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Angela Merkel consigns Ireland, Portugal and Spain to their fate

Angela Merkel consigns Ireland, Portugal and Spain to their fate

Germany has had enough. Any eurozone state that spends its way into a debt crisis or cannot adapt to a monetary union set for Northern rhythms will face “orderly” bankruptcy.

By Ambrose Evans-Pritchard
Published: 5:37PM GMT 31 Oct 2010

Angela Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of the EU law

Bondholders will discover burden-sharing. Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk.

What were investors thinking when they bought Greek 10-year bonds at 26 basis points over Bunds in 2007, below the spread between British Columbia and Quebec?

 “We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers,” said German Chancellor Angela Merkel.

Or in the words of Bundesbank chief Axel Weber: “Next time there is a problem, (bondholders) should be part of the solution rather than part of the problem. So far the only ones who have paid for the solution are the taxpayers.”

These were the terms imposed by Germany at Friday’s EU summit as the Quid Pro Quo for the creation of a permanent rescue fund in 2013. A treaty change will be rammed through under Article 48 of the Lisbon Treaty, a trick that circumvents the need for full ratification. Eurosceptics can feel vindicated in warning that this “escalator” clause would soon be exploited for unchecked treaty-creep.

Mrs Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of EU law, and a treaty change is what she will get. “This will strengthen my position with the Karlsruhe court,” she admitted openly.

One might argue that bondholders should have been punished for their errors long ago. The stench of moral hazard has been sickening, on both sides of the Atlantic. An orderly bankruptcy along lines routinely engineered by the International Monetary Fund is exactly what Greece needs. It makes no sense to push Greece further into a debt compound spiral by raising public debt from 115pc of GDP at the outset of the “rescue” to 150pc at the end of the ordeal.

If you strip out the humbug, the Greek package allows banks and funds to shift roughly €150bn of liabilities onto EU governments, or the European Central Bank, or the IMF. Greek citizens are being subjected to the full pain of austerity under false pretences, without being offered the cure of debt relief.

It is in reality a bail-out for investors. There is a touch of cruelty in this. Needless to say, the Greek Left has noticed. A socialist dissident from the “anti-Memorandum” bloc (ie anti EU-IMF) is likely to win the Athens region in coming elections.

Note too that the ruling socialists have fallen to 25pc in the Portuguese polls, while the Communists and hard-left Bloco are together up to 18pc. Ain’t seen nothing, you might say.

Yet opening the door to bondholder haircuts at this delicate juncture – with spreads reaching fresh records in Ireland last week, and Portugal struggling to pass a budget – is to toss a hand-grenade into the eurozone periphery.

We now know that that ECB’s Jean-Claude Trichet warned EU leaders on Thursday night that it was dangerous to stir up this hornets’ nest, and moreover that the politicians did not understand what they were unleashing. He was slammed down acrimoniously by French President Nicolas Sarkozy, who later denied that he lost his temper.

“Mr Trichet expressed a number of reserves. There was a debate, there is always a debate, but the European Council took its decision,” he said.

“It is wrong to say I was irritated. You can reproach heads of state for all kinds of things in a democracy, but I don’t think you can reproach them for not being aware of the seriousness of the situation,” he snorted.

Mr Sarkozy was not going to let his Brussels `triomphe’ slip away after stitching up EU affairs once again in a pre-emptive deal with Germany and imposing his will. The notion that the Franco-German axis still runs Europe is potent politics in France, even if the decisions actually reached are often of little value or – as in this case – ill-advised. Such is the chemistry of EU summits, where mad things happen.

Spain’s premier Jose-Luis Zapatero knew he had been mugged. “We need to listen carefully to what the head of the ECB says about the rescue mechanism. Great care is called for because this message is risky,” he said.

Eurozone sovereign states must issue €915bn in new bonds next year, according the UBS, either to roll over debt or to cover very big deficits – though it is hard to outdo Ireland’s deficit of 32pc of GDP in 2009. Yet investors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date. Can any investor be sure what the terms will be if Ireland or Portugal needs to access the EU’s bail-out fund next week, or next month, or next year? Are haircuts already de rigueur?

A study by Giada Giani at Citigroup entitled Bondholders Moving Back Home said data from the second quarter reveals a sharp drop in foreign ownership of debt from Greece (-14pc), Portugal (-12pc), Spain (-8pc), and Ireland (-5pc).

Local banks have stepped into the breach, borrowing cheaply from the ECB to buy their own state debt at higher yields in a `carry trade’ that concentrates risk. These four countries account for the lion’s share of the €448bn in ECB funding for banks (Spain €98bn, Greece €94bn). Frankfurt is propping up this unstable edifice. Mr Trichet may well fret.

