporting. As for how successful they are, you be the judge.

Hungarians impatiently await promised "fairy tale"

For Hungarians queuing up to work abroad, the government's promise to achieve a "fairy tale" of national prosperity soon is precisely that - more a fantasy than a realistic possibility. At least 300,000 Hungarians work in western Europe, according to government estimates, apparently unpersuaded that conservative Prime Minister Viktor Orban's go-it-alone and often unpredictable policies can solve the nation's problems.

Those still in Hungary are convinced neither by Orban's unconventional style of economics and politics, which has led to conflict at home and abroad, nor by a weak opposition. An Ipsos opinion poll last month showed 53 percent of voters - or 4.2 million people - had no party preference whatsoever.

Fiercely independent, Orban has upset at one time or another the European Union, the International Monetary Fund, the government of Armenia and - at least indirectly - NATO. With the domestic opposition he remains constantly at loggerheads. [..]

Orban's government, which does not face national elections for another 1-1/2 years, is trying to press home a message that its policies will bear fruit soon. "The Hungarian fairy tale or the Hungarian example will be a successful one in a year's time," Economy Minister Gyorgy Matolcsy said earlier this year.

A message that Hungary will emerge as a strong nation from the crisis engulfing most of Europe is hard to sell to voters. On the face of it, Orban has avoided many of the problems that are besetting countries across the EU. The government, dominated by his Fidesz party, has a two-thirds parliamentary majority following a landslide election victory two years ago and is among the most stable in the EU.

While others struggle to control huge budget deficits, Hungary's is due to remain this year below the EU ceiling set at 3% of total annual economic output.

Orban, who was also premier from 1998-2002, has achieved this without the outright austerity measures that have toppled a number of EU governments, and has even cut personal income tax. He has funded this with measures such as a windfall tax on the financial, energy, telecom and retail sectors, and an effective re-nationalization of private pension funds.

But Hungary's economy, largely geared to exporting to western Europe since the fall of communism more than 20 years ago, has slid into recession as demand falls in the euro zone.

Orban's policies such as the extra taxes have undermined investors' confidenceand he faces tough talks with the IMF and EU this autumn about a loan deal that would help to cut the country's high borrowing costs.

Combative as ever, he said Hungary needed the loan "to protect itself from the sickness weighing on Europe". "We can only achieve success if we boost our autonomy, and make our own decisions, in other words if we boost Hungary's room for maneuver," he told parliament last week, making clear he wants a deal with international lenders on his own terms.[..]

With a firm hand, Orban has solidified the power of Fidesz - which began as a radical student group before shifting over the years to the right - in ways that critics say have eroded democratic checks and balances.

The government has consistently rejected such charges, but the passing of a media law which critics say could be used to curb press freedom provoked a dispute with the European Commission.

Curbs on the Constitutional Court's jurisdiction have also proved contentious, while tens of thousands of Hungarians rallied in January to call for the removal of the man they called the "Viktator" after the constitution had been rewritten.

A few weeks later a pro-government rally attracted 100,000 people, showing Orban remains popular among his core supporters.

Changes to the central bank law caused another row with the EU and IMF, which said it hurt the Hungarian National Bank's independence. Amendments resolved the standoff only after it had held up the talks on IMF/EU financing for months.

The Reuters writers then mention a recent international incident which involves a murder case in Budapest 8 years ago, once more, of course(?), used to discredit Orbán:

Under Orban, Hungary has even become involved in disputes as far away as the south Caucasus where tensions are high between Azerbaijan and Armenia. Last month, Hungary stirred a storm when it sent home an Azeri soldier who had murdered an Armenian officer with an axe during NATO training in Budapest in 2004.

The soldier, Ramil Safarov, was pardoned and celebrated as a hero when he got home. Armenia instantly broke diplomatic ties with Hungary, and NATO Secretary General Anders Fogh Rasmussen said he was "deeply concerned" by the pardon.

Orban has defended the decision, saying it was in line with international law. He even said that Hungary acted knowing the move could spark a diplomatic backlash.

"His ways may be risky and you can't always know where it leads," said one source familiar with Orban's thinking, who wished to remain unnamed. "But even if you do not agree with him, within his own logical framework he has a well-grounded answer to each question."

Despite government denials, opposition parties say it let Safarov return to Azerbaijan in the hope of economic favors in return from the energy producer. The Socialists, who beat Orban in the elections of 2002 and 2006, have called on him to resign over the decision, but they remain electorally weak.

