Spain seeks freedom from shackles of euro ? Like Cypriots , Bundesbank apparently.....
http://globaleconomicanalysis.blogspot.com/2013/04/el-pais-article-discusses-liberating.html
The important point is not agreement or disagreement with the author, but rather that a eurozone exit is now openly presented as a viable option in a mainstream Spanish newspaper.
Expect such sentiment to grow along with rising unemployment and a sinking Spanish economy.
Mike "Mish" Shedlock
http://www.zerohedge.com/news/2013-04-25/unsustainable-losses-italian-banking-system
( this just can't continue..... )
Submitted by Tyler Durden on 04/25/2013 20:23 -0400
https://mninews.marketnews.com/index.php/german-constitutional-court-hold-hearing-esmecb-june?q=content/german-constitutional-court-hold-hearing-esmecb-june
http://www.zerohedge.com/news/2013-04-25/just-say-nein-bundesbank-rejects-omt-again
Submitted by Tyler Durden on 04/25/2013 15:11 -0400
http://globaleconomicanalysis.blogspot.com/2013/04/el-pais-article-discusses-liberating.html
Thursday, April 25, 2013 3:44 PM
El Pais Article Discusses "Liberating Spain from Shackles of the Euro"
The El Pais Screwdriver Blog openly asks "Are we to Liberate the Euro?"
Here is a Mish-modified translation:
Here is a Mish-modified translation:
Today Spain has reached a record number of unemployed. Although we do not like the current state of things, no one seems to know against whom to direct their anger.The author of the above article is Antonio Estella, Professor of European Union Law and Professor of Administrative Law at the University Carlos III of Madrid. He holds a PhD in law from the European University Institute and holds a Master in European Law from the Free University of Brussels.
Actually, we are under a dictatorship perhaps worse than the Portuguese or Spanish forty years ago because it is more subtle and works almost invisibly. And we can embody it too, not in an institution or a person, but with a symbol: the euro.
There are many reasons to believe that Spain would not be as bad off out of the single currency. To explore this question we must look at least three things: First, what is the profile of the countries that have left monetary unions? Second, what does empirical evidence tells us regarding effectiveness of countries have left currency unions? Third, what are the economic and social conditions that need to be taken into account in making such a decision?
Spain fits he profile of the countries that have tended to get out of currency unions: large countries economically developed with well-established democracies.
Second, what empirical evidence tell us? According to the IMF, no countries have been able to make needed fiscal consolidation without a mixture of structural reforms and monetary policy changes. Spain compares favorably in this respect to Argentina and Korean cases. Argentina went off the dollar peg in 2002. Although initially the Argentina economy suffered a severe recession, the year of the return to the country was growing weight (and in fact has grown at an average rate of over 7% from that year until 2011).
Third, we must take into account, the real exchange rate, the financing capacity of a country, and the behavior of its exports. In relation to the three aspects, Spain has bad fundamentals including a competitiveness problem that comes largely from an overvalued euro and a long-term funding problem with interest rates far higher than other countries in the eurozone.
To all this we must add the "social" setting: in addition to more than six million unemployed, Spain has become the second most unequal country in the eurozone and in the fourth of the entire European Union in terms of income distribution.
It is difficult to plan in advance what would be the results of a euro exit for the Spanish economy. Initially this would mean an impoverishment of the population, but classical theory tells us is that the recovery of monetary sovereignty coupled with the devaluation of our new currency push exports and thus growth so that the country would create jobs. Job creation would without doubt have a positive impact on the reduction of our current levels of inequality.
The shackles of yesterday's dictatorships are different than today. Or are they? It depends on how you look at things. Will we also be free of these shackles?
The important point is not agreement or disagreement with the author, but rather that a eurozone exit is now openly presented as a viable option in a mainstream Spanish newspaper.
Expect such sentiment to grow along with rising unemployment and a sinking Spanish economy.
