http://globaleconomicanalysis.blogspot.com/2012/11/good-news-eu-budget-talks-collapse.html
Thursday, November 15, 2012 10:42 AM
Good News: EU Budget Talks Collapse, France Rejects Compromise; Still Time to Snatch Defeat From Jaws of Victory
I have a bit of good news today. The efforts of European Council president Herman Van Rompuy to mollify the UK and other budget hawks have created such a stir that France rejects EU budget compromise.
Jean-Marc Ayrault, the French prime minister, objected to deep cuts to agriculture spending included in the proposal, but also expressed displeasure with reductions in the development money, known as cohesion funds, that benefit poorer regions.
The biggest object of displeasure appeared to be Mr Van Rompuy’s move to trim €25bn from the common agricultural policy – traditionally France’s biggest priority – compared with a proposal from the European Commission, the EU’s executive arm. Those cuts include a €12bn reduction in direct subsidies to farmers.Good News
Some analysts argue the cull was even more dramatic because agriculture was starting from a low base – historically speaking – in the commission proposal.
Agriculture is not France’s only concern. Cuts to the cohesion budget look set to fall disproportionately on its own regions, which tend to be bastions of support for François Hollande, the socialist president.
Paris may also have been stung by Mr Van Rompuy’s decision to endorse the UK rebate, the burden of which falls disproportionately on French and Italian taxpayers. Under the proposal, the rebate would be modified so that the UK and Germany – currently exempted – would have to pay a share of the British rebate.
Bernard Cazeneuve, France’s Europe minister, said on Wednesday that France was against the continuation of budget rebates for countries such as the UK, Germany, the Netherlands and Sweden. “We don’t want these rebates to continue because they represent an anti-European way of thinking,” he said.
Talk is now so cantankerous that EU budget talks collapsed completely.
This is not only good news, it's excellent news. Half the EU budget is dedicated to a preposterous system of crop supports as noted in my post Common Agricultural Idiocy.
The sooner the CAP blows sky high, the better off citizens in Europe will be. Bear in mind the fallback position of the EU is an automatic budget increase of 2% would happen if no agreement is reached.
Should an automatic increase happen, UK prime minister David Cameron may be forced into an up-or-down vote on UK membership in the EU. As it sits now, British citizens would reject the EU, as it should.
Self-Serving Brussels Nannycrats
The Telegraph explains ...
David Davis, a former shadow Home Secretary, condemned the “self-serving, inflation-busting bonus for Brussels” that would force Britain to pay an extra £1.3 billion next year in annual EU contributions, on top of the existing £11 billion.
Writing in the Daily Mail, he warned: “If the EU Commission gets its way, British taxpayers will soon be handing over £22,000 to Brussels every minute. It is time for EU institutions to experience the austerity they happily recommend to member states.Still Time to Snatch Defeat From Jaws of Victory
“It’s certainly not hard to find savings, given that the EU’s 2012 budget is £105 billion – four times what our government will spend on defence this year.”
If no deal is signed by the end of next year, the EU budget will rise automatically by two per cent.
The bad news is the EU still has some time work this mess out, and Cameron may not put the EU to a vote if a compromise is reached.
In the meantime, just remember, the more bickering the better.
Anything that cuts the power and the budget of the nannycrats in Brussels is a good thing. The sooner this mess blows sky high the better.
Mike "Mish" Shedlock
and....
http://www.zerohedge.com/contributed/2012-11-15/what-really-happened-when-lehman-failed-and-why-spanish-default-will-be-expon
What Really Happened When Lehman Failed... and Why a Spanish Default Will Be Exponentially Worse
Countless pages have been written about why Lehman caused the system to almost implode. However, the reality is that Lehman nearly took down the entire financial system for two reasons:
- Lehman’s $155 billion worth of bonds were used as collateral in hundreds of billions of Dollars’ worth of trades.
- Lehman’s 8,000 clients who were all using Lehman to make trades saw the collateral that they had placed with the firm (to backstop their portfolios)frozen.
Lehman’s client list included some of the biggest names in the financial world. Remember that before the 2008 collapse, the big broker-dealers (Lehman, Merrill, etc) were all standalone entities (the Merrill/ BofA merger and the others had yet to happen). So all of the big banks, with few exceptions, had their collateral parked with broker dealers like Lehman.
The below story reveals that both Bank of America and Dubai’s sovereign wealth fund both saw collateral frozen when Lehman went bust. I can assure you many other big names were caught in a similar situation.
Lehman: One Big Derivatives Mess
It turns out that Lehman, like other big dealers, was running a perfectly legal but highly risky game moving money from firm to firm. It used the collateral from one trading partner to fund more deals with other firms. The same $100 million collected in one deal can be used for many other transactions. "Firms basically can use [the money] as their own collateral for anything they want," says Kenneth Kettering, a former derivatives lawyer and currently a professor at New York Law School. But when the contracts terminate as the result of bankruptcy, the extra collateral is supposed to be returned.
