It is (un)official (but true): Spain is the fourth fallen Eurozone member-state

When the Spanish Prime Minister declared that the Spanish state would save Bankia while at the same time admitting that Spain could not raise the cash to do it, two were the plausible explanations of how this feat was to be achieved.

  • One was that Spain would officially become the fourth Eurozone member-state to have fallen out of the markets, securing a bailout from the rest of Europe.
  • The second explanation was that Spain would become the fourth Eurozone member-state to have fallen out of the markets, securing a bailout from the rest of Europe, without admitting that this is the case; unofficially.

Guess which of the two options Europe opted for: The second one naturally! Indeed, why come clean when the option of subterfuge is available?

So, this is what they did: Europe allows Spain to issue fresh public debt that it passes on to Spanish banks (instead of money) in exchange for shares. Then, the banks will post this new public debt to the ECB as collateral in exchange for the cash that will keep the Spanish banks’ ATMs going. The end result will be, of course, that Spanish debt will increase and the banks will remain in a zombified state.

Compare and contrast this to what is happening (a) in Greece and Ireland (countries are officially ‘fallen’) and (b) in the case of Italian banks such as Unicredit.

In the case of Greece and Ireland, the state borrows from the EFSF in the form of both cash and EFSF-bonds. The latter is given to the banks and they count as part of the nation’s bailout loans. In the case of banks like Unicredit, the bank would issue new private debt (its own bonds), have the state guarantee it and then post these private (but publically guaranteed) bonds with the ECB in exchange for LTRO cash. What do they three cases have in common? That public debt rises as a result of borrowing either directly from the EFSF (Greece and Ireland) or indirectly from the ECB (Spain and Italy). The only other difference is that countries that are officially ‘fallen’ (Greece and Ireland and Portugal) pay higher interest rates to the EFSF than the unofficially ‘fallen’ pay to the ECB.

Oh what a tangled web they weave, when they practise to deceive (citizens and markets alike)!

112 thoughts on “It is (un)official (but true): Spain is the fourth fallen Eurozone member-state

  1. Spain by numbers

    €27bn: The amount being cut from Spain’s most recent budget.

    11: The number of days Spain’s borrowing costs have been at least 5 percentage points higher than Germany’s. Greece survived for 16 days without a bailout at the same threshold.

    366,000: The number of people who have lost their jobs in Spain so far this year.

    €19bn: The bailout required to save Spanish bank Bankia from collapse.

    62 per cent: The fall in value of the benchmark Spanish stock market index, the Ibex, since 2007.

    51.1 per cent: The rate of unemployment among Spanish youths under the age of 25.

    15 per cent: The expected contraction in house prices over the next year.

    9.8 per cent: The amount by which retail sales fell year-on-year in April 2012.

  2. Pingback: Star Wars pod lampou | Blog JeToTak.sk

  3. Pingback: Radicalismo da Terapia de Choque no seu melhor, na União Europeia (7) « O Peso e a Leveza

  4. Great headline in “Die Welt” today: “Euro Utopia has degenerated to a nothing more than an ideology” :-)

    Fianlly the europhile press starts to realize tha the Euro harms the people of Europe!

    • Hey, Pedro and No EU Dictatorship below:

      Don’t you think it’s about time to drop the mask and declare who you really are?

      Some citizens of Turkish origin with the deepest inferiority complex leaving somewhere in the toilet of Europe and pretending to care about the German point of view?

      Don’t you think that by now, after your daily sewer of negativity, we already understand that you want the EU to disentigrate just because your Turkey will never be accepted in it?

      Why don’t you drop the Pedro business and start talking like a Hasan or Ahmet because by now we can tell your true origin a mile away.

      Enough with your theater and the Anatolian trolling.

    • Replace “leaving” with “living” above.

      The subliminal message is that it is time for the both of you to leave this blog. Other than your daily propagandist labeling, your contributions here are subzero.

    • Don’t you think it’s about time to drop the mask and declare who you really are?

      Some citizens of Turkish origin with the deepest inferiority complex leaving [sic] somewhere in the toilet of Europe and pretending to care about the German point of view?

      Nice going, Plassaras — you disagree with the comments of posters here and you label them “Turks” (obviously meant by you as an insult)? Of course, you have a history here of insulting posters and making preposterous accusations.

      The subliminal message is that it is time for the both of you to leave this blog..

      Show some respect. This in NOT your blog.

      Other than your daily propagandist labeling, your contributions here are subzero.

      Speaking of contributions …. Are you not the fellow who some months back brought up Fallmerayer to make some ridiculous point? Indeed you are! Tell me, Plassaras, did you get back your DNA results from the lab regarding the purity of your Greekness? Wouldn’t it be a hoot if your DNA showed traces of Turkish ancestry?

    • @Dean

      It’s been my suspicion for a while that these two are trolls.

  5. 3 headlines from the very rare, but still existing non europhile Germna press today:

    - Euler Hermes does not insure exports to Greece anymore
    - Pharmacies now sell drugs in Greece only agaonst cash, since government does not pay
    - energy supply in Greece might be interrupted (blackoutt), since utilities are running out of money

    Wow! Thus EU and especially the Euro are really a success story. If someone in Brazil ready this they will laugh their ass off about the “primeiro mundo”!

    • This crook has also been on the BBC expounding his “wisdom” about what the Greek economy needs. It is clear that he accepts no responsibility for the very serious mistakes made not only when he was PM but also before, and that he is deluded enough to think he can continue a career in politics.

    • Xeno:

      Being mad at Papandreou is very fashionable.

      The truth remains that Merkel effed him over!!! Think about it for a minute.

      I am not his advocate by any stretch, but what is happening to him right now is humiliating for both his persona and Greece.

      Merkel screwed him on two levels: 1. his ideological standing 2. because Frau Satan is just that. A dark soul straight from the depths of hell.

