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Austria Joins Germany In Opposing Euro Bonds
While the euro bond song and dance is all too familiar, being a carbon copy replay of last year, we feel obliged to remind who the key actors are, but more importantly who the key decision makers are. In short: while last year, at least in the first half, it was everyone against Merkozy, demanding that the two AAA rated countries backstop Europe at their own expense, following the French downgrade, France no longer cared if there are Eurobonds and joined the peripheral push to convince Merkel to shoulder the cost of preserving the Eurozone on its own. Germany politely declined. Fast forward to this year, when we get the same, only Hollande is now more vocal than ever knowing full well that he alone will be unable to deliver the "growth", read incremental leverage, needed to back up his campaign promises. This is, or rather was, the whole point of today's and tomorrow's latest European summit which, just like this weekend's useless G-8 photosession for the world's leaders to express their support for either Chelsea or Arsenal, will achieve absolutely nothing. Importantly, we now can add at least one more country to the list of those opposed to a AAA-backstopped rescue of the rest of the Eurozone.
From Bloomberg:
Austria’s Finance Minister Maria Fekter said she opposes joint euro-area bonds as they would cost the Alpine republic more interest.
“Like my colleague Schaeuble I am against euro bonds,” Fekter told reporters in Vienna today. “I’m not willing that Austria should potentially pay twice as high interest as we currently do. As long as fiscal discipline of the euro nations isn’t completely complied with, as long as stability isn’t really really reached, as long as there is no direct influence on how the states run their finances and which fiscal measures they set, I won’t sacrifice the Austrian credit rating.”
European Union leaders meet tomorrow in Brussels where German Chancellor Angela Merkel faces growing pressure to ease up on austerity measures after three years of the debt crisis crimps expansion. Newly elected French President Francois Hollande has said he plans to discuss common euro-area bonds at the meeting, while Merkel has rejected issuing such bonds, saying that eliminating the gaps in bond yields would remove the incentive for weaker countries to overhaul their economies.
In summary: the AAA-rated countries refuse to bail out the non AAA-rated countries, as it is them that will increasingly suffer the burden of preserving the Eurozone. We should add for now, because just like France, as more and more countries (and Holland appears to be next) leave the European AAA-club, the incentive to demand a bailout as opposed to grant it, becomes greater and greater. As a result, the only question is how long until Germany is all alone against 16 European countries, all demanding some tat for the German tit of having reaped the benefits of over a decade of quasi-mercantilist policies, even if, granted, nobody had a gun to the head of the PIIGS to import German "stuff."
At the end of the day, the simple math was captured perfectly by Citi over the weekend: nothing will change until, like last year, the market is on the edge of imploding, and everyone has to join the fray with some last-second hairbrained idea that delays the inevitable by a month or two.
Until said crash happens, nothing else will.
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Are you going to eat that......or can I have it?
Everyone out of the pool.
http://www.youtube.com/watch?v=Th_aBzrV37M
Good, disastrous idea.
France will be going down the crapper with or without these bonds, just time line will be different.
Eventually I think they'll split the baby and the ECB will issue Euro-bills.
Once its obvious that Greece will be leaving the Euro there will be concern that spreads on non French/Germen Euro-zone debt will blow out even wider, will be shunned as collateral, drive up borrowing costs etc. and this will be the "solution."
Maybe the ECB swaps say, Spanish debt for 3-month ECB bills which can then be (more easilly) used by Spanish institutions as collateral.
I think this is the most viable option out there. Offering to refinance all short and medium debt is the only carrot the EU/ECB has left.
But putting those on the table now only makes the moral hazard worse.
Greece leaving or staying on the Euro doesn't much matter to the balance sheets of the ECB or banks unless it provides the other PIIGS and maybe even France a bad example to follow.
So, let Greece leave and then create a twist like vehicle for the the remaining countries that lets them roll their coming due debts into instrument at least partially backed by the ECB. These instruments, however, should only hold the implicit ECB guarantee as long as the borrowing country retains reform X.
And that their long term debt (>5 year) stays fully on their own books provides the added atick of keeping the reform progress in place.
Having been let go, Greece will plunge into temporary chaos, but will shortly be able to devalue themselves competitive should they want that.
I, for one, welcome back our Deutsche Mark overlord.
They will join us.......or die. Damn those Germans dress good.
http://www.youtube.com/watch?v=rKtciRCVpFE
We will introduce the Deutsche Mark in Austria, North Italy, Elsass, parts of Poland, Czech Republik and Hungary!
Now if we can just get Italy and Japan to join, the Axis will be restored.
Maybe we can get China a direct line as well.
Still saying, "Never!" Gene?
History rhymes
So does the present, just ask the Limerick King.
Busta rhymes, apparently.