Mike "Mish" Shedlock
http://www.zerohedge.com/news/2013-04-25/unsustainable-losses-italian-banking-system
( this just can't continue..... )
On The Unsustainable Losses Of The Italian Banking System
While not in the throes of a real estate crash, Italian banks are seeing a sharp deterioration in the quality of their assets. And while Italy's bond spreads head back to pre-crisis lows, as BofAML's Alberto Cordara notes, the ongoing pace and depth of asset quality deterioration further erodes the banks' ability to help Italy on the way back to growth. Critically, the lack of demand for banks' NPLs suggests that asset valuations may be overstated, thereby posing doubts on the real solvency status of Italian banks (i.e. they are not being totally truthful about their balance sheet assets); which explicitly means more capital is needed and soon. The rate of acceleration in newly impaired loans is staggering as it appears the current recession, driven by falling internal demand, ismore insidious than the export-led crisis in 2009. And no matter how the Italian banks try to differentiate their bad loan composition, it is an ugly picture. The Italian House Price Index (IPAB) decreased 4.6% yoy as a result of tightening credit conditions, new property taxes and a difficult macro environment; and is unlikely to provide any assistance any time soon. Based on losses and capital, ISP appears best positioned, and BMPS worst - and do not expect a new LTRO to help as this is "not a normal economic downswing."
Via BofAML,
Our analysis shows that ISP has the highest equity buffer and is the only bank that could withstand a write-down of its current exposure without falling below the 7% B3 common equity ratio. Meanwhile, BMPS looks to be in a comparatively worse state.
When looking at the aggregate balance sheet of Italian banks it appears that the LTRO was predominantly used to replace the run-off of pre-existing short-term funding facilities and fund the purchase of government bonds.The shift in the asset portfolio at Italian banks spurred by the LTRO means that banks’ profitability is drifting further away from commercial lending and deposit-gathering activities.
A sustainable business model cannot be based indefinitely on central bank support.However, the current framework of low rates and rampant credit losses suggest to us that additional liquidity measures are desirable.
Italy's industrial base has one important particularity: 95% of companies have under nine employees. In fact the average is four. They are micro companies and have such, their balance sheet is modest and so is their ability to withstand prolonged contraction in demand (external or domestic depending on the line of business). The chart below shows the development in profits in the last ten years and how far we are relative to the average of 2002-2012 (we choose this period to include a meaningful period ahead of the 2008 crisis).
Italy has a second important peculiarity. It has significant household financial wealth and an aging population, including a high average age of entrepreneurs. This implies that on the margin more entrepreneurs are likely to decide to scale back operations as expected profitability has diminished due to weak turnover, high red tape and growing fiscal burden. On the margin, opting for early retirement looks like an increasingly appealing option. Be it because of severe balance sheet pressures or because of less attractive future returns, the economy is losing productive capacity at a disturbingly high pace.
Normalisation is not in sight: need of continued support So far, additional liquidity provided by the ECB has not resulted in a reactivation of the lending cycle but it has enabled banks to sustain revenues (NII, trading) through the purchase of sovereign bonds. We think banks may need strong support measures for longer than the LTRO term (early 2015) in order to absorb further credit losses. Alternatively, the system could undergo an immediate extensive clean-up, but this might require further capital injections at the weakest banks.
https://mninews.marketnews.com/index.php/german-constitutional-court-hold-hearing-esmecb-june?q=content/german-constitutional-court-hold-hearing-esmecb-june
German Constitutional Court To Hold Hearing On ESM/ECB In June
FRANKFURT (MNI) - Germany's constitutional court has set a date in June to hear arguments in its main proceeding against measures taken by the Eurozone and European Central Bank in response to the Continent's debt crisis.
The court on Friday announced a two-day hearing for June 11-12 in the case. Topics include the ECB's OMT and SMP bond-buying programs as well as the constitutionality of the European Stability Mechanism, the ECB's Emergency Liquidity Assistance program and the debt restructuring program for Ireland.
The court, based in Karlsruhe, already paved the way for ratification of the ESM when it refused to grant a temporary injunction against the rescue fund in September, after an unprecedented three-month deliberation.
At the time, it found the ESM and fiscal compact to be constitutional "with a high probability". Court experts agree the panel is extremely unlikely to reverse its decision in the main proceeding this year, given its clear interest in removing uncertainty.