A strong case can be made that Spain has decoupled from other PIGS in pain, though the deficit will still be 6pc next year, and the economy is at serious risk of a double-dip recession as wage cuts and higher taxes bite in earnest. But none are safe yet.

An ominous pattern has emerged across much of the eurozone periphery: tax revenue keeps falling short of what was hoped. Austerity measures are eating deeper into the economy than expected, forcing further fiscal cuts. It goes too far to call this a self-feeding spiral, but such policies test political patience to snapping point.

There is little that these nations can do in the short-run as EMU members. They cannot offset fiscal tightening with full monetary stimulus or a weaker exchange rate – as Britain can. All they do can is soldier on, sell family silver to the Chinese and Gulf Arabs, beg the ECB to join the currency war to bring down the euro, and pray that the fragile global recovery does not sputter out.

Chancellor Merkel is ultimately correct. A mechanism for sovereign defaults is entirely healthy. Had it been in place long ago, EMU would have been stronger. The proper timing for this was at the Maastricht Treaty, or Amsterdam, or at the latest Nice, but in those days the EU elites were still arrogantly dismissive about the implications of a currency union. To wait until now borders on careless.

source http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8100412/Angela-Merkel-consigns-Ireland-Portugal-and-Spain-to-their-fate.html

Comment :

Angela you are forgetting it was the reckless lending practices of the Deutsche Bank to the Irish Banks and in particular to Anglo Irish Bank in the first place that got us into this mess.

The German Banks were guilty of breaching their own criteria and their own rules and regulations for the fast buck, they became gamblers’ and they are lucky that the Irish Government is full spineless traitors

Who have sold out their own people to these casino bondholders .If this was the US they would be told go take a swim up the Mississippi and don’t come back.

Just one word about the latest change to the treaty of Lisbon there will have to be a referendum here in Ireland to ratified this change and the Irish government will now try to Wesel out of this necessity so we have a Ramond Crotty situation all over again! See http://thepressnet.com/2010/11/01/a-tribute-to-mr-raymond-crotty/

German war reparations

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It took Germany 90 years to pay off 25 billion in war reparations for the First World War.
The US gulf will need 20$ Billion to clean it up .

Ireland is now been saddled with debts of 36.5 billion and that’s just Anglo Irish Bank plus the other banks another 14 billion a nice round 50,000,000,000:00
How long will it take for this little country to pay off this private debt?
Cowen and Lenihan will go down in history as the most incompetent politicians in Irish History and the leaders of the opposition parties coming in close behind.
This country needs competent men and woman in the dail and not selfish leaches sucking our country dry.

Anglo Irish Bank is dragging us all down!

 
Wednesday, September 29 · 12:30pm – 2:30pm

Location St Stephen’s Green


Created By

More Info The Right To Work Campaign will be joining the Irish Trade Union Congress protest at the Dail on Wed September 29th- we will be marching from Anglo Irish Bank at 12 noon and then joining the Congress protest at the Dail at 12.30pm.Sept 29th is the 1st day back for the Dail and is also the 2nd anniversary of the banking guarantee.The 23 Billion we gave Anglo Irish Bank is enough to employ everyone on the Live Register for 3 years on 33,000 a year!Get this government out!
No more Anglo Irish Bailouts!
We want jobs and services!
Stop the Cuts!For leaflets and posters contact 0872604143Let’s make this a real focus for all the anger out there against this incompetent government!

 

Comment:

 As a non-aligned and  advocate for the middle ground and free enterprise I strongly believe that the support the government is giving this corrupt and clearly bankrupt private Bank in not the responsibility of the Irish Taxpayers and I also firmly believe that the Irish government has created a fatal disaster for the country by bailing out their friends .One has to now ask questions why this disastrous course was ever taken .This stinks to high heaven and fraud is written all over this action by lenihan and Cowen  .

This must stop now and criminal charges must be brought against the architects of this national disaster.

The Full story has still to come out from the Allied Irish Banks and Bank of Ireland again I call on them to come clean on their derivatives positions.

I intend to go to this demonstration to-morrow as

 I believe we in the middle ground should be seen and on the ground and we need to become vocal otherwise we will be left behind nobody else will fight our cause and our cause is the peoples cause.

Now more than ever we need to stand united against this blatant attack on our democracy by the political elite and their cronies.