'Holland appears to be next to leave the European AAA-club.'
Have you been smoking too much of our pot?
Actually, it a S&M Club, Germans just changed the name. Remember to bring your own butt plug.
How do you save and overspend at the same time? Is that Schrödinger's bank account? There is the money and there is no money at the same time?
The politicians will hold the EZ together until it rips them apart.
http://en.wikipedia.org/wiki/Dismemberment
Netherlands also.
Plus they cant find a majority for ESM participation here.
So what happens when either the EZ members forgive each others debt or the whole thing blows up and all eyes trun to the U.S.S.A.?
Now that China has a direct computer line to the treasury department (and the bankers can sell as many american souls into slavery that they want for more heroin) does anyone really think that China ia going to forgive the debt of the U.S.S.A? LMFAO!
Hedge accordingly.
Revolution happens as the citizenry realizes their pension fund money has disappeared. Which is why that won't happen.
You mean the citizens wont realize their pensions and healthcare took a massive haircut? Is Keynes right in his estimation of the stupidity of the common man easily fooled by nominal values?
Stealth inflation
Means testing
Higher taxes on retireees "who can afford it"
Why is this any different than massive haircut?
Prepare accordingly. I am gonna look poor on paper.
Oh i forgot increased rationing of health care
Thank you socialists for giving so much to the boomers that we are so far in debt the next generations have to sacrifice
Oh no, Fritz is getting the hose...looks like it is pig cleaning time!
I have been wondering about these other core countries since they have been rather quiet letely (especially the Dutch, probably because they can't stick to their own self imposed austerity plan).
The Fins? The Luxembourg(ers?)?
Maybe those other countries are busy finalizing their exit plans.
Today I learned about the weird plan of Douche Bank to use Greek debt as money (or IOU's I guess - the California method!).
Shit is getting fucked up and bullshit.
JPY on a tear after downgrade. EURO down .5 decouples from 1% rise in stocks. Physical matter is separating. The big poof is on the way.
SCHNITZEL'S GONNA HIT THE FAN
Is it true that the game of musical chairs was invented on the Titanic?
Once the National Assembly Elections are out of the way Hollande can settle in for 5 years of inertia and watching his cities burn
NO SOUP FOR YOU!
Essen Sie Ihr Erbsen
(Eat your peas- in German)
Oh no it isn't - try to make possessive article agree with noun and then flip the syntax to form an imperative
Let them eat cake: thats Fench history
When Germany decides take eurobond, their followers agree.
Germany is the boss.
The only reason why the US and UK is pushing for Eurobonds is their need to move all these newly printed and freely given out Dollars and Pounds into Europe, in order to receive hard Eurobonds in exchange. These Euro;bonds can then be offered to the ECB as colloteral for cash Euro currency. This currency is then going to be used to make payments for imports from the Eurozone.
The motto is: Print US Dollars and British Pounds and convert it into Euros which is still a hard curency.
The TBTF banks are very happy to convert their zero interest Dollar and Pound funds into interest bearing Eurobonds. Thus vast amounts of Dollars and Pounds given in exchange for Eurobonds would then rest in peace as reserve money in Europe or return to the US/Uk to be used to purchase Treaseries and Guilts. Thus inflation in US and UK is kept relative low (because the new printed money is leaving the country and therefore not adding immediately to the inland money in circulation)
The problem now, the souvereigns of South Europe do borrow much lesser nowadays because of austerity measures and high interest rates. Germany as one of the last countries with a good crediit rating has a balanced budget already, resulting in low interest rates . Plus the capital Germany needs to roll over its old debt is easily provided by German institutions like Allianz et al. To say no busines for the TBTF.
The solution: Eurobonds issued by Greece and all other countries having problems to borrow money. Issued by Greece and backed by Germany and the other countries of the Eurozone having still a good reputation.
The price of such a scheme: High inflation in Europe for the price of a not so high inflation in US/UK. The difference is: In us/Uk the saving rate is very low compared to the Eurozone, for example the Italian population hast vast savings, mostly Italian government bonds. So inflation in US/UK is welcome because it kills the debt, while in Europe it would kill the savings of the population, which is an important source of capital for the Eurozone economy.
So Eurobonds ar just a wet dream from a desperate Mr. Cameron. There is no way that such a thing happens in the Eurozone as it stands now. Once the fiscal union is completed (and this may happen quite soon) then Eurobonds can be an option. But then the Greek government does not have the authority to borrow money just as they want to. This is going to be decided then in Strasbourg I expect, by some kind of European Debt ministry. If the Greeks want to borrow because their budget is unbalanced then they have to ask for money there and it might happen, that Strasbourg says,, no sorry, maybe next years.
Well, of course they'd say that: after all, they're Austrians, aren't they. :-)