Bank of England Clueless

Unfortunately, it appears that according to former MPC member Danny Blanchflower:

"The MPC didn't know where the economy had been, didn't know where it was when they made the forecast, and had no clue where it was going and still doesn't."

The  most alarming question that arises from the above is that, if the Bank of England (which has been relatively proactive in trying to reboot the economy) is so clueless, what does that say about the ECB?

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Sentix Predicts 73% Chance of Euro Breakup

The sentix Euro Break-up Index for July has risen by 22% to 73%. The index mirrors the investors' perceived probability of at least one country leaving the Euro within the next twelve months.

The index predicts that there is a 97% probability that Greece will exit the Euro.

Unsurprisingly, Euro politicians (who have much to lose when the Euro collapses; eg status, ego and salaries) have been quick to panic and have been trying to talk markets up. Step forward Germany's foreign minister, Guido Westerwelle, who has warned Europe's politicians "not to talk Europe apart". He is quoted in the Telegraph:

"We need a strengthening, not a weakening of democratic legitimacy in Europe." 

This is all very well, but the markets will only now believe actions not words (as even Draghi must now realise after last week's dismal showing by the ECB has proven).

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ECB Does Nothing - As Predicted

As I predicted this morning, the ECB has done absolutely nothing to alleviate the crisis in the Eurozone.

As per Business Insider President Mario Draghi of the ECB failed to announce any definitive measures to address concerns about the burgeoning sovereign debt crisis in his latest post-decision press conference today.

The markets, that had foolishly deluded themselves that the ECB would act, have taken a tumble.

Here is Draghi's lengthy statement outling that the ECB will do nothing:

"Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,
Frankfurt am Main, 
2 August 2012 

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged, following the decrease of 25 basis points in July. As we said a month ago, inflation should decline further in the course of 2012 and be below 2% again in 2013. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment. A further intensification of financial market tensions has the potential to affect the balance of risks for both growth and inflation on the downside.

The Governing Council extensively discussed the policy options to address the severe malfunctioning in the price formation process in the bond markets of euro area countries. Exceptionally high risk premia are observed in government bond prices in several countries and financial fragmentation hinders the effective working of monetary policy. Risk premia that are related to fears of the reversibility of the euro are unacceptable, and they need to be addressed in a fundamental manner. The euro is irreversible.

In order to create the fundamental conditions for such risk premia to disappear, policy-makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination. As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines.

The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures.

Let me now explain our assessment in greater detail, starting with the economic analysis. On a quarterly basis, euro area real GDP growth was flat in the first quarter of 2012, following a decline of 0.3% in the previous quarter. Economic indicators point to weak economic activity in the second quarter of 2012 and at the beginning of the third quarter, in an environment of heightened uncertainty. Looking beyond the short term, we expect the euro area economy to recover only very gradually, with growth momentum being further dampened by a number of factors. In particular, tensions in some euro area sovereign debt markets and their impact on financing conditions, the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment are expected to weigh on the underlying growth momentum, which is also affected by the ongoing global slowdown.

The risks surrounding the economic outlook for the euro area continue to be on the downside. They relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term.

Euro area annual HICP inflation was 2.4% in July 2012, according to Eurostat’s flash estimate, unchanged from the previous month. On the basis of current futures prices for oil, inflation rates should decline further in the course of 2012 and be below 2% again in 2013. Over the policy‑relevant horizon, in an environment of modest growth in the euro area and well‑anchored long-term inflation expectations, underlying price pressures should remain moderate.

Risks to the outlook for price developments continue to be broadly balanced over the medium term. Upside risks pertain to further increases in indirect taxes, owing to the need for fiscal consolidation, and higher than expected energy prices over the medium term. The main downside risks relate to the impact of weaker than expected growth in the euro area, in particular resulting from a further intensification of financial market tensions. Such intensification has the potential to affect the balance of risks on the downside.

