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France and Germany Kiss and Make up, But It's Hard
By Wolf Richter www.testosteronepit.com
George Papandréou, prime minister of Greece, doesn't hide that he is strong-arming the rest of Europe. "We negotiate every day to alleviate this indebtedness," he said (Le Figaro, article in French). And he is winning. In July, holders of Greek bonds accepted a "voluntary" haircut of 21%. But as the world's financial house of cards began to lean, strong-arming turned into extortion. By Monday, haircut expectations were at 60%—though the question of who will eat the losses remains at the center of the G-20 and Eurozone debates.
And the quick solution to the debt crisis that the financial markets were hoping for?
"The dreams to see the crisis ended by Monday couldn't be realized," declared Steffen Seibert, spokesman for Angela Merkel's government, following intense discussions over the weekend at the G-20 meeting in Paris (L'Expansion, article in French). But he also warned that banks weren't the only responsible party. Decades of living beyond our means has caused the debt crisis, he said, and current efforts to stabilize the situation must be performed not only by the banks but by "society as a whole." Taxpayers.
Then Wolfgang Schäuble, finance minister of Germany, weighed in: "The leaders of the EU won't come to an agreement about a definitive solution by October 23," in time for their next summit; measures to resolve the crisis, including better regulation and changing the EU treaty, would take time.
Merkel had already lashed out at Timothy Geithner last Friday. He has been putting relentless pressure on Germany to agree to a plan that would print, guarantee, leverage, and borrow away the debt crisis—on the theory that pouring enough gasoline on a fire might actually extinguish the fire.
"There is no single beat of the drum" that would solve everything, she'd said (Handelsblatt, article in German). The solution to the debt crisis is a "long difficult process, a process of many steps and measures." Eurobonds were no panacea either, and would not be helpful under current conditions, she'd added.
Pressured by all sides, France and Germany try hard to appear unified. During the infamous October 9 dog-and-pony show that followed their meeting, Merkel and French President Nicolas Sarkozy, practically holding hands, declared that they would have a package of global measures by the end of the month to resolve the debt crisis. It worked: the markets jumped.
Even their finance ministers, Wolfgang Schäuble and François Baroin, tried this weekend to portray themselves as the unified saviors of the Eurozone. And just before the G-20 meeting, Schäuble met with Sarkozy, a surprise, according to the Zeit (article in German). "We have a common position between Germany and France," Schäuble said afterwards. "And we're convinced that together we will be able to defend the euro as a stable currency."
But behind the scene, disagreements have fermented on almost every issue. Sarkozy is under heavy political pressure at home. The election is in seven months. Unemployment is ticking up. In the second quarter, there was zero growth. A recession seems likely. And for the first time since 1958, the conservatives lost the majority in the senate. And yet, he caved to Merkel on several issues.
All along, he'd vociferously opposed haircuts for bondholders of Greek debt. But momentum has been building. And on Monday, when Jean-Claude Juncker, prime minister of Luxembourg and President of the Euro Group, said that haircuts of 50-60% might not be enough, Sarkozy suddenly remained silent.
For the longest time, Sarkozy had echoed the French financial establishment that French banks wouldn't need to be recapitalized (for more: France's Fishy Denials as Mega-Banks Teeter). He is feverishly trying to maintain France's AAA rating, at least until after the election, by proposing unpopular reforms, such as an increase in retirement age. And if France had to issue more debt to recapitalize its mega-banks, a downgrade would be certain.
But in their October 9 declaration, bank recapitalization was at the top of their priority list. And his idea of using the European bailout fund, the EFSF, to recapitalize French banks (if they did need it) was wiped off the table this weekend.
However, they'd forgotten to ask the bankers. Who reacted with outrage.
"The French banks point out that the financial situation of some Eurozone countries, and not of the banks, is the reason for the turbulence in the markets," declared the banking association, Féderation Bancaire Française (Zeit, article in German). And Michel Perbereau, CEO of BNP Paribas—the world largest bank whose assets of $2.8 trillion dwarf France's $2.1 trillion economy—outright excluded a recapitalization of his bank.
Much like Josef Ackermann, CEO of Deutsche Bank, who said that the bank "will do everything it can to avoid a forced recapitalization" (FAZ, article in German). He also warned of a domino effect if there is private sector involvement in the losses on Greek bonds beyond the "voluntary" 21% agreed on last July. Sovereign bonds of other countries would crash, and bailout requirements would get much larger, he said.
That was last week. Sunday, he said that he'd go to Brussels in a few days to discuss the potential for investors to accept deeper losses.
Jean-Claude Trichet, head of the European Central Bank, warned last week on private sector involvement in losses on Greek debt—merely talking about it was bad, he said. It would threaten the solvency of banks in Greece and have dire consequences for the banking sector as a whole.
Underlying the anxiety is not the Greek debt itself, whose magnitude is known, but credit default swaps on Greek debt. Their magnitude isn't known. Anything beyond the 21% "voluntary" haircut would constitute a credit event that could trigger demands for payment of huge sums that would cascade through the banking system. Something the bankers failed to mention in public.
Meanwhile, strikes and protests continued in Greece. The army attempted to remove trash accumulating in the streets of Athens; the civil servant trash collectors have been on strike. Ferry service to the islands was interrupted by a strike. And 48-hour general strike has been announced for Wednesday and Thursday, just ahead of the next austerity vote in Parliament. For more on Greece's Extortion Game.
