http://www.zerohedge.com/news/shocking-development-ecb-demands-impairment-senior-spanish-bondholders-eurocrats-resist
Submitted by Tyler Durden on 07/15/2012 17:53 -0400
and.....
http://www.zerohedge.com/news/markel-majority-fades-internal-revolt-may-signal-referendum
Submitted by Tyler Durden on 07/15/2012 14:26 -0400
http://globaleconomicanalysis.blogspot.com/2012/07/italy-loan-moratorium-for-small-and.html
Italy Loan Moratorium for Small and Medium-Sized Businesses
Please note that things are so bad that Italian Loan Moratorium Approved.
In Shocking Development, ECB Demands Impairment For Senior Spanish Bondholders; Eurocrats Resist
In a landmark shift in its bank "impairment" stance, the WSJ reports that "in a sharp turnaround" has advocated the imposition of losses on senior bondholders at the most "damaged" Spanish savings banks, "though finance ministers have for now rejected the approach, according to people familiar with discussions." The WSJ continues: "The ECB's new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain's struggling local lenders in Brussels the evening of July 9. It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks--which, like Spain's, were victims of a property meltdown--when it prevailed in its insistence that senior bondholders in bailed-out banks shouldn't suffer losses." Needless to say, if indeed the fulcrum impairment security is no longer the Sub debt, but Senior debt , as the ECB suggests, it is only a matter of time before wholesale European bank liquidations commence as the ECB would only encourage this shift if it knew the level of asset impairment is far too great to be papered over by mere pooling of liabilities (think shared deposits, the creation of TBTF banks, and all those other gimmicks tried in 2010 when as a result of Caja failure we got such sterling example of financial viability as Bankia, which lasted all of 18 months). It also means the European crisis is likely about to take a big turn for the worse as suddenly bank failures become all too real. Why? Senior debt impairment means deposits are now at full risk of loss as even the main European bank admits there is no way banks will have enough assets to grow into their balance sheet.
Obviously, the ECB's 'revolutionary' suggestion will be met by harsh criticism at the FinMin level across Europe because if taken seriously it would mean the threat of wholesale bank runs. Sure enough, as the WSJ reports:
The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as EUR100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order.A spokesman for the European Commission, the EU's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles, in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may also be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.During the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.Of course, if Senior bondholders are impaired, even in one-off instances, revisionism, primarily out of Ireland will hit a fever pitch, where everyone will demand an answer why Ireland had to bailout Senior debt holders, while Spain, and soon Italy, will get away with bank impairment.But a chief reason ministers decided not to make more privileged bondholders take losses was the Irish precedent, two people said. Dublin has had to pump more than EUR60 billion, equivalent to around 40% of its annual gross domestic product, into several struggling lenders, forcing it to request a EUR67.5 billion bailout from other European countries and the International Monetary Fund in 2010.Forcing senior creditors to take losses in Spain would raise more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.So while Europe vacilates, there is still not definitive method to restructure failed and failing banks:"We have general company law [on bankruptcy cases], but we have so far no bank-specific law," said Karel Lannoo, chief executive of the Brussels-based Centre for European Policy Studies.The EU is now trying to rectify this situation and in June proposed a new legal framework for dealing with failing banks, which is cited in the Spanish bailout accord as a model. Crucially, the new rules would force national authorities to force losses on--or "bail in"--all creditors, for instance by converting debt into shares, when a bank has to be recapitalized by its governments.Yet the question of why the ECB would even propose this revolutionary shift to all out impairment remains: after all, as anyone who had done even one Chapter 11 corporate case knows, at the end a company's assets must be just greater than its liabilities for fresh start restructuring: something that the banking sector has not seen once since the Lehman collapse.And while such a return to reality would mean the potential to actually fix the situation, it would also mean the possibility of not only continent-wide bank runs, but all out balance sheet impairments courtesy of daisy-chained balance sheets, where one bank's liabilities are rehypothecated as another banks' assets in a virtually infinite loop, and where even the tiniest impairment causes the house of cards to fall.Draghi is well aware of this, and the only reason he could bring it up is if he knows that absent full loss recognition, initially at selected venues, but gradually everywhere, there is simply not enough cash-good assets for the European financial system to "grow into its balance sheet."The only question is how long until depositors, whose €10 trillion in cash makes the backbone of European bank liabilities, also figure out that their cash is backed by worthless assets, and then how long until they decided to, well, simply withdraw it...
