In one of his most passionate speeches (which says a lot), UKIP's Nigel Farage, on the May 9th celebration of the Euro, tells his European Parliament colleagues of his grave concern at the recent elections - which are very reminiscent of the elections in Germany in 1932. He warns that Europe faces the very real prospect of mass civil unrest and even revolution as the Euro project itself could even be the cause of (in it perfect irony as the initial solution to) a rebirth of national socialism in Europe. Farage pulls no punches but in three minutes provides a clear picture of just how concerned anyone who is not merely a head-in-the-sand status-quo muddle-through'er should be with regards Europe: "It is a European union of economic failure, of mass unemployment, and of low growth"
As we pointed out yesterday when we correctly summarized that "Spain Appears Unsure What A "Bank Bailout" Means", we said "Spain is to require its banks to set aside more provisions (between EUR20 billion and EUR40 billion) in an effort to overhaul the country's financial sector. This additional need for reserves (or provisioning) puts yet more pressure on the banks' balance sheets as it comes on top of the already EUR54 billion that has been set aside from February. Interestingly the EUR20-40 billion still falls dramatically short of Goldman Sachs' estimate of an additional EUR58 billion that is needed to cover reasonable loss assumptions. We can only assume that the game is to create as large a hole as is possible without tipping the world over the brink and then fill it with the state funds a la TARP (as Rajoy has indicated will be the case)." Well, as it turns out there was no ulterior motive behind the stupidity which is merely ad hoc improvisation of the worst kind that we saw back in Greece in the summer of 2011. Because according to IFR, not only is the bailout going to be woefully insufficient, but also, will be a 100% dud, as "Spain is likely to offer some banks the chance to opt out of some of the reforms set to be announced on Friday following heavy lobbying from the industry, according to two people familiar with discussions." In other words an insufficient bank sector nationalization, which will affect on some, but not those who actually need it, in what is now so clearly just another exercise (think stress test) to give the impression that the Spanish banking system is solvent. In the meantime, absolutely nothing will happen with the hundreds of billions of underwater mortgages carried by the big banks, which will merely fester until they finally become the Fed's problem.
European equities continue the trend of the week as they move lower throughout the morning session, as no news is bad news from Greece. In the early hours of the session, reports from German press revealed that the Troika have cancelled their May mission to the country, on the grounds that the current political instability could derail the rescue effort. The continued risk-aversion in Europe is evident in the strong demand for both German and British securities, as both countries sell strongly in their respective auctions. As such, the German Bund contract has hit on all time highs several times in the session today and the Spanish yield on their 10-yr government bond remains elevated above the 6.00% mark. Overnight source comments speculated that the Spanish government are pressing their national banks to set aside between EUR 20-40bln in funds for bad loan provisions and capital buffers. The reports have weighed down on the IBEX 35 throughout the morning, which is currently severely underperforming its European counterparts.
Yesterday it was Fitch setting the groundwork. Today the natural escalation has arrived, with a Handelsblatt report that German coalition lawmakers saying they are open to a Greek farewell. To wit: "Politicians of the CDU-FDP coalition will no longer look on the goings on passively. Given the uncertain political situation in Greece are advocating for a withdrawal of the crisis-Mediterranean Heads of State from the euro zone. "We should offer Greece, leaving the euro zone controlled, without withdrawing from the European Union." For now this is merely posturing, as Greek is doing all it can to make it clear it does not need Germany. Of course, Germany has no other choice but to reply the way it has. The only problem is that the Nash equilibrium is now of mutual defection, which is the worst possible outcome for Europe, and even worse for US taxpayers, whose cash via the FRBNY's FX swaps will be used to rescue Europe when the dominoes finally tumble. But at this point, this it is pretty much a given.
"Once A Liar, Always A Liar": The Incredible (Un)Truth About Italy, Greece, And The Birth Of The EuroSubmitted by Tyler Durden on 05/09/2012 02:44 -0400
In response to a request by Germany's SPIEGEL, the German government has, for the first time, released hundreds of pages of documents from 1994 to 1998 on the introduction of the euro and the inclusion of Italy in the euro zone. They include reports from the German embassy in Rome, internal government memos and letters, and hand-written minutes of the chancellor's meetings. The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. The decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece's acceptance into the euro zone. Many of the euro's problems can be traced to its birth defects. For political reasons, countries were included that weren't ready at the time. Operation "self-deception" began in December 1991, and culminated with a plausibly deniable comment of 'not without the Italians' by Kohl who needed them to bring the French along to the Euro party to ensure his successful re-election. A few weeks before the launch of the common European currency, Stenglin's assessment of the situation took on a dramatic undertone, when he wrote: "The question arises as to whether a country with an extremely high debt ratio doesn't risk gambling away the success of its consolidation efforts to date, thereby harming not only itself, but also the monetary union." It was a prophetic remark. Of course, financial data doesn't play much of a role when it comes to war and peace. Italy became a perfect example of the steadfast belief of politicians that economic development would eventually conform to the visions of national leaders.
