EU central bankers ponder Greece euro exit

[$teve]

Spain is heading into very troubled waters....


Spain Delays and Prays That Zombies Repay Debt: Mortgages

Spanish banks are masking their full exposure to soured property loans while they continue to prop up insolvent “zombie” developers, leading to credit-rating downgrades and plummeting share prices.

Spain is trying to clean up its banks, requiring lenders to set aside more for possible losses on loans deemed performing to developers like Metrovacesa SA (MVC), which hasn’t completed a project in more than a year and has none under way. While that represents about 30 billion euros ($38 billion) of increased provisions, it’s not enough because many of the loans said to be performing aren’t, said Mikel Echavarren, chairman of Irea, a Madrid-based finance company specializing in real estate.

“Spain has engaged in a policy of delay and pray,” Echavarren said in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.”

The Economy Ministry says that Spanish banks have 184 billion euros of developers' loans and assets that are “problematic,” while the remaining 123 billion euros are performing. The need for more reserves to cover losses on the loans can’t be ruled out, Nomura International analysts Daragh Quinn and Duncan Farr said in a May 14 report. If Spain took losses on developer loans like Ireland did, Spanish banks would need 8.9 billion euros under the best case to 76.5 billion euros of additional provisions in the worst scenario, Nomura estimates.

http://www.bloomberg.com/news/2012-0...mortgages.html


Spain's Rajoy fights losing battle to stave off EU rescue

So where will he find the money to finance his €23.5bn bail-out of Bankia, a bank deemed healthy just weeks ago? The Fund for Orderly Bank Restructuring (FROB) has €5.3bn, and other banks to worry about. It would be ruinous to tap the bond markets. Spanish 10-year yields are already at danger levels of 6.4pc. The spread over German Bunds has reached a post-EMU high of 514 basis points.

Capital flight has cut foreign holdings of Spanish debt from 50pc to 37pc since January. Spain's banks -- including Bankia -- have been propping up the state with €316bn borrowed from the European Central Bank. Now the state is propping up banks. The incestuous nexus is surreal.

Barclays Capital says Spain's housing crash is only half way through. Home prices will have to fall another 20pc to clear an overhang of one million excess properties. That will bleed banks to death.

http://www.telegraph.co.uk/finance/c...EU-rescue.html

Spain's retail sales in record fall

Spanish retail sales dived in April, showing the biggest fall since the figures started being collected in 2003.

Sales fell 9.8% last month compared with the same month last year, after adjusting for calendar differences, according to official figures from the National Statistics Institute.

The fall was much worse than had been expected, and marked the 22nd consecutive month of declining sales.

Sales had fallen by 3.8% in March.

Without adjusting for calendar effects, retail sales fell 11.3% in April having dropped 4% in March.

It is the latest bad news from the Spanish economy, which saw the level of risk attached to its government bonds hitting record levels on Monday after it emerged on Friday that banking group Bankia was going to need a bigger bail-out than had been expected.

Spanish shoppers are being discouraged by government austerity measures, rising taxes and Europe's highest rate of unemployment.

Employment in the retail sector was down 1.2% in April from the same month in 2011.

http://www.bbc.co.uk/news/business-18246886

[$teve]

More preparations for a Euro breakup....


Bank of England prepares plans for euro collapse
By Robert Winnett, Political Editor
6:43AM BST 29 May 2012

The Bank of England is poised to cut interest rates or launch another round of quantitative easing if the euro collapses, it emerged on Monday.

A senior official for the Bank said the measures would "again play [their] part in mitigating the impact" of Greece or other countries leaving the single currency.

The comments come after the head of the IMF suggested last week that British interest rates may have to be cut to zero if the economic situation deteriorates.

The Bank has already completed a quantitative easing programme, effectively printing more money worth £325billion and this may be extended again.

Yesterday, David Cameron hosted a meeting with Sir Mervyn King, Governor of the Bank; Lord Turner, the chairman of the Financial Services Authority; and the Chancellor, to discuss contingency plans to deal with the collapse of the euro.

There is growing speculation that Greece may be forced out of the euro following new elections next month, if a coalition government cannot be formed that will back austerity measures.

In Britain, ministers have already overseen extensive contingency planning to prepare for the possible impact of the break–up of the euro. This extends from asking banks to insure their holdings in Greece to considering new border controls to prevent a wave of immigration from beleaguered European economies.

A disorderly eurozone break–up could spark another deep recession comparable to that caused by the banking crisis.

http://www.telegraph.co.uk/finance/f...-collapse.html

[Ovicula]

Regardless what they are saying .... I beleive this will happen way before 1-1-2013.

I would tend to agree with the 1-1-2013 date. Nothing happens in Europe during the summer months. Too hot to do anything. Also, this has to looked like it was planned carefully so people do not panic. Businesses need time to prepare and the beginning of the year is normally the beginning of a new start.

