http://www.zerohedge.com/news/2013-04-01/eurozone-roulette
Submitted by Tyler Durden on 04/01/2013 13:58 -0400
Submitted by Tyler Durden on 04/01/2013 18:54 -0400
Eurozone Roulette
The $13 billion bailout in Cyprus is small (in 2011, France and Germany made $80 billion of loans and grants to developing countries) and as JPMorgan's CIO, Michael Cembalest, notes the situation is in many ways unique. However, he warns, the latest melodrama reinforces the inconsistent and chaotic nature of EU policy-making. Bondholders, equity investors, bank depositors and citizens of Europe are at risk of unpredictable outcomes as they play Eurozone Roulette. Here’s where they might land on any given spin:
Depositor confiscation and subordination:The EU eventually backed off, but the initial proposal for Cyprus involved a confiscatory tax on small and large Cyprus depositors, both foreign and domestic, with no loss to senior bond-holders (effectively subordinating the depositors). It was a shocking policy proposal in a region where confidence is everything: uninsured bank deposits range from 45% (Spain, Germany) to 80% (UK, Italy) of total bank deposits. Note: Laiki bank branches in the UK were not subject to deposit withdrawal restrictions, even though their branches in Cyprus were.
Zero risk weight applied to sovereign bonds: Even after Greek bonds suffered principal losses, EU banks have the flexibility to use 0% risk weights on EU sovereign debt as per “IRB permanent partial use rules”, regardless of the country’s credit rating.
Maastricht Ja/Nein!!!: From the inception of the Maastricht treaty in 1992 to 2008, there was not a single year when both France and Germany were in compliance with Maastricht debt and deficit targets.Today, Southern Europe is pushed to get in line ASAP.
Loss of tax rate sovereignty: Throughout all the difficult negotiations and bailouts, Ireland was able to keep its 12.5% corporate tax rate despite pressure from the EU to raise it. No such luck for Cyprus, which is being forced to raise its corporate tax rate from 10%. As far as I know, homogenization of EU personal or corporate tax rates was never a condition for Eurozone membership.
Changing protections for senior bank bondholders: There is nothing wrong with bondholders, uninsured depositors or other creditors suffering losses when they are owed by insolvent banks whose asset values are insufficient to cover them. In Ireland however, a bailout was structured to avoid losses on some unguaranteed senior bank bonds which were subsequently repaid (a wealth transfer from Irish citizens to bondholders). In Cyprus, some senior bank bondholders are no longer protected.
Tax Haven Designation: Germany’s Federal Intelligence Service concluded last fall that an aid program for Cyprus would benefit certain Russian depositors with billions of dollars in deposits in Cyprus, and that “Cyprus is a gateway for money laundering activities in the EU”. Fair enough; Cyprus is seen as a personal tax haven. But according to a US Congressional Research Service report in January 2013, tax havens cater to both individuals and corporations. One measure of a corporate tax haven is when foreign sourced profits are very large relative to GDP, such that in the words of the CRS, “profits in these countries do not appear to derive from economic motives related to productive inputs or markets, but rather reflect income easily transferred to low-tax jurisdictions”. On this measure, Luxembourg leads the pack at 18% of GDP, 2x higher than Cyprus and 6x higher than Switzerland, Singapore and Panama. The degree, time and place of EU concern about tax havens can vary substantially.
ECB asserts preferred creditor status: The ECB owned ~50 billion Euros of Greek sovereign debt that was not restructured along with the private sector. Typically, preferred creditor status is reserved only for entities like the IMF and World Bank.
Proposed bonus caps on stand-alone asset management firms and UCITS funds (including regulated hedge funds): Because their investment activities played such a large role in the EU sovereign debt crisis? Because they were beneficiaries of official sector deposit insurance and lots of ECB lending? I can’t find evidence of either one happening, but maybe I am not looking hard enough.
Defenestration of your Prime Minister: As in the Prague defenestration of 1618, when the imperial governor was thrown out of a window. Circumstances will never be known with certainty, but it is clear that the EU put enormous pressure on Italian Prime Minster Berlusconi. In August 2011, ECB President Trichet sent a letter to Berlusconi asking for a long list of reforms and a balanced budget in exchange for the ECB’s bond purchasing program. Berlusconi’s responses were seen as inadequate by other EU leaders, and Italian spreads widened further. Berlusconi lost the support of the Liga Norte, and was forced to resign. Circumstances were not that different in Greece, where Papandreou resigned in favor of a unity government that would execute EU-sought structural reforms, and in Spain, where Zapatero stepped aside to allow for early elections.