PS 

Anybody in Wicklow looking for a lift contact me at e-mail provided before 10.30  29.09.2010

 

 

 

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Cowen & Lenihan spin doesn’t wash with the markets

SAN FRANCISCO (MarketWatch)

Standard & Poor’s Ratings Services downgraded Ireland’s credit rating Tuesday on concern about the cost of bailing out the country’s ailing banks.
S&P lowered Ireland’s long-term sovereign credit rating to AA- from AA and kept its outlook on negative, suggesting the ratings agency could cut again.
The downgrade applies to other ratings that depend on Ireland’s sovereign credit rating, including senior unsecured debt ratings on government-guaranteed securities of Irish banks, S&P noted.
The Irish economy, like many around the globe, is struggling, but well-to-do visitors are returning to the Emerald Isle to take advantage of more attractive pricing for lodging and a chance to enjoy its storied golf links.
“The government’s support of the banking sector represents a substantial and increasing fiscal burden, which in our view will be slow to unwind,” Standard & Poor’s credit analyst Trevor Cullinan said.
The euro /quotes/comstock/21o!x:seurusd (EURUSD 1.2633, +0.0006, +0.0475%) recently traded at $1.2624. That’s lower than it was earlier Tuesday and down from $1.2684 late Monday.
Like several developed countries, Ireland bailed out some of its largest banks in the wake of the 2008 financial crisis. Anglo Irish Bank was nationalized.
The government recently got European Commission approval to inject another 10 billion euros into Anglo Irish Bank, on top of the 14.3 billion euros it already provided. That’s sparked concern Ireland may have to spend more on new support for other banks.
While such bailouts may have averted a much harsher global recession, they have left several developed countries burdened with more debt. Read about the sovereign debt crisis.
90 billion euros
The total cost of Ireland’s support for its banking sector may now reach 90 billion euros ($114 billion), or 58% of GDP, S&P estimated. That’s up from a previous forecast of 80 billion euros.

Comment:

The government’s lies to the markets is not working as we see by the latest Standard & Poor’s Ratings downgraded of Ireland’s credit rating this evening
Anyone that now still believes a single word out of Cowens or Lenihans mouths is guilty of plane stupidity
Surely the people who are backing these two clowns must now begin to question the sanity of their undying support for their pals in Anglo Irish Bank and the NAMA fraud that was set up to bail out the golden circle
These clowns must be stop before we are all totally ruined and condemned to go back to the depression of the 70,s or even the 50,s

Our King Louis XVI = The Banks and their Gombeen politicians

€10bn Anglo Government injection approved


The European Commission
has approved Government plans to inject up to another €10bn into Anglo Irish Bank.
The Commission said the Government had notified it at the end of June that it wanted to put just under €8.6bn into Anglo.
This brings the total up to the €22bn figure already indicated by Minister for Finance Brian Lenihan.

But today’s decision allows another €1.4bn to be given to Anglo, depending on how much NAMA pays for loans it is taking on from the bank.
The Commission said the approval was temporary, pending a final EU decision on Anglo’s restructuring plan, which the bank has indicated it expects in September.
Competition Commissioner Joaquin Almunia said the measure was necessary to preserve financial stability in Ireland, but warned that Anglo Irish Bank would have to ‘restructure profoundly’.
This is the third emergency injection of funds approved by the EU, following €4bn in 2009 and €10.44bn in March this year.
source http://www.rte.ie/news/2010/0810/anglo.html

Comment
The European commission along with the European central Bank is in fact run by the Deutsche Bank and since the German Banks have lent this money to the now Toxic Bankrupt Banks in the first place they are in fact saving themselves and are only getting the Irish taxpayers to pay for their mistakes in lending to gangsters running a private bank (in the case of Anglo) in the first place
This is a clear case of a conflict of interest and the German, French and English members should not be allowed to vote on such important matters
In light of these facts I call on all citizens to write to their MEP and demand that this decision on Anglo’s restructuring plan be reviewed
if they are allowed to continue to look after their own self interest then I believe they will agree to any amount of Irish taxpayers Euros to be pumped into these corrupt Banks until they can retrieve all their losses or until the Irish Taxpayers revolt and refuse to continue to pay for what is in fact a Bailout of the German Banks by the bewildered Irish Taxpayers

For god sake, no strike that, for our own sake stand up and stop this madness
We cannot afford this extravagance as far as I can see we are just like the French peasants under King Louis XVI of France only our Louis XVI is in fact the Banks and their gombeen politicians they have running this country
We need to take matters into our own hands if the opposition don’t get their collative act together
What other alternatives have we got??
stop this financial madness now

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