Turning to the monetary analysis, the underlying pace of monetary expansion remained subdued. The annual growth rate of M3 stood at 3.2% in June 2012, slightly higher than the 3.1% observed in the previous month and close to the rate observed at the end of the first quarter. Overall, inflows into broad money in the second quarter were weak. Annual growth in M1 increased further to 3.5% in June, in line with the increased preference of investors for liquid instruments in an environment of low interest rates and high uncertainty.

The annual growth rate of loans to the private sector (adjusted for loan sales and securitisation) declined to 0.3% in June (from 0.5% in May). As net redemptions of loans to non-financial corporations and households (both adjusted for loan sales and securitisation) were observed in June, the annual growth rates for loans to both non‑financial corporations and households (adjusted for loan sales and securitisation) decreased further in June, to -0.3% and 1.1% respectively. To a large extent, subdued loan growth reflects the current cyclical situation, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. A considerable contribution of demand factors to weak MFI loan growth is confirmed by the euro area bank lending survey for the second quarter of 2012. This survey also shows that the net tightening of banks’ credit standards at the euro area level was broadly stable in the second quarter of 2012, as compared with the previous quarter, for loans to both enterprises and households.
Looking ahead, it is essential for banks to continue to strengthen their resilience where this is needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels.
To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

While significant progress has been achieved with fiscal consolidation over recent years, further decisive and urgent steps need to be taken to improve competitiveness. From 2009 to 2011, euro area countries, on average, reduced the deficit-to-GDP ratio by 2.3 percentage points, and the primary deficit improved by about 2½ percentage points. Fiscal adjustment in the euro area is continuing in 2012, and it is indeed crucial that efforts are maintained to restore sound fiscal positions. At the same time, structural reforms are as essential as fiscal consolidation efforts and the measures to repair the financial sector. Some progress has also been made in this area. For example, unit labour costs and current account developments have started to undergo a correction process in most of the countries strongly affected by the crisis. However, further reform measures need to be implemented swiftly and decisively. Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth. It is now crucial that Member States implement their country-specific recommendations with determination."

The hostage to fortune is of course this phrase:

"The euro is irreversible."

As previous failed currency unions have shown, the Euro is reversible.

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Don't Believe The ECB Hype

The markets and some commentators are trying to delude themselves that the ECB will finally do something tangible to "save" the Euro.

ECB President, Mario Draghi, has managed to con some people who should know better into believing that the ECB will conduct a major bond purchasing campaign. In theory the bond buying campaign will reduce the interest rates of Spain and Italy (note Greece is not included, because it has been thrown to the wolves) and thus save the Euro.

However, people are ignoring the two very large elephants in the room:

1 Any such decision and action to buy bonds will not occur until after 12 September, when Germany’s top court rules on the ratification of the ESM. This being over a month away means that Spain and Italy, because of crippling interest rates, will most likely have imploded by them.

2 Germany’s top court may well not ratify the ESM. Even if it does, all 17 eurozone members would need to agree to it as well. Fat chance!

Therefore, don't believe the ECB hype.

The Euro, in its present form, is finished!

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Bundesbank Challenges ECB To Pissing Contest

In an interview conducted in June, but "conveniently" published on the Bundesbank's website today, the Bundesbank president Jens Weidmann has stressed that the ECB should not exceed its mandate.

He also noted that the Bundesbank is more "important" than others in the eurozone.

The Telegraph quotes him:

"[The ECB] must be aware that its independence obliges it to respect its own mandate and not to exceed it. 

We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks in the Eurosystem."

It seems that the Bundesbank has just challenged the ECB to a pissing contest!

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Bundesbank Shoots Draghi's Fox

Yesterday Mario Draghi, head of the ECB, was making all sorts of rash promises about the ECB doing whatever was needed to prop up the Euro etc.

I noted:

"Draghi then reverted to type, and promised that the ECB will "do whatever it takes to preserve the euro".

This of course is patently untrue."

Today the Bundesbank has verified my conclusion, by stating that it remains opposed to further bond buying by the ECB.

