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Posts tagged ‘European Stability Mechanism’

EU governments should not be put in a position to compete for funds with commercial enterprises

By Florian Pantazi

Slowly but surely, the set of remedies employed in the hope of solving the euro crisis is now spreading recession from the periphery to the core of the eurozone. Austerity measures, accompanied by an increase in taxes, will bring France’s economic growth to a halt next year. Germany’s growth rate, based on its solid export machine, is also showing signs of slowdown. As the European Union is the world’s largest economy, its troubles are spreading economic stagnation to its main trading partners – China, the US, Japan and Brazil – as well.

The launch of the European Stability Mechanism (ESM), currently hailed as a kind of European monetary fund, has recently re-ignited hopes of appeasing financial markets. Alas, the only lasting solution to the euro’s woes is that of allowing EU national governments to sell their treasury bonds directly to the ECB, thus totally bypassing financial markets.

In truth, no state should be subjected to the same financial pressures and performance criteria that private corporations normally are. To give but one example, prior to 1973 the French government was able to borrow directly from its national bank at zero interest. Through the introduction of private or institutional investors into the equation, as market intermediaries between national banks and their governments, the stage is set for astute financial speculators to increase returns for their clients on the backs of states in need. Rating agencies, acting on behalf of investors, are able to exert pressure on governments to reduce expenditure on essential public services, as it has happened it the EU over the past few years.

full article at source: http://www.europesworld.org/NewEnglish/Home_old/CommunityPosts/tabid/809/PostID/3293/Apossibleexitfromtheeurocrisis.aspx

Market Brief 21st. October 2012

A US election too close to call causing uncertainty:

The charts below clearly show that the Dow Transport and the Dow Industrial indices continue to exhibit divergent modalities. Since November 2009 the charts indicate that the Industrials have reached higher highs but the Transports have failed this test and have been range bound for nearly all of 2012. The direction and the momentum with which the Trannies break from this range will be most significant. I believe the market is awaiting with trepidation the results of the November presidential election. As we speak the polls are indicating that either candidate can win and this is bringing a fair degree of uncertainty into price action.

The major concern is the position of Mr. Romney with regard to Iran given his predisposition to quickly consider war as a policy option. A new Middle Eastern conflagration is the last thing the world economy needs right now but unfortunately he has been boxed in by powerful interests. It is hard to see how he can march himself down the hill of imminent warfare, formal or covert, should the hand of destiny finally fall upon him.

The forward looking indications from Google, Microsoft, IBM, Intel, UPS and FedEx are negative. I think this is due to the contraction in world demand caused by European austerity. However the results from financials, banks, brokers and real estate are more positive. This is due to the low interest and quantitative easing policies being imposed by the FED. Short term earnings disappointments aside, should the issue of the war with Iran be taken off the table quickly and if American real estate and banks continue to gain strength then the scenario could be set for solid future American economic growth. Such a recovery would help Europe stabilise its sovereign debt problem and allow national economies to end austerity and invest again in expansion initiatives.

This action would save the Euro from a catastrophic demise and allow another uncertainty to be cancelled from market calculation. Such a situation would consolidate the grounds for a sustainable US recovery over the next decade.

Thus I reckon a lot will be decided in the next few months, not least of which what type of administration will be entrusted to attempt to finally end the greatest structural recession since the great depression. The stakes could not be higher.

European déjà vu:

Irish Times, Saturday 20th. October 2012:

“GERMAN CHANCELLOR Angela Merkel has upended a carefully crafted plan to resolve Europe’s banking crisis, delivering a sharp setback to Taoiseach (Irish Prime Minister) Enda Kenny as he battles for a debt relief deal.

Moments after Mr. Kenny declared in Brussels that he had achieved solid progress overnight at a tense EU summit, Dr Merkel moved abruptly to curtail the scope of the effort to break the link between bank and sovereign debt.

The chancellor’s intervention, which took high-level EU figures by surprise, has cast a new cloud of uncertainty over the feasibility of Mr. Kenny’s demands.

For the first time in public, she backed her finance minister Wolfgang Schäuble in his assertion that national bodies must remain responsible for most banking debts.

