IMF Cuts Greece Adrift

Ahead of this week's visit to Greece by the Troika, the IMF has signalled that it will stop paying further rescue aid to Greece; ie they want Greece to leave the Euro, and have given the Europeans the opportunity to push Greece out if it does not go of its own accord.

Greece is due to make a Euro3.1BN bond payment in August, it is not clear how this can occur though.

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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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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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Greece Stares Into The Abyss

As the Greek election on the 6th of May approaches, the voters of Greece have been afforded an opportunity to see their future and stare into the abyss (courtesy of the IMF).

Whoever is elected, on the assumption that Greece remains within the Eurozone, the soul destroying austerity that Greece is experiencing is set to be ratcheted up:

- There will be more cuts in social benefits and healthcare.

- There will be cuts in the public sector.

- Wages and pensions will be reduced by 15%.

According to The Slog, the EU are even trying to influence the result of the elections by placing their preferred candidate in pole position to become Prime Minister.

Greece is staring into the abyss, if it chooses to remain in the Eurozone it will be pushed into the abyss. The choice that the Greek people need to make is whether they wish to be pushed into the abyss, or leave the Eurozone of their own accord.

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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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Germany Trying To Sabotage Greek Bailout

I noted last week that "the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project".

Unsurprisingly, the G20 have now stated categorically in their end of summit communique that no money will be forthcoming until the Eurozone puts more of its own money in, and that it is "essential" that the Eurozone boosts its own firewall first.

Meanwhile, as if deliberately trying to further humiliate and antagonise the Greeks, the German Finance Ministry has announced that more than 160 German tax collectors have volunteered for possible assignments in Greece.

Anyone would think that the Germans were deliberately trying to sabotage the bailout, and force the Greeks to walk away from it!

Given that German Finance Minister Wolfgang Schaeuble doesn't believe that the bailout will succeed, it is in Germany's interests that time and money are not wasted on it.

 

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Wheels Start To Come Off Greek Bailout

Unsurprisingly, less than 24 hours after the announcement that the bailout had been agreed and that the Greek crisis had been "solved", the wheels are now coming off the agreement.

There will be a G20 summit in Mexico on 25-26 February, where the EU will beg the IMF to increase its contributions to prop up its firewall.

Unfortunately, the IMF regards the EFSF as a busted flush, and has no intention of throwing any more money into the doomed project. In fact, according to the Telegraph, the IMF will threaten to pull the plug on its contribution to the Euro130BN bailout unless the Eurozone creates a Euro750BN fund.

The small problem with this idea is that Germany has no intention of creating such a fund, because it would increase Germany's exposure to default.

Olli Rehn, the EU's economic and monetary affairs commissioner, wants to merge the European Financial Stability Facility (EFSF) with a new European Stability Mechanism (ESM) which has yet to be created.

The fantasy value of this yet to be created ESM is Euro500BN.

However, as with the ludicrous "values" placed on the busted flush of the EFSF, it is safe to assume that the ESM will never reach that level.

As with all matters pertaining to the Eurozone firewall and the bailout, the "leaders" of the Eurozone are building castles in the air.

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Greece To Lose Oil Supply II

A few days ago I asked where, with the implementation of EU sanctions on Iranian oil imports, will Greece, which currently imports 30% of its domestic oil from Iran on favourable terms, source its oil from?

I noted earlier this month that oil would likely rise to $150 a barrel, a price that would cripple the already enfeebled Greek economy.

Now it seems that IMF have woken up to this issue, and have warned that sanctions will cause a "large effect on prices".

The Telegraph quotes the IMF:

"A halt of Iran's exports to OECD economies without offset from other sources would likely trigger an initial oil price increase of around 20pc-30pc."

Brent crude is currently trading at over $110 per barrel, a rise of 30% gives a price of $143.

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Greece Takes It To The Wire

Greece has sent senior officials to Washington today for meetings with the International Monetary Fund, as the talks with bondholders over the size and terms of their haircut have stalled.

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Greece Sells Its Soul To The Devil

Greece is attempting to force its bondholders to accept a 60% haircut.

As I noted in September last year:

"..the Greek haircut of 50% that everyone is talking about is of course nonsense."

In order to achieve this haircut, and to ensure that bondholders "accept" it, Greece is to introduce retroactive collection action clauses to bonds.

These will permit some high level of bondholders to agree on an alteration of terms of principal, interest rate or maturity date

This means that debt that is easy to restructure (ie what Greece currently has on its books) is being exchanged for debt that will be impossible to restructure (ie Greece has sold its soul to the devil - the Troika). 

