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Posts tagged ‘Lorenzo Bini Smaghi’

Debts: US worse than Greece?

Max Keiser report 158

This time Max Keiser and co-host, Stacy Herbert, report on IMF downgrades, zombie consumers and a financial circus. In the second half of the show, Max talks to Professor Steve Keen about the Greek debt crisis and Minsky’s

In draft conclusions agreed at a summit in Brussels, EU leaders “appointed Mr
Mario Draghi president of the European Central Bank from 1 November 2011 to 31
October 2019.”The 63-year-old economist and banker will replace France’s Jean-Claude
Trichet, who steps down at the end of October after eight years in the euro
zone’s top monetary policy post.

Who is this Mario Draghi,he is another Goldman insider he led #Goldman derivatives group when it advised #Greece on how to hide its true debt levels in order to enter the EU.

This Guy should be in Jail and not be given the top job in the ECB

French officials had expressed concern in recent weeks about Draghi’s
appointment as it would have meant two Italians being on the ECB’s six-member
executive board with no French representation. The other Italian, Lorenzo Bini
Smaghi, is not due to leave his eight-year post until May 2013.

Greek watch day 13

By namawinelake

Some 50-80,000 people are estimated to have gathered in peaceful, non-political protest in front of the parliament buildings in Athens yesterday evening. This is an ongoing daily protest which gathers each evening. For a country with a population of 11.3m of which 4m live inAthens, it was an impressive display, particularly because it was not political or affiliated with any union. The political reaction so far to relatively small, peaceful crowds that gather each evening has been “meh”.
Our biggest protest during the financial crisis was 100-200,00 in 2009 when the (original) pension levy was introduced. 

Read full article at source: https://mail.google.com/mail/?hl=en&shva=1#inbox/13065a8207fecfb5

‘Memo to ECB: print money” : by David Mc Williams

David McWilliams has posted a new article, ‘Memo to ECB: print money ‘

Is the European Central Bank (ECB) Europe’s AIG?

In other words, will the ECB be left holding the can, having lent all this money to the peripheral countries in order to save rich banks in Germany and France, in the same way as insurance giant AIG was destroyed by the sub-prime market?

If you remember back to the Lehman crisis, it was the collapse of AIG that really spooked the world’s financial markets. It had recklessly insured most of the toxic waste of Lehman’s and other banks’ balance sheets – all the sub-prime mortgages and worse.

When they all defaulted, the damage went straight on to AIG’s balance sheet as the insurer of last resort.

The ECB in 2011 is beginning to look Like AIG in 2008. It is certainly also beginning to sound not like an institution that is in control, but an institution that is beginning to panic.

For example, speaking on Thursday, executive board member of the ECB, Lorenzo Bini Smaghi (who, despite sounding like a character from Lord of the Rings is actually an Italian economist) opined that high-debt countries must stick to the terms of their bailouts. If they don’t, they risk having their banks cut off from ECB capital measures. Surely this is not how central banks work?

You may view the full article and add your own comments at


A good article well worth the  read .

ECB officials ruled out a Greek debt restructuring

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the sovereign financial crisis.

“A Greek debt restructuring is not the appropriate way forward — it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi, Greece. Fellow board member Lorenzo Bini Smaghi said in Milan that “a solution for reducing debt but not paying for it will not work.”

European Union finance ministers for the first time this week floated the idea of extending Greece’s debt-repayment schedule as the nation struggles to meet the terms of last year’s 110 billion-euro ($156 billion) rescue. EU officials say that Greece won’t be able to return to markets and sell 27 billion euros of bonds next year as scheduled under the bailout, leaving them searching for alternatives to avoid a default.

The yield on Greece’s 10-year bond rose 17 basis points today to 15.8 percent, more than twice the rate at the time of the bailout a year ago. The country’s two-year bond yields almost 25 percent.

The cost of insuring the debt of Europe’s most-indebted nations against default rose today on concern they will have to restructure. Credit-default swaps on Greece surged 66 basis points to 1,335, Ireland rose 20 to 630 and Portugal jumped 20.5 to 626, according to data provider CMA.