Source: JPMorgan (Michael Cembalest - full pdf)
News for "u" ......rozone
GUIDE
http://hat4uk.wordpress.com/2013/04/01/global-looting-monte-paschis-flying-circus-2/
GLOBAL LOOTING: Monte Paschi’s Flying Circus
Just because they haven’t done it yet, doesn’t mean to say they won’t.
Well, here we are on Bank Holiday Monday afternoon, and so far the Eunatics haven’t introduced capital controls. This must surely be the signal for pgfpowell the reluctant Slogger to write in and say yah-boo sucks, you got it wrong again. But this is because Patrick doesn’t grasp the difference between a journalist and an analyst.
Return to my piece of Friday, and you will see that I called CCs ‘a strong possibility’, listed some signs of obvious preparation for it, and concluded that ‘we have a four-day weekend here, when all the fingers are away from all of the buttons’. As I said at the outset of the post, ‘what else would you try to effect during a bank holiday?’
The ECB/Troika spectrum of Eunatics chose not to do it…by the looks of things. And my analysis now would be that they’ve blown it – thus condemning the euro to death. Here’s why.
French sources are dubbing Italian bank Monte dei Paschi di Siena “two fingers away from bankruptcy”, and a German contact confirms this with the news that its position has worsened in recent weeks by “over a billion euros”. If you needed any signs of the first Tsunami wave coming in, it’d be hard to find a better one than this. “But that’s a special case” the Eunatics say. Bollocks: it’s a portent of things to come. Want some more?
Panos Kostopoulos of AMP Gold Bullion Merchants Ltd. in Nicosia says that before the bailin, everyone in Cyprus argued against buying gold bullion. Now he gets kilos per day of enquiries for the shiny yellow metal. He thinks the government will close down gold selling to the public within a few days.
Remember: the clowns did nothing for six days while Big Smart Money emptied the Cyprus banks. The result is that depositors now face three times the thefthaircut they started with.
Here’s another: a Greek Slogger alerts me to the fact that Deutsche Bank has issued a press release saying that it is ‘Disappointed with the EU policy response in Cyprus [which] has been very counter-productive.’ The release is genuine, and represents a quasi-official declaration of war on Merkel by the Bankfurters. They too must know that the eurobanks are haemorrhaging money.
And if one needed any more preconditions for the start of JCB buckets being lowered from the crane into our bank accounts, there’s a good article in the New York Times today by David Stockman. The NYT is not exactly my news medium of choice, but this piece contains the following chilling paragraphs:
‘….So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth. …’
The phrase ‘the warfare state or the welfare state‘ gets my vote as the outstanding encapsulation of 2013 so far.
One can critique opinion columns forever and a day, but ultimately if the empirical output points overwhelmingly West, than the chances are that things are going West. So perhaps the most convincing evidence of all is that the Germans remain triumphant. Buoyed by solid finances, roaring exports and low unemployment, Germany (it seems) increasingly sees itself as the only grown-up in Europe, responsible for bringing wayward children into line to hold the family together. The Germans apparently think that some, such as the Cypriots and Greeks and many Italians and Spaniards, are openly resentful of “Mutti”, as Berlin officials privately call Chancellor Angela Merkel. Others, such as the French, they think are sulking. So opined Reuters today; and Simon Tilford, chief economist at the Centre for European Reform, said in the latest edition of the London-based think-tank’s bulletin that “German policymakers have taken to their new found status with something close to gusto. They routinely tell other euro zone countries how to run their economies, citing Germany as a model for the currency union as a whole.”
Thus even as German citizens tell opinion pollsters they don’t trust Merkel to keep her hands off their money, that is a fiscal issue. When it comes to running the economics of the EU, the self-image remains one of the Master Race explaining things to the kiddies. There are many things that can be done for the good of children who know no better. One of them is to take their pocket money away.
You have been warned.
And......
http://www.zerohedge.com/news/2013-04-01/spanish-entrepreneurs-solve-europes-banking-confidence-debacle
Spanish Entrepreneurs Solve Europe's Banking Confidence Debacle
We are unsure whether this is the best produced April Fool's Day joke or a real 'new normal' business-plan sprouting from the entrepreneurial ashes of trust-forlorn Europe. No matter which (Monday Humor or sad reflection on the inevitability of a fractional-reserve-banking model gone rogue) - this 120 seconds is worth the price of admission.
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