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Posts tagged ‘European Central Bank’

The Unfolding Economic Crisis in Europe

By: Christopher M. Quigley

B.Sc. (Maj. Accounting), M.I.I. (Grad.), M.A. www.wealthbuilder.ie

Since October 24th, the German newspaper Der Spiegel has been running a fascinating series of essays on the unfolding economic crisis in Europe.

The scope and detail of the series has caused a bit of an online stir since this bastion of German mainstream journalism painted a very negative view of the future; accordingly, many are wondering whether the German elite are finally beginning to question the sustainability of the current monetary paradigm.

The main issues addressed in the articles were the lack of economic inclusion, the instability of contemporary European economic policy and the increasing wealth disparity among European social groups. One example with regards to the latter outlined how, in the Swiss Canton of Zürich, the 10 richest residents own as much as the poorest 500,000.

Surprisingly, Der Spiegel was very critical of the European Central Bank. The paper went to pains to point out that despite years of easy monetary policy the Euro was still very much a vulnerable project and highlighted the fact that while many problems still remained there was “no more ammunition” left in the ECB’s arsenal of “weapons”.

[Read: ECB Policy Misstep Poses Biggest Risk to Markets]

This “conclusion” perturbed a number of Irish politicians because vary rarely has such a negative German spin been placed on European monetary policy. Upon reading the four articles, one is left with the distinct impression that Euroland is a failing entity exhausted from years of fighting ongoing crises ready to finally roll over and die when the next recession hits.

Thus, despite the glam and glitter surrounding the memorial celebrations for the fall of the Berlin wall, things are not so rosy in the European garden. Next year the British go to the polls to pick a new parliament. The English Prime Minister David Cameron has publically stated that if he wins he will hold a referendum to take Britain out of the European Union. Many believe that such an event might just be the catalyst to push the EU over the edge. 2015 could prove to be a momentous year for Europe and it is my view that Der Spiegel is beginning to see the writing on the wall.

European Deflation Raises Its Ugly Head

Apart from the issue of economic, social and political exclusion, Europe’s other major problem is that of deflation.

To combat a serious collapse in the circulation of money the ECB has embarked on the drastic policy of negative interest rates. Here is what Simon Black of Sovereign Man had say on this matter:

It Begins: German Bank ‘Charging’ Negative Interest To Its Retail Customers

Central bankers today have a delusional view of the world. Just three months ago, Mario Draghi (President of the European Central Bank) embarked on his own folly by taking certain interest rates into NEGATIVE territory. Draghi convinced himself that he was saving Europe from disaster. And like Don Quixote of Spanish lore, everyone else has had to pay the price for his delusions.

On November 1st, the first European bank has passed along these negative interest rates to its retail customers. So if you maintain a balance of more than 500,000 euros at Deutsche Skatbank of Germany, you now have the privilege of paying 0.25% per year… to the bank.

We’ve already seen this at the institutional level: commercial banks in Europe are paying the ECB negative interest on certain balances. And large investors are paying European governments’ negative interest on certain bonds. Now we’re seeing this effect bleed over into retail banking. It almost seems like an episode from the Twilight Zone… or some bizarre parallel universe. That’s the investment environment we’re in now.

In my opinion the main reason why this deflationary banking policy is spreading throughout Europe is the fact that stratospheric structural unemployment rates exist among European youth in Cyprus, Greece, Portugal, Spain and Italy. Seven years and no strategic initiative has emerged from Brussels to tackle this serious human catastrophe. How long it can continue without social breakdown is anyone’s guess but it is this factor which is behind regions such as Catalonia and Scotland seeking to “go it alone”.

Many believe that the only long-term solution to Europe’s economic malaise is reversion back to a union of sovereign states within an economic union rather than a political and monetary one. Such a move would allow the inefficient southern European states devalue their currencies and thus achieve economic competitiveness. However, it would appear the powers that be will not countenance such a move. Sometimes it requires fate to take a hand. I am sure in 1989 the politburo of the Soviet Union did not wish to see their hegemony diminish but their Empire collapsed, not due to desire but due to the sovereign power of economic truth.

Is the Market Preparing to Go Hyperbolic?

Despite the recent run up in the markets since the 17th of October, when you look at the S&P 500, the Dow Industrials, and the NASDAQ, there is no evidence to be seen of real momentum breakdown.

Yes the market advance has lost some power over the last week but this looks to me like the market is merely catching its breath in preparation for a strong rally into the New Year.