In its September judgement, the court reserved the right to conduct a full review of the European Central Bank's new OMT bond-buying program, though it also rejected a temporary injunction sought against the ECB's plans at the time.
http://www.zerohedge.com/news/2013-04-25/just-say-nein-bundesbank-rejects-omt-again
Just Say Nein: Bundesbank Rejects OMT (Again)
The last few minutes have seen markets taking a decidedly negative stance. Led by FX carry, risk-assets in general are rolling over. Some attributed it to Bernanke waking the devil from his slumber:
- *BERNANKE SAYS VULNERABILITIES REMAIN IN FINANCIAL SYSTEM
but it appears that the decision of Germany's Top court is the market-moving event:
- *BUNDESBANK REJECTS OMT IN OPINION FOR TOP COURT: HANDELSBLATT
Instantaneously EUR is tumbling, financials are dropping, and the 'promise' of Draghi's tail-risk killer is perhaps being removed. Remember, the high court is due to vote in June on whether the ESM is constitutional under German law and this rejection of 'OMT' leaves that decision much more in limbo than the market was expecting.
Via Bloomberg:
German Bundesbank comments on the ECB’s bond-purchase program in a confidential opinion prepared for German constitutional court,Handelsblatt reports in an pre-release of an article to be published tomorrow.
- Bundesbank rejects potential sovereign bond purchases because they would constitute “targeted” acquisitions of securities of “worse credit standards” and increase risks for the central bank: Handelsblatt
- Bundesbank says outright monetary transactions could undermine independence of central banks
- Bundesbank doubts that strong conditionality will be imposed on countries in exchange for aid
- Bundesbank says the Greek experience “is reason for concern that the handling of conditionality within the framework of the OMT program, even in questionable cases, won’t protect against significant purchases and thereby against a redistribution of risks across the balance sheets of the Eurosystem”
- Bundesbank says diverging borrowing costs for companies in different countries may reflect different fiscal risks of sovereign
NOTE: German constitutional court announced it will examine ECB bond-purchase program
Of course, Draghi can just say 'Yes' to this 'Nein' but the points the court raises for the BuBa are hard to argue with...
News from Greece ....
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_25/04/2013_495892
Germany rejects joint EU bank deposit scheme
Germany rejects at least for now a standardized Europe-wide bank deposit guarantee scheme, Chancellor Angela Merkel said on Thursday.
Germany, Europe's largest economy, fears such a scheme would leave its taxpayers footing the bill for mistakes made by banks in other euro zone countries.
Speaking in the east German city of Dresden, Merkel also reiterated her center-right government's view that in the future bank shareholders should also suffer losses in the event of their institutions receiving euro zone rescue funds.
Wealthy depositors in Cypriot banks were forced to take a hit as part of the recent international bailout for Cyprus. [Reuters]
http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_25/04/2013_496002
Cyprus partly eases capital controls
Cyprus has further eased capital controls imposed last month to prevent a run on deposits, raising the threshold for transactions that do not require prior approval by the central bank, the finance ministry said on Thursday.
With the latest decree, Cyprus has permitted transactions up to 500,000 euros ($650,300) domestically without prior vetting, the ministry said in a statement.
Banks on the island were shut down for nearly two weeks in March after Cyprus agreed a 10-billion-euro ($13-billion) international bailout that forced major depositors at its two biggest lenders to pay part of the cost of the rescue.
The banks reopened under tight restrictions on March 28, a first in the history of the euro zone, to prevent a run on deposits by panicked savers.
Firms, which cannot make transfers exceeding 20,000 euros overseas unless they are vetted by the central bank, had complained the restrictions were stifling. Russia had warned it would only restructure its loan Cyprus if its interests were protected.
Finance Minister Harris Georgiades told Reuters he was confident the controls, which he called «necessary but temporary measures», would gradually be lifted within the next six months.
Other provisions of the new decree raised the amount individuals can transfer domestically to 10,000 euros a month from 3,000 euros, and to 5,000 euros from 2,000 euros abroad.
Travellers may now take 3,000 euros abroad, increase from 2,000 euros. Other restrictions, such as a 300-euro cash withdrawal limit and a ban on cashing cheques, remained in place.
