Translating "Growth" Into European

Tyler Durden's picture

Submitted by Mark J. Grant, Author of Out of the Box,


To understand Europe, you have to be a genius - or French.
                                                         -Madeleine Albright
Since I am neither of the above attributes my showing must be impartially considered but I shall endeavor to do my best. Having presented, in previous commentaries, a more accurate assessment of European economies which included derivatives, contingent liabilities, state guaranteed bonds, bank guaranteed bonds and each nation’s liabilities for the European Union and the European Central Bank I shall now offer a few opinions. The data that I presented was not a matter of viewpoint but just an addition of what Eurostat does not count to publish their debt to GDP ratios and so I presented the rest of the story for everyone’s consideration.
Several European institutions have objected to my methodology on the basis that contingent liabilities are just that; contingent. When I pointed out the monoline bond insurance companies and their debacle I was met with polite suggestions that the European institutions know how to manage their affairs better than that. Perhaps so; but perhaps not and these liabilities are there waiting in the wings in any event. Once identified, which I have, then it is a matter of speculation whether these unpleasant character actors may be brought out on center stage to play their roles so I think that it is important to take a rational approach and try to identify which of these may show up during the balance of 2012.
“In a world of paint by numbers you should make sure that you understand the math before you apply your paintbrush.”
                                                                               -The Wizard
The largest number of characters entering from the wings is likely to be for Dexia bank and their derivatives and liabilities that will go from contingent to “present and accounted for.” I expect this to hit both Belgium and France with some noticeable magnitude. Given the size of the economy in Belgium and the risks that the sovereign has assumed I think we may find their fiscal condition on par with Spain and Italy before the year has ended. Counting up all of their obligations has put the debt to GDP ratio at 203% and I think there will be some sizeable hits for Belgium before the year has ended. I would be quite careful with owning the credit of either the sovereign or of their banks.
Spain would be number two on the hit list. They have massive problems with their regional debt, their banks’ debt and the amount the country has guaranteed for any number of projects. The country is talking about such a severe restructuring and such a large amount of austerity measures that it will drive their economy past the breaking point and their banks, including the largest ones, are actually underwater now in my opinion and just being carried along by the recent LTRO and the decision by the ECB to accept credit collateral that is equivalent to the sub-prime mortgages that were carried on the books of so many American banks. It is possible that the ECB will continue the monetary shower but short of that they will have to come to the stabilizations funds shortly and be added to the list of European beggars. You see, they are caught, if they do not implement what they have promised then the till at the ECB gets closed and if they do implement then the ensuing economic contraction will cause the same conclusion so one way or another, left or right, the end of the road is about the same. There is talk this morning that the ESM may be used to directly fund the European banks but Germany, Austria, Finland and the Netherlands have all said, “Nein” so that this may be the dream of the periphery countries and the nightmare of those in the core.
“Germany rejects a direct lending to European banks of the ESM categorically.”
                                      -German Finance Minister Wolfgang Schäuble
A Short Story
A friend of mine is a quite successful commercial real estate developer in America. He also is a partner in a number of projects outside of the United States. One of his developments is a condo project right in the center of Lisbon. The largest bank in Portugal provided the loan and recently approached my friend to pay off the loan with a substantial reduction in the loan’s amount. While my friend was negotiating the proposal the bank came back to him and said they had concluded that this could not be done even though the offer was made on their initiative.  It turns out that the loan had been placed in a securitization that then had been pledged to the ECB for collateral and that the ECB would not release the loan or the security which included it. Now my friend’s group has stopped paying the interest, the condo project is incomplete and standing empty, the bank is probably carrying the debt on their books at face value and the ECB is most probably doing the same so that I would guess that “phantom valuations” are everywhere in the periphery countries and that the magnitude of these types of loans are nowhere reported but clearly of a very large amount. One or two quarters out then the assets may not vary but the declination in the income stream will show up on the balance sheets of the European banks and so I wave the red flag for your consideration.
I want you to pretend, from now on, that when you see this word it is written in Moldavian and needs to be translated. France and the periphery nations are screaming this word now while almost all of Europe is in recession and one that I believe will be much deeper than forecast.   Consequently “growth” does not mean “growth” and the correct translation is “Inflation.” I have long said it would come to this in Europe and here we go. The troubled countries are going to beg and plead for Inflation and Germany, Austria, the Netherlands and Finland are going to resist. With Hollande the most likely next President of France you are going to see a stand-off between the socialist and the centrist countries so that a log jam will develop and the consequences of its uncoupling are anyone’s guess except that it will be likely violent and an extreme series of events. The governance of Europe on May 5 will not be what is found on May 6 and preparation for this should be high upon everyone’s list.
A Significant Announcement
Michael Barnier, the head of Europe Financial Services, announced this morning that he will soon be offering new rules for the debt holders of the European banks. Under the plans, senior debtholders would face losses after shareholders and holders of subordinated debt had their investments wiped out. Write downs may also be applied to bank’s derivatives counterparties, it has been learned, which could be a disaster for other European banks as well as American banks.  Counterparty risk will have to be evaluated again after his announcement. Barnier is considering forcing lenders to issue at least 10 percent of their debt in securities that would be eligible for bail-ins and he is also prepared to set out alternative scenarios for debt that could be eligible for write downs. The proposals will also include requirements for national governments to set up so-called "resolution funds," financed by the banks, to cover costs from failing lenders apparently which will add to the liabilities of the European banks. Now one does not consider these types of measures in a vacuum so one would suppose that there are reasons for the implementation of these proposals and that they will go from academic to realization in short order. One more reason to avoid European financial institutions!