    • Sorry Dean. I know Papandreou. And I am of the view that he deserves the humiliation – even though I feel for the man and still like him at a base human level.

    • “Europe is about leaving behind ethnic differences” – Unbelievable. What makes Europe so great is exactly this diversity!

    • @xenos

      How much can I trust HotDoc or Pandoras’Box?
      They’ve made some shocking revelations the other day.

    • O.k. YanisV:

      He obviously embarrassed himself. But some of Amanpour’s questioning is deep down provocative. He used to be the PM of my country.

      We Greeks can slap him all we wish. But why the others outside Greece? What did he do against them? Wasn’t he a good partner? Didn’t he try to play by the rules? Didn’t he count on solidarity which was nowhere to be found?

      The relationship we Greeks have with Papandreou is an entirely domestic issue. But why the others? What did he do to them? Why the scorn? why the derogatory demeanor?

    • No, I have not. But let me tell you that Austin is also a hornet’s nest for US-style liberals – in other words. Austin is not typically Texan!

  6. Another One Bites the Dust by Marshall Auerback

    “[...]Contrary to what the Germans are now indicating, a eurozone wide system of deposit insurance does NOT require the Germans guaranteeing the obligations of the Greek, Spanish, Portuguese, and Italian governments. This can and should be done by the ECB, as it is the issuer of the euro. It’s also in Germany’s massive interests to have these costs born by the central bank, rather than tainting its own credit rating via persistent bailouts of the eurozone’s weaker constituent parts. Because at the end of the day, Germany is a user of the currency as well and is trapped in the same roach motel as the Italians and the Spanish, even if it occupies the penthouse suite.”

    http://tinyurl.com/7q2jfa7

    • The penthouse suite has a helicopter landing spot to escape. The basement does not.

    • Nobody disagrees on that.At least try to understand the point of the article next time, will u ?

  7. Ετσι από περιέργεια , τι διαφορά έχει αυτό που έκαναν η Bankia + Ισπανία, από την ‘πέτσινη επιταγή’ μια ‘ελληνική’ πρακτική πολλών επιχειρήσεων για την εκταμιευση ζεστού χρήματος από την τράπεζά τους ?

  8. New Democracy has pulled ahead of Syriza in recent polls, apparently because Samaras’ accusations against Syriza that Tsipris intends to take Greece out of the Euro are convincing many voters. What is blatently obvious is that Samaras’ approach to Greece’s crisis will absolutely result in Greece exiting the Euro – a fact that Samaras’ accusations are intended to obscure. Samaras is the one who is certain to lead Greece out of the Euro, not Tsipris.

    • I think we should create a derivatives market……. based on polls.

      But first i think we should poll for it. So should we poll if we are to have a poll about poll der. market?

      And if we fail, we either default or accuse a sovereign and make him pay for us. I think we should have a poll for this.

      A poll ,a stripper and some beers. Yes? :)

    • Joke:

      A guy in a pump is sad. The man besides him asks him: “What’s wrong? You wanna talk about it?”

      The guy says: “Do you know how it feels to being lied to ,again and again and again ,every day of your adult life?”

      Man: “You are married ,eh?”

      Guy: “No ,i am a pollster.”

    • Dean, it wouldn’t surpirse me a bit if the “polls” reported in the press were horribly incorrect. The press is going all out to try to help the neo-liberals hang on to power. These numbers “ο ΣΥΡΙΖΑ με ποσοστό 25,2%, ενώ ακολουθεί η Νέα Δημοκρατία με διαφορά δέκα μονάδων (15,2%), actually seems to me more like how the Greek electorate would be thinking.

    • Demetri:

      Let’s go over it one more time. Coming first in the next election only to face the prospect of a coalition government is not what either Tsipras or Samaras are after.

      This is precisely what they would rather avoid, because the first elections of May 6th when each party successively was given the chance to form a government failed and for good reasons.

      So, if as the polls show both Tsipras and Samaras are in the 25-30% range each (which means unable to form a self-supporting government) then the name of the game is to let your opponent come first so that he can self-destruct/burn in the process.

      We already have amble evidence for the above. The coalition scenarios have already completely destroyed PASOK (Venizelos) and LAOS (Karatzaferis) and to some extent Samaras too (even though Samaras did not participate in the negotiation of the memoranda but only forced to participate in their partial execution).

      So for those in politics the message is unmistakable. Any affiliation, association with the Merkel hideous terms results in an abrupt and automatic suspension of your political career.

      In such game, laboring to come first so that you can participate in a coalition government which will eventually destroy you politically has a complete negative association in the politician’s mind.

      It’s the proverbial admonition to children “Please don’t play with fire because – jeeeeez – you are gonna get burned and it will hurt”.

      Therefore in this coalition scheme that you are advocating, the true mastery is to come a close second (so that your opponent does not run with the votes) and then let your opponent self-destruct in the pursuit of an impossible mission(keeping a government together made up of naturally competing subgroups).

      If I were Tsipras, I would like Samaras to have such “gift”. Conversely, if i were Samaras I would love for the “kid to get burned” in his first and most likely clumsy attempt to govern.

      The way June 17th is shaping is another inconclusive part in the quest for autonomous government. Most likely, whatever June 17th produces, will be nullified by events with the next six months.

      This is a marathon race to power we are witnessing and not a sprint. The fact that a certain athlete is on top by the end of a certain mile of the race does not mean that the same marathon runner will prevail at the end.

      In fact, if you ever run a marathon race you would know that is best to let another runner face the elements friction(wind, aerodynamics) of the first place while the coveted position of cruising is just behind in second or third place. The key in such race is to always be in the top group and have the finishing kick for the last 5 miles.

      May 6th was a watering hole along the race’s path and June 17th another. But the end of this political race will be circa the end of 2012 or early 2013.

      Obviously the only true contenders are Tsipras and Samaras at this stage. So, the task of either is to destruct the other by forcing him to interface with Merkel who is weakening. So the optimum position is to be the only credible political force by elimination and have to face an already weakening external opponent. So, the task is to have to face Merkel during her election year of 2013 when you can really make some serious damage.