I've seen a number of conflicting reports on the case (is Orbán terribly naive, did the Azeris pay Hungary a billion dollars), and I find it hard to call. But I don't think that if a foreign national kills another foreign national on their soil, many countries would insist on keeping the killer in their prison system indefinitely at all cost. Also, Armenians have been living in Hungary for 1000 years or more. And along the same lines that in Hungary, like across eastern Europe as a whole, there's a long and ugly history of anti-semitism, I'm sure Armenians have had tough times in the country as well through history. But I haven't so far found any convincing arguments that for either people, or the Roma for that matter, it's Victor Orbán who's responsible for increasing hatred or tensions. Given the way he's consistently being pictured as a crazed dictator, and given his fights on multiple fronts against Hungary's potential colonizers, let's just say I have my doubts. But I'm open to being educated.

What I'm interested in for now is not politics, but finance, even if the two seem intricately intertwined. Any country, and its leaders, that dares resist the ever more suffocating global powers of the IMF, the EU/ECB, and the banking system and multinationals (think Monsanto) they serve, quite simply looks of interest to me. There are schemes and policies being executed in our names that we shouldn't wish to sign off on, by power hungry people hiding behind the veils of global corporations and über-government institutions, and the victims of these policies are real people, just like we are. If anything, that's what Hungary teaches us.

and.....





http://www.zerohedge.com/news/overnight-sentiment-more-printing-more-european-catch-22s

Overnight Sentiment: More Printing; More European Catch 22s

Submitted by Tyler Durden on 09/19/2012 07:01 -0400

• Bank of England
 
• Bank of Japan
 
• Barclays
 
• BOE
 
• Bond
 
• Borrowing Costs
 
• Central Banks
 
• China
 
• Crude
 
• Equity Markets
 
• European Central Bank
 
• Fitch
 
• Housing Starts
 
• International Monetary Fund
 
• Japan
 
• Jim Reid
 
• Nikkei
 
• Reuters
 
• United Kingdom

Those who expected a major response following the surprising, and "preemptive" easing by the Bank of Japan which has now joined the freely CTRL-Ping club of central banks, and went to bed looking for a major pop in risk this morning will be disappointed. The reason is that with every passing day that Spain does not request a bailout, all those who bought Spanish bonds on the assumption that Spain will request a bailout look dumber and dumber (a dynamic we explained nearly two months ago). As a result, the EURUSD has been dragging ever lower, and is now playing with 1.30 support. Providing no additional clarity was Spanish deputy PM Soraya Saenz de Santamaria who said Spain will decide if and when to trigger an ECB bailout once all details have been analyzed. Well the details have been more than analyzed, and Spain has been more than happy to receive the benefits of its bailout, it has yet to trigger the cause. Ironically in a Barclays study,over 78% of investors see Spain requesting a bailout by year end (even though as we explained over the weekend Spain really has to do this ahead of its major cash drawing bond redemption schedule in October when it may well run out of cash). And so, just like the US Fiscal Ceiling, the global markets are expecting some Catchy 22 deus ex machina, where traders can get their cake and politicians can eat it too. Alas, there never is such a thing as a free lunch. And what is making the much needed outcome even less probable is that Spanish bonds this morning are actually trading tighter once again making a bailout less than likely. The Spanish zombie has left its grave and is now romping through the neighborhood unsupervised.

As for the ever more frequent central bank easings, such as that from the BOJ last night, the biggest joke is that in 2-3 months when every central bank has eased "to infinity and beyond" and has pre-committed to destroy its currency ala Chairsatan, the world will be right back where it was before the Fed's QE3 announcement! Ah, the joys of living in a circular, relativistic Keynesian world, where if everyone destroys their currency nobody destroyed their currency. Expect the market to realize this in 4-6 weeks, and to further realize that global debasement can only occur relative to other undilutable benchmarks. Such as crude. And gold.

For a run through of the other overnight events, we hand it over to DB's Jim Reid:

Taking a closer look at the overnight session Asian equity markets are mostly higher as we go to print led by strong gains in the Nikkei (+1.6%) and the Hang Seng (+1.1%). Chinese equities are up for the first time this week but the Shanghai Composite (+0.1%) is still lagging the broader moves in Asia. The S&P 500 Futures is up +0.3% as we type. Sentiment in China was perhaps helped by news that the government will push for 15 major capital market reforms during the current 5-year plan and a smaller-than-expected FDI contraction in August (-1.4% yoy v -5.8%).