and.....
http://www.zerohedge.com/news/markel-majority-fades-internal-revolt-may-signal-referendum
Merkel Majority Fades As Internal Revolt May Signal 'Referendum'
Despite assurances that "we always get the majority we need" by Frau Merkel, the FT reports that the Bundestag's vote this Thursday (expected to come down in favor of the bailout) will not gain the so-called 'Chancellor's majority'. While she retains an overall majority of 19 (from the ranks of her own Christian Democratic Union, its Bavarian sister party, the Christian Social Union, and the liberal Free Democratic party in her coalition), the recent ESM vote saw 26 of her supporters rebel (voting 'Nein' or abstaining) - though ended up being passed thanks to support from SPD and The Greens. While a 'Chancellor's majority' is not required to approve the EUR100 billion Spanish bailout, "Anything other than a chancellor’s majority is a defeat, and a sign of the erosion of the power of the chancellor," which leads us down the path we have noted previously of the inevitability of a referendum-like vote next year (which may just be the leave-the-Euro-coz-that's-what-the-people-want 'out' Germany has been looking for). Certainly, the vote is no panacea (politically or economically) as Jens Weidmann notes that the bailout would be more effective 'conditions' were applied across Spain, adding that "It would have a positive effect on the bond market if investors saw that the conditions... went beyond the banking sector".
and....
http://www.dw.de/dw/article/0,,16090610,00.html
The eurozone's permanent rescue fund (ESM) and the fiscal pact for EU budget discipline are under review by Germany's highest court. Christoph Degenhart, a constitutional lawyer and one of the plaintiffs, takes stock.
Deutsche Welle: What was your impression of the hearing - it actually went on for quite a long time?
Christoph Degenhart: The fact that the hearing took so long – after all, we heard the case for 11 hours, which nobody had expected – shows that the judges take our concerns and objections very, very seriously. They want to have a thorough look at the case.
In how far is this proceeding different from other proceedings to save the euro?
Degenhart expects a thorough review
I wasn't directly involved in past proceedings on rescuing the euro. But I believe that we succeeded in communicating to the court that these new measures to save the euro - if that's how you want to word it, in reality, banks are being rescued – have reached a different dimension from previous efforts.
German Finance Minister Wolfgang Schäuble is concerned that the court appears to be taking longer to decide in what are supposed to be fast-track proceedings. He has warned of turbulences on the markets triggered by delaying the ESM's implementation. What's your take on this?
To begin with, the markets are no constitutional criteria. All I can say is, after the hearing in Karlsruhe, I couldn't detect particular skittishness on the stock markets, nor had stock prices crashed. Instead, German Central Bank President Jens Weidmann said markets had already "factored in" this delay. Reaction on the markets to these developments is standard. I think concerns are wildly exaggerated. We can discuss this again in three weeks' time - the date a decision is due for these fast-track proceedings. If the finance minister's prophesies come true, there would be total chaos, and the end of the world would be near. But as you will see: that is not going to happen.
I'll take you by your word. We'll talk again in three weeks. But back to Bundesbank President Jens Weidmann, who said in the hearing that the consequences the court has to weigh in the course of the accelerated proceedings are "highly speculative." And in fact, very few objective figures have been named - only those the parties involved need to substantiate their positions. So how valid can the Constitutional Court's weighing of consequences really be?
It is precisely because no one can present a sustainable calculation that the consequences evoked are purely speculative. On the other hand, we must take into account the damage an immediate implementation of the ESM and fiscal pact treaties would have for democracy. These consequences can be validly documented. So, we have the stronger arguments on our side, even where calculating the consequences is concerned.
Christoph Degenhart is a constitutional lawyer and an expert on constitutional law and media law. He teaches at the University of Leipzig in eastern Germany. On behalf of the citizens' group "More Democracy", he and former Justice Minister Herta Däubler-Gmelin represent about 23,000 plaintiffs in the proceedings before Germany's highest court, the Constitutional Court in Karlsruhe, against the ESM treaty and the fiscal pact.
and.....