Whatever Draghi might like to do, the Bundesbank won't allow him to do it; ie they have shot his fox.

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Mario Draghi On Euro Break Up

Mario Draghi, the head of the ECB, has spoken about the possibility of a euro break-up

"When people talk about the fragility of the euro, very often non-euro members underestimate the political capital that has been invested."

Ironically, for once, he was speaking more or less truthfully. In the sense that because so many politicians have a vested interest in maintaining the Euro in its present form, they will fight tooth and nail to keep it.

Sadly, for countries such as Greece, this means that their economies, democracies and social order will be sacrificed to appease the politicains' vanity and egos.

Draghi then reverted to type, and promised that the ECB will "do whatever it takes to preserve the euro".

This of course is patently untrue.

Greece will exit, and the politicians will scramble to preserve the Euro in another form.

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Spanish Bank Auditors Go On Summer Holidays

The Wall Street Journal reports that the deadline for auditors from Deloitte, KPMG, PwC and Ernst & Young to present full reports on the capital needs of Spain's financial sector has been delayed from July 31 to September.

For why?

Officially the reason being presented is the need for more time to complete the evaluation, and the fact that most of Spain (especially the government) is on holiday during the summer.

Amazingly enough the auditors, and those organisations that have commissioned the auditors to do the work (ie Spain's government, the International Monetary Fund and the European Central Bank), have agreed to a delay in order to allow people to go on holiday.

There are two possible conclusions to be drawn from this absurd excuse for a delay:

1 There is in fact no urgent need for any reform or further funding of the financial sector or, more likely,

2 There is something that has yet to emerge that people want hidden for the time being.


Draw your own conclusions.

Doubtless the "crisis" will not get any worse during the summer recess!

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The Vacuum At The Heart Of European Economic Policy

Nature abhors a vacuum.

The "leaders" of the Eurozone and ECB may care to ponder the above statement, in relation to their inaction and non existent "plans" for resolving the Euro crisis.

For why?

A political vacuum, caused by inactive, ineffectual politicians and hare brained economic policies, will be filled by scum such as the individual in the above video.

This is a portent of the future of Europe; if the "leaders" of the Eurozone et al do not get their acts together, Europe will descend into chaos to the benefit of the scum of the extreme right and left.

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The EU Oversteps The Mark

The EU has said today that the Eurozone should consider setting up a banking union and allow a rescue fund to directly boost the capital of banks to further stop expensive bailouts from pulling down governments’ own finances.

That's all very nice, in theory. However, the EU is not the ECB; it is up to the ECB and central banks to determine the capitalisation levels of European banks.

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IMF Puts Greek Visit on Hold

The IMF has stated that it will not visit Greece, to review its financial situation, until after the next round of elections on 17th June. This means that the IMF will not be putting up anymore funding for Greece, if at all, until after it has completed its review.

The IMF, for good measure, then kicked the ball back to the ECB stating that the ECB has room for further aiding Greece.

In the meantime Greece may or may not run out of money.

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Troika Visit Ireland

"Lucky" Ireland is on the receiving end of the sixth visit of Troika inspectors.

Officials from the International Monetary Fund, the EU Commission and the European Central Bank have begun their 10 day long inspection to see how Ireland is performing under the bailout programmes

The Irish Times reports that promissory notes would be a central focus, as the issue of restructuring of the Euro30BN promissory note issued primarily to Anglo Irish Bank and Irish Nationwide has yet to be resolved.

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Kicking The Can Down The Road

In a clear sign that the financial crisis is far from over, Joerg Asmussen, a member of the executive board at the ECB, has backed calls from the IMF to consider targeted debt relief for homeowners in financial trouble.

The IMF report, published earlier this week, outlined evidence from a number of countries where mechanisms have been put in place to cut household debt levels; thereby boosting personal spending and helping economic growth.

Quote:

"Bold household debt restructuring programmes can significantly reduce the number of mortgage defaults and foreclosures and substantially reduce debt repayment burdens."