On the row between Japan and China, Fitch noted that major Japanese auto and technology manufacturers may come under pressure if tensions escalate, naming Sharp and Nissan amongst companies with the highest revenue exposure. A UK Telegraph article reported that a senior advisor to the Chinese government has called for an attack on the Japanese bond market given its position as the biggest creditor of Japan ($230bn of bonds)

Turning to Europe, Spain's deputy PM yesterday said that the government will study seeking a rescue to bring down its borrowing costs if the conditions imposed are acceptable. She added that funding at current levels is “like throwing money out of the window”. Spanish 10yr yields closed at 5.84% finishing 8bp lower on the day, helped by a firm 12-month and 18-month T-bill auction. Elsewhere in Europe, the German ZEW poll of economic sentiment rose to -18.2 from -25.5 in August, breaking a run of four monthly declines, probably reflecting the actions of the ECB in recent weeks. Greece’s negotiations with the Troika are expected to drag on until Sunday according to the finance minister. IIF’s Charles Dallara said Athens should get cheaper rates on its EU130bn aid deal and at least two more years from the EU and IMF to meet its targets. But better terms could only come after  the government delivers on his commitments to fiscal reform (Reuters).

Looking at the day ahead, the focus will be on US housing data with home sales, permits and starts due. DB expects the August data on housing starts and permits, as well as existing home sales to show continued evidence of firming activity today. The BoE will also release minutes from its last meeting.

and.....

Bank Of Japan Increases Asset Purchases By Y10 Trillion, Total Program Now Y80 Trillion, Total Debt Still Y1 Quadrillion

Submitted by Tyler Durden on 09/19/2012 - 00:01Bank of Japan Bond Japan REITs

It seems like only yesterday that we were lamenting "Einstein rolling over in his grave" as a result of the BOJ's latest increase in its asset purchase program from Y65 to Y70 trillion, although technically it was 5 months ago on April 27. We would excuse Einstein if he were doing cartwheels in his grave right about now, following the BOJ's latest attempt to keep doing what has definitvely failed for 30 years, hoping this time it will be different, as a result of the just announced latest expansion in the asset purchase program's size by yet another Y10 trillion, this time to a total of Y80 trillion. The expansion impacts only JGBs and T-Bills, both of which will be monetized by a further Y5 trillion. Putting this in perspective, Japan's total public debt is Y1 quadrillion, and counting very fast. All other components of the Japanese LSAP program, including CP, Corporate Bonds, ETFs and REITs (yes, unlike the Fed, the BOJ is quite open about its equity and corporate bond purchases) remain the same. Bottom line, just as we predicted back in July 2009, the global race to debase continues unabated, and as a result of QEternity will merely accelerate until the only true currency is gold tungsten.

and....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_3988_19/09/2012_462012

