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The Extortion Racket Shifts To Italy

testosteronepit's picture




 

Wolf Richter    www.testosteronepit.com

One thing Greek politicians have taught other European leaders: fear mongering for the purpose of extortion is the way to go. It might not work, and it might be counterproductive, and it might destroy confidence in the economy and give investors goose bumps and blow up markets, and it might cause spooked consumers to hold back on purchases and worried businesses to freeze hiring plans, thus exacerbating the situation, but it’s nevertheless the way to go.

Greek politicians learned it from Treasury Secretary Hank Paulson who'd walked into the Capitol in September 2008, threatening that the whole world would collapse if his demands weren’t met. Soon, they expertly issued a series of escalating threats to extort the maximum amount in bailout euros from the Troika. It didn’t work very well as the Greek economy continued to spiral out of control, and as the frustrated Troika halted bailout payments from time to time, and as tempers flared, and as the people in Greece became increasingly edgy. But it was the way to go. Then came Spain. And now Italian Prime Minister Mario Monti.

As always, timing is everything. And there was no better time than Thursday, the day before the meeting in Rome of the big four—Germany, France, Italy, and Spain—and a week before the European summit, which isn’t a run-of-the-mill summit, but the summit, the one that would have to save the Eurozone. And the world. Again.

Monti, the unelected technocrat who was supposed to be able to unite parliament, is losing support in Italy, which is mired in its fourth recession since 2001. His real estate tax is widely despised, though he’d picked up some brownie points in the foreign media as deficit fighter, and an imperceptible nod from German Chancellor Angela Merkel. And yields on Italy’s government bonds have spiked to levels where the resulting interest expense would eat Italy’s budget alive [Read.... Italy Trembling on the Brink].

If the summit next week doesn’t result in a grand plan to turn everything around, Monti said, the Eurozone would spiral into its political and economic demise. “There would be progressively greater speculative attacks on individual countries,” he said. And he mentioned Italy by name. A “large part of Europe” would suffocate under “very high interest rates” and would go into paralysis. The public would get frustrated with Europe. A vicious cycle would ensue: while the Eurozone would need greater integration to survive, the people, governments, and parliaments would “turn against that greater integration.” That process has already started, Monti said, “even in the Italian parliament, which has traditionally been pro-European and no longer is.”

Hence, no agreement by end of the summit next week, no Eurozone—though the breakup would be gradual. And he had a grand plan: more integration to where “markets are convinced” that the euro would be “indissoluble and irrevocable”; mechanisms to keep debt contagion from spreading (meaning massive and unlimited bailouts); a full-fledged banking union with unified supervision and European-wide deposit insurance; “new market-friendly policy mechanisms”; and the direct purchase of sovereign bonds that teetering member states could no longer bamboozle the markets into buying. Every item on his list would be funded by taxpayers in other countries, particularly in Germany. And so he also mentioned fiscal responsibility, to satisfy Germany.

That would be the “absolutely necessary” minimum to save the Eurozone. And it would have to be agreed to by next week—though he’d assured the rest of the anxious world less than a week ago that Italy wouldn’t even need a bailout.

But the fear-mongering didn’t sway the German Chancellor during the Rome meeting on Friday. In fact, she left early to fly to Poland to watch Germany’s soccer team demolish the Greeks—and the anti-Merkel triumvirate of Monti, Spanish Prime Minister Mariano Rajoy, and French President Francois Hollande could stew amongst themselves.

There was, however, a nugget of success that the triumvirate threw to the media: €130 billion would be dedicated to growth measures. A step away from Merkel’s austerity. Alas, it wouldn’t be new public money or additional public money, but the activation of private capital and a shuffling of funds within the existing EU budget. It was nothing.

And Merkel brushed off any hopes that the EFSF and ESM bailout funds could hand taxpayer money directly to the banks. Nein, Merkel said, the contracts clearly spell out that states are the partners, not banks. “It’s not that I don’t feel like it,” she said, “but the contracts aren’t made that way.”