Sunday, July 15, 2012 2:47 PM
Loan Moratorium in Italy for Small and Medium-Sized Businesses; GDP Expected to Contract 2 Percent
Italy's new economic minister expects 2012 GDP fall "little less" than 2 percent.
Italy's GDP is expected to shrink "a little less" than 2 percent, the country's new economy minister Vittorio Grilli said in a newspaper interview published on Sunday.Optimistic PoliticiansGiven that politicians are nearly always overly-optimistic in such forecasts, look for a collapse in GDP closer to 3% than 2%.
Grilli, who took over the economy portfolio from Prime Minister Mario Monti on Wednesday, made his comments in a long interview with the Corriere della Sera newspaper.
The Bank of Italy governor has forecast that the economy will shrink by 2.0 percent and employers' lobby Confindustria has forecast a contraction of more than 2.4 percent.
Italy Loan Moratorium for Small and Medium-Sized Businesses
Please note that things are so bad that Italian Loan Moratorium Approved.
Small and medium-size Italian companies will be permitted to suspend payments on 3.6 billion euros ($4.4 billion) of debt for as long as a year, the Finance Ministry of Italy said on Saturday.
Since a loan moratorium began on March 1, Italian companies have made 16,000 applications to postpone 5.5 billion euros of payments, the ministry said. About 10,000 applications were processed through May, and the rest are being addressed.
The nation’s business associations and the Italian Banking Association agreed this year to extend an earlier moratorium to cope with the country’s fourth recession since 2001. The previous moratorium, begun in August 2009, allowed 260,000 companies to delay 15 billion euros of payments, the association said in February.
This moratorium is nothing more than an attempt to keep bankrupt and underperforming businesses alive. In a free market, uncompetitive businesses should fail. Thus, the moratorium is a mistake.
and Rajoy is facing a de facto revolt- and based on the further austerity being imposed , if will be a full bore revolt soon .....
Unemployed to lose benefits under mere “suspicion” of fraud
Unions slam change under which Labor Ministry will not have to provide proof
EL PAÍS Madrid 15 JUL 2012 - 21:30 CET
The government’s cutbacks in unemployment benefit payments have taken an Orwellian turn with the announcement that even a suspicion of fraud will be sufficient to suspend payments. As part of its latest austerity drive the Popular party government last week cut the payment of unemployment benefit from 60 to 50 percent of the salary earned previously after a person has been out of work for six months.
Until now, a person suspected of defrauding the system — by working while claiming benefits — would lose the right to claim only if and when fraud was definitively proven. In some cases the loss of benefits is temporary; sometimes it is permanent. Under the new regulations, these sanctions can be imposed whether actual proof of wrongdoing is obtained or not.
The Labor Ministry justified the decision by saying that this would increase its armory in the fight against fraud. But the labor unions decried the announcement as opening the door to “arbitrariness and the criminalization of the unemployed worker.”
and....
Will the VAT hike be enough?
Unprecedented cutbacks in public spending and more indirect taxes threaten an already shrinking economy
EL PAÍS Madrid 15 JUL 2012 - 19:54 CET
Finance Minister Cristóbal Montoro refused to answer journalists’ questions following Friday’s Cabinet meeting about the details of the package of spending cuts and tax hikes that aims to remove 56.4 billion euros from the public deficit over the next 30 months. Instead, he decided to outline the measures in a document written in English — seemingly putting the concerns of the international investment community over those of the Spanish electorate — uploaded to the Economy Ministry’s website on Saturday.
The document explains that of the 56.4 billion euros, some 29 billion will come from tax hikes, with the remainder from spending cuts that will see unemployment benefit reduced, along with civil servants’ pay.
The government is pinning its hopes of denting the deficit on the three-percent hike in sales tax that takes VAT to 21 percent, and which it claims will net an extra 22.1 billion by 2014. Spain’s lower rate of VAT will rise from eight percent to 10 percent, while the net covering the higher rate will be extended to include cinemas, theaters, flowers, funerals, night clubs, digital television and hairdressers — all of which will cost 13 percent more overnight as of September 1. The super-reduced rate levied on medicines, basic foodstuffs and books and newspapers stays at four percent.