That is all very well as a short term palliative to keep us afloat. However, at some stage we will have to significantly boost our earnings (from hard real productive value adding work, not by printing money) if we are to ever get ourselves out of this mess!

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Greece Is A Busted Flush - Greece Printing Its Own Euros

I have written on this site before that Greece is a busted flush. However, those of you who still doubt this, and cling to the hype spewed forth by the Eurozone that the second bailout will fix Greece may care to consider the following:

1 Greece is now printing its own Euros, because it has nothing left of value to offer the ECB as collateral for Emergency Liquidity Assistance (ELA)

2 Greece's unemployment rate rose to 20.7% percent in the last three months of 2011. Youth unemployment now stands at a staggering 40%.

3 Evangelos Venizelos (a rat leaving the sinking ship) has resigned as finance minister, thus undermining any attempts by Greece to push through the financial reforms it agreed to in exchange for the second bailout.

Greece is a busted flush!

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The "Irony" of The ECB Overnight Deposits

Hot on the heels of LTRO II, the ECB overnight deposit facility has hit a record high of Euro776.94BN.

This of course is rather "ironic", given that Draghi et al were claiming that LTRO II was aimed at stimulating bank lending.

They of course knew that it would be used by banks to sandbag themselves against the oncoming Greek default, but couldn't admit that.

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Happy LTRO Day II

Well my earlier bet on LTRO as being around Euro650BN was wide of the mark!

The ECB's 3 year LTRO has just been announced as being Euro529BN, given to the 800 banks which have come forward with their begging bowls.

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Happy LTRO Day

At 10:20GMT today we will know how much money has been borrowed under the ECB's LTRO scheme, which is being used to sandbag banks in the likely event of a sovereign debt default.

The ECB claims that the money will be used to stimulate growth, the reality is that it will be placed by the banks at the ECB to be used when the forthcoming Greek default causes a run on the banks.

For what it is worth, I am taking a non financial punt on LTRO being around Euro650BN.

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Greece Accepts The Treaty of Versailles

In a volte farce (sic) Greece has now told the ECB that its political parties have now agreed the Troika's "Treaty of Versailles".

However, the ECB is not saying whether it accepts the deal.

Sorry for sounding a tad cynical over this, but this sudden change of heart does not ring true. There is also the annoying problem (which some in the mainstream media seem to have forgotten) that Papademos revised his budget targets, and only informed the Troika at 6am this morning, as such the Troika will have to rework their calculations to see if the bailout actually works.

Here is the draft of the Troika's plan for Greece before they rework it.

Oh and by the way, there is still the none too small matter of the Greek parliament having to endorse this.

Here is the text of the official statement (short on details and rather woolly) from the Prime Minister's Office :

The agreement with the troika has been completed

February nine, 2012 | Categories: Articles and Statements , Prime Minister

Prime Minister's Press Office
Thursday, February 9, 2012
The government's discussions with the troika were concluded successfully this morning on the issue which had remained open for further elaboration. The political leaders have agreed on the result of these discussions.
Thus there is general agreement on the content of the new program, in view also of this evening's Eurogroup meeting. This program accompanies the new loan agreement to finance Greece with 130 billion euro.

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ECB Stands Back From Debt Talks

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo has said that the ECB is not involved in the Greek debt talks.

This is hardly good news, if Paramo is speaking the truth, for those who are hyping the rumour that a deal is close at hand.

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Banks Rush For Cheap Loans

Once it was just the hapless individual seeking a personal loan or mortgage who would rush for "cheap" loans.

Now the boot is on the other foot, as banks have been falling over themselves scrambling for the "cheap" three year loan deal offered by the ECB. Rates will be an average of the ECB rate over the next three years.

The ECB has loaned Euro489BN to 523 banks, significantly above the Euro310BN expected by the markets.

This of course has given the markets a temporary pre Christmas "pick me up". However, it does not cure the systemic failings of the Eurozone. The money will be used by banks to buy up sovereign debt and shore up their own finances; it will not be used to lend to companies or individuals in the wider economy.

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