‘Soft Restructuring’

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said a “soft restructuring” is possible for Greece after the government in Athens takes additional steps to cut the budget, such as state-asset sales. He spoke in an interview with Austria’s ORF, according to a transcript posted on the state broadcaster’s website today.

Soft restructuring, also referred to by EU officials as “reprofiling,” is a “pure extension of maturities of existing bonds without changing the principal and the interest rates,” German Deputy Finance Minister Joerg Asmussen said in Brussels yesterday. Such a setup would be designed to avert a chain reaction of claims linked to credit-default swaps.

Extra Measures

Getting bondholders to voluntarily accept delayed payments won’t be considered until Greece makes additional budget cuts and begins asset sales worth 50 billion euros, EU Economic and Monetary Commissioner Olli Rehn said in Brussels today.

Deutsche Bank AG and National Bank of Greece SA will advise the Greek government on asset sales, including extending the concession of gambling company Opap SA and the sale of a further stake in it, the Athens-based Finance Ministry said in an e- mailed statement today. Nine Greek banks were retained to advise on investment options for the country’s real-estate holdings.

“Privatization makes a real difference,” said Poul Thomsen, head of the IMF’s Greek mission, which is in the process of reviewing the country’s progress on the bailout conditions. “If targets can be met, it will make a change to debt sustainability.”

Stark said any restructuring would undermine the collateral Greek banks use to gain loans from the ECB and “this holds true for all kinds of restructuring.”

Bank Capital

“It’s an illusion to think that a debt restructuring or haircut or rescheduling would help resolve Greece’s problems,” he said. “A restructuring would wipe out part or all the capital of the Greek banks.”

Greek banks’ reliance on ECB liquidity dropped for a third straight month in March to 87.9 billion euros, the country’s central bank said on May 11. Greece’s government and central bank will extend 30 billion euros in additional guarantees, which will be contingent on banks detailing how they will wean themselves off ECB money.

The consequences of a Greek debt restructuring would be “dire,” leading to further credit-rating cuts and harming the country’s banks and economy, ECB Vice President Vitor Constancio told reporters today in Brussels.

The Frankfurt-based ECB is also concerned that allowing Greece to renege on some of its obligations would create similar expectations for other indebted euro-area nations such as Portugal and Ireland, which followed Greece in accepting bailouts. The ECB has bought 76 billion euros of bonds of fiscally stressed countries in the past year and may suffer along with private investors in any restructuring.

More Time

Still, Greece would have more time to carry out structural changes if its debt maturities were extended, Organization for Economic Cooperation and Development Secretary-General Jose Angel Gurria said in an interview in Brussels today. “Greece hasn’t had enough time to implement these steps,” he said.

Greece will detail more than 6 billion euros in spending cuts and revenue measures to meet the 2011 deficit target of 7.4 percent of gross domestic product over the next few days, Finance Minister George Papaconstantinou said in Athens today.

Eighty-five percent of international investors surveyed by Bloomberg last week said Greece will probably default on its debt, with majorities predicting the same fate for Ireland and Portugal. The European Commission said on May 13 that Greece’s debt will reach 166 percent of gross domestic product next year, the highest for any country in the euro’s history.

Bini Smaghi said dealing with the public finances of Greece, Ireland and Portugal is Europe’s “biggest challenge” in the years ahead.

“Time has been lost talking about how to come up with a way to reduce the debt, but if we accept this, we’ll jeopardize all of Europe.”

To contact the reporters on this story: Marcus Bensasson in Attica at mbensasson@bloomberg.net; Sonia Sirletti in Milan at ssirletti@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net.