Just found this:


Greece to Leave Euro Zone on June 18: Wealth Manager


Published: Monday, 28 May 2012

Greece will leave the euro zone on June 18 if the populist government wins the country’s elections on the 17 as the rest of the euro zone rounds on "cheaters," Nick Dewhirst, director at wealth management firm Integral Asset Management, told CNBC.com Monday.

“The euro zone is a club but you get cheaters who get away with it until everyone finds out and at that point you need to remove them otherwise everyone will cheat. It’s better for Greece to leave,” Dewhirst said.

He added that Greek society was built on cheating and scheming, saying “everyone does it” but that voters elsewhere in the euro zone were now calling Greece to account.

“The basic question is that a German has to increase working from 65 to 67 and that is to pay for Greeks retiring at 50.

The 17th of June is the perfect opportunity to say either 'we’ll behave' or 'we’ll carry on cheating,'" he said.

Christine Lagarde, the head of the International Monetary Fund (IMF) sparked criticism in Greece after saying that Greeks needed to start paying their taxes, with Socialist leader Evangelos Venizelos accusing her of "insulting the Greek people." Greece was forced to call for a new round of elections, which will take place on June 17 after the country failed to pick a decisive winner in elections earlier this month.

Far left parties against the country’s bailout agreement received strong support from the electorate disheartened by harsh austerity measures in a country now in its fifth year of recession. However, polls at the weekend showed support for the pro euro bailout parties increasing enough to form a coalition.

Dewhirst said that there had been a significant amount of "scaremongering" from the euro elite about the ramifications of a "Grexit" but that it would be feasible and even orderly.

“It’s a bit like Y2K, [also known as the Millennium bug, the much- hyped problems that would affect computers globally as the year changed to 2000] there would be a lot less to it then everyone thinks.

"The Greek banking system would close for a week and there’ll be a new currency. Not the drachma but ideally it would be two Geuros (the name given to a possible Greek parallel currency) to one euro so they devalue and fix to the euro,” Dewhirst said.

He added that this would transform Greece and the rest of the euro zone for the better.

“Greeks would no longer be able to afford German cars and Germans would be able to buy Greek villas and the young unemployed in Greece would have jobs as tourism booms. The best thing would be that they [Greeks] could blame the foreigners,” Dewhirst said.

He said suggestions of a bank run and contagion have been overplayed by some quarters.

“Yes, the banks would run dry but it can be done, there is a lot more money electronically than there is cash. In Argentina they closed everyone’s bank account and then they were reopened using Pesos. The club would rally round the rest so the weaker members - Spain, Italy, Ireland and Portugal -would receive a massive support mechanism. The Germans would provide support to the rest of the euro but not to the Greeks,” he said.

Kit Juckes, global head of foreign exchange at Societe Generale, told CNBC’s “Worldwide Exchange” that the best outcome was “the status quo.” “A Greek economy in depression, austerity that guarantees they’ll stay in depression and living on life support from the rest of Europe is the best,” he said.


http://www.cnbc.com/id/47587509

[sjrobert]

I would tend to agree with the 1-1-2013 date. Nothing happens in Europe during the summer months. Too hot to do anything. Also, this has to looked like it was planned carefully so people do not panic. Businesses need time to prepare and the beginning of the year is normally the beginning of a new start.

In this day of almost instantaneous capital movement and equally rapid communications, in the "global economy," weather is not a constraint at all, by any measure. Perhaps that might have been true five or ten years ago, but not now. The band-aid approach of the clueless Eurocrats on the massive financial/economic hemmorhage occuring there now, and to varying degrees since the subprime debacle here in 2007, arguably the flash point for the current global financial meltdown, cannot be sustained much longer it seems. Ongoing and more upcoming problems for the EU "empire" are very likely around the corner, regardless of the season.

[Godslove]

My source tells me that the euro situation is largely solved. I can't link to it because it's a blog but Mosler has been a pretty reliable source.

Here is what he posted last night-

Looks like the drama could be about over, with the ECB now deciding to support the entire banking system.

The ECB guarantees bank liquidity via lending to any member bank with qualifying collateral. The list of qualifying collateral is kept sufficiently inclusive and haircuts sufficiently low to ensure liquidity.

With national govt debt on the list of qualifying collateral, this allows the banking system to support national govt funding needs.

And it all comes at a time where euro zone deficit spending is sufficient to support flat to modest growth. And at a time when the politics are unlikely to push for additional material proactive austerity measures.

With modest growth and relative stability will come proclamations along the lines of ‘the austerity worked’, however, without the austerity it all would have ‘worked’ just as well, but from a starting point of a lower output gap.

[$teve]

My source tells me that the euro situation is largely solved. I can't link to it because it's a blog but Mosler has been a pretty reliable source.

Here is what he posted last night-

I would be seeking other sources for a more comprehensive and accurate assessment of the situation. Unless there is some back-door deal done with banks, I find the blog's opinion that the ECB will accept national govt debt on the list of qualifying collateral problematic.

This just appearing on MarketWatch....