This is markedly at odds with the push from Mr. Kenny and the leaders of France, Italy and Spain for the European Stability Mechanism bailout fund to pay for historic banking losses”.


As the above quote clearly indicates the Euro crisis is far from over. In fact all I see is a political civil war breaking out. In addition to the problems being experienced by Mr. Kenny David Cameron, the British Prime Minister, announced at his recent party conference that he wished to totally renegotiate the terms of Britain’s membership of the European Union. Should he not get want he wants he has indicated that he may consider withdrawing Britain completely from Euroland. Such an outcome would be a disaster for Europe in general and Ireland in particular. Where England goes Ireland may be forced to follow given the close relationship between the Dublin Financial Services Centre and the City of London.

What is at stake here is the future of the “City” itself. Frankfurt wants to be the pre-eminent financial centre in Europe. However London refuses to give up its pole position. This is why Cameron is against the imposition of greater banking regulation based in Europe and is totally opposed to the financial transaction tax proposed by the European Commission. London quite rightly fears that if it starts applying this imposition business will flee from the “City” to more liberal destinations like New York and Hong Kong.

No job no money, no money no life:”

This statement made by a youth in Greece last week sums up the general frustration of young European graduates living not only in Athens but in Dublin, Madrid, Lisbon and Rome. Nearly 50% of youths under the age of 25 are unemployed in these capitals. For this abandoned generation the European Stability Mechanism offers no solution. This is because the central issue is not banking recapitalization and sovereign debt support but jobs and growth and hope. To achieve real growth Europe needs to become more competitive. It requires debt write off. It demands investment not draconian austerity. It needs real leadership.

For many observers the 500 billion Euro ESM is a diversion that is mis-guided and conceptually flawed. It will not achieve the objectives of banking recapitalization and sovereign debt stabilization for two main reasons. Firstly it is being partly funded by those countries needing funding, which is going to play havoc with its S & P ratings down the road. Secondly it is too small for the task at hand. The task will require in the region of 4-5 trillion Euro to adequately do the job, yet the federal courts in Germany have put a limit on Germany’s contribution. This renders the fund’s potentiality suspect from the get-go. Even though the ESM is inadequate and problematic all political energy is currently going into its gestation.

There is no other political game in town even though national economies and concomitant institutions are collapsing due to rapidly falling money circulation. This situation cannot continue indefinitely without serious consequences. That which cannot continue, won’t.

Currently, as we speak, the main fascist party in Greece “Golden Dawn” is growing at an alarming rate. This development is due to the fact that people are desperate for solutions to their social and economic problems. However, solutions are not forthcoming from mainstream political parties. This is worrying. Peter Drucker in his 1939 classic: “The End of Economic Man the Origins of Totalitarianism” spelt out the consequences of such failure. The end result was the horror of the Second World War. Unfortunately Angela Merkel is ignoring the lessons of history and is making the same mistakes again. I think Dr. Merkel will go down in history as the worst chancellor of Germany since you know who.

To alter this perception she must strive to lead her nation in a new direction. She must help her people understand that Germany is the main beneficiary of the Euro currency in that it allows cheap German goods flood into France, Portugal Spain, Italy, England, Ireland, Poland, Russia and Turkey. Should the Euro fail, any new Deutschmark would be so over valued that German exports would quickly collapse, contracting its economy to the level of its austerity bound neighbours. Thus the type of political leadership desperately needed in Germany now is not the style that focuses on narrow national party politics but one that values a shared European vision for the future, a vision that is creative not destructive.  What is sorely needed now more than ever is statesmanship not political cunning. Let us hope that Dr. Merkel will have such an epiphany soon, very soon.

 (C) Christopher M. Quigley 21st. October 2012. Wealthbuilder.ie

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Eurozone crisis live: General strike underway in Greece against austerity programme

Countries using the Euro de jure Countries and...

Countries using the Euro de jure Countries and territories using the Euro de facto Countries in the EU not using the Euro (Photo credit: Wikipedia)


There are signs of serious jitters in the City today. As feared, the yield on Spain’s 10-year bonds has now risen about 6% (6.03% at pixel time). The stock markets are all still lower,, with Spain’s IBEX down 2.66%.