Such price action allows the main indices to wear down their overbought positions through time rather than through price retraction.

Thus while, ideally, I would like a nice pullback to give some technical support to new long positions entered into I do not think it is going to happen. Thus, any major moves up should be taken advantage of as I believe the market has a higher probability of going hyperbolic in early 2015 than contracting.

Chart: S&P 500: Daily
sp500 nov 13

Chart: Dow Industrials: Daily
dj30 13 nov

Chart: QQQ ETF: Daily
qqq 13 nov

Charts Courtesy Of Worden Bros.

Sources: Der Spiegel “The Zombie System”, Michael Sauga, October 24th 2014.

Sovereign Man blog, Simon Black, 4th. November 2014.

© Christopher M. Quigley 14th. November 2014

Germany, the European Commission and ECB threatened to force Ireland out of the euro

Philippe Legrain – who was personally headhunted by Commission president Manuel Barroso, below, in 2011 to advise him on economic strategy – gave a damning condemnation of what he said amounted to “bullying” by the EU.
“It was outrageous of Germany, the European Commission and above all the ECB to threaten to force Ireland out of the euro if it did not follow through with that foolish guarantee, lumbering Irish people, who have already suffered enough from collapsing house prices and a sinking economy, with a €64bn bill to bail out bust banks, €14,000 for every man, woman and child,” said Mr Legrain, who left his job at the Commission earlier this year to release a book condemning the EU’s handling of the financial crisis.
“Ireland’s partners abused the fact that it desperately wanted to be part of the euro”.
“I understand why the Irish government did what it did (agreed to implement a bank guarantee) but they could have stood up for themselves . . . the European Central Bank would have blinked,” the former London School of Economics academic added.
Ireland’s only chance to mitigate some of this damage is by getting some of its legacy bank debts written off, he said. The Department of Finance has not made any progress on this issue so far, despite repeated promises of a deal by Finance Minister Michael Noonan.
“The State must use any leverage it can to negotiate a write-off,” he said. “Its best weapon is any proposed changes to EU treaties – because Ireland constitutionally has the right to hold referendums on these changes and can use this as a bargaining tool.” Any decision that Germany really wants which requires a unanimous decision from all member states could be used as leverage, he said.
“Ireland needs to play hardball now. It’s in a much better position, borrowing at record-low borrowing rates”.
Mr Legrain said the eurozone has been built along German lines. “The Commission has failed in that it has been much too keen to align with Germany,” he said.
Fundamental flaws in the European banking model still have not been resolved seven years after the crisis emerged, he added, and the much-hyped stress tests due to be carried out on banks later this year are unlikely to help.
The equity/debt ratios these stress tests look at are far too low, he said, adding that the ECB, which will soon take over the direct regulation of big banks like Bank of Ireland, AIB and Permanent TSB, is a deeply flawed organisation.
“Throughout the crisis, the ECB has furthered the interests of French and German banks and proved itself to be unimpartial.”
Legislation designed to wind down banks and prevent a “too big to fail” situation is also flawed, he said, because national governments still have the right to veto the forced closure of banks in their jurisdiction.
source :Irish Independent http://www.independent.ie/business/irish/irish-were-bullied-and-treated-outrageously-during-crisis-legrain-30250226.html

Bailout troika ‘in breach’ of EU human rights laws

By Valentina Pop

Berlin – Austerity programmes agreed with the troika of international lenders (the European Commission, European Central Bank and International Monetary Fund) are in breach of the EU’s Charter of Fundamental Rights, according to a German legal expert.

Andreas Fischer-Lescano, a professor of European law and politics at the University of Bremen was tasked by the European Trade Union Confederation to look at the legality of so-called memorandums of understanding (MoU) signed between bailed-out countries and their lenders.

He concluded that under the EU charter of fundamental rights, a legal text which became binding for member states in 2009, several austerity measures enshrined in the MoUs can be fought in courts.

“There are certain limits to what you can write in a memorandum of understanding. In a bank contract too, there are limits to what can be written, courts and laws are always limiting that. In international agreements it should be the same, the troika MoU is not beyond the law either,” Lescano told this website.

full article at source: http://euobserver.com/social/122899

Tip of the Day Get you money out now from AIB and Bank of Ireland!

European Central Bank president Mario Draghi has raised concerns about the health of Irish banks, urging “decisive” action on issues revealed by a recent balance-sheet assessments before European stress tests next year.