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To Be Or Not To Be? That is The Question Facing The Euro

Christine Lagarde, the CEO of the IMF, has spoken in South Africa about 2012 and the travails that face the global economy (ie the Euro).


"Will 2012 be the end of the euro currency?

I seriously don't think so. Its a young currency, its a solid one as well.

You have within the zone, not in relation to the currency, serious pressure and issues concerning the sovereign debt, concerning the strength of the banking system which are being addressed.


But the currency itself is not one that would vanish or disappear in 2012, not at all."

When addressing the question as to whether Greece will remain in the Euro, she was decidedly "measured" in her response:


"The euro partners have affirmed, reaffirmed their determination..."

Little confidence then of Greece remaining in the Euro!

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Hungary and Greece Race To Default

It looks as though Hungary is set to beat Greece to being the first to default on its debts, and claiming the dubious "honour" of being the first EU country to default (note Hungary is not in the Eurozone).

Yesterday Hungary was forced to withdraw from a bond auction, as it struggles to roll over Euro5BN of debt, because the costs were too high.

It is due in February to start repaying a loan to the International Monetary Fund (IMF) that saved the country from financial collapse in 2008. Officials from the IMF and the EU are scheduled to resume talks about a financing agreement with Hungary on January 11. However, no one seriously believes that these talks will achieve anything.

Meanwhile Greece, keen not to be written off in the race to default first, has warned that it may suffer an uncontrolled default in March if labour costs are not further reduced.

Maybe, instead of just pushing for reduced labour costs, the Greek government should more proactively push to recoup the taxes evaded by the wealthy corrupt "oligarchs" in Greece?

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The Dangerous Juncture

IMF chief Christine Lagarde has told a roundtable on Africa's economic future in Lagos that the world economy is at "a very dangerous juncture".

Despite this, as predicted, the European finance ministers failed yesterday to raise Euro 200BN for the IMF.

However, France is not depressed and has issued an upbeat prediction (or is it a wish?) that the UK (the country that it was criticising so publicly a few days ago) will provide funds to the IMF.

The Germans were also displaying a heavy handed attempt at buttering the Brits, up when Guido Westerwelle, the German foreign minister, described the UK as an "indispensable partner" and promising a "hands-off" approach to our financial services industry.

"My main message is for the British people – you can count on us, and we can count on you. There is no doubt that we want to make the next steps in the EU together as 27. I am here to show you that we are willing to build bridges over troubled water."

How the tone has changed, clearly things really are bad!

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The Eurozone Agreement

After much pantomime and farce, there has been agreement of sorts on a way forward to try to save the Eurozone from collapse.

The key points are:

- Banks will take a 50% "haircut" on Greek debt

- The bailout fund will be leveraged to Euro1Trillion

- Banks have 6 months to raise Euro106BN

So, will this work?

It has bought some time. However, the Eurozone (in its current) form will eventually implode because of its inherent internal contradictions (eg you cannot have one monetary policy when there is such a disparity of growth between the member states).

That being said, there are some "issues" that may well unravel this sooner than the "leaders" of the Eurozone would like:

1 The "haircut" is, despite the spin (seemingly, according to the Euro spin machine the "haircut" is voluntary, therefore it is not a default!), a default.

Does this matter?

Yes, it does matter.

By defining it as not a default, the Eurozone has null and voided sovereign hedging via CDS (this has not gone down well with those who hedged against default).

2 According to George Osborne, the IMF cannot contribute to the bailout fund.

Therefore where will the money come from?

Seemingly Sarkozy is on the phone to China (as I write this) trying to persuade them to put money in.

Good luck with that then!

3 Many commentators are of the view that the fund (even if money is found to beef it up) is not large enough to appease the markets.

4 A large part of the Greek debt being "haircut" is tied up with Greek pension funds, ie the value of Greek pensions has been halved. Quite what the views of the Greek people will be, when they realise that their financial future has been cut in half is anyone's guess!

Real people are being affected by the decisions made by the clowns "leading" the Eurozone, the clowns would do well to remember that they only remain in office under the sufferance of the people.

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Another Day, Another Crisis in The Eurozone

Another day of rumour, tension and dashed hopes in the ongoing farce that is the Eurozone crisis.

Today Eurozone "leaders" are meeting in Brussels, to allegedly hammer out a rescue package for Greece and the beleaguered Eurozone.

Tensions are running high, not least because it is apparent that only in the last week have the "leaders" bothered to look closely at the figures required to save the Eurozone. Seemingly they got quite a shock.