FinMin to meet troika ahead of leaders' talks Finance Minister Yannis Stournaras was to meet again on Wednesday afternoon with envoys representing Greece's international creditors -- the so-called troika of the European Commission, European Central Bank and International Monetary Fund -- for talks aimed at finalizing an 11.5-billion-euro package of austerity measures. State television reported that a range of onerous measures were «back on the table» -- including reductions to low-level pensions -- after troika officials expressed doubts about the enforceability of counter-measures proposed by the ministry such as the raising of the retirement age and further cutbacks to state administrative costs. Stournaras' talks with the troika, scheduled for 5 p.m., come ahead of a fresh meeting between Prime Minister Antonis Samaras and his coalition partners -- socialist PASOK leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis -- at 1 p.m. on Thursday. The premier is to seek to forge a common line with his coalition partners on the measures before traveling to Rome for a three-day official visit. Stournaras, who is to stay in Athens and continue talks with the troika, has said he hopes for a final agreement on the measures by Sunday. and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_19/09/2012_461982 Greece looks for final batch of cuts to meet troika targets Prime Minister Antonis Samaras is set to meet with his coalition partners on Thursday to finalize the measures that will bring the 11.5 billion euros in cuts demanded by the troika, with which the government hopes to conclude talks on Sunday. Samaras will meet PASOK’s Evangelos Venizelos and Democratic Left’s Fotis Kouvelis with the aim of approving the final savings to reach the troika’s targets. It is thought that some 7.5 billion euros have been agreed. Labor Minister Yiannis Vroutsis said that he knows of no plan to raise the amount to be saved through cuts to pensions, wages and benefits, which currently stands at 5 billion euros. Some reports suggested that the total might actually reach as much as 9.5 billion euros. However, a report in Ta Nea newspaper on Wednesday suggested that the government is planning to slash the lump-sum payment received by some retirees by up to 83 percent and to make this retroactive, requiring some pensioners to pay money back to the state through an extra tax. Thursday’s meeting is, according to reports, due to take place at 1 p.m. Both Venizelos and Kouvelis have expressed objections to some of the harsher measures proposed by creditors although they have said they will not provoke a crisis in the shaky coalition. Venizelos on Tuesday told his MPs that the final package would be “the inevitable outcome of a dual compromise,” referring to the government’s concessions to its creditors and the junior coalition partners’ concessions to dominant New Democracy. In Kouvelis’s ranks, certain MPs have suggested they will vote down the measures but any defections are not expected to pose a threat to the approval of the bill next week. The government hopes to conclude negotiations with the troika so the measures can be voted through Parliament in October, with the aim of securing the release of Greece’s next bailout tranche, which is worth 31.5 billion euros. According to sources, Samaras is expected to deliver a televised address to the nation at some point next week -- ahead of a parliamentary vote -- in which he is likely to stress that the new measures will be the last and to underline the importance of Greece securing its position in the eurozone. After Thursday’s coalition talks, Samaras is to travel to Rome on Thursday for meetings with his Italian counterpart Mario Monti on Friday and with Pope Benedict XVI on Saturday. and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_19/09/2012_461958 Deposit flight from some eurozone banks threatens single currency By Yalman Onaran An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system. A total of 326 billion euros ($425 billion) was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31, according to data compiled by Bloomberg. The plight of Irish and Greek lenders, which were bleeding cash in 2010, spread to Spain and Portugal last year. The flight of deposits from the four countries coincides with an increase of about 300 billion euros at lenders in seven nations considered the core of the euro zone, including Germany and France, almost matching the outflow. That’s leading to a fragmentation of credit and a two-tiered banking system blocking economic recovery and blunting European Central Bank policy in the third year of a sovereign-debt crisis. “Capital flight is leading to the disintegration of the euro zone and divergence between the periphery and the core,” said Alberto Gallo, the London-based head of European credit research at Royal Bank of Scotland Group Plc. “Companies pay 1 to 2 percentage points more to borrow in the periphery. You can’t get growth to resume with such divergence.” The erosion of deposits is forcing banks in those countries to pay more to retain them -- as much as 5 percent in Greece. The higher funding costs are reflected in lending rates to companies and consumers. The average rate for new loans to non- financial corporations in July was above 7 percent in Greece, 6.5 percent in Spain and 6.2 percent in Italy, according to ECB data. It was 4 percent in Germany, France and the Netherlands. Some of the decline in deposits is because German and French banks are reducing their exposure. They cut lending to their counterparts in the four peripheral countries plus Italy by $100 billion in the 12 months ended March 31, according to the latest data available from the Bank for International Settlements. ECB data count interbank lending as deposits, as well as money being held for corporations and households. Banks in the core countries also have been reducing their holdings of Spanish, Portuguese, Italian, Irish and Greek government bonds. At the same time, lenders in the periphery have been