Cyprus news of the day...... Cyprus Parliament to vote April 30, 2013 on Troika bailout
http://famagusta-gazette.com/ep-hearing-on-cyprus-by-troika-postponed-to-may-p19078-69.htm
EP hearing on Cyprus by Troika postponed to 8 May
Bowles informed her EP colleagues at the beginning of today’s session that the hearing was postponed and called them not to pose questions on Cyprus at Vice President Oli Rehn who participates in the hearing. She did not explain the reasons for the change of date but according to community sources, the hearing had to be postponed due to Eurogroup President Jeroen Dijsselbloem’s inability to take part in the meeting. The Group of the Alliance of Liberals and Democrats for Europe has called for a special committee to be set up to investigate and apportion responsibility for the Eurogroup decision on Cyprus. The ALDE group believes it is extremely important to investigate in depth the case of Cyprus and that the committee that will be set up should invite all interested parties, ie the European Central Bank, the European Banking Authority, Eurogroup and Troika. Guy Verhofstadt MEP Leader of ALDE Group had said that this is the only way to evaluate correctly the situation and see if mistakes have been made and by whom so that a similar incident does not happen in the future. — (KYPE)
http://famagusta-gazette.com/fm-cyprus-feel-disappointment-and-bitterness-toward-eu-p19077-69.htm
FM: Cyprus feel disappointment and bitterness toward EU
He said Cypriot government could neither have predicted the way that Cyprus was treated by its European partners, nor the unprecedented decision of the Eurogroup to impose a haircut on deposits. Kasoulides noted that “this treatment of a fellow EU partner, which can hardly be described as solidarity, has left us with a feeling of disappointment and bitterness.” He added that the economic difficulties of Cyprus have unfortunately and unexpectedly been seen as an opportunity to answer the long-standing question about the banks that are ‘too big to fail’. “Cyprus was the perfect candidate to put new ideas to the test. It represents only a small percentage of the EU economy and, as it was supported by some, a possible collapse of its economy would be a non-systemic event. So, instead of being treated as an EU partner, Cyprus became an economic guinea pig,” said the minister. He recognised that Cyprus needed to act much earlier in dealing with the deteriorating economy by introducing fiscal consolidation measures. However, he criticised the “shock treatment that had to be decided upon and implemented overnight” as well as the presentation of the bail in as the saviour of EU taxpayers and a rightful and deserving punishment for the reckless behaviour of banks. “What we forget or intentionally disregard is that this solution also affects real people,” demurred Kasoulides. He expressed his confidence that yet again, as in 1974 following the Turkish invasion, the resilient and hardworking Cypriot people will overcome these harsh difficulties facing them. Kasoulides added that the government’s focus is to rethink the country’s economic model. Turning his attention to recent queries by members of both Houses of Parliament in Westminster about possible UK stakes on the mineral wealth and the Continental Shelf of the bases areas, the Cypriot Foreign Minister reminded that the Treaty of Establishment determines that the bases are to be used solely for military purposes. He referred to a very recent statement by Baroness Warsi in the House of Lords, which was very clear on the finality of such presence. “Given the specific nature of the rights exercised by the UK in the base areas, only issues pertaining to such use, for instance unrestricted access, are relevant to their status, with the exclusion of issues pertaining to sovereign rights of the Republic of Cyprus over its Exclusive Economic Zone and its Continental Shelf, in accordance with the Law of the Sea,” said Kasoulides. He commented that in most of the cases of relevant Parliamentary Questions the positions of the UK government are in line with those of the government of Cyprus, since both are based on commonly accepted principles: “Firstly, the British bases in Cyprus can be used solely for military purposes, and secondly, the mineral resources/wealth, both on the land and in the surrounding waters belong to the Republic of Cyprus. It goes without saying that, if and when, we need to exploit mineral resources in the territory of the Bases, this will be done by the authorities of the Republic, in accordance with the relevant provisions of the Treaty of Establishment.” The Foreign Minister also took the opportunity to express understanding for the difficulties that British residents in Cyprus face with regards to real estate title deeds. As he said, many Cypriots face the same problem too and to this end, the government aims to introduce a speedy and fast track system to assist foreign nationals wishing to invest in real estate. The last part of the minister’s speech was dedicated to foreign policy matters, especially regarding the Cyprus issue. Adding to his affirmation that there