Hollande again called for Eurobonds, like a child that doesn’t want to see reality; Germany’s refusal is nearly absolute, and it’s not just Merkel, but the population as a whole. Even the banking union that Merkel emphasized she’d be open to could not include any form of common liability; it could only have a common regulator, she said. And so, Monti’s threat has once again proven to be the way to go, though it didn’t work and might become counterproductive.

George Dorgan, a macro-based fixed-income and currency portfolio manager based in Switzerland, writes that Germany won't, and can't, agree to most of the Eurozone bailout measures bandied about. Period. Regardless of what the FT and the Economist wish to believe. And hedge funds betting that Germany will pay in the end are wrong too. Excellent and pungent. A wakeup call. Read.... Eurobonds, Fiscal or Banking Union—They're All Pure Utopia.

And on the lighter side, here is the hilarious video from down-under comedians Clarke & Dawe that in 2.5 minutes summarizes with superb accuracy the entire Eurozone debt crisis.

 

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Sat, 06/23/2012 - 18:09 | 2554639 HardlyZero
HardlyZero's picture

No, no.  Language issue.  Monti wants to be re-erected.  Hence the small intimate meetings in Rome with the Merkel beast.  Monti just needs some Love and can't get any from the IMF.   Monti is willing.

Sat, 06/23/2012 - 05:25 | 2553220 The Age of Usef...
The Age of Useful Idiots's picture

Welcome to the Bundesbank Disinformation Megaphone, courtesy of the guy who has more testosterone than Chuck Norris.

Your efforts must be really touching to your Frankfurt friends, but the truth has finally come out and you can't put that genie back. It wasn't Greece that used fear mongering to extort. It was Germany's banks, which got their wish and were bailed out, with the help of the As(s)mussens of the Bundesbank and "responsible" Frau Merkel. They offloaded hundreds of billions of bad loans and bad risk from German banks on European taxpayers, including German taxpayers and came up with this wonderful bedtime morality story you continue, like a good megaphone, to tell. Greece is just the muppet in the middle, the intermediary through whom the money passes to end on the creditors' balance sheets, paying the interest too for that "privilege". Nothing stays in the Greek economy. The money actually doesn't even enter Greece at all, it goes to a separate account Greece has no control of!

Aren't you ashamed to portray this as a bailout of Greece who supposedly used fear-mongering to extort??? Don't you have any decency???

Now let's see you try to refute the Bank of International Settlements data which proves that it was Germany's banks that got bailed out, not Greece or Portugal and that you are nothing but a tool, Mr. Wolf. I happen to know that this data is circulating in a lot of European capitals lately, and people don't like realising Germany's government has been pulling a fast one on them. And yeah, with Italy it's gonna get ugly. You can't pull off a "Greece" or "Latvia" with Italy. Italy is not going to sacrifice her economy for the benefit of German or French banks. Your heroes are screwed, because the backlash and blowback is just starting.

 

**********

"In the millions of words written about Europe’s debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences.

Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

How It Worked

Here’s how it worked. When German banks pulled money out of Greece, the other national central banks of the euro area collectively offset the outflow with loans to the Greek central bank. These loans appeared on the balance sheet of the Bundesbank, Germany’s central bank, as claims on the rest of the euro area. This mechanism, designed to keep the currency area’s accounts in balance, made it easier for the German banks to exit their positions.

Now for the tricky part: As opposed to the claims of the private banks, the Bundesbank’s claims were only partly the responsibility of Germany. If Greece reneged on its debt, the losses would be shared among all euro-area countries, according to their shareholding in the ECB. Germany’s stake would be about 28 percent. In short, over the last couple of years, much of the risk sitting on German banks’ balance sheets shifted to the taxpayers of the entire currency union.

It’s hard to quantify exactly how much Germany has benefited from its European bailout. One indicator would be the amount German banks pulled out of other euro-area countries since the crisis began. According to the BIS, they yanked $353 billion from December 2009 to the end of 2011 (the latest data available). Another would be the increase in the Bundesbank’s claims on other euro-area central banks. That amounts to 466 billion euros ($590 billion) from December 2009 through April 2012, though it would also reflect non-German depositors moving their money into German banks.