    • David:

      It’s a stalemate between Tsipras and Samaras which will last for the foreseeable future.

      The markets have already understood such (aka that June 17th will be more of the same stalemate to last for awhile).

      This is why the markets are no longer interested in Greece (understanding that it will take a good year or so to resolve this indecision on the part of the Greek voter). As a result, the markets are already moving against Spain, Italy and soon others as well.

      Sorry, but Greece is off the front burner for now and will stay so until 2013.

      As far as your friend Tsipras is concerned he has already gotten it made. Over the next decade or more he will be either the face of government or the main opposition in Greece. Not bad for a kid that used to command 5% of the Greek vote. Tsipras is now a rock star and he knows it.

    • Dean

      Great analysis ,once more.
      You are way ahead.

      Based on your analysis ,i would love to see an anti-election campaign.
      My money (actually i use pebbles now) are on a repetition of the play and then a 6-month? collision course.

      So ,maybe i can be right after all. Greece may sing her euro swan song 21/12/2012. Just for fun. Then we can R.I.P.. not!

  9. A few days ago i got a newsfeed about the new Russian finance min. Anton Siluanov talking about Greece’s plans. Something like a paralleI currency. I do not know details.
    It is from Bloomberg ,but i can not find it. Anywhere.

    Anybody has a link?

    —————————
    This synchronicity with names can be really annoying.
    The middle name of Siluanov is…..Germanovich.
    —————————

  10. So the EC finally calls for a banking union after the alarm of dissolution – Bankia’s predicament which resulted in the resignation of the Bank of Spain Governor and in the soaring of interest rates of Spanish 10-year bond near to the limit of 7%. What is more, according to Guardian “direct recapitalision by the ESM… is also gaining support at the ECB”! (We might have to remain sceptical about the last one)

    http://www.guardian.co.uk/business/2012/may/30/eurozone-financial-disintegration-european-commission?newsfeed=true

    A small step for the “arteriosclerotic” a giant step for Europe? Or too little too late? It remains to be seen; but rather soon given Bankia’s current deadlock.

    • Who cars about the EC? The European Commission has no funds and nothing to say. They depend on the countries that have the power and the money

      See Zerohedge: “Germany Shoots Down European Union “Envisagings” Of Bureaucrat Utopia”

  11. Yes Spain has massive structural problems, labour/output efficiency being a major issue. The euro allowed modern speculation and “sophisticated” banking to be grafted onto an inefficient economy…

    But I wish some sweet media child like Laurence Knight would also make the obvious point – Spain, Portugal and Greece, arguably the three sickest men of Europe, all lived under fascist dictatorships from the mid 1930s until the mid 1970s and we are still dealing with the fall-out and our collective failure. All three missed out on the Marshall plan, post-war economic liberalism, the burgeoning post-war recovery and cheap international credit in the 60s.

    They only entered the modern world in 1974/75, just after the 1973 oil crisis, with hugely expensive borrowing costs for industry and raging inflation worldwide; and they kept their dictators’ legacy of corrupt state administrations. No wonder they have structural problems.

    EU aid hasn’t dented their corrupt administrations, entrenched primitive family-based corporate sectors – a residue of the fascist years – nor the fundamental structural weakness of their economies. Their isolation was just as pernicious to their citizens’ economic and social welfare as that imposed by the Iron Curtain but their anti-Communist face and their open borders gave them a slight better press. Post-war emigration to Germany, UK, US and Australia solved the personal plight of many of their peoples.

    A long-time friend remembers visiting Madrid for the first time in 1986 shortly after his return from Argentina where he spent a number of years: he was totally shocked by the fundamental poverty and primitive nature of the place compared with Latin America. It made Rio and Buenos Aires look like Manhattan. They had barely recovered from 40 years of Franco – and the famous “destape” was only really beginning with EU entry. It had been a semi-feudal society until very recently.

    Ditto Portugal with Salazar’s regime until 1974. And as for Greece – Metaxas from 1936, German occupation 1940-44, civil war until 1949, extreme right-wing semi “Palace” dictatorship with proscribed political and civil liberties until 1967, then the Junta dictatorship from 1967 to 1974.

    In 2012, Greece still has no completed highway infrastructure to the main international ports, no completed (never mind modernized) rail network, no effective state administration, a corrupt clientilist political structure, a bought and gagged national press and most national corporate entities still in the hands of (often totally amateurish) family dynasties.

    But they have “austerity”, as does Spain and Portugal…great solution

    One can only feel great sadness that the ideal of European Unity and the hope of internationalism have failed miserably.

    • “All three missed out on the Marshall plan”

      In terms of financial aid they all got several marshall plans! Maybe that is the reason why they never grew up…

    • It is quite clear that you have no historical understanding of what the Marshall Plan was. I had nothing to do with in influx of foreign capital seeking higher returns.

    • The EU funds (structural & agricultural) are basically foreign aid, not influx of foreign capital.

      On top of that was cheap money (by de facto Euro Bonds), which cut interest expense by ~80% plus the recent madness…

    • Sure. But none of that resembles the essence of the Marshall Plan. Greece also benefitted from the Marshall Plan in the 50s. The result was a mini industrial revolution; the creation of a reasonably successful manufacturing sector; one that suffered badly during the 70s oil crises and which Greece had effectively to dismantle as a condition for entering the EEC in exchange for the type of ‘charity’ that you are referring to. In essence, the EU funds were precisely the opposite of what the Marshall Plan was.

    • “the EU funds were precisely the opposite of what the Marshall Plan was.”

      Fully agree. So all this central planning needs to stop and we need true markets and national currencies. Greeks needs to devalue anyways with ND or in the Euro. Once that happens, import will become expensive enough for domestic production to prosper!