Addressing the European Parliament, Mr Draghi said while the balance-sheet assessments of the Irish banks had identified no capital shortfall, there were needs for adjustments for provisions and risk-weighted assets.

“This should be addressed before the SSM assessment,” he said in a response to a question from Irish MEP Gay Mitchell.

Under the original terms of Ireland’s EU-IMF rescue, Ireland was obliged to undergo a full health check of its banks before the end of the programme.
Stress tests However, this was downgraded to a “balance-sheet assessment” after Dublin argued it should not be treated differently from other countries in next year’s Europe-wide stress tests.

Mr Draghi emphasised yesterday that the balance-sheet assessments by the Irish Central Bank were “not forward-looking” and fall short of the “stringent” stress tests that would be required next year.

Ireland’s three main banks – Bank of Ireland, AIB and Permanent TSB – informed the market last month the Central Bank tests had been completed and that no capital requirements had been required.

However, the full results of the tests were not published.
Commercial loans Bank of Ireland revealed that the Central Bank had concluded that it should take an additional €1.3 billion in provisioning against its mortgage and commercial loans, while Permanent TSB chief executive Jeremy Masding told The Irish Times that the bank would be taking extra provisions for bad loans following the reviews. AIB has yet to comment on whether provisions are needed.

Mr Draghi also said the ECB had “a more cautious assessment” of Ireland’s budget for 2014 even if targets were likely to be met. However, he noted that the deficit-to-GDP ratio, which has been credibly set at 4.8 per cent, overperforms relative to the requirement of 5.1 per cent set out in the European Commission’s excessive deficit procedure.

source: http://www.irishtimes.com/business/sectors/financial-services/draghi-expresses-concern-about-health-of-irish-banks-1.1629952

see also related news: http://www.zerohedge.com/news/2013-04-29/728-trillion-presenting-bank-biggest-derivative-exposure-world-hint-not-jpmorgan




The hidden and off the books derivatives losses by the Irish banks are now becoming so large that even Draghi and his associates are heading for cover ! Once the Irish banks are forced to acknowledge these losses we can expect a cascade effect throughout Europe and all this will land at the door of Deutsche Bank with its $72.8 Trillion derivatives exposures. Still Draghi knows with 156 billion on deposit in Irish banks they can plunder at least 35% of this FREE Cash from the Gullible Irish depositors!

Tip of the Day Get you money out now from AIB and Bank of Ireland!

Troika consultancies: A multi-million euro business beyond scrutiny!

Berlin – Alvarez and Marsal, BlackRock, Oliver Wyman, Pimco: The names mean nothing to the average European.

But the financial consultancies have played a central role in all the eurozone bailouts and have so far invoiced taxpayers in Cyprus, Greece, Ireland, Portugal and Spain over €80 million.

Their “independent” expertise is used by the “troika” of international lenders – the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) – to decide how much countries or banks need to prevent a default.

They are often hired without a public tender, posing questions on transparency and accountability.

They are sometimes hired despite potential conflicts of interest, which arise from links to investment funds and other financial service providers.

The consultancies also hire subcontractors, posing extra questions on who has access to inside information and how they use it.

Aside from local law firms, the subcontractors almost always include one or more of the “Big Four” accountancy companies – Deloitte, Ernst&Young, KPMG and PriceWaterhouseCoopers (PwC).

The end result is a “golden circle” of a dozen or so large firms with a de facto monopoly on handling EU bailouts.

Take Alvarez and Marsal.

The New York-based consultancy earned €2 million for setting up and managing Spain’s “bad bank” in 2012…………………………..

full article at source: http://euobserver.com/economic/122415

Protest tomorrow from 6pm, outside Leinster House

Sent into us to-day

Promissory Notes :

The technical group in the Dail  has tabled a motion calling on the Government to lobby the ECB to allow us to destroy the €25 billion in bonds that replaced the Anglo Irish Bank promissory note. You can read the motion here. It will be discussed tonight and tomorrow in the Dáil, and there will be a public protest tomorrow from 6pm, outside Leinster House. Details of the protest are here.
The Finance Bill This week the finance bill will be discussed in forensic detail in the Joint Committee on Finance, Public Expenditure and reform. I have tabled a number of amendments to issues such as:

  • Increased support for the young and unemployed
  • Increasing tax relief  for medical insurance premiums for adults and children
  • Opposing the proposed changes to life assurance policies and investment funds
  • Opposing the proposed 0.75% levy on pension schemes and changes to retirement benefits

The committee will be sitting today, tomorrow and Thursday and can be watched online here.
Legislating for Assisted Suicide? Last week the Tánaiste and I discussed assisted suicide. We were both in agreement that this is something that should be talked by legislation. I have suggested an expert report that weighs the need to protect those near the end of their lives and cases. You can see the debate here.