buying more of their own governments’ debt. That has further contributed to the fragmentation of credit along national lines, as banks collect deposits from people and companies in their own countries and lend internally. Organizations such as the International Monetary Fund have warned about the danger of such fragmentation. Financial disintegration along national lines “caps the benefits from economic and financial integration” that underlie the common currency, the IMF wrote in an April report. The disintegration can fuel a cycle of deteriorating economic conditions and weakening banks, said David Powell, a Bloomberg LP economist based in London. The more banks pay for deposits the less profitable some of their businesses are, he said. A Spanish lender that borrows at 4 percent from depositors and is limited by Europe-wide interest rates to charging only 2.5 percent for a mortgage is losing money. “The financial divergence is a symptom of the underlying economic divergence, but they feed on each other, making it harder to break out of,” Powell said. “Until companies and individuals are convinced that the euro will survive, they won’t invest in the periphery, and that will keep funds away.” The ECB has taken the place of depositors and other creditors who have pulled money out over the past two years, largely through its longer-term refinancing operation, known as LTRO. The Frankfurt-based central bank was providing 820 billion euros to lenders in the five countries at the end of July, data compiled by Bloomberg show. Irish and Greek central banks loaned an additional 148 billion euros to firms that couldn’t come up with enough collateral to meet ECB requirements. Because central-bank financing is counted as a deposit from another financial institution, the official data mask some of the deterioration. Subtracting those amounts reveals a bigger flight from Spain, Ireland, Portugal and Greece. For Italian banks, what appears as a 10 percent increase is actually a decrease of less than 1 percent. When financing by central banks isn’t counted, the data show that Greek deposits declined by 42 billion euros, or 19 percent, in the 12 months through July. Spanish savings dropped 224 billion euros, or 10 percent; Ireland’s 37 billion, or 9 percent; Portugal’s 22 billion, or 8 percent. The pace of withdrawals has increased this year. Spanish bank deposits fell 7 percent from the beginning of January through the end of July, compared with a 4 percent drop the previous six months. The decline in Portuguese savings accelerated to 6 percent from 1 percent, while Irish deposits fell 10 percent compared with almost no change in the last six months of 2011. Banco Santander SA (SAN), Spain’s largest bank, lost 6.3 percent of its domestic deposits in July, according to data published by the nation’s banking association. Savings at Banco Popular Espanol SA, the sixth-biggest, fell 9.5 percent the same month. Eurobank Ergasias SA, Greece’s second-largest lender, lost 22 percent of its customer deposits in the 12 months ended March 31, according to the latest data available from the firm. Alpha Bank SA (ALPHA), the country’s third-biggest, lost 26 percent of client savings during that period. The ECB data include items such as deposits by securitization funds that Spanish banks say they don’t rely on for financing their businesses. Household and company deposits nationwide are stable if financing from instruments such as commercial paper sold to retail clients is included, Banco Bilbao Vizcaya Argentaria SA (BBVA) said in a Sept. 4 report. Irish government officials and bank executives say deposits at three government-backed banks have stabilized after almost three years of outflows. Bank of Ireland Plc, the largest lender, saw its customer deposits rise by 11 percent in the year ended June 30, according to regulatory filings. Ireland also hosts dozens of foreign institutions that use Dublin as an offshore base to benefit from lower tax rates and whose movements of funds would show up in the ECB’s Irish data. Ireland nationalized almost all of its domestic banks in 2010, forcing them to recognize losses on real-estate lending, and injected 63 billion euros to keep them alive. Spain has resisted a similar cleanup that could cost several hundred billion euros, according to some estimates. After agreeing to 100 billion euros of potential assistance from the EU in June, the Spanish government still hasn’t decided how much of that to tap or what to do with its troubled lenders. ECB cash may have plugged holes at lenders that otherwise would have had to sell assets at fire-sale prices as they lost private financing. The aid didn’t prevent funding costs from rising for the rest of the banks’ borrowing, including deposits. While Italian lenders arrested the decline in deposits this year, they paid a high price to do so, with average deposit rates jumping 50 percent to 3.1 percent in July from a year earlier, ECB data show. That’s more than the 2.4 percent paid by Spanish banks, whose deposit wars were halted by a rate cap last year. Those limits were lifted last month, and Spanish firms have begun raising interest rates on deposits again. The average deposit cost at German banks in July was 1.5 percent. Two years ago, Italian and German deposit rates were the same, at 1.3 percent. The difference in funding costs is reflected in loan pricing. Italian rates on consumer loans of less than one year, at 8.2 percent on average, exceeded even those in Greece and Portugal, ECB data show. Spanish consumers had to pay 7.3 percent to borrow from their banks, compared with 4.5 percent for German borrowers. Another blow to financial integration is the localization of borrowing and lending. Units of German, French and Dutch banks in Spain, Italy and other peripheral countries also borrowed from the ECB to reduce the need for funds from their parent companies. Deutsche Bank AG, Germany’s largest bank, said last week it had cut the reliance of units on financing by the Frankfurt-based firm 87 