So we know that the pro-bailout parties in Greece have failed to form a coalition, and that this will either mean an anti-bailout anti-austerity government, or new elections, and that this will probably mean that the Greek default is about to become extremely messy (because let’s face it the chances of the Greek people electing a pro-austerity, pro-bailout government is about as likely as Hillary Clinton quitting her job at the State Department and seeking a job shaking her booty at Spearmint Rhino). It was said that the E.U.’s existence was justified in the name of preventing the return of nationalism and fascism to European politics. Well, as a result of the austerity terms imposed upon Greece by their European cousins in Brussels and Frankfurt, Greeks just put a fully-blown fascist party into Parliament.
Yep. Now it's official.
There are some people who also believe that the private Federal Reserve with the Treasury in tow has the ability to prolong the worst symptoms of the collapse indefinitely, or at least, until they have long since kicked the bucket and don’t have to worry about it anymore (the ‘pay-it forward to our grandkids’ crowd) . I can say with 100% certainty that most of us will live to see the climax of the breakdown, and that this breakdown is about to enter a more precarious state before the end of this year. You can only stretch a sun-boiled rubber band so far before it snaps completely, and America’s financial elasticity has long been melted away. A pummeling hailstorm of news items and international developments have made the first half of 2012 almost impossible to track and analyze. The frequency at which negative information has surfaced is almost dizzying. However, a pattern and a recognizable motion are beginning to take shape, and, I believe, a loose timeline is beginning to form.
While Turkey has assured the U.S. government it will cut purchases of oil from Iran by 20% this year, its total trade with the Islamic Republic increased 47% to $4.8 billion in the first quarter from a year earlier. Sanctions aimed at isolating Iran because of its nuclear program, combined with revolutions in the Middle East, have spurred a tripling in the region’s purchases of Turkish precious metals and jewels to $942 million in the first three months, from $282 million in the same period last year. This 30% increase in demand is contributing to gold remaining above $1,600/oz in what has all the hallmarks of another period of consolidation prior to higher prices. “Turkey is exporting massive quantities of gold to Iran and Arab Spring countries as citizens in those countries switch to portable wealth,” Mert Yildiz, chief economist for Turkey at Renaissance Capital, told Bloomberg on April 30. The increase in trade with Iran comes as sanctions make it harder for trading partners such as Turkey, India and China to pay in dollars and euros. Iran said in February it would accept payment in any local currency or gold. Reuters report today that Iran is accepting payments in yuan for some of the crude oil it supplies to China, the Iranian ambassador to the United Arab Emirates said on Tuesday. "Yes, that is correct," Mohammed Reza Fayyaz told Reuters when asked to comment on an earlier report in The Financial Times.
According to Reuters, Italy is going to propose to the European Union that they should exempt borrowing used to pay their commercial obligations from their calculation of public debt. Monti, the article states, is also going to propose exempting the counting of public debt used for investments. You may be sure that Italy’s $211 billion of derivatives will now be entitled an “investment.” Now all of this will lower Italy’s debt to GDP ratio which is the real reason for these proposals and so even worse falsified numbers can be handed out to the Press in hopes that money will be invested in Italy based upon not just inaccurate but offically countenanced manufactured data. This way not only the debt to GDP ratio can be falsified but the growth numbers, the fiscal targets and a raft of other numbers that will no longer be real but just a systemic figment of Europe’s imagination.
There is little doubt, even amongst the most uninterested and apathetic of people, that America has reached the threshold of a dangerous new era in 2012. Economically, the paper thin facade of recovery created by Federal Reserve fiat easing is beginning to fade, and the debt turmoil we currently see in the European Union is beginning to surface right here at home. Socially, Americans are being subversively divided by the false left/right paradigm and the exploitation of artificially induced race tensions by the mainstream media. Politically, Barack Obama’s presidential approval rating has hit all time lows, and the approval rating for Congress has hit a historic bottom. The path our country has been set upon can only lead to disaster; that much is certain.
There are two forthcoming dates which will set the direction and strength of the tide and certainly have a marked affect upon the ventures. They are this Sunday, May 6, when both the French and Greek populace will decide on who is running their government and then on May 31 when the Irish have their refrendum. At the least one must be thankful that there are Democracies that are working and that no group of Generals or some thug is making the decisions. Forthcoming we visualize many Socialist demands such as Eurobonds being made and Germany standing alone in the corner and refusing to fund which will make for all kinds of volatile markets. The bigger crisis though, we fear, will be when Germany says no to funding some grand Socialist idea. The problem is the size of the economy. The German economy is 25% of the American economy and it is going to get down to a matter of capital and what Germany can afford without being downgraded and a European Union without a AAA rated Germany is a very different affair both for the EU’s debt structure and for the Euro. In June the Fed’s Operation Twist comes to an end. There is no new stimulus plan on the table in either America or in Europe now. This means that the last four years of monetary easing and living off of that which has been printed is coming to an end. The consequences of this, historically, have been declines in the equity markets.
All you need to read and some more.