Central Banks And Financial Stability


Inflation is significantly below 2% almost everywhere. In the US, Japan and the UK (even though in the UK inflation is still just above 2%) central banks are doing a great deal to get inflation back to 2%. Maybe not enough, but their goal is clear. The ECB is belatedly following the same path (although it remains somewhat behind), but this has caused a very public split in its ranks. One reason given by those who have opposed the ECB’s latest rate cut is a risk to financial stability, and house price increases in certain Eurozone cities. [1] In the US some have raised concerns that continuing QE might generate financial instability. In the UK one of the three ‘knockouts’ to forward guidance, that could allow interest rates to rise even if unemployment remained above 7%, concerns financial stability.

And in one country, Sweden, the independent central bank has kept interest rates above the ZLB, even though prices have been literally falling. While the central bank cut short rates to 0.25 in 2009, during 2010 they were increased to 1%, and during 2011 to 2%. They have since been cut to 1%, but the central bank does not want to cut any further despite prices being flat or falling throughout 2013. Yet the central bank has a clear target for inflation of 2%……………………..

full article at source: http://www.social-europe.eu/2013/11/central-banks-financial-stability/


The latest article  on the German and ECB  antics !an excelent article from the Slog Blog !

By John Ward

Here we are again, back at the Target 2 system that allows peripheral eurozone States to get a stealth bailout by having huge outstanding liquidity (loans really) from the ECB, while Germany has equally huge liquidity (deposits really) at the central bank. Target 2 was originally designed purely as a monetarist transmission system. But national ClubMed central banks have perverted this by simply drawing on it, up to but not including putting anything back.

Controversial (but very smart) German economist Hans-Werner Sinn continues to argue that “It is as though the ECB were acting as a purchasing agent of German savings, which it then services and distributes to the crisis countries at whatever conditions it deems appropriate”. Sinn represents Bankfurter concerns, and for years he has been rubbished by CDU spokespeople/Berlin bureaucrats who did the “Yes I know it looks like a turd Tsunami heading our way, but it’s really only accountancy of no significance”. Clearly Sinn was and is on the ball: and in the New Germany that has risen from the Bundesrepublik elections, he is now in fashion rather than out on the wacky moons of Saturn…..

full article at source: http://hat4uk.wordpress.com/2013/11/14/euroblown-join-up-the-dots-and-germanys-banking-union-game-plan-becomes-clearer/

The Bank Guarantee That Bankrupted Ireland

By: Ellen_Brown

The Irish have a long history of being tyrannized, exploited, and   oppressed—from the forced conversion to Christianity in the Dark Ages,   to slave trading of the natives in the 15th and 16th centuries, to the mid-nineteenth century “potato famine” that was really a holocaust.   The British got Ireland’s food exports, while at least one million   Irish died from starvation and related diseases, and another million or   more emigrated.

Today, Ireland is under a different sort of tyranny, one imposed by the banks and the troika—the   EU, ECB and IMF. The oppressors have demanded austerity and more   austerity, forcing the public to pick up the tab for bills incurred by   profligate private bankers.

Ireland bankrupt

The official unemployment rate is 13.5%—up from 5% in 2006—and this   figure does not take into account the mass emigration of Ireland’s young   people in search of better opportunities abroad. Job loss and a flood   of foreclosures are leading to suicides. A raft of new taxes and charges   has been sold as necessary to reduce the deficit, but they are simply a   backdoor bailout of the banks.

At first, the Irish accepted the media explanation: these draconian   measures were necessary to “balance the budget” and were in their best   interests. But after five years of belt-tightening in which unemployment   and living conditions have not improved, the people are slowly waking   up. They are realizing that their assets are being grabbed simply to pay   for the mistakes of the financial sector.

Five years of austerity has not restored confidence in Ireland’s   banks. In fact the banks themselves are packing up and leaving. On   October 31st, RTE.ie reported that Danske Bank Ireland was closing its personal and business banking,   only days after ACCBank announced it was handing back its banking   license; and Ulster Bank’s future in Ireland remains unclear………………………………….

full article at source: http://www.marketoracle.co.uk/Article42958.html

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