Philipp Bagus explains that Spain's use of the Euro currency has led to them being able to spend & spend, accumulating so much public debt without any real consequences.
Let’s consider Germany. According to Axel Weber, the former head of Germany’s Central Bank, Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.
Over the past week, various entities controlled by bailed out UK-bank RBS, focusing primarily on NatWest, have seen clients unable to access virtually any of their funds, perform any financial transactions, or even get an accurate reading of their assets. The official reason: "system outage"... yet as the outage drags on inexplicably for the 5th consecutive day, the anger grows, as does speculation that there may be more sinister reasons involved for the cash hold up than a mere computer bug.
There are two significant events that will be decided in the forthcoming days. Each will change the face of the European Union. The first is Greece; a little country with a total debt of $1.3 trillion and likely to default. The calculations in Athens are how to get more money out of Germany and the calculations in Berlin is whether a default is less costly, both politically and economically, than giving Greece more money. Debt forgiveness has never even been mentioned so I think we can rule out this possibility as it would have been floated by the German public for review and reaction. The Troika shows up Monday in Athens, they will find all targets missed, all promises unkempt and all hopes for salvation dashed upon the Greek floor along with the plates. The Greeks will beg and plead and threaten and the Germans will decide. In the end I think Greece will be allowed to stay in the EU to preserve the dream, that they will default, that they will return to the Drachma and that they will receive some kind of debtor in possession financing so that the country does not collapse. That is my best guess. Cheaper tourism and cheaper ships will help with their competiveness but it will be years before Greece is allowed back into the Eurozone as a voting member. The second item on the docket is Spain. They need a total of around $350-400 billion dollars to straighten out their banking system and their regional debt. Money lent to the banks in some fashion, not currently allowable under the various policies but you never know, or money lent to the sovereign to be lent to the banks will be just the first tranche of funding. It will be followed by more money lent to the regions of Spain which may take another novel approach but no matter. Spain is about to be run out of Germany no matter how all of the trivialities play out and so the impositions of the Men in Black are about to be put in place. So long to the importance of Madrid and thanks for all of the entertainment. You have been caught and are about to be hung out to dry and enjoy the ice wine that Germany will provide for your congratulatory dinner. Rajoy was right, a “Great Victory for Europe;” serving ice wine in Madrid.
One week to solve all problems, or else....
The no frills summary of the past week's key bullish and bearish macro events.
We have no doubt that everyone is tired of bad news, but we are compelled to review the facts: Europe is currently experiencing severe bank runs, budgets in virtually every western country on the planet are out of control, the banking system is running excessive leverage and risk, the costs of servicing the ever-increasing amounts of government debt are rising rapidly, and the economies of Europe, Asia and the United States are slowing down or are in full contraction. There's no sugar coating it and we have to stop listening to politicians and central planners who continue to downplay, obfuscate and flat out lie about the current economic reality. Stop listening to them.
And final score: Greece JA JA - Germany NEIN NEIN NEIN NEIN. Too bad the real Grexit doesn't have to be decided in 90 minutes.
Today's EURO 2012 quarter-final between the diminutive (in stature and in economic might) Greeks, who surprisingly made it to the knock-out rounds - 'giant-killing' Russia on the way, and the hulking football genii Germans, promises to be as packed with prowess as it is punch. Don't write Greece off too soon though as they won the whole thing in 2004, and we can only imagine there is more than a little 'payback' in mind as they walk onto the field today. While we assume the entertainment will be a little less comedic than Monty Python's famous Philosophy International between the two nations, it is must-see viewing if for nothing else to watch Frau Merkel's face as she ducks and weaves the crowd's abuse. Will there be a little friendly wager between Samaras and Merkel? Santorini perhaps in exchange for four-more-years? ESPN3 Live Stream link below. Odds are that Germany wins 2-0 (with 33-to-1 odds on a 5-0 win) as the Greek defense won't cope with Klose first to score. For the long-shot, the odds of a Greek win is 9-to-1 - about the same chance they have of staying in the Euro.
Greece may have a new government that is the same as the old government, but what is important is that it is "fixed".
Goldman got those positions in last week, just like BoomBustBloggers did, and now its time to tell the muppets to help drive the prices down??? Paranoid conspiracy theory or just plain fact?
In the next days Greece will present her magic tricks at court and while the Dukes and Barons cheer in the wings it will be up to the Red Queen, this would be the bearer of the Holstein emblem, to decide if the tricks performed are worth the cost. There is a very good chance of the hand wave of dismissal here and then the theatrical event of the season, “Off with their Heads,” will begin. Then the savant of Madrid will be allowed in to show his wares claiming they are all of silk but coarse wool is closer to the truth. The money, if it comes, will be provided by the EFSF by the way because the ESM is not yet in existence. Then the plan is to transfer the loan to the ESM which will be senior to the holders of the Spanish sovereign debt. So this morning you must rush out and by the debt of Spain. You love to be subjugated; you delight in the masochism of the whip. Losing money is what you live for and why you breathe. Oh no; this is not you? Well then; maybe better not.
Swiss Minister of Defense speaks up while Merkel joins the Axis of Evil
While Citi's Willem Buiter believes that the new coalition in Greece removes the very short-term risk of GRexit, as he notes in an Op-Ed in the FT today that "minimum demands for relaxation of fiscal austerity by the new government will not exceed the maximum fiscal austerity concessions Germany is willing to make", he does think the TROIKA "unlikely to tolerate another failure to comply on all fronts by the December assessment" leading to an end-2012 Armageddon a la the Maya. The "willful non-compliance" with the conditionality of the TROIKA program also brings doubt on the willingness of core eurozone nations to "take on significant exposures to Spain and Italy unless it can be established unambiguously that a willfully and persistently non-compliant program beneficiary will be denied further funding". His succinct summation of the "onion-like unpeeling and unraveling" of the Euro's endgame is perfectly described as: "The greatest fear of the core nations is not the collapse of the euro area but the creation of an open-ended, uncapped transfer union without a surrender of national sovereignty to the supra-national European level" as he sees material risk of "procrastination and policy paralysis".
Months ago, I forecast that Germany will walk before it goes “all in” on the EU to prop up everyone else. I believe that day is fast approaching. Unless Angela Merkel wants to commit political suicide, she will be forced to protect Germany’s domestic issues. Whether this comes as a result of Germany pre-emptively leaving the Euro or doing so after one of the PIIGS has already left remains to be seen. But in the end, Germany WILL WALK IF IT HAS TO.
"Unlike other financial instruments, gold doesn't produce interest. But given its symbolic presence and usefulness as a safe haven in times of crisis, the BOK needs to buy more. We may do so this year," he said.