percent through ECB loans. While the largest banks say they’re protecting themselves against currency redenomination in case a country leaves the union, such moves help exacerbate divisions between the periphery and the core. A locally financed Deutsche Bank unit can’t make loans that reflect the cheaper funding sources of its parent in Germany. By taking over the financing of weak banks, the ECB is in effect bailing out their creditors in the core, according to Edward Harrison, an analyst at Global Macro Advisors, an economic consulting firm in Bethesda, Maryland. If Irish or Spanish lenders burdened with losses from their nations’ housing busts were allowed to fail, German and French banks would lose money on loans to financial institutions in Europe’s periphery. The ECB’s latest plan to buy the sovereign bonds of some countries will continue the trend of bailing out German and French banks, Harrison said. “The leaders of the core countries won’t let the periphery countries write down their debt because then they’d have to capitalize their own banks losing money from those investments,” Harrison said. “This is a good backdoor bailout of their banks, but it still doesn’t solve the solvency issue of Spain or Italy.” The rescue shifts default risk from private shareholders of core banks to the ECB and, in effect, to euro-area taxpayers. When Greece restructured its debt earlier this year, so much of it already had been transferred to the public that losses by European banks outside Greece were cut in half. Because the ECB and other government lenders wouldn’t take any losses, the debt load wasn’t reduced enough to make it sustainable. The ECB’s offer to purchase Spanish and Italian government bonds -- if those countries ask for help and agree to conditions imposed in exchange for the assistance -- would reduce yields, which have fallen in expectation of the move. Still, the purchases won’t bring down borrowing costs for companies and consumers in those countries because banks will continue to pay higher rates for their funding, according to RBS’s Gallo. Unlike in the U.S., where the Federal Reserve’s buying of securities in 2009 and 2010 brought down mortgage rates immediately, there isn’t as strong a connection in Europe between bond yields and loan rates, Gallo said. Increased funding costs for Italian banks are purely a reflection of the sovereign’s borrowing costs, not weakness in the banking system, according to Bank of Italy Deputy Director General Salvatore Rossi. When Italian government-bond yields decline, banks’ funding costs should too, he said. “Our banking system was in good shape before the crisis,” Rossi said in an interview in New York. “If the spread goes down, credit-market conditions would ease, contributing to halt a vicious cycle, which is hampering economic activity.” That spread, the difference between the yields of Italian sovereigns and the German bunds, fell to 342 basis points yesterday from a high of 536 in July. One basis point is 0.01 percentage point. While Italian banks are affected by their government’s debt overhang, some increased funding costs result from a rising level of bad loans, Gallo said. The ratio of nonperforming loans to total lending in Italy has almost tripled since 2008 to 5.6 percent in May, Italian Banking Association data show. European Union leaders have acknowledged the dangers of a two-tiered banking system, which is accentuated by deposit flows from south to north and diverging borrowing costs. “We cannot pursue price stability now when we have a fragmented euro zone,” ECB President Mario Draghi told European lawmakers Sept. 3. Draghi has said that the central bank’s plan to buy sovereign bonds addresses the divisions. Euro-area leaders also have responded by attempting to establish a banking union. Shared deposit guarantees, a central regulator and a resolution mechanism for bad banks backed by common funds from member states could reduce concerns that customers will lose money when lenders fail, halting the deposit shift from south to north. The European Commission unveiled its proposal for such a banking union last week as directed by leaders in June. The commission is initially focused on a centralized supervisor, with other elements such as the deposit guarantee to come later. Even the supervision proposal has generated controversy. While there’s agreement the ECB should play a key role overseeing banks, EU members are divided about how it will interact with national regulators and the scope of its powers. Germany, which spent about 50 billion euros to rescue its failed lenders in 2008, has opposed placing all banks under ECB supervision. At an EU finance ministers’ meeting in Cyprus last weekend, Germany was joined by the Netherlands in warning against a hasty move toward central supervision, while non-euro members such as Sweden criticized the plan for not protecting those outside the common currency. While a banking union is seen as a first step toward a more fiscally united euro zone, getting there will be politically challenging and take longer than initially envisioned, according to Alexander White, European political analyst at JPMorgan Chase & Co. in London. Euro-area leaders had called for the establishment of a central supervisor by January, a date which now looks unlikely, White said. “We’re still left with very big political questions about who pays for all this, how the backstops work and so on,” White said during a conference call with clients last week. “The proposals are going to be quite difficult for quite a lot of member states. It’s going to be a difficult road ahead.” and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_19/09/2012_461956 Greece planning to sell diplomatic real estate abroad By Sharon Smyth Greece plans to sell diplomatic buildings, offices and houses in cities from London to Belgrade as the government pursues an asset disposal plan key to getting further international aid, two people with knowledge of the matter said. The state’s list of assets for sale, previously