As part of those transactions, buyers had put up collateral in the event of losses. But weeks after Lehman's demise, large sums of leftover collateral have yet to be returned to the trading partners. Bank of America (BAC) executives tried several times to persuade Lehman officials via e-mail and phone calls to fork over funds, according to a suit. But BofA was rebuffed. In one e-mail exchange, a Lehman employee wrote to BofA: "All activity has been suspended until further notice."
Nasreen Bulos, a lawyer for one of Dubai's sovereign wealth funds, got the same chilly response. The Global Strategic Equities Fund of Dubai, part of the gulf state's $12 billion investment portfolio, gave Lehman $40 million in June as part of a deal pegged to energy giant BP's (BP) stock. According to an affidavit, Bulos started contacting Lehman on Sept. 15 to get back $27 million in collateral. Four days later, Lehman told Bulos it would not honor the request or say anything further on the matter.
Normally, a client’s collateral would be unfrozen soon after the bankruptcy of a broker dealer. In Lehman’s case it wasn’t. And that, combined with Lehman’s $155 billion worth of bonds becoming worthless, created a severe collateral shortfall in the system.
This is why the market held together for a little over a week after Lehman went bust: the players who had collateral with Lehman thought they’d get the money freed. When they didn’t, the system imploded as collateral calls were issued. What followed was widespread liquidation as banks did everything they could to free up capital to meet funding needs or to buy new higher grade collateral (hence the skyrocketing rally in Treasuries at the time).
This is the reality of what happened in 2008, though few know it. And this is why a default in Spain or Italy (whose €1.78 and €1.87 trillion in sovereign bonds are collateral for likely more than €100 trillion in trades) would bring about a collapse that would make Lehman appear minor in comparison.
Remember, if Spain goes bust, they over €1 trillion in collateral would vanish triggering a chain reaction in at least €50 trillion if not €100+ trillion in trades at the large banks/ financial institutions.
Again, and I cannot stress this enough: when Spain defaults (and it will) the system will experience a collateral crunch that will be exponentially higher than that which occurred following the Lehman bankruptcy.
* * *
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_15/11/2012_470290
Lack of unity at home, among lenders dogs Greek government
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Speaking in Malta at a meeting of the European People’s Party, a grouping of conservative parties, Samaras said the structural and fiscal measures voted through Parliament last week would soon pay off. “Next year we will see the first signs of recovery,” he said.
Samaras’s message was in contrast to the mood within his government, where new splits have emerged following last week’s divisive vote. The prime minister’s apparent decision to revoke a law granting citizenship to second-generation immigrants continued to cause friction within the coalition yesterday. Justice Minister Antonis Roupakiotis, aligned with Democratic Left, slammed the premier’s stance. PASOK has also voiced its objections. Sources told Kathimerini that Samaras has no intention of backing down.
Also Thursday, Agricultural Minister Athanasios Tsaftaris expressed his opposition to taxation on photovoltaic installations.
Meanwhile, Greece’s lenders appeared equally divided over how to fund Athens’s financing gap for the next four years, which is expected to reach about 32 billion euros, and how to make its debt sustainable.
“By 2020, we want to see Greece’s debt at 120 percent of GDP,” said International Monetary Fund spokesman William Murray, indicating that the organization is not willing to concede ground to the eurozone, which wants the target to be shifted to 2022.
German Chancellor Angela Merkel again ruled out an official sector debt haircut after talks with French Prime Minister Jean-Marc Ayrault
"Of course we did not talk about debt haircuts, you know our view and that has not changed, nor should it,» Merkel said.
However, Italian Finance Minister Vittorio Grilli said no “specific option” had been excluded and European Central Bank governing council member Luc Coene of Belgium said a partial writedown of Greek debt was inevitable.
In an interview with the Financial Times, French Finance Minister Pierre Moscovici said that «all parameters are on the table» in response to a question about what measures would be used to tackle Greece's debt.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_15/11/2012_470296
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http://www.guardian.co.uk/business/2012/nov/15/eurozone-crisis-eurozone-recession-france-germany?intcmp=239
European markets close lower after recession news
European markets have closed, and with the eurozone in recession it's not surprise that it's been another down day.
Worries about the US fiscal cliff and tension in the Middle East have also combined to unsettle investors.