is absolute legal certainty about the international status of the Republic of Cyprus and its government, as the sole and only legal government on the island, irrespective of what Turkey may say or claim, Kasoulides said that while Nicosia desires a swift resumption of talks, the need to urgently address the economic issues does not allow an immediate new round of negotiations. Nevertheless, Kasoulides pointed to two elements that need to be explored before the resumption of negotiations describing them as of paramount importance. “The first element is that the negotiations must be well prepared in advance. The talks so far did not yield any tangible results and the ‘Cypriot ownership’ framework has failed to reach a positive outcome. It is, therefore, necessary to consider carefully how the new process will be structured. The second element relates to the need to cultivate a positive climate before and during the negotiations,” explained the Foreign Minister. Regarding the preparation of the negotiations, he said that he firmly believe they should be carried on at different levels with the participation of special representatives from the two communities. “Their status should allow them to consult with Ankara. We should recognize that not everything is depended solely on the two communities,” he told his audience, adding that in order to be more effective and achieve tangible results there needs to be a new methodology of talks, one that will be based on cross-chapter negotiations. Commenting on his Turkish counterpart’s claims that the election of a new President in Cyprus creates a window of opportunity for the solution of the problem, Ioannis Kasoulides said that this could happen not through theoretic and rhetoric statements, but through concrete actions. “That is why Turkey, just like Cyprus, needs to be ready to send positive, concrete signals and to reciprocate specific gestures of goodwill. Unfortunately, the Turkish government is clearly showing that it is trying to take advantage of the economic situation in Cyprus for short-term political benefit,” Kasoulides said. He added that the Cypriot government will not allow the imposition of unacceptable terms for a settlement through efforts to take advantage of the financial difficulties on the island. He also expressed his hope for a constructive UK stance on the bi-yearly SG Report on the UN Operation in Cyprus, as well as on the adoption of the next UNSC Resolution. Kasoulides concluded by referring to the energy prospects of Cyprus and reiterating that decisions and actions of the Republic of Cyprus to explore and exploit its natural resources within its Exclusive Economic Zone fall within its sovereign rights and are in full conformity with international law, despite angry verbal assault at the highest levels by Turkish leaders. “These natural resources, including hydrocarbons, belong to the only state in Cyprus, the Republic of Cyprus. They also belong to the Cypriot people as a whole. With the solution of the Cyprus problem, these natural resources will remain the ownership of the state, of the people and of the two communities. It is the right and the responsibility of the Government of Cyprus to manage these natural resources, for the benefit of all Cypriots,” added Kasoulides. — (FG/Agencies)
http://famagusta-gazette.com/first-payment-of-bailout-money-for-cyprus-next-month-p19074-69.htm
First payment of bailout money for Cyprus next month
Referring to the European Stability Mechanism procedure, the same European sources noted that for the second installment it would not be necessary to evaluate the course of the programme, and that this would begin in September before the disbursement of each installment. From the total of €10 billion, of which €9 billion will come from the Eurozone and €1 billion from the IMF, €2.5 billion will be allocated for the capital needs of the Cypriot banks, excluding Laiki Bank and the Bank of Cyprus, €1 billion will be allocated for the debt, and €3.4 billion for budget needs. The repayment of the loan will begin after ten years and the interest rate, based on current calculations, will be around 2%.
http://hat4uk.wordpress.com/2013/04/25/ec-coup-planned-for-cyprus/
EXCLUSIVE: BRUSSELS MULLING PRE-EMPTIVE ANNEXATION OF CYPRUSBusiness community discontent pushes EC into plans for total control
Draconian new property tax a condition of receiving bailout loan
Sources in Brussels allege that the European Commission has been exploring ‘stages of media information development’ in order to establish much tighter control over the immediate future of Cyprus. The bottom line will be on-the-ground fiscal and financial policy management by technocrats. The move is being prepared in the light of a strong desire among influential public figures in Cyprus to get out of the euro as soon as possible. Sources on the island last night confirmed that the business and political communities there remain irreversibly unhappy about the deal reached with the Troika recently.
A three-stage media-spin operation is being hatched in Brussels to rationalise and disguise an effective annexation by the EC of Cyprus.