    • Pedro: “In terms of financial aid they all got several marshall plans!”

      YV:“the EU funds were precisely the opposite of what the Marshall Plan was.”

      Pedro:” Fully agree. ”

      You dont even make sense any more….

    • For slow Crossover: Greece has received the amount of several Marshall plans. The difference is that the financial aid did more harm than good!

      What do we conclude: We need to stop sending money. Like in Afrika it destroys local business of developing countries.

    • For FAST (my butt) Pedro

      YV: “It is quite clear that you have no historical understanding of what the Marshall Plan was. I had nothing to do with in influx of foreign capital seeking higher returns”

      Pedro:”The EU funds (structural & agricultural) are basically foreign aid, not influx of foreign capital.”

      Now man up for once and stop twisting things the way it fits you.You kept comparing EU Funds with the Marshall Plan.Not in terms of how much money was sent but in terms of both being the very same type of “help” while they’re not. Thank you.

      Same story when you posted the Greek gdp growth during the ’00s and concluded that Greece was the country to benefit the most from the euro…even more the Germany….

    • What do you want? I am saying that one should not give any more money to Greece. Call it bailout or EU subsidies, EU structural funds whatever. I do not care whos fault it is that the money does not do any good. I just want it stopped.

    • @Pedro

      It is your absolute right to have an opinion on whether Greece or any other country should get money.But when you try to back this opinion at least try not to twist things in order to fit the message you are trying to pass.Thats all i “want”.

      So next time,instead of mixing the EU funds with the Marshall plan or any similar type of bs…its better to simply say ” I do not care whos fault it is that the money does not do any good. I just want it stopped.”
      It makes your opinion more respectable and precisely highlights what you are about.So simple.

  12. Καλημέρα Γιάννη.
    maybe you need to teach the European leaders as well as the Hellenic leftιση leader Mr Tsipras, the basics of game theory. It seems to me that with their actions (or non-actions) they move further and further away from an equilibrium.
    Instead of try to create a situation that no one would want to get out, they create a situation that everybody has good reasons to pack an leave.
    Without compromise nothing can be achieved. And especially for Europeans, this seems to be an unknown word…

    • You start by making 2 major assumptions.

      1)That they are rational (are they?) Game theory doesnt teach you how to be rational,unfortunately.It only explains how would a rational person act in a given situation.
      2)That their goals are the same with ours (the people’s) (are they?)

      Ofcourse theres another factor.Diplomacy is usually a bargain between “hustlers”.Both sides exaggerate with their demands in order to have more room to stand down later…

    • @crossover
      that was what i was implying: since they cannot reach an equilibrium
      1)either they are not rationals, or
      2)they have conflicting goals (and guess whose goals are against people’s…)
      because otherwise, the situation would be resolved by now

    • and according to OECD….so maybe you try to realise the propaganda that has been going on…?

    • Also according to OECD research about facts (not opinions from media propaganda).

      Suddenly after the beginning of the crisis ,we have become the worst of the worst. This by itself must tell you something.

      My subjective opinion:
      People believe that the Germans are the most hardworking because of the technological advancements. But if you think logically ,then it is normal for the Germans to work less ,because of all this tech.. And they do. And they should. Well done.

      But Greeks do work more ,with all the problems that had for years. No one can change that ,whatever media propaganda says.

      Just a bit of logic. If we didn’t ,we would be dead by now.

      Marketing can get you a long way. Americans and Germans know this best.
      This is not the bad thing. The bad thing is that people do not think.

      This situation is like the man who yelled that his neigbour was a bad man.
      He wanted so much to prove it ,that he hurt his neighbour’s family.
      The neighbour got a weapon and wounded the man mortally.
      Everyone gathered around him and the wounded man said: “You see ,i was right. He is a murderer.”

      That is exactly what you are doing to us. And it will bite you eventually.

      Again you gave data in isolation.
      If you want to insult ,go elsewhere. To a German site ,blog ,forum ,whatever.
      Really ,what are you trying to do here? Convince someone who worked 14 hr. a day ,that he didn’t work?

      Why don’t you come to Greece to work with us? Then talk.
      As simple as that.

      Lastly ,Germans should be the last to talk against the Greeks ,because the immigrants were the best workers in Germany.
      Again ,as simple as that.

    • If you look at the McKinsey report (Athens office) it is not the hours that are theissue. It is efficiency. East Germans also “worked” a lot of hours during socialism. The result was crap anyways.

    • @Pedro & Peter

      Its very funny that you have something to say about the Greeks who according to you,wrongly believe they are the most hard working.Thats fine,but apart from the fact that OECD shows you are dead wrong for having such a stance, i see you are saying nothing about the fact that Greeks realize the problem with corruption.

      Once again, you only see what you choose to see, or should i say what your washed brain allows you to see ?

      So how come the stupid Greeks are spot on,in both questions? (most hard working/ most corrupt).

    • “It is efficiency”

      You cant compare Greece and Germany in efficiency.Its as stupid as comparing the 2 in productivity.

      We produce different things and through different procedures.
      A german produces 1 car in say 1 day.
      A greek produces x tons of olive oil in 1 day.
      If the car costs 10k you do realize a Greek needs several days to reach 10k through olive oil production dont you ?

      How can you compare the 2 either on efficiency or productivity?

      Nevertheless you posted this link just to show how stupid the Greeks are for believing they are the most hard working while Europe believes we are the most lazy.After your argument was destroyed you twisted things by bringing efficiency in the discussion…

    • Pedro

      It is efficiency that make people think you work more. That is what i am saying. Great technology. True. But unfortunately great propaganda too.

      We are talking about a full scale attack here. If you realise that ,you’ll see that not even you have to endure the austerity your government imposes on you.
      For it is the capital manipulation and the technological give and take with America (at first) for the advantages you now enjoy. And still you have the same problems in Germany as elsewhere.
      You shouldn’t but you do. They want everybody to bow down and make them fight amongst them ,while they lay on their Roman couches and laugh at us.