• The FTSE 100 is down 0.77% or 44.26 points to 5677.75
• Germany's Dax has fallen 0.82%
• France's Cac has closed 0.52% lower
• Italy's FTSE MIB has finished down 0.59%
• The Athens market is 0.84% lower
• But Spain's Ibex has bucked the downward trend, up 0.29%
Greece calls for details of citizens' offshore accounts with HSBC
Over in Greece there appears to be movement on the tax evasion front, reports our correspondent Helena Smith
With Greek baying eor punishment to be meted out to tax cheats, the country's finance minister Yiannis Stournaras has today written to George Osborne asking for further information on Greek citizens who were recently revealed to hold offshore accounts with HSBC in the channel isle of Jersey."We had no idea about their existence and were surprised when their names were included on the list recently made public by HSBC," said a senior finance ministry official. "The minister sent the letter because he wants to get to the bottom of it. Tax evasion is one of our biggest problems."An estimated 57,000 Greeks are believed to have transferred banks deposits abroad since the debt crisis' oubtreak in Athens in late 2009.In a separate development, the finance minister announced that the country was also poised to dispatch letters to some 15,000 Greeks who moved a €5bn abroad without declaring it to tax authorities. "More than €2bn of that amount could be recouped in taxes," said the finance ministry official. "Ordinary Greeks who are suffering from so much austeirty want to see some action."Germany's Merkel repeats opposition to Greek debt haircuts
German chancellor Angela Merkel has once again rejected the idea that governments should take a loss on their loans to Greece.While calling on European finance ministers to find a quick solution to Greece's financial problems she told reporters at a joint press conference with French prime minister Jean-Marc Ayrault:I hope the time is near when we can reach the solution that is needed. Of course we did not talk about debt haircuts, you know our view and that has not changed, nor should it.According to Reuters, Ayrault added:The moment of decision regarding Greece is approaching. The important thing is to do everything to keep Greece in the eurozone, there is a consensus on this essential point.Not everything surely, if debt haircuts have been ruled out.Eurozone woes could push Denmark into recession
Back with recession watch, Denmark is likely to join those reporting an economic downturn, according to its finance minister.In an interview with Reuters, Bjarne Corydon said the third quarter could see a second successive fall in output, following a 0.4% decline in the previous three months. This meets the technical definition of a recession.He said economic growth for the whole year could fall short of the government's forecast of 0.9%, but he expected a rebound to 1.7% in 2013. He said:Our general view is that 2012 is going to be a disappointing year, mostly just because of the developments in Europe... and sustained uncertainty over the eurozone.
More on Spain's decision to help people struggling with their mortgage payments. Martin Roberts in Madrid writes:Spain’s cabinet has just passed a decree freezing the final stage of seizing homes for two years for the most needy following public outrage over recent suicides of people who were about to be evicted.Economy Minister Luis de Guindos said families earning up to €1,597 a month will be eligible, as will large families, or those with children aged under three or disabled dependants. Unemployed debtors or those not eligible for unemployment benefit will also be covered.“The overdue rate on mortgages is above 3%. There are many people who punctually meet their mortgage payments,” de Guindos told a news conference after the cabinet meeting. “The decree is for especially vulnerable members of society. The government thinks it is urgent to defend them.”De Guindos also gave details of the “bad bank” due to be set up this month to pick up toxic assets from Spain’s ailing banks, a pre-condition for receiving funds from a European bailout worth up to €100 bn.
“The company (bad bank) will have a máximum limit of €90 bn although the amount is expected to be around €60 bn,” de Guindos said. “The average price adjustment at which assets will be transferred from Banks to the holding company will be 50%.”.
With the eurozone in recession, here's a graphic showing GDP growth (or lack of it) among a number of major economies, including the US as well as Europe.
GDP growth3
Protests against German diplomat in Greece
It appears that a German diplomat was involved in an incident with irate citizens in Greece today, as anger against Berlin boiled over.Protesters in Greece's second city, Thessaloniki, have hurled coffee at a German diplomat amid resentment over austerity measures advocated by Berlin.They broke into a conference centre where mayors of Greek and German cities were due to meet.It was not immediately known if the diplomat had been hurt.The incident was provoked, I think, by comments made by German deputy labour minister Hans-Joachim Fuchtel. He claimed that studies had found that 1,000 German local civil servants could do the work of 3,000 Greeks.Greece won't default tomorrow
Greece has definitely dodged the risk of defaulting tomorrow. This morning Athens raised nearly €940m in short term bonds. Added to the €4.1bn of bills sold on Tuesday, and it has the resources to cover the €5bn debt that matures on Friday.Panic over
How eurozone slid into a double-dip
This is the second time that the eurozone has tumbled into recession since the financial crisis began in 2008.It has been inching towards a slump since the euro crisis flared up a year ago, as this quarterly GDP data shows:Q3 2012: -0.1% (just released)Q2 2012: -0.2%Q1 2012: 0%Q4 2011: -0.3%On a year-on-year basis, the eurozone economy is now 0.6% smaller than a year ago, driven by the slump in peripheral economies.The wider European Union managed growth of +0.1% during the last three months, so has shrunk by 0.4% over the last 12 months.Official: Eurozone in recession
The eurozone is officially in recession!Eurostat has just reported that GDP fell by 0.1% in the third quarter of the year. That follows the 0.2% contraction in the previous three months - and means the eurozone is in its second recession since the financial crisis began in 2008.More to followUpdated
More on the Dutch slump
This morning's dire GDP data from the Netherlands (a 1.1% contraction in just three months), appears to be clear evidence that the eurocrisis has now struck deep at the previously-secure North:
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