restricted to domestic real estate, will now include the Greek consul’s residence in the U.K.’s second-most expensive borough as well as office buildings in Brussels and Belgrade, said the people, who asked not to be identified because the matter is private. In addition, a former royal palace near Athens may be sold or leased, they said. Greece has pledged to raise 50 billion euros ($64 billion) from state assets, around half of which is real estate, by 2020 to meet conditions tied to 240 billion euros in foreign aid received over the past two years. The Hellenic Privatization Fund last week said it plans to accelerate asset sales as international inspectors in Athens assess the country’s fitness to receive the latest aid payment. The 947-square-meter (10,000-square-foot) London property is a 115-year-old Victorian townhouse in the Holland Park area of Kensington & Chelsea, the U.K.’s wealthiest borough after the City of Westminster, according Marsh & Parsons Ltd., the London- based real estate agency. Residents of Holland Park include Richard Branson, founder of Virgin Group Ltd., and television talent show host Simon Cowell. Selling prices of prime central London homes have risen 9.9 percent this year and 49.9 percent since March 2009, according to broker Knight Frank LLP. Property website Rightmove Plc advertises homes similar to the Greek property in the area for rent at 25,000 pounds a week ($41,000). Marsh & Parsons recently sold a 7,000 square meter property in the area for 12 million pounds, according its website. In Greece, the fund proposes to sell or lease the Palace of Tatoi, a country home surrounded by forest 27 kilometers (16 miles) from the Athenian Acropolis, the people said. It was used by the royal family until they fled the country in 1967 before the monarchy was abolished and the Hellenic Republic was proclaimed in 1974. The estate includes 40 outbuildings, stables and a cemetery where Greek royalty dating back to 1880 are buried, the people said. A sale may be hindered by popular opposition and the condition of the estate, which has fallen into ruin, according to the people. Buildings slated for sale by the fund include an eight- story 2,850 square-meter, office building in Brussels; a 2,376 square-meter Baroque building in the Serbian capital, a 1,215 square-meter listed property in the Slovenian capital, Ljubljana, and an 8,000 square-meter strip of land in Nicosia, the capital of Cyprus, according to the people. Greece has raised about 1.8 billion euros from its asset sales program, sparking criticism among European officials that the government isn’t moving quickly enough to reduce debt. Sales have been held back by months of negotiations over the country’s largest-ever debt restructuring earlier this year and two general elections that threatened Greece’s membership in the euro currency. Lasr week, the fund chose six groups, including London & Regional Group Holdings Ltd. and NCH Capital Inc. to enter a second round of bidding to develop a strip of land on the island of Rhodes. A preferred bidder for 1.85 million square-meter site, including an 18-hole golf course, is expected to be chosen by the end of February. The fund also selected Qatari Diar Real Estate investment Co., London and Regional, Elbit Cochin Island Ltd. and Lamda Development SA (LAMDA) for the second round of bidding to buy a majority stake Hellenikon SA, which will develop and exploit the site of the former Athens International Airport. At 6.2 million square meters, the site is more than three times the size of Monaco. and.... http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_31592_18/09/2012_461925 Thinking big on privatizations  TAIPED chief Athanasopoulos says sell-offs can transform Greece, expects 300 mln euros this year  Lottery licensing is set to fetch up to 250 million euros this year. Greece could turn into an El Dorado for investors, the head of the state privatizations fund predicted in a newspaper interview on Tuesday, while forecasting modest revenues of up to 300 million euros from sell-offs this year. Hellenic Republic Asset Development Fund (TAIPED) chief Takis Athanasopoulos told the Financial Times that “if we can change the psychology, Greece could become an El Dorado for investors. Our advantage is that the country isn’t saturated in any sector -- especially tourism.” He went on to state that the expected revenues for the state from the privatization of the International Broadcasting Center (IBC) and the licensing for the operation of the state lotteries should fetch up to 300 million euros by year’s end. In practice, this means that revenues from the lotteries will be around 250 million. Market experts had estimated the state’s total revenues from the lotteries at close to 500 million for the entire duration of the license, i.e. 12 years. Half of that is now expected to be cashed in up front, to bolster state revenues for the year. Athanasopoulos also presented the outline of the privatizations plan to a Greek-Chinese entrepreneurship forum in Athens on Tuesday, stating that Greece expects some serious investment interest from China. After the six privatizations that are already under way -- development of the former airport at Elliniko in southern Athens, the state lotteries, the IBC, the plots of Afantou on Rhodes and Cassiope on Corfu, and gas companies DEPA and DESFA -- the sell-off of the OPAP gaming company and the sale and leaseback of 28 state buildings are set to follow. Up next will be the privatizations of Hellenic Petroleum (ELPE), Egnatia Odos, the Thessaloniki Water Company (EYATH), Larco, the Horse Racing Organization (ODIE), Hellenic Post (ELTA) and the Astir Hotel in the southern Athens suburb of Vouliagmeni, along with regional airports and marinas. “You’ll get to hear a lot of things in the coming weeks,” said the TAIPED chief, predicting that privatizations will transform Greece and citing the example of the successful privatization of part of the port of Piraeus through the investment by China’s Cosco.