By comparison, Greece has received a total of about 340 billion euros in official loans to recapitalize its banks, replace fleeing capital, restructure its debts and help its government make ends meet. Only about 15 billion euros of that has come directly from Germany. The rest is all from the ECB, the EU and the International Monetary Fund.

Better Prepared

Germany’s changing financial exposure has major implications for its role as a leader of Europe’s response to the crisis. Before Germany’s banks pulled back their funds, they stood to lose a ton of money if Greece left the euro. Now any losses will be shared with the taxpayers of the entire euro area -- particularly France, whose banks still have a lot of outstanding loans to Greece. Perhaps this is what some German officials mean when they say that the euro area is better prepared for a Greek exit.

Ultimately, though, the cost of letting Greece go would come home to Germany. If bank runs and market turmoil forced Portugal, Spain, Italy and others out of the euro area as well, the losses could wipe out much of the capital of German banks. Not to mention the longer-term damage the euro breakup would do to the exports that drive Germany’s economy, and the potential demise of a European project designed to prevent a repeat of the horrors of two world wars."

http://www.bloomberg.com/news/2012-05-23/merkel-should-know-her-country-...

**********

 

The game is up. Your game is up too.

Sat, 06/23/2012 - 06:59 | 2553330 mendigo
mendigo's picture

You are of course correct.
I think he is speaking about the sovereigns and you are pointing to the under-lying oligarcy which will continue regardless of what happens to the eurozone or the us - in fact this may strengthen thier position. Some will lose much but it is a zero sum game for their class - or in fact they keep sucking the life out of the working classes.

Sat, 06/23/2012 - 00:47 | 2553175 OldPhart
OldPhart's picture

This time I hope they bet it ALL on Green 00 and let the wheel spin.  That number hasn't hit, ever, so it's due and it would be the big winner at an honest casino.

Unfortunately, we're not playing at an honest casino.  The chips are counterfeit, the wheel is rigged, the dealer compromised and the player is too involved with drinkin', druggin', cussin' and whorin'..not that they're bad as long as you don't use the mortgage money to pay for them.

Sat, 06/23/2012 - 18:44 | 2554698 El Oregonian
El Oregonian's picture

Oldphart, at this point we're waaayy beyond the mortgage. More like "nutz in a vise" point and half a turn till you scream... Unless you've got PM's of course.

Sat, 06/23/2012 - 00:09 | 2553127 steve from virginia
steve from virginia's picture

 

'Doing the Paulson' it did indeed work.

The euro turns out to be a subprime instrument, the EU is a Ponzi racket. What difference does it make to 'Do the Paulson'?

Given enough time, nobody will do the Paulson. Nobody will have any money, it won't be worth it to try.

 

Sat, 06/23/2012 - 18:02 | 2554630 HardlyZero
HardlyZero's picture

The Paulson Extortion Effect (PEE) only works if you are first in line.

After the 10th in line...its slopply 10ths.

Merkel was not impressed with Monty's messy and stinky 'package' and had other plans the the evening.

 There will need to be stimulus, vibration, pumps, or inflatables...to expand the girth to get something really going in these meetings.

 

If this gets exciting there should be a EMERGENCY EZ Summit called at the UN or something....soon.

The EZ riders will want it really, really, BAAAAAD !  on the floor with the whole gang bang.

Fri, 06/22/2012 - 23:27 | 2553095 Omen IV
Omen IV's picture

let it blow, let it all blow, chaos now!

Fri, 06/22/2012 - 22:26 | 2553010 Cerberus
Cerberus's picture

What's next?  The Full Monti.

Fri, 06/22/2012 - 22:26 | 2553012 world_debt_slave
world_debt_slave's picture

ha, ha, good one!