      All of us.

    • As I have said elsewhere, the nomenclature of “hard-working” versus “lazy” is journalistic and political speak, which has no meaning other than in the constructed political discourses. Propaganda, you might say.

      The real issue is average productivity levels by sector. Although Greeks work (theoretically) the longest hours (in reality, it has been measured as the UK workers who work the longest hours per week), the average productivity levels in Greece are low in comparison with Germany, This is more to do with capital investment, vocational and continuous training of workers and the very small size of firms in southern Europe. There are also inefficiencies related to corruption and over-taxation by the State. These are indeed things that the Greek economy needs to address — but they have precisely nothing to do with laziness.

      By the way, the “lazy” Germans have a very short working week and take far too many religious holidays over the year, in comparison with the UK. Just saying… :-)

    • Yes, but I think Greece reported the average number of hours awake instead ;)

      @Crossover

      Don’t take everything so serious :)

    • Different economic sectors operate under different circumstances. You can’t blame those who work in agriculture and make fun of them, just because they are not as “efficient” as a manufacturing plant. Statistics analyzed outside of real physical context don’t tell you anything. In and of themselves statistics offer only correlations, not causality. Production in different sectors use different technology and are subjected to other variables (such as water, sunlight and time for instance). Not to mention the fact that different products have different demands/consumption patterns and not every good has the same monetary value (branding also comes into play). East Germany suffered way more than its western counterpart in terms of war inflicted damage. Also they had to pay reparations and the demand for their goods was not the same as their western counterpart. The allies invested in the RFG. The soviets did not make capital investments in the East, when they came into Romania for instance, they dismantled a lot of manufacturing sites, loaded the machine tools onto trains and sent them to the USSR and at the same time they dropped currency from planes (inflation always helps out the manipulator in his endeavour to control the masses). Ironically the Antonescu regime managed to keep inflation in check during the war, but the soviet marxist strategy, I guess, was inspired by Lenin’s quote “The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”
      As for Greece, I’m tired of people talking about the greeks as if they are the black sheep of Europe, or that they are the main reason for the economic-financial turmoil, or that they’re lazy. Greece (the greek people) is not responsible for making the transfer of responsibility from the private banks to the average european tax payer. The EU politicians did that, because they are the de facto bitches of the Inter Alpha Group. Corporations don’t have ideology, ethnicity, religion or race. They are just tools and like any tool they can be used for good or ill. In our case, the oligarchic financeers want to bankrupt the european states, strip them of any and all sovereignty, while acquiring public assets without having to pay market price.

    • “for the advantages you now enjoy.”

      If you refer to cheaper access to capital than everyone else in the EU, we are back to normal. The introduction of the Euro, as we now know falsely, gave everybody Germany´s interest rate, Before the Euro Germany had cheaper access to capital as today. This benefit is enjoyed by companies and individuals and compensates the disadvantae in cmpetitiveness that is caused by a currency like the German Mark. (in the fture German Mark2).

  13. Martin Wolf writes:

    “High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/4fe89d8c-a8df-11e1-b085-00144feabdc0.html#ixzz1wKTbBI5P

    How will the crises inside the eurozone end? Many people have asked me this question in the US in recent weeks. How, in particular, might the eurozone move from crisis into stability? To address this question, we need to distinguish three aspects of the turmoil: where the eurozone is going; where Germany wants the eurozone to go; and where the eurozone needs to go.

    The eurozone’s current position seems depressingly clear. A number of member countries, two of them – Italy and Spain– being large, already have, or are on the verge of having, governments unable to manage their public debt unassisted. Much of that debt is held by their banks. Many of these have been damaged, particularly in countries that experienced huge real-estate bubbles, large fiscal deficits or both. Governments with weak creditworthiness feel compelled to rescue fragile banking systems that are, in turn, expected to finance the governments trying to support them: the drunks are seeking to stay upright by leaning on one another.

    More

    On this story
    Funds cut exposure to eurozone banks
    Greek banks receive €18bn transfer
    In depth Eurozone in crisis
    Spanish bonds hit by Bankia bailout fears

    Martin Wolf
    Brian Hindley
    A fragile Europe must change fast
    Cameron is consigning the UK to stagnation
    Martin Wolf A permanent precedent

    Click to enlarge

    Governments are also required to attempt fiscal austerity when private sectors are retrenching: between 2007 and 2012, the financial balance of the private sector shifted from deficit towards surplus by 16 per cent of gross domestic product in Spain (see chart). Austerity further weakens both economies and banks. This, in turn, raises unemployment and lowers government revenue, rendering fiscal austerity ineffective. Meanwhile, slack demand in the core reinforces economic weakness in the periphery, rather than offsets it.

    With banks impaired, private demand damaged, government demand contracting and external demand weak, the fragile economies are likely to have smaller output and higher unemployment two or three years hence than now. The reward for pain today is pain tomorrow.

    Whether or not Greece is “saved”, for the moment it is hard to believe today’s eurozone would survive this, particularly when the principal argument in its favour – that for economic and financial integration – is being destroyed. Businesses, particularly financial institutions, increasingly seek to match assets and liabilities by country. Equally, only the bravest business will plan production in the belief that exchange rate risk has been eliminated. With a rising share of cross-border risk now assumed by the European Central Bank, the way to break-up is becoming more open.

    This looks like a long day’s journey into night. It might take weeks, months or years. But the direction, alas, seems ever clearer.

    Now turn to the second issue: how does Germany want the eurozone to be organised? This is how I understand the views of the German government and monetary authorities: no eurozone bonds; no increase in funds available to the European Stability Mechanism (currently €500bn); no common backing for the banking system; no deviation from fiscal austerity, including in Germany itself; no monetary financing of governments; no relaxation of eurozone monetary policy; and no powerful credit boom in Germany. The creditor country, in whose hands power in a crisis lies, is saying “nein” at least seven times.