There are several triggers for this sudden chill wind. The protests in Spain last night are certainly a factor – with analysts trying to assess whether the Spanish people have been pushed to the limit. Portugal’s u-turn on its latest tax rises (which threatened a political crisis in Lisbon) has also served as a reminder that politicians are still answerable to the people.

Another factor is that the eurozone’s commitment to recapitalise its banks through the European Stability Mechanism appears to be fraying. A statement last night from the finance ministers of Finland, Germany and the Netherlands appeared to reject some of the decisions made at last June’s summit (great analysis here on FT Alphaville).

If legacy banking assets aren’t going to included, how on earth with Spain and Ireland scrub their financial sectors clean?

The fear that Germany, the Netherlands and Finland have reneged on the deal has also hit Irish sovereign debt, pushing up the yield on its 10-year bonds to 5.213%.

As Peter Spiegel wrote in the FT today:

The need for Ireland and Spain to pump billions into their banking sector to keep them afloat forced otherwise fiscally prudent governments into eurozone bailout programmes with painful austerity measures that have exacerbated recessions.

Under the June deal, such bailouts would no longer be the responsibility of national governments but would shift to the eurozone rescue fund, the European Stability Mechanism, which was given the authority to inject capital directly into struggling banks. As part of the deal, Ireland was given a promise of equal treatment with Spain……………………………….

full article at source:http://www.guardian.co.uk/business/2012/sep/26/eurozone-crisis-general-strike-greece-spain

What Next For The Euro-Zone?

By: Victoria_Marklew

The European Union has just completed its 20th “make or break” Summit in a   little over two years, and actually managed to beat expectations. Two key   agreements were reached on June 28-29: expanding the remit of the two bailout   funds – the temporary European Financial Stability Facility (EFSF) and permanent   European Stability Mechanism (ESM) – to include sovereign debt purchases and   eventually direct banking sector support; and creating a unified banking   regulator for the Euro-zone under the auspices of the European Central Bank   (ECB). These apparently-small steps are actually quite far reaching. The Summit   outcome also indicates that, faced with really significant risks – in this case,   unsustainable funding pressures on the Spanish and Italian sovereigns – the   politicians are still willing to make some of the compromises necessary to   support the Euro-zone. In our opinion, this combination of muddle-through and   compromise in the face of crisis will lead to a closer fiscal union over the   coming years. However, we also think that the likelihood that Greece will not be   a member of the Euro-zone by end-2013 has risen to over 60%

fu article at source: http://www.marketoracle.co.uk/Article35461.html

The Euro Is Finally Being Saved

The Euro Is Finally Being Saved . In the early hours of friday morning German resistance to a rational and comprehensive resolution to the Euro crisis was finally crushed. It will take some time for the full implications of this historic result to filter through to the markets but the fact that the dark cloud of dissolution of the Euro is now passing can only be positive.

What happened? Why did Angel Merkel the German Chancellor finally “blink in earnest” as suggested in our article two weeks ago? The answer is she was outmanoeuvred by Italy and Spain with the tacit support of France. In essence she was totally isolated. Here is what SPIEGEL the German online newspaper had to say about events:

“Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions.But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks.The key to getting your way in tough negotiations, of course, is to find your opponents Achilles’ heel.Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy did that on Thursday night and early Friday morning in Brussels.

 And the result is a euro-zone agreement to allow the

common currency bailout funds to give direct help to ailing banks and to become active on sovereign bond markets to provide relief on the financial markets — free of conditions for the countries in need of such aid.With good reason Monti emerged from the late-night negotiations as a clear victor, having broken Chancellor Angela Merkel’s resistance. Monti together with Spanish Prime Minister Mariano Rajoy secured easier access to the permanent euro-zone bailout fund, the European Stability Mechanism (ESM).Euro-zone member states which fulfill the budgetary rules laid down by the European Commission can now receive aid without agreeing to tough additional austerity measures. Strict oversight by the troika of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) would no longer apply.
The agreement will allow the ESM to recapitalize troubled banks directly instead of loaning the bailout aid to national governments in exchange for austerity commitments. That model had been called into question after the EU agreed recently to provide Spain with €100 billion to prop up its struggling banks.Investors, however, became nervous about Madrid’s ability to shoulder that debt, and interest rates on Spain’s sovereign bonds had skyrocketed in recent weeks.In addition, emergency aid funds will in the future be made available to stabilize the bond markets without requiring countries, providing they are complying with EU budget rules, to adopt additional austerity measures.