http://www.telegraph.co.uk/finance/debt-crisis-live/9551933/Debt-crisis-France-denies-German-bank-union-rift-live.html

11.45 Germany has also got a debt auction away this morning, where it has paid next to nothing to sell two-year bonds.

The country sold €4.084bn of two-year debt at average yields of 0.06pc, slightly up from the zero (yes, ZERO) percent it paid in August.

Demand was higher, with 2.1 bidders for every bond on offer, compared with 1.5 in August.

11.20 Portugal has got a debt auction away this morning, where it has sold short term bonds at markedly lower rates. The country sold €1.3bn of 18-month Treasury bills at average yields of 2.967pc, compared with 4.537pc at a previous auction in April.

It also sold €700m of six month debt at average yields of 1.7pc (vs 2.292pc).

10.34 Mr Ayrault also said that France wants to move quickly on creating a banking union and that the government was in talks with Germany over its timing and scope:

Our goal is to move fast. There are always resistance and doubts in each country. Each country has its specific differences. We are in discussion. France wants the supervision of all banks.

Germany reportedly wants to limit the scope of bank supervision to the eurozone's largest lenders (see 10.01).

10.19 Meanwhile, France has put the foundations in place to pass Europe's fiskalpakt. PM Jean-Marc Ayrault told reporters this morning that the Cabinet had approved the treaty this morning, and that it would be presented to parliament on October 2.

10.01 Back to the Continent, where German MPs reportedly want theECB to limit its bank supervision to the eurozone's major lenders.

Proposals seen by Reuters also showed that MPs from ChancellorAngela Merkel's party and their Free Democrat (FDP) allies reject proposals for cross-border bank deposit insurance, which they want to remain the responsibility of individual states.

09.14 Spanish PM Mariano Rajoy has addressed MPs in parliament today, where he has said that while reforms will take time to have an effect, the country's priority must be to cut its budget deficit. In response to a question from Socialist leader Alfredo Perez Rubalcaba about mass anti-austerity protests last week, Mr Rajoy said:

The policy is to reduce the deficit because if we don’t reduce the deficit we aren’t going to be able to finance ourselves.

Deputy PM Soraya Saenz de Santamaria also attacked Socialist criticism of the ECB's bond buying programme,, and said that they "used to back" the idea of ECB buying sovereign debt.

09.04 Commenting on the BoJ action, Kiyoko Katahira at Societe Generale, said:

In the policy statement following the meeting, the BoJ explained that overseas economies have decelerated further, and the Japanese economy is affected negatively. The BoJ showed a clear intention to revise down its assessment of both overseas and domestic economic growth.

We think action from the ECB and the Fed was also a factor that led the BoJ to act sooner, with a special concern for further yen appreciation. Moreover, rising tensions with China in the past week may turn out to be another drag on exports at least in the short term.

08.48 There is money. Spend it; spend more.

Central banks haven't needed Shakespeare to tell them that money printing is a good idea. Today, it was Japan's turn to loosen its monetary policy.

The Bank of Japan announced that it was to pump an extra 10 trillion yen (£80bn) into its flagging economy, following similar action by the Federal Reserve in America and the announcement of the European Central Bank's bond buying programme.

Speaking at a press conference, Bank of Japan Governor Masaaki Shirakawa said that a prolonged slowdown in global growth meant the country's economic recovery may be delayed by six months. He said:

We judged that further monetary easing was necessary now to ensure that Japan's economy does not slip from a path towards sustained growth with price stability.