With the economy showing no signs of recovery, the government says that it expects to raise just 2.3 billion euros in the fall — but it hopes to generate 10.1 billion in 2013, and 9.7 billion the following year.
The unprecedented measures were first announced on Wednesday by Prime Minister Mariano Rajoy in a rare appearance before Congress breaks for summer. Rajoy said he intended to remove 65 billion euros from the public deficit. The 8.6 billion euro shortfall will be covered by other measures such as new taxes on the energy sector which are expected to be announced later this month.
The Cabinet also approved an overhaul of city and regional governments, wage cuts for public workers and cuts in unemployment benefits. Later this month the government will pass a reform of the energy sector and laws to liberalize the rail, road and air transport sectors.
As expected, the ministers approved a new mechanism to help Spain’s 17 semi-autonomous regions, currently shut out of international financial markets, to fund themselves and repay their debts. The instrument, which will have a maximum capacity of 18 billion euros, will be funded through a six-billion-euro loan from the state lottery and by the Treasury. The regions will however retain full responsibility to repay any loan they obtain from the fund and they will have to meet conditions including more work on cutting their public deficits.
Economy Minister Luis de Guindos said the Treasury, whose credit rating is already on the verge of junk territory and could be affected by this new burden, would not change its debt-issuance calendar. The government also indicated that it would soon pass deep reforms of the energy as well as rail, road and air transport sectors. It will also eliminate tax breaks on properties.
Deputy Prime Minister Soraya Sáenz de Santamaría said the government would discuss with other political parties a bill to guarantee the “sustainability” of the pension system. Such a reform — which would break one of the last campaign pledges that Rajoy has so far managed to keep — is a long-standing demand of the International Monetary Fund and the European Commission. Rajoy said on Wednesday the discussion would be based on recommendations from the European Union to establish a stronger link between the pension schemes and life expectancy.
The announcements have sparked anger among the electorate. On Wednesday, a miners’ march against a cut in subsidies was swelled by protestors against the cuts, while on Friday public sector workers blocked streets and railways in Madrid to draw attention to cutbacks they said hurt ordinary people more than the bankers and politicians blamed for the country’s economic crisis.
More than 100 civil servants gathered outside the presidential palace, whistling and booing as Rajoy’s ministers convened under pressure from euro zone leaders and financial markets to approve the new budget plan.
“Spaniards are living today one of the most difficult and traumatic moments of our history, a crisis which has mutated into a daily drama for millions of Spaniards,” Sáenz de Santamaría would later admit at Friday’s news conference. Acknowledging the widespread economic pain, she added: “Thousands of Spaniards have been pushed to the edge, and millions are unemployed.”
Spain enjoyed 30 years of almost uninterrupted economic growth until 2007, but is now on the front line of the euro-zone debt crisis after crippled banks, indebted regions and a new, deep recession are stretching the country’s public finances and unnerving investors.
Its borrowing costs have soared in recent months and many investors believe that after seeking up to 100 billion euros from the European Union’s rescue fund for its banks, the government could soon follow Greece, Ireland and Portugal in seeking a state bailout. The question is whether this latest austerity package, in spite of possibly winning Spain a little more time from the markets, could deepen the country’s economic woes rather than solve them.
The government has few cards left to play to avoid a state bailout. Falling revenues will make it hard to control spiraling debt and meet deficit targets, even after they were eased this week.
Rajoy’s announcement followed European officials agreeing earlier this month to allow Spain an extra year to meet its budget deficit reduction targets and iron out further details of the 100 billion euros to be pumped into the country’s banking sector. Having repeatedly pledged that his government would not waver on a plan to reduce Spain’s budget deficit to 5.3 percent of economic output for this year, Rajoy’s government was last week permitted to reduce the target to 6.3 percent by Brussels, and was given an extra year to come within the three-percent EU agreed limit.
Spain has been punished by the international investors it needs to buy its government debt, who have pushed up the country’s 10-year borrowing costs in recent months to euro-era highs as Rajoy battles to clean up the country’s banking sector and bring down public spending.
By raising VAT, the conservative leader was forced to add to a growing list of policy reversals in his time in office, having stood against tax increases made by the previous government when in opposition. “I said I would reduce taxes and I am increasing them... the circumstances have changed and I have to adapt myself to them,” Rajoy said.
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