    How, I wonder, do Germany’s policy makers imagine they will halt the eurozone’s doom loop? I have two hypotheses. The first is that they believe they will not. They expect that life for some of the vulnerable economies will become so miserable that they will leave voluntarily, thereby reducing the eurozone to a like-minded core, and lowering risks to Germany’s own monetary and fiscal stability from any pressure to rescue the weak economies. The second hypothesis is that the Germans really think these policies could work. One possibility is that the weaker countries would have so big an “internal devaluation” that they would move into large external surpluses with the rest of the world, thereby restoring economic activity. Another possibility is that a combination of radical structural reforms with a fire sale of assets would draw a wave of inward direct investment. That could finance the current-account deficit in the short run, and generate new economic activity in the longer run.

    Maybe German policy makers believe that it will be either harsh adjustment or swift departure. But “moral hazard” would at least be contained and Germany’s exposure capped, whatever the outcome.

    Yet the “exit of the weak” option looks very risky and the “painful adjustment and fire-sale” option so implausible as to lead swiftly back to exit. The danger, moreover, is not just to the weaker countries. Germany sends just 5 per cent of its exports to China, compared with 42 per cent to the rest of the eurozone, much of which would be disrupted by a meltdown. What has already happened has weakened its export-dependent economy: German GDP was only 1 per cent higher in the first quarter of 2012 than four years earlier. Beyond these narrowly economic dangers from damage to the “irrevocable” union would surely lie an enduring political disaster for the eurozone’s economic hegemon.

    In brief, the eurozone is now on a journey towards break-up that Germany shows little will to alter. This is not because alternatives are inconceivable. What is needed is to turn some of the Nos into Yeses: more financing, ideally via some sort of eurozone bond; collective backing of banks; less fiscal contraction; more expansionary monetary policies; and stronger German demand. Such shifts would not guarantee success. But they would give the eurozone at least a chance of avoiding the cost of partial or total break-up. To work in the long run, such shifts would also require greater political integration.

    In October 1939, Winston Churchill said: “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.” The key in Europe today is Germany’s perception of its national interest. Once it becomes evident that their conditions will not work, German leaders will have to choose between a shipwreck and a change in course. I do not know which Germany will choose. I do not know whether its leaders know. But on that choice hangs the fate of Europe.”

  14. 30/05/2012

    —————-
    29/05/1453 ,the city fell.
    —————-

    —————-
    We do not forget.
    —————-

    • Everybody knows and understands that Samaras is the more experienced. Who would even consider to deny this?

      This also “proves” your analysis too. About Tsipras being a useful threat.
      But still ,is only a limited poll.

      Like the arbitrary subjective polls for the Greeks.

      We have less than a month until elections. Nowadays ,a month in Greece is like a year. (That is because Greeks can manipulate the space-time continuum :P :o 8O )

    • Demetri:

      There are polls which show quite the opposite:

      http://www.protothema.gr/ekloges/article/?aid=200893

      My own observation is that Syriza would rather not come first; they are way much more comfortable in playing the major opposition (which is a craft they already know).

      So, whoever votes for Syriza needs to take this into account. That Syriza would rather avoid governing because experience has shown this is a kiss of death under the current circumstances.

      Even if Syriza tells Merkel that the mandate of the people shows opposition to austerity, this is precisely the argument the Germans need to ask Greece to self-isolate.

      Believe me this is a much more strategic situation that meets the eye. The outmost cleverness is need to handle it. This is not a simple “let’s vote for whatever it feels right” and then allow the politicos to take care of it. The game is bit more elevated than this.

      Again, remember what I said. Nothing but a self-supported single party government will do. Any coalition scenario will turn into a disaster.

      If you follow my logic, I am not even sure Samaras wants it because his interface with Merkel will destroy him.

      There is no question that the best position to be in for all parties is as the main opposition party. Low risk, maximum return proposition.

      So, unless we the voters force the best party into governance, don’t expect them to seek it for themselves. It’s high torture and a guaranteed loss for whatever entity is the next government in Greece and naturally everyone wishes to avoid it.

    • “It’s high torture and a guaranteed loss for whatever entity is the next government in Greece and naturally everyone wishes to avoid it.”

      Well they will have to suck it up ,because a coalition gov. is what we are going to have.
      And they WILL cooperate else i see the resurrection of Guy Fawkes and the British 5th of November becoming a Greek 5th of July. Naaah!

    • It’s like a nasty car crash, Dimitri. (I have been in two, and saw the same thing both times.) Everything seems to slow down to about 10% of the usual speed, in terms of perception, but your physical limitations remain the same. So you can watch the car crash in slow motion, but your mouth cannot even shout out a warning to the driver because there is no time to do so…

      Europe (as others have said) is in a rather unpleasant multiple pile-up on a motorway (Autobahn for Germans), with everyone watching it happen and none of the pre-existing institutions being able to act. The solution is to create new institutions/structures rapidly, but it seems that the Germans prefer to watch the cars pile up and the body count increase.

  15. Here in the Southern Basque Country (legally “Spain” but with separate fiscal regime) the impression seems to be that Rajoy’s declarations imply further budgetary cuts, that the 24 billion will be taken from the state budget as already some other 27 billion were taken.

    It’s not clear because Rajoy is almost never straightforward (a stereotypical vice of Galicians, about whom it’s claimed that you can meet one in the stairs and still not find out if he goes up or down) but that’s what he said: no more debt, what means much less effective state. It’s almost another 10% of budget cut, to be taken from the salaries of public workers, pensions, education, healthcare and maybe even the military.

    Many say: “drop Bankia: it’s much more than you can realistically fix” – but they won’t.

    After all there is a lot of corruption inside that savings bank and corruption tightly linked to the ruling conservative party (via the regional governments of Madrid and Valencia). And if Bankia falls it may well be a domino of failed banks all around the World.