The System has won the old guard are now slowly dying out and as they are given state funerals and canonized we the people are slowly beginning to realize that nothing has changes the élite are still in control and their cronies and gombeen politicians are only to glade to do their bidding. Ireland according to eighty five percent of international investors now believes will default. I have been predicting this all along! The sad fact is we will have given away 25 billion Euros from our National pension’s reserve  fund and this has only made our position worse as we have been robbed of a reserve  we could have used to weather the storm. This 25 Billion has been squandered by the incompetent politicians who have swallowed the spin that we must honour our obligations to the International bondholders most of whom have taken out hedging positions .Effetely betting against Ireland staying the course and defaulting .So now they are in a no lose situation, while we the people of Ireland will end up impoverished no matter what we do now .Things are about to get a lot worse

You have been warned .If you have funds in any of the Irish Banks take them out before the government get their greedy hands on them and open a French , German, or  English account outside Ireland .All the Big Boys have been doing this now for the past six months .

Euro Peering Over the Abyss, What will the E.U. Do?

By: John_Mauldin

I wrote sometime last year about a speech that Jean-Claude Trichet gave last May, and said:

“On Thursday of last week Jean-Claude Trichet, president of the European Central Bank, said three times “Non! Non! Non!” when asked in a press conference if the ECB would consider buying Greek bonds. His exclamation was accompanied by a forceful lecture on the need for eurozone countries to get their fiscal houses in order, some of which I quoted in last week’s letter. Trichet was remonstrating about the need for the ECB to remain independent, and was rather definite about it.

“Then on Sunday he said, in effect, “Mais oui! Bring me your Greek bonds and we will buy them.” What happened in just three days?

“Basically, the leaders of Europe marched to the edge of the abyss, looked over, decided it was a long way down, and did an about-face. It was no small move, as they shoved almost $1 trillion onto the table in an ‘all-in’ bet.”

So this last week, The Financial Times reports that Trichet walked angrily out of a meeting chaired by Jean-Claude Juncker, in protest over Juncker’s proposals to reprofile Greek debt. Reprofile is a nice word for default. Side note: I had to add reprofile to my MS Word dictionary. How many more synonyms/words will I need to add for default before this is over?)

From Eurointelligence:

“FT Deutschland reports this morning that Trichet told finance ministers on Monday night that the ECB would respond to a reprofiling by refusing to buy any new Greek debt instruments (meaning it will not be part of any voluntary arrangement in respect of its own Greek debt portfolio). Furthermore, the ECB would refuse to supply the Greek banking system with any further liquidity. (This is something we suspected would happen. A reprofiling would be considered by the rating agencies as a default, which would lead to an instant downgrading of all Greek securities, government and banks, to C, which would make them no longer acceptable to the ECB.) This means that the ECB will effectively boycott Juncker’s silly plan. That, in turn, would force Greece to quit the eurozone within days.)

“Other ECB executive board members also went nuclear on this issue. Jürgen Stark said a restructuring would destroy the capital of the Greek banking system, and Greek bond would no longer count as acceptable collateral. Lorenzo Bini Smaghi called the term ‘soft restructuring’ an empty slogan.”

Ouch. The European Central Bank is trying its best to channel its inner Bundesbank spirit. And if you listen to the new head of the German Bundesbank, his inaugural address made all the right statements about the need for central banks to control money supply and inflation. A brief quote from some emails going around the inner circle of GaveKal:

“Look at the May 2nd inauguration speech by Jens Weidmann, the new Buba [the German Bundesbank) president. In front of former Buba presidents Pohl, Schlesinger and Weber, Jens Weidmann made a pledge of “no compromise on monetary stability” and expressed a wish for a “correction back to monetary policy normality” and for “full separation between monetary and fiscal policy.” Another interesting aspect of the speech was how Dr. Weidmann constantly referred to his predecessor, Axel Weber, in the familiar ‘Du’ form. Clearly, it seems that the new Buba president is cut from a very similar cloth to the departing one. And as inflation rates in Germany continue to creep higher, we can expect Dr. Weidmann’s voice to become ever more audible. Looking ahead, this could prove disruptive for fragile European markets.”

And the markets are continuing to hammer Greek debt. The Greek two-year bond yields 24.56%, up 39 basis points on the day, while the four-year bond yield rose by 76 basis points to 21.04%. The ten-year bond is now at 16.37%.