Fri, 06/22/2012 - 22:08 | 2552977 disabledvet
disabledvet's picture

if you don't think The Big Four (Spain, Italy, France and Germany) shouldn't be scared shitless about what is going down with the EZ (and no, they do not agree with your "no biggie" Trichet view nor have they for quite some time) then I think you need to have head checked. You're "head attached to your neck" part in case you're wondering. This is not some "planned attack" (which could be argued happened in 2008--though i would argue "it sure went awry" if it was)--this is about a fundamental and devastating flaw in the world's largest economic system. Let us not forget "after the domino's fell in New York the EZ saw themselves as victorious"...this in spite of the fact that our own Fed was bailing out Belgium at the time! A sign of "American stupidity" then? Now we know: "hardly." Indeed..."not at all." So now we have The King of King's: Sovereign debt defaults in the EZ on the table...for ALL the Principles. Anybody who is anybody is trading this thing in New York. When I was ordered to go into Haiti I was told (not nicely i might add) "you don't want to do this"...and i responded "why do you think i came to this unit in the first place?" Case closed and what a life changing experience for me. And so it is with Wall Street and Eurozone. This is called PRIME TIME and if you have to ask "why are you doing what you're doing" then simply put you have no business even speaking about what's going on let alone pretending that somehow you are participating. This is pure, unadulterated Pagan Money-Ball from here on out now.
http://www.youtube.com/watch?v=E1vsmpGfB9Q

Fri, 06/22/2012 - 21:34 | 2552957 world_debt_slave
world_debt_slave's picture

for a second I thought you posted "The Extortion Racket Shits on Italy"

Fri, 06/22/2012 - 21:06 | 2552921 dogbreath
dogbreath's picture

 "And it would have to be agreed to by next week"  pulling a fast one Monty??

Sat, 06/23/2012 - 18:39 | 2554688 El Oregonian
El Oregonian's picture

You mean the "Fool Monti" don't you?

Sat, 06/23/2012 - 18:11 | 2554648 HardlyZero
HardlyZero's picture

So Monti is a technical Ponzi ?  yes.

Fri, 06/22/2012 - 20:36 | 2552886 Blue Dog
Blue Dog's picture

When you borrow other people's money to buy votes you should have to pay it back. What's so wrong about that?

Fri, 06/22/2012 - 20:36 | 2552885 printmoremoney
printmoremoney's picture

The collision of human drama and Math.  Let's hope sovereignty wins over the Banksters. Central Banks are the scurge of the Earth. Karl Marx put the Central Banks as a main plank in the Communist Manifesto. The idea sucked then, and nothing has changed. Personal income tax is another plank in the Communist Manifesto. It sucks. The facists'communists may have looked like they lost WWII, but it was just a Reorg. Time to kill it for good after the meltdown and let sound money systems and humans decide how they want to live and how they want to invest. It may be the common mans' last chance.

Sat, 06/23/2012 - 18:12 | 2554609 HardlyZero
HardlyZero's picture

The Big Monty is always the way to go, professional banksterism...from the Greeced Monti its all downhill to Ponzi.

Sat, 06/23/2012 - 03:24 | 2553244 OneTinSoldier66
OneTinSoldier66's picture

I hear ya.

 

Just how far has the brainwashing gone? Even though all I had ever known for most of my life was paper money it never had me. But boy it sure must have sucked a lot of people into the Matrix. An amount and to an extent that is unfathomable to me.

Sat, 06/23/2012 - 17:50 | 2554616 knukles
knukles's picture

I'll gladly pay you Tuesday for a hamburger today.

Wimpy's Lesson #1.
Interest free loan, to be repaid in fiat, in exchange for real stuff.

Fuckin'-A
Who said cartoons are dumb shit?

Sat, 06/23/2012 - 00:45 | 2553171 monad
monad's picture

What do you mean? The best alternative to war is to lure the children to Frau Merkel's gingerbread house on the promise of free candy & quickly shove 'em in the oven. Not just to eat them, but also to reel in uncle Ben & President Mandingo to train her kat.

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