    That’s why Rajoy looks so anxiously to Brussels probably: he know that the French, the Germans, the Brits and the Dutch also have a lot to loose if Bankia falls… and he hopes a hand of some sort.

    Not that he deserves it. They should let Bankia fall.

    • maju00

      I am so freaking mad ,that my thoughts are ,the people of all countries should block the flow and blow up the whole system.
      Then i want to see what Wall Street and the European counterparts will do. War?

      Am i nuts? Yes i am.

  16. Pingback: The Eurozone is stabilising - Page 1035

  17. By the way the last quote ” Oh what a tangled web they weave, when they practice to deceive” is mistakenly attributed to Shakespeare. Correctors usually attribute it ‘correctly’ to Sir Walter Scott (Marmion, 1808).
    But guess what…it is pure greek . Actually Penelope (3200 years before) -as Homer states in his Odyssey, used it as a deception to avoid betrotheds

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  21. Proffesor could you explain what is happening a bit more clearly?Bankia passes part of its equity to the Spanish gvt,which “buys” equity with its newly issued debt.Bankia later on posts this debt to the ECB in exchange for reserves (?).What is the difference between this and LTRO?Obviously the Spanish gvt didnt have to issue debt in order for the LTRO to work but isnt this what all the banks have been doing when they participated in LTRO (post gvt securities to the ECB in exchange for liquidity)?

    I dont understand how this is a recap?How was Bankia’s capital increased through this operation ?

    • The LTRO had the intention of lowering Spain’s borrowing costs. By giving money to Bankia, in exchange for worthless collateral, Bankia would then re-lend it to Spain, thus pushing Spanish bond yields down (and helping the state refinance its debt more cheaply). The current ‘operation’ does the opposite. The Spanish state is lumbered with more debt on behalf of Bankia!

    • I understand that.What i dont understand is how is this considered a recapitalization?Apart from involving the Spanish gvt issuing debt and recieving Bankia’s equity,it has the same characteristics of a liquidity injection operation.A bank posts gvt securities to the ECB and receives liquidity in exchange.How does that increase Bankia’s capital ?!

    • Oh they probably increase their shares outstanding…never mind.I thought the gvt received a part of the existing equity.

  22. I see no evidence that “Europe” was an agent in the decision to do things this way. But we’ll see what the reactions are in the following weeks.

  23. It doesnt matter if it is option A or B. Soon we will have capital controls in Greece & Switzerland:

    http://www.zerohedge.com/contributed/2012-05-28/capital-controls-coming-greece-and-switzerland

    The the Euro will devalue even more agaonst the USD & inflation will rise. Germans will do what Greeks have done the last 2 years: Get out of their Euro savings.

    Result the Euro collapses. Unfortunately too late to do this with limited damage…

  24. Is the Spanish stunt a fact or just speculation?

    The banks need hard capital, cash for new shares. Too bad the EFSF/ESM does not allow for direct bank recapitalization without attaching the bankruptcy sign to the whole country.

    Germany’s KfW and similar institutions of the financially strong states should have subscribed to the Bankia capital increase. After all, a profitable deal if/once things stabilize.

    • “After all, a profitable deal if/once things stabilize.”

      This was the best joke I have read in a long time.

  25. Europe is the bitch of the Inter Alpha Group. The bankers have practiced financial terrorism (bail us out or else we sabotage stock indexes and the people will lose their deposits). There is an inherent conflict between commercial banks (depository institutions) and investment banks. Since they are not separated, the investment houses use the deposits as leverage to increase the risk they manufacture and circulate. Because governments guarantee those deposits. Commercial banks really need the deposits of the people in order to operate, while investment banks don’t need them in order to acquire capital. The stock market does not create wealth, the financial derivatives market does not create wealth. The human creative reason is the the creator of value. The individual human beings are the most important asset of any truly sovereign nation state. It’s time that people realize that mixing in public finance with financial derivatives is a threat to national security. There is only one wise and just course of action for the whole trans-atlantic system. Namely the reinstating of Glass-Steagall and then a bank holiday (bankruptcy reorganization via the Glass-Steagall yardstick). The federal government can give government charters to commercial banks (small banks offer better prices anyway unlike their giant counterparts) and provide sovereign credit for projects in infrastructure, industry, energy and agriculture. The federal government can run a two tier credit system with a lot fixed interest rate for special projects in the above mentioned sectors and a higher overnight rate. The problem is fluctuating interest rates because of inflation via currency depreciation. Thus the world needs a new Bretton Woods fixed exchange rate system. The EU will have to either de facto federalize (common fiscality and common debt) or break apart. The world needs to scrap financial accounting economics in favor of physical economy (credit system) and set goals of increasing productivity per capita and km2 and going to higher the energy flux densities of power per capita and km2. Energy flux density represents the transformative power of work. (the scalar called flux applied perpendicularly on a unit of surface in a unit of time). Wind and solar have a low fixed energy flux density and as such cannot sustain an increasing population, that’s why the neomalthusianist crowds are lobbying so much for government subsidies and tax breaks, while attacking high energy flux densities sources of power like hydroelectric and nuclear power (because these things increase the relative population density and the living standard). The energy flux density of solar power per cm2 is 0,02 watts and per m2 is 200 watts, we won’t make space flight with that or fully ascend in Vernadsky’s noosphere without mastering nuclear forces.

    • For the Eurozone members,the Eurosystem is actually a semi-Breton Woods.And i say semi because as Bretton Woods,its actually a fixed exchange rate system but it lacks the other “feature” of Bretton Woods: current account surpluses recycling.
      And when there is no such recycling mechanism,what you get is this:

      http://media.economist.com/sites/default/files/110711krugman1-blog480.jpg

      Unless people are willing to realise that a recycling mechanism is not about charity,solidarity or anything similar rather its about keeping alive the flows tha drive the economy, i’d say we should stay away from ideas such as globalizing the fixed exchange rate scheme or we would experience the current european crisis at a global scale.