 Prior to the summit, Merkel had been against both steps, preferring to stick to the rules that had already been hammered out and guaranteeing strict oversight.”

From my own perspective it is astonishing that it has taken so long for the twin elements of the crisis to be identified and segregated. Up until now, under German insistence, they had been joined at the hip.What do I mean by this? Well prior to Friday the 29th Dr. Merkel was insisting that any assistance to banks must go through Governments. Badly needed banking bailouts from the ECB were thus being added to sovereign debt balances. These growing debt levels were affecting sovereign bond costs making raising money in the markets prohibitively expensive. This increased expense was bloating day to day government running costs despite the fact that “austerity” measures were being demanded by Germany.

The whole cycle was deflationary, self defeating and illogical. Friday’s agreement changed this nonsense and in summary has brought about two important “game changing” initiatives:

1. Banks can receive bailout funds from the ESM without affecting sovereign borrowing levels.

2. The new ESM fund can buy sovereign bonds directly thus lowering state borrowing costs.

As a result the risk of banking failure has been diminished and governments will be able to raise funds at reasonable rates when the need arises.Now by no means am I suggesting that everything about the Euro crisis is behind us but using the words of Churchill:

 now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginningFinally the banking aspect of the problem has been separated from the sovereign bond element of the crisis. Why the process to identify and solve this fatal flaw in Euro policy has been so tortuous I will never know but better late than never I say. Politicians can now go on summer vacation happy that when they return in September a template in now in place upon which to build a secure and stable structure for the future maintenance of the Euro currency. They will thus be in a position to remove for once and for all the market risk of a potential demise of the Euro and with it a total collapse of the economies of the fledgling European Community. Such a prospect was incomprehensible and as a result of Friday’s action by the European governments I think we can start to put this threat behind us. Will Mr. Market agree?

That remains to be seen.

(C) 2nd July 2012 Christopher M. Quigley B.Sc., M.M.I.I., M.A.

ESM REFERRAL: Does S&P have a mole inside the Karlsruhe Court?

Standard & Poor’s Ratings Services said today that the delay by the Federal Republic of Germany (unsolicited ratings AAA/Stable/A-1+) in ratifying the European Stability Mechanism (ESM) has no immediate rating implications for sovereigns in the European Economic and Monetary Union (EMU or eurozone).

The ruling coalition and the main opposition parties have been able to agree on a pact for sustainable growth and employment. This therefore established the necessary two-thirds majority required for parliamentary ratification of the ESM, expected on June 29, 2012. However, Federal President Joachim Gauck is reportedly withholding his signature until the Federal Constitutional Court in Karlsruhe has given its opinion on whether the ESM is compatible with the German constitution

full article at source: http://hat4uk.wordpress.com/2012/06/22/esm-referral-does-sp-have-a-mole-inside-the-karlsruhe-court/

German Supreme Court rules against Merkel on ESM. Will she now recognise the Rule of Law?

Angela Merkel, the Chancellor of Germany

Angela Merkel, the Chancellor of Germany (Photo credit: Wikipedia)

The Karlsruhe judges today found that the center-right coalition government led by Chancellor Angela Merkel had breached the rights of the German parliament by failing to sufficiently inform lawmakers during negotiations towards the creation of the permanent euro rescue fund, the European Stability Mechanism (ESM).

This decision is “a further important building block in a series of decisions by the Constitutional Court that strengthen parliamentary responsibility in the context of European integration,” the president of the court, Andreas Vosskuhle, said.

But is it? If – like the case for a Weimar ruling against Nazi violence in 1931* – it is simply ignored, then what good is Karslruhe?