ECB rejects Spain’s Bankia recap plan: FT

Spain will have to come up with another plan to recapitalize Bankia SA after the European Central Bank reportedly torpedoed a proposal to use government debt.

The ECB said Spain’s plan to use 19 billion euros ($24 billion) in sovereign bonds to recapitalize the bank was in danger of violating a ban forbidding the central bank to finance governments, the Financial Times reported in its online edition late Tuesday, citing European officials.

http://www.marketwatch.com/story/ecb...me_latest_news

And the point about modest growth? Really? Much of the Eurozone is already in recession. There is a banking crisis across a couple of countries and unemployment is growing while PMI and business activity is dropping. All the while, there is growing sovereign debts and increasing debt insurance costs to exasperate the problem. This is well documented indicators and data. More like a perfect storm for a euro breakup, far from the situation being resolved.

[sjrobert]

More like a perfect storm for a euro breakup, far from the situation being resolved.

Exactly! One thing the Euro politicians are long on is hyperbole, especially for the last decade. They are woefully short on truth. The EU is actually held together by verbiage, promises, and loose-mouthed rhetoric. It is declining at the moment, likely awaiting its European Messiah figure to restructure it in some fashion. It is not an emerging RRE (at least not at the moment) as some expositors like to claim, or seem to believe.

[$teve]

Pensioner hangs himself in Nikaia park

A 61-year old pensioner was found hanging from a tree on Wednesday, in the Agios Filipos park of the Nikaia area. The lifeless body of the pensioner was discovered by a park attendant, who also found his suicide note which read as follows:

"The police does not know me. I have never touched a drink in my life. Of women and drugs I have never even dreamed of. I have never been to a kafenio (coffee house), I just worked all day! But I commited one horrendous crime: I became a professional at age 40 and I plunged myself in debt. Now, I’m an idiot of 61 years and I have to pay. I hope my grandchildren are not born in Greece, seeing as there will be no Greeks here from now on. Let them at least know another language, because Greek will be wiped off the map! Unless of course there was a politician with Thatcher’s balls so as to put us and our state in line.
Signed, Alexandros 29/5/2012”

His neighbours described the pensioner – a father of two- as a hard working man. He had been employed in ship repairs and construction sites and up until recently, he had been working as an electrician on a merchant ship.

He was facing sizeable financial problems and it was these that pushed him over the edge.

According to neighbours, prior to taking his own life, he was seen wearing his work overalls, carrying his tools and sitting on a bench in the park.

None however, imagined what he had in mind.

http://www.athensnews.gr/portal/9/55847

I feel very sorry for people who are faced with such insurmountable financial stress, to the extent that it pushes them over the edge, having been there myself.

[twisty58]

This is so sad and tragic!

[GR_78]

For some twisted reason, I always hear Monty Python yelling "Run away!" when I read stories of additional runs on Greek banks (for $1 billion this time).

The really interesting thing about this one is that the Greeks aren't hording their money. They are buying canned goods and pasta. Folks seem to be unsure of what is going to happen but the idea of returning to the drachma doesn't seem to be inspiring a lot of confidence in the common marketplace.

[Shannon9602]

For some twisted reason, I always hear Monty Python yelling "Run away!" when I read stories of additional runs on Greek banks (for $1 billion this time).

The really interesting thing about this one is that the Greeks aren't hording their money. They are buying canned goods and pasta. Folks seem to be unsure of what is going to happen but the idea of returning to the drachma doesn't seem to be inspiring a lot of confidence in the common marketplace.

Just like those bailout fund given to Spain is not doing them much good either. If its going to happen... its going to happen. I say... let it be. You can't fight what God has prophesied.

[unclej]

In this day of almost instantaneous capital movement and equally rapid communications, in the "global economy," weather is not a constraint at all, by any measure. Perhaps that might have been true five or ten years ago, but not now. The band-aid approach of the clueless Eurocrats on the massive financial/economic hemmorhage occuring there now, and to varying degrees since the subprime debacle here in 2007, arguably the flash point for the current global financial meltdown, cannot be sustained much longer it seems. Ongoing and more upcoming problems for the EU "empire" are very likely around the corner, regardless of the season.

Well, not much happened during the summer months as I predicted in a earlier email. Vacation time in Southern Europe is a "sacred cow" event. The court issue in Germany was probably more political than real life (to give the Germans the impression that Germany is fighting bailout when in reality the government wants to do it). Everyone is in "kick the ball" mode and trying to move this problem down the road.

[sjrobert]

The court issue in Germany was probably more political than real life (to give the Germans the impression that Germany is fighting bailout when in reality the government wants to do it). Everyone is in "kick the ball" mode and trying to move this problem down the road.

Yes, in reality everyone (policy makers) in the "supposed and artificial" EU knows that Greece is an economic basket case and all probably wish there was a way to "out" them with the least collateral damage but all seem to fear possible contagion effects for the other economic basket case countries, not even considering the eastern Europe invitees. So, the can is indeed kicked down the road.