Wolf Richter www.testosteronepit.com
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I absolutely accede and I anticipate a lot of humans in Europe, Britain and abroad would accede – except conceivably those politicians who anticipate they will lose their jobs if it happens.
jogos do mario
Ackermann is full of shit (Scheiße), since the banks expected to take a larger hit in july, and the 21% was an unexpectedly mild "solution". Of course it wasn't, as everybody can see now.
This is reposted from here, but may be interesting, as I currency pairs, groups will long term tell a lot what is going to happen in this unipolar world when its major reserve currency collapses in 2016 ( after the other, EUR, will start collapsing already in early 2012 but French and German and some other strong Northern countries start to clean Eurozone up):
http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&p=34598#p34598
I have considered GBP/USD - but not in too great detail- can someone present me with the most advanced financial charting and analysis soft
From what I have considered, it seems (but I have to check, too many charts, I also want to be able to study ratios (not only forex-any) charts of even triple ratio charts or triple surface charts (1 price as function of 2 others) with movable/stretchable time scales, log-log plots etc) that after Eurozone final cleanup in 2013, from 2014 GPB will be pegged to the USD in rather narrow 0,71 GPB per USD +-2% corridor. in 2016, with USA default, GBP will obvioulsy move up into 0,5 GPB per GPB within 2 years. Before 2014, GPB will be also stable to USD at 0,62 GPB per USD, but inflationary pressures will mount.
Also, relatively stable vs. USD during 2014 will be CHF and especially CAD. JPY may even grow from 2013 vs, USD. The big sufferer in USD index is EUR.
One more interesting thing ( I have not been able to make any meaningful assessment of Yuan) is that one currency that will appreciate against USD starting already from 2014 will be PLN, and perhaps, CZK. What it tells, is, that not only these countries have developed good industrial base in post soviet years, but also, that GERMAN economic machine will be running full speed after 2013 German federal elections (between 1 September and 27 October 2013) adn expose confidence that it will continue running . From the chart I had published earlier elsewhere:
USD per EUR 2011-2018
One can see that something happens during early 2013 and than especially in end of 2013 when EUR temporarily takes back lost ground to USD. One of the possible reasons is that French elections in 2012 gives hope, while German in end of 2013 seals EUROZONE cleanup act in what ever form. After that , from UDS per EUR graph its clear, that, either as usual , promises are not kept or new factors arise that makes impossible for them to be kept ( and forces US to peg to USD to stoke inflation).
Such ideas about GBP, etc. I will come with more graphs as soon I am able to make them( takes DAYS of working itme/chart)
Ivars
My cattle is happily grazing this morning. Enjoying the last bits of fresh greens before winter and hay. I asked THEM what would happen and they showed me their dirty backsides. It's all going to shits but rest assured, come Spring time the cattle will resume feeding off the fresh grass and putting nice weight on.
We need to get through the winter. Are you all stocked up?
Was it a French kiss?
Hm, goes along with reinhardts prediction for Oct. 24 collapse
le moment de vérité arrive...can't twist again all night long...have to bite the bullet or Euro falls. Merkel's call...
In the above article, Wolf Richter says the exact opposite of what was in a ZeroHedge article by Peter Tchir of TF Market Advisors a few days ago.
Wolf Richter says above:
« ... Underlying the anxiety is not the Greek debt itself, whose magnitude is known, but credit default swaps on Greek debt. Their magnitude isn't known. ... »
Three days ago Peter Tchir quoted pretty firm numbers on Greek CDS, arguing that it wasn't really a problem at all. Tchir said that, ironically, it was the EU attempted game of structuring the coming Greek haircut so it did not trigger CDS, which could lead to a wholesale European bond market collapse, precisely because avoiding paying CDS on Greece would lead all EU bondholders to think that CDS hedging may be intrinsically worthless:
« ... The Facts Do Not Show a Risk of “Cascading Losses” From a CDS Credit Event on Greece
According to DTCC, the net Hellenic Republic exposure in the entire system is €2.7 billion. Yes, the open longs (or open shorts) are a total of €2.7 billion. ... There gross notional for Hellenic Republic CDS is €54 billion. ... »
http://www.zerohedge.com/news/any-greek-restructuring-should-be-designed...
Wonder if Richter would comment on why he thinks Tchir's numbers are wrong and this is a 'known unknown' instead.
http://www.youtube.com/watch?v=wpulStzGv4A&feature=player_detailpage
and there's your answer!
well, is this not an additional issue with CDS?
that the "exposures" are not transparent?
BAN THAT STUFF - take the live grenades off the children's hands
do you want a "functioning derivatives market"? don't allow banks (who can create credit at will) to handle them
Matthew 6:12
"forgive us our debts, as we also have forgiven our debtors"
"Underlying the anxiety is not the Greek debt itself, whose magnitude is known, but credit default swaps on Greek debt. Their magnitude isn't known. Anything beyond the 21% "voluntary" haircut would constitute a credit event that could trigger demands for payment of huge sums that would cascade through the banking system. Something the bankers failed to mention in public"
CDS not only can push sovereigns on their knees, they can also make them TBTF... It's comic
BAN CDS (AGAIN) - Let Greece default, 50% minimum - end this charade "in the name of capitalism"
Agree. But it won't end the charade. Once everybody actually recognizes there will be big losses the market will move on to the rest of the piigs. And then of course Italy.