Greece will need another 30 billion euros early next year, on top of the current 330 billion euros they owe and on top of the 80 some odd billion already committed. To get access to that money, the Greeks will have to make asset sales of state-owned companies worth some 50 billion, plus even more cuts in government spending, coupled with more taxes.

The chair of the eurozone finance ministers committee, Jean-Claude Junker, acknowledges what everyone knows. Greece cannot pay its debt under the current debt burden, and the private market is not going to give Greece any more money (debt) at anything close to terms that make sense for Greece.

Last week I talked about how Europe would keep kicking the can down the road until they came to the end of the road, and then they would bring in road-building equipment. This week it appears they are seeing the end of the road in the not too distant future.

“Lorenzo Bini Smaghi, a member of the central bank’s executive board, warned in a speech in Milan that restructuring by any nation would put all of Europe in jeopardy by potentially wrecking the banking sector.

“Time has been lost talking about how to come up with a way to reduce the debt, but if we accept this we’ll jeopardize all of Europe,” he said, according to Bloomberg. “A solution for reducing debt but not paying for it will not work.”

“Juergen Stark, also a member of the executive board, insisted at a conference in a resort south of Athens that any attempt to restructure the nation’s debt would be a ‘catastrophe,'” Dow Jones Newswires reported.

“It is an illusion to think that a debt restructuring, a haircut, or whatever kind of rescheduling you have in mind would help to resolve the problems this country is facing,” Stark said. “There is no other way than to continue with fiscal consolidation, and I would even say to double the effort in fiscal consolidation.” (hat tip Mike Shedlock!)

Fiscal consolidation? That is a code word for loss of political independence. That is a code word for the Germans controlling Greek budgets and being in charge of collecting taxes. And if you go down that path with Greece? How fast do you come to Portugal, which just got a major financial commitment from the EU and IMF?

If the ECB did follow through with its threat, Greece’s banking system would fail, said Jacques Cailloux, an economist at Royal Bank of Scotland. Greek banks have borrowed some €88bn from the ECB. “This is the last card in the hands of the ECB in warning about the implications of a restructuring,” he said.

“The central bank is vehemently opposed to a restructuring of Greek debt, worried about a possible chain reaction through Europe’s financial system and the losses it would face on the up to €50bn of bonds on its own books.”

Fifty plus 80 is €130 billion (with possible double counting of some of this, as some Greek bank debt may be Greek government bonds. Note that the paid in capital to the ECB is only €10 billion. The market is pricing in a 50% haircut to Greek debt, which technically would make the ECB far more insolvent than Lehman! Member states (including Greece, Portugal, and Spain) will have to pony up tens of billions more to recapitalize the ECB, or the ECB will have to print money. Now do you understand why the Germans and the board of the ECB are so against restructuring?

The London Telegraph reported that “Most thought the ECB was unlikely to carry out its threat. ‘It is a way by which the ECB expresses its disagreement,’ said Luca Cazzulani, a strategist at UniCredit. Nonetheless, eurozone sources said governments were now considering asking holders of Greek debt to ‘roll over’ the bonds – buy new ones when older ones mature – rather than extend the length of the debt.”

What Will the EU Do?

Seriously, will Trichet really say “non” when they once again peer down at the abyss? He blinked last time. But if the desire is to acknowledge in private what they cannot say in public – that Greece should leave the eurozone and go back to the drachma – there is no better way than to not take Greek debt onto the ECB’s books. It is not a matter of whether Greece defaults, but when. It may be easier in the long run to clean up the mess they have now than continue to create even more debt that cannot be paid.

I am going to end this section with a long quote, which is essentially an email conversation between my good friends Louis and Charles Gave (son and father) and Anatole Keletsky (all founders of GaveKal) on this whole issue. It is just so powerful that it is better to quote in full rather than summarize.

Charles: Can the ECB continue to support the Euro through open refinancing operations — or are we not reaching a point where the whole system is stretched beyond credulity? Look at it this way: Greek issued debt is €330bn (forget the off balance sheet liabilities as the numbers get too scary) . This debt is now trading at 55c on the Euro on average. So there is a paper-loss of roughly €150bn on Greek debt alone floating out there. For the sake of argument, let us agree that there is probably another €150bn paper loss (conservative estimate) on Portuguese and Irish debt together. So European institutions face some €300bn of paper losses on Irish, Greek and Portuguese debt alone.