The decision follows another that the court handed down in February, in which it struck down a plan to create a committee of just nine members of the Bundestag

full article at source: http://hat4uk.wordpress.com/2012/06/19/breaking-german-supreme-court-rules-against-merkel-on-esm-will-she-now-recognise-the-rule-of-law/

Pringle begins ESM legal challenge


The European Stability Mechanism Treaty breaches the Irish Constitution, European Union law and the treaties of the EU on several grounds, Independent TD Thomas Pringle has argued before the High Court.

Mr Pringle’s action raises matters of “enormous importance” for the State and is fundamentally concerned with the rule of law in the State and the EU, his counsel John Rogers SC said.

The ESM treaty of February 2012 will dilute the financial sovereignty of this State and its capacity to say yes or no in the realm of economic and monetary matters, the Donegal South West TD contends. The treaty will also give officers of the State, particularly the Minister for Finance, powers beyond those conferred on him by law.

Mr Pringle claims the ESM treaty is inextricably intertwined with the Fiscal Stability Treaty approved by the people in last month’s referendum and he argues Ireland cannot formally ratify the ESM treaty next month, as intended by the Government, without first putting that to the people in a referendum.

He claims the treaty breaches the Constitution and other EU treaties on a number of grounds, including that it provides for establishment of an autonomous financial institution, akin to a bank, with the power to grant financial assistance beyond circumstances permitted by the EU treaties

full article at source: http://www.irishtimes.com/newspaper/breaking/2012/0619/breaking50.html

The Problem with the Spailout

By: Money_Morning

First off, last weekend’s 100 billion euro ($126 billion) Spanish bailout has staved off the inevitable for now.

What most people don’t realize, though, is that it actually spells disaster for the euro — there simply isn’t enough liquidity in the system and never has been. 100 billion euros is chump change.

A trillion euros is more like it. Probably more, to be quite candid.

Let me lay out the math that European politicians, whose skill set apparently consists of saying “present,” rather than developing real solutions, can’t be bothered to do.

According to the latest data, the European Stability Mechanism (ESM) and the European Financial Stability Fund (EFSF) have a combined lending capacity of 700 billion euros. If Spain requests the full 100 billion euros it approved last Saturday, this leaves 386.7 billion euros in excess capacity. The EFSF has already committed 213.3 billion euros.(700b euros minus 213.3b euros minus 100b euros equals 386.7 billion euros).

The problem is that Spain and Italy have combined total needs of 620 billion euros in the next two years alone.If you’re doing this math in your head, you’ll quickly realize that’s 233 billion euros more than the total bailout mechanisms now in existence.


Call me crazy, but under the circumstances I don’t understand how European leaders can pursue the same course of sorry-assed lending in Spain that they did in Greece and expect different results. It’s simply irrational.

Don’t get me wrong, I understand why they are trying to pull the wool over everyone’s eyes. But in reality, who’s kidding who?!

The markets know the politicos can do nothing to stem the tide of money flowing out of Spain any more than they could stop money from leaving Ireland, Italy and Greece.

The only practical consideration is preventing an all-out bank run through the front door – never mind that it’s already well underway out the back door.

Frankly, I think they’ve failed on both counts. Deposits in German banks are up 4.4% year over year to 2.17 trillion euros as of April 30th, while deposits in Greece, Ireland and Spain fell 6.5% over the same time frame.

Swiss bank sight deposits have reached five-month highs of 252 billion francs as of June 1, according to the Swiss National Bank. CNBC is reporting that up to 800 million euros ($1 billion) a day is being pulled out of Greek banks alone. Data from Spanish banks related to withdrawals is being closely guarded, but I can’t imagine it’s that much different.

full article at source:http://www.marketoracle.co.uk/Article35152.html

ESM / EFSF : building a bypass to nowhere


Estimates for banking sector needs of Spain alone are running on average around €250 billion, with some sovereign supports, this rises to €370-470 billion. This will more than top the €700 billion hypothetical capacity of EFSF/ESM funding. With full 3 years Exchequer supports, the above mid range estimate can rise to ca €550 billion.

full article at source:http://trueeconomics.blogspot.de/2012/06/1162012-esm-efsf-building-bypass-to.html

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