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GetZeeGold's picture




Growth = Printing.


scatterbrains's picture

Growth / printing = starvation

DeadFred's picture

A couple of quick fixes can help Europe a lot- Diebold voting machines for France and outsource their data analysis to the BLS.

LongSoupLine's picture

well, in Greece, growth = male enhancement surgery.

Nussi34's picture

only 25% of Greeks need that. 50% are women and half of the men are gay!

the 300000000th percent's picture

Hollandaise sauce for everyone

CitizenPete's picture



April 26 - A return to the gold standard is inevitable, perhaps as early as next year. And gold prices could hit $10,000/oz, says a new book by Amphora CIO John Butler.



Gold standard inevitable, $10k/oz looms, says new book (5:18) 


Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

I'll believe it when I se it (the gold standard, not the vid). I can't imagine any significant monetary reform, especially in the west, unless something cataclysmic happens.

Gordon Freeman's picture

CP: Don't believe everything you read...

Also, everything that Germany says they will never do--they will do.

GMadScientist's picture

The chief investment officer...of a software company says so?


NorthPole's picture

That can only happen if there is a complete economic collapse and TPTB are decisevely defeated and removed from power. As much as I would love that, lets get real: chances of that happening by next year are 0%.

youngman's picture

It is inevitable...there are not that many trees on the planet for what they have to print....this really is becoming a sick joke.....Obama is out telling students he is going to forgive their debts...more paper...more people on welfares thousands of programs....debt.....less income...less revenues...and the world is looking at us as has beens...and toy makers...and we who is going to buy the 7 years will..whoever they are..

falak pema's picture

the road to Keynesian nirvana in Europe has two forks, post French Election :

1° Bleed the ponzi. If you don't do that you die of the bank debt cancer. If you do it too fast you die of anemia. So it has to be stopped from growing; aka put a cap on derivatives, Gl-ST banks, install Tobin tax etc. The City will scream but then that's part of the cure-war; it has to be fought. Merkel always the key decision maker at this fork. If she says yes that cure-war can begin, with Hollande as lead proponent.

2° All the while bleeding the ponzi, and imposing "flexi" budget discipline, but not spelt out in concrete golden rule, the second fork is ECB bonds to fund the growth horizon, via classical Keynesian infrastructure investment. Here again the Frogs will scream for monetary injection, via ECB. Either by solliciting from those very banks who are being butt kicked and Tobined in 1° OR via more sovereign money and BEI investment arm. This is where it gets complicated. As, if the transnational cabal banks run to Singapore with their money and don't invest in Europe, the liquidity crunch ensuing will mean nationalising some banks and going whole hog against private banksta capital.