Now have these losses been taken? Or are the bonds still being marked at par in books? And how much of the unrecognized loss is on the ECB’s balance sheet: €50bn? €100bn? Whatever the number is, it is bound to be much higher than the ECB’s €10bn of paid-up equity capital. In fact, on a “mark-to-market” basis, the ECB is more bust than Lehman or RBS ever were; begging the question of whether there is a limit to how much paper the ECB can take on its balance sheet and pretend that it is worth par?

Wasn’t this how everything got re-started anyway? Back in November, the ECB basically said they would no longer take Irish paper (remember Tietmeyer’s promise back in the 1990s that, when the Irish needed help, they best not coming knocking on the ECB door?). Since then, the spreads on Greece, Ireland and Portugal have barely looked back!

Louis: At this stage, this much is obvious:

• Greece is bust and the maths on Ireland and Portugal are very challenging.

• There is a massive battle going on behind the scenes between those who want to avoid a restructuring at all costs (even if that means years of misery for Europe’s weaker nations) and those who would rather bite the bullet, clean the slates and start again.

At the heart of the battle is the question of whether a right balance can be struck which a) puts enough pain/humiliation on Greece to satisfy the Germans, and b) is not so much pain that the Greeks decide to take it rather than leave the Euro/ renegotiate their debt. It is a tough balance to strike and, a year into the process, we seem no closer to striking this balance. And so Greek bond yields continue to make new highs in spite of ECB purchases, IMF intervention, creation of the ESM and the EFSF, etc. With that in mind, it seems to me that the prospects of the above balance being reached and a deal being struck are getting more remote…

Anatole: What you are saying in effect (and I agree) is that as time goes on a durable solution, or even an orderly restructuring, becomes less likely, whereas EU politicians and most market commentators believe the opposite — that the longer they can keep this process going the more likely a solution becomes. I agree with you not because of Charles’ belief that the Euro is inherently an incurable Frankenstein Monster, but for three other reasons:

1. Some powerful elements in the debtor countries will be more likely to stop their adjustment programs the longer the pain continues without sufficient evidence of economic recovery.

2. Some powerful elements in the creditor countries will be more likely to stop their lending programs the longer the lending continues without sufficient evidence that the financial problem has been solved.

3. The passage of time itself is evidence of how difficult it is to reach a political compromise between the debtor countries and the creditor countries. Thus the longer this process continues, the clearer it will become to some powerful elements in either the debtor or the creditor countries that no political compromise can be achieved.

This is why I became much more bearish after the failure of the March 24th European summit to agree on a credible funding and legal structure for the post- 2013 resolution mechanism (ESM). The official message from the EU was that the failure of the March summit was just due to lack of time and technical issues that would be resolved at the late June summit. In my view however these “technical” issues now seem much more daunting than they did before the March summit. As such, I would bet that the main outcome of the June summit will be to postpone a final decision until September, which will then decide to postpone to December and so on.

You will note that in each of the three paragraphs above I have deliberately used very similar phrases — “powerful elements in the debtor countries” and “powerful elements in the creditor countries”. This I to emphasize two points that most people keep missing:

• The risks to the Euro come symmetrically from both debtor and creditor countries – this not just about Greece, Ireland and Spain or about Germany, Finland and Holland but about both – and a radical change in any of these countries’ politics would be enough to blow up the entire process.

• “Powerful elements” in any of these countries would be sufficient to sabotage the system. To blow up the Euro will not require a majority vote in a referendum — merely a change of mind by just one powerful political group in just one of the creditor or debtor countries — e.g., the trade union movement in Ireland or the Bundesbank management in Germany or maybe even a single political party, as we are seeing in Finland.

So far there is not much evidence of the above happening but to rely on such an unstable equilibrium lasting for many more months, or even years, seems rather optimistic.

Full article at source:http://www.marketoracle.co.uk/Article28262.html

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