      As for energy,please Helsworth, GERMANS KNOW BETTER.
      You must havent read about the Helios Project.
      Yea its about solar energy.Greece will use solar energy after having previously bought all the needed equipment from Germany,and then sell electricity to Germany through a non existent Balkan network that (obviously?) Greece will have to subsidize for its construction…..
      And then our Geman fellows will again accuse the average Greek citizen for another investment that went to waste….story of my life…

    • @Crossover
      Not all EU member states have a fixed currency vis-a-vis the euro. The countries in the euro zone do not have sovereignty over the creation of credit, however a private monopoly does. From a constitutional point of view (an indeed in sink with the prescriptions of Natural Law) only the legal representatives of the people have the authority to utter credit. This principle and legal prerogative is absent in for all the EU member states. Rescuing foreign banks by borrowing funds from private markets—funds which would then show up as debts in the federal budget— without performing a rigorous audit (to separate legitimate claims and assets from fraudulent ones) is pure insanity. You’re just creating more precedents for the giant financial parasites to treat risk as they see fit, because the tax payer will bail them out via the puppet governments serving Wall Street and London.
      Furthermore Article 103 of the Maastricht Treaty states that “any … type of credit facility with the ECB or with the central banks of the Member States … in favor of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited.” Article 104a further specifies that private banks are not permitted to provide credit to governments and other public institutions at discounted rates.
      Only sovereign states are capable of acting in a systemic crisis. It is, therefore, of the utmost urgency, that governments, as sovereign representatives of their respective nations, help to put the old financial system through a regular bankruptcy procedure, and to erect a new financial architecture in the tradition of Roosevelt’s 1944 Bretton Woods System.
      The US and the EU are tied together and the whole trans-atlantic system is bankrupt. Bankruptcy reorganization using Glass-Steagall as a yardstick is the only sane option, that kills off the parasites, creates stable and sound national banking systems (which are free of the domino effect) and allows sovereign governments to utter credit for physical economic projects which are vital for the public interest and the defense of the general welfare.

    • crossover

      ——————————
      “….story of my life…”
      ——————————

      Nice movie production. Here is another one.

      “The blonde and the bountiful”.

    • @Helsworth

      I said for the Eurozone members not for the EU as a whole.
      What you say about the Maastricht Treaty is correct.Actually one has to just read about the 3% deficit constrain and realise how silly this whole treaty is.It couldnt have been any more stupid than this.

  26. El Programa de Alivio para Activos en Problemas, si? O en el lenguaje coloquial … el TARPo ;-)

    I guess we now know the real reason for why austeriy measures were announced a couple of months ago by the Spanish government.

  27. O.k. So, let me state for the record that I have no sympathy for Spanish banks (and the root cause of their problem: troubled real estate loans). Greek banks are an entirely different story because their contrived problems are Merkel fabricated (the PSI theater so that Merkel looks like a potent ruler over “bad” financial markets …yeah, right).

    Having gotten this profound announcement out of my chest:-), my observation Yani is that the ECB, in doing as you are suggesting, in fact is implementing its own version of your partial Modest Proposal. So, it should not be such a bad thing.

    Of course I know your position on debt forgiveness first (at least for the Greek case) which IMHO opinion is coming in the form of a 3rd and final public sector involvement (PSI III).

    Also there is no reason that Greece should not receive lower interest rates, in other words make EFSF treatment equal to the ECB’s (as far as rates charged are concerned).

    You may disagree, but don’t expect the politicos to admit defeat and lose face in adopting your Modest Proposal overnight. They will do so gradually and one day we will wake up and say “oh, this is the Modest Proposal” – just a thought.

  28. i feel that they will just leave eurozone.They cannot hide anyway. And since i haven’t studied economics, i ‘ll be happy to see the latins do what they can do best….be crazy, revolting and smily!…..nice dream… ( i really feel like they will leave eurozone….but on the other hand, they have to be ready for another 40 years of dictatorship)……

    • Be careful of what you say Orange. I have said that before here. At least southern european countries have the capacity to feed their people.

      And another thing, you refer to EZ as if it’s a prize or a holy grail. That only the worthy ones can be EZ members. You are wrong about that.
      EZ at the moment is a nightmare. The more you say it, the more apparent it becomes that EZ ,as it is now, is something to be avoided not be a member.
      Look at the economies which belong to Europe but not EZ. They are all affected but nowhere near the damage EZ member states are sustaining.
      And more importantly, they have the means to respond.

    • Really i can not understand it. Northern countries, that should be imploring the southern countries to remain inside EZ, are doing their best to break apart EZ. And southern countries that should have plans to leave EZ at light speed, they are considering austerity measures and sailing out.
      That is madness.

      How do i support this? But within the EZ, the more advanced and competitive countries have an advantage against the weaker economies.
      Given the free flow of money and labour, the stronger countries become stronger and more competitive. Actually they are draining out the rest of the weaker countries off capital and labour.
      Secondly, by having weaker countries in EZ, the euro is devaluated, which is a big plus for them. They can sell their products all around the world. But at the same time, euro is too expensive for the not so competitive economies. As a currency, it can not be used for exporting purposes. Take for example Greece, that is competing with Turkey and Egypt in tourism. We can not compete. Period. It’s not a matter of services, quality or efficiency.
      Italy has lost its competitive advantage in car industry.
      In Spain, due to the housing bubble, life has become extremely expensive. It’s impossible for a spanish to live in his own country.
      And most importantly, southern countries don’t have the means to respond. Thus control their national economy and help their people in unemployment, public investments and heath care. Why? Because according to the Euro bureaucrats, Free Markets and Bankers are more important!!! Why? because german and french banks are on the line. That’s why!

    • To my understanding, the modern version is: beware of german and french bearing gifts (bail outs).

    • @No EU dictatorship

      I am not saying that Greece should exit right now. Southern countries should exit on their own terms.

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