The first stage being followed at the moment consists of “it is all going rather well, the problem has been overstated, but the Cyprus banks are now fully stabilised, and the EC hopes very soon to be able to supply the Government with investment funds to speed up exploitation of offshore energy and mineral deposits, thus giving the island a more soundly based economy that it had before”. It is, of course, complete bollocks, but this part of the spin operation is already starting: the Cyprus Mail this morning confirms that ‘Cyprus is on track to get €3 billion by the end of June after the Board of Governors of the European Stability Mechanism (ESM) yesterday decided to show “solidarity” and grant, in principle, financial assistance to the troubled island.” On cue, FinMin Chairman Djisselbloem this morning added, “By providing loans of up to €9 billion the euro area member states are showing solidarity with Cyprus. The implementation of the conditions attached to the assistance should ensure that Cyprus can build its economy on a sustainable basis.” What he didn’t say, however, is that the interest rate will be 2.5%, and not be repaid for 35 years. Thus Cyprus is about to join Greece as a prisoner state in the EU.
The second stage will begin as follows: “Nicosia has been lying to us about the size of the debt problem. This is iniquitous but sadly true, and we told you so. They will now need more money sooner than we could have known. The haircut being applied to those who foolishly risked their money by investing in crazily high interest rates will thus have to be much higher.”
We can expect supine euromedia to start peddling this one any day now. Effectively, the result will be total confiscation for larger depositors. The EC is hoping to cement this part of the rationale (and stifle opposition) by witch-hunting any examples of suspected wrongdoings among MPs. Already recognising that this rumour is widespread on the island, President Anastasiades issued a back-handed press release yesterday stating that ‘the government neither intends nor aims at penalising political life in Cyprus, [but] at the same time no one enjoys immunity with respect to the investigations into the circumstances that have led economic hardship.’
It’s already clear, meanwhile, that even the €10billion bailout needs some newly onerous taxes to get off the ground for Cyprus to receive it. Government spokesman Christos Stylianides said yesterday that a new property tax was being rushed through: “We must send a bill to parliament … because we all know that we need the disbursement of the first tranche,” he told Cypriot media. The new tax will be paid by property owners towards the end of September, and hopes to bring in a 150% increase on the Cypriot residency system, from the current €30 million to €75 million.
The Cypriot business community is rightly suggesting that this can only suppress consumer demand and worsen the island’s economic outlook.
The final part of the rationale will stress that, due to the Nicosian government’s corruption in tipping off its criminal friends, the EC has now established very tight currency controls, but these will have to remain in place for longer than they thought. Senior EC staff will thus have to oversee this process on the ground, and also assist in giving the political process technocratic help.
This last stage, if reached, would act as the rationale for a complete takeover of the island….almost a form of direct rule as existed during the 1970s troubles in Northern Ireland. To this, it seems, will be added some pleading about Cyprus having problems that could easily destabilise the entire EU, and so the EC must be hands-on.
As a programme of disguised annexation, from the Belgian-Berlin gargoyle standpoint, this move is being mooted as vital: for the truth is that a growing number of politicians and senior businessmen on the island have spent the last ten days lobbying Cypriot leaders very hard for an immediate exit from the eurozone, a rapid default, and then the re-establishment of a new currency. This last, they argue, is vital if Cyprus is to become competitive again – because it will immediately drop like a stone in value.
The lobbyists argue (and they’re right) that without this approach, the Cypriot GDP could easily fall by 25-30% in the next two years, and result in inevitable political instability….perhaps even a Turkish move to take advantage of it and establish hegemony over the island.
Hence the urgent need for the EC to complete a de facto annexation in the guise of a ‘rescue them and protect ourselves’ approach.
“The destruction of Cyprus’s banking business and the removal of all credit for small business here means we now have nothing to gain at all by staying in the euro,” said a source on the island. “Our group has been stressing this constantly before and since the deal”.
But my Brussels mole says he doubts the potential success of any such move to leave.
“For once, the Commission has seen this one coming,” he told me, “And they’re keen to establish their power to control things on the ground. Cyprus is under half a percent of the EU economy and of little real significance. But any sign of [Brussels] weakness could easily make things worse in places like Italy.”
Also, lest we forget, Cyprus is surrounded by a fortune in energy and mineral deposits.
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