And I don't know to what extent Euro solidarity can find the balls to go to that position. We would be in dangerous water of north-south split. Once again Merkel-Germany key player. The only OTHER play is CHina-BRIC interplay in this area...Which side would they align in if this FIRST WORLD DIVIDE BECOMES VISIBLE ON FINANCIAL FRONT OPENLY?

Wait and see...we are not there. Ben Bernanke, who is piloting all this from DC will also have to make his call; in anticipation of this outcome. He is kingpin of overall Pax Americana construct. And we know he bows to the US banksta cabal. But he is fast running out of bullets...2012-2013 looks like a tipping point going from orange to red in Eurozone, all the while the US tries to make it green light in home economy. Decoupling is a pipe dream, thats for sure as the banks are globally incestuous. 

What is NEW in this current ball game perspective is that Sarkozy, Pax Americana stooge who was totally incoherent and opportunist, is no longer there (on poll booth expectation). French power play, freed of this anomaly,  diminished by its lack of economic zip, is now making its Alamo stand...Will it lead to a lone star state momentum or to something different in Euroland? 

Ghordius's picture

excellent points, falak. excellent

falak pema's picture

Unfortunately Ghordius, I am very pessimistic about Europe's ability of finding a consensus between north and south, but that's my personal take. Germany knows that Euro as reserve currency is not the all powerful, albeit ponzified, greenback. So she will not allow the south and ECB to print as hard as the South would like. Draghi is NOT Bernanke. But I am anticipating outcomes.

Hollande will obviously try and forge ahead on his platform. Something tells me as of May 7 the markets will start biting at his heels and we will see if he has enough bullets to defend himself against market tsunami, (remember what happened to Berlu and Zapatero), ...AND to then take on Merkel. 

If he gets mauled in the coming months, on french debt and the spreads by the market, his ability to raise his voice with Merkel will be much weaker. These first months, after May 7, will be critical for his margin of manoeuvre. 

Ghordius's picture

by now you should know that IMHO the EUR is a yin-strategy vs. the USD and it's possilble outcomes. when the hegemon is so predominantly yang-oriented, yin-strategies pay out, in the long run. see China, the biggest yin-strategist of the globe. the very fact that the City of London is both crying so loudly for a demise of the EUR and/or eurobonds is for me a very good sign.

having said that, I'd wish our American Cousins would "see some light" and somehow find some solutions for a new trajectory.

our european socialists might look weak in some points, but please remember how it was a German Socialist Chancellor who brought the Agenda 2010 and the increase in competitiveness that everybody would like to milk, nowadays. And a few years ago everybody was calling Germany the "sick man of europe".

DSK, Zapatero and Berlusconi have been a good lesson - I hear from many european political parties that "they got the message".

France is both North and South, pacifist and imperialist, and so on. And europeans know it. Remember, we are not at the point of a real trade war. At which point even the UK might become reasonable, otherwise it would trust globalism alone and still support an EFTA. Not only the center is holding, up to now even the periphery is still there, against sooo many expectations.

you are right, the big battle might be a Tobin Tax, with some other flank movements against the Bank Cartel. yin-strategies, for now, yielding, supple, resilient and waiting. Remember, banksters think only ahead to the next bonus round...

SheepDog-One's picture

HOORAY for the socialists! DOWN with the centrists! 

No wait....what?

Aductor's picture

I does not matter what happens to Europe. Because as long as nothing cataclysmic happens to the US, stock markets will rally. Ignorance is bliss in the land of the brave.

SheepDog-One's picture

The cataclysm will happen when they planned for it.

hedgeless_horseman's picture long as nothing cataclysmic happens to the US, stock markets will rally.


What do you think stock market indices do (in nominal terms) during periods of cataclysmic inflation?  They rally.

PirdOfBrey's picture

Paper money has to die - all the "growth" is inflation, balance sheets across Europe are still sick as dogs. The ECB is stringing it out but is almost in a corner already. The Euro has to go, that much at least is clear to anyone on the continent with half a brain, and when it does we'll see hyperinflation across a select few former Eurozone countries as some kind of rushed rebalancing takes place, before a wholesale collapse of the European banking system, taking the world into depression for probably a decade or two.

If capital flees to the BRIC, it won't even make a difference. All their growth is based on exports to Euope and US - there simply isn't the consumer base there.

Dick Darlington's picture