In Greece the Finance Minister, Evangelos Venizelos, has finally got around to presenting Greek bankers with a plan for a 50% write down in debts (something that has been known about for several weeks). The real resistance to any write down is coming from French bankers, therefore I wonder when he will be making his presentation to them?

In the Bundestag Chancellor Merkel has told fellow MPs that Greece "needs permanent monitoring".

That will go down well in Syntagma Square!

Meanwhile rumours abound that the chief clown of Italy (Berlusconi) has done a deal with the Northern League that he will resign by year end, in exchange for their support of an increase in retirement age.

That's nice, the question is will the Italian people accept that?

Unsurprisingly the IMF is a "tad fed up" with the ongoing circus and wants to see a resolution. As such it is expected to take matter into its own hands in the not very distant future, as and when the circus in Brussels fails to achieve anything tangible.

It is going to be a long day!

As our "leaders" continue to make fools of themselves and create havoc in the markets, they may care to remember that this ongoing farce, the outcome of their decisions and the promises that they make is having/will have a direct impact on the lives of the millions of people living and working within the EU.

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A Continent of SPIVs - Kicking The Can Down The Road

Sir Mervyn King, governor of the Bank of England, is appearing before the Treasury Select Committee (TSC) today.

He has told them that he has little faith in whatever "plan" is agreed by the Eurozone "leaders" (aka "Clown College"). In his view, whatever is decided at tomorrow's EU summit will not solve the region's underlying problems; it will only buy one or two years of breathing space.

Quite!

In the unlikely event that Clown College can come up with a plan to "kick the can down the road" for a year or so, how will this be financed?

It seems that, as Europe is skint, they will be tapping the IMF (funded by the USA) for the money which will be provided via a Special Purpose Investment Vehicle - aka SPIV.

How very appropriate!

Now repeat after me, and learn this for prep:

- There is no plan
- There was no plan
- There will never be a plan

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There is No Plan!

Less than a week ago, the Belgium government announced that Dexia was to be "saved" by nationalisation.

As with any financial transaction, it is always wise to read the fine the print before signing on the bottom line. Sadly, for Dexia and Belgium, it seems that the Belgium government has not read the fine print.

Bloomberg reports that the European Central Bank has advised Belgium not to backstop Dexia SA’s interbank deposits, and to avoid providing guarantees on debt maturing within three months.

For why?

Because it risks interfering with the central bank’s monetary policy.

The ECB also said the planned debt guarantees for Dexia may last as long as 20 years, which is inconsistent with European Union guidelines for national support measures to be temporary in nature.

In other words, the Dexia "rescue plan" is against the rules.

It would appear that the "leaders" of the Eurozone are making it up as they go along.

In other news, it seems that the US will not fund any expansion of the IMF and that any rescue plan (not that there is one) for the Eurozone will have to be funded by the Eurozone.

Now repeat after me:

"There is no plan!"

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Catch 22 - The End of The Euro

The IMF and EU have got themselves into "right old pickle" by leaking snippets of a possible rescue plan, over this weekend, that may or may not save the failed Euro experiment.

The key element of this "plan" (were it to ever come to fruition) is an expansion by trillions of the EFSF (the European Financial Stability Facitlity), the EU version of printing money without having the collateral to back it up.

Unfortunately for the panicking Eurocrats (and believe me, they are panicking), leaking "plans" that have not been finalised, yet mention a 50% haircut on Greek debt, do nothing but further undermine and damage their ability to resolve this crisis. The fact that they claim the "plan" won't be ready for six weeks or so hardly adds to its credibility.

Unsurprisingly, the markets are pulling it apart.

Cue S&P, who have stepped up to the plate and specifically warned that if the EFSF is expanded, they will downgrade various countries in the region (including core EU members, ie France and Germany).

Why does this matter?

Downgrades will mean that the EFSF will be rendered useless, in other words the "plan" has been killed before it has even been finalised.

In other news, it seems likely that the ECB will announce an emergency rate cut of 0.5%.

Unsurprisingly the ECB denies this.

Oh, and one more point to brighten your Monday, the Greek haircut of 50% that everyone is talking about is of course nonsense; the actual haircut will in fact be 80%.

The EU "leaders" are displaying "bunker mentality", not a good sign.

Enjoy the rest of your Monday!

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Trouble Ahead

The Telegraph reports that central banks and official bodies have "parked" record sums of dollars at the US Federal Reserve for safe-keeping.

For why?

It seems that they have lost confidence in the commercial banks.

Reserve funds from "official foreign accounts" have doubled since the start of 2011, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain. 

 

Whilst the amounts are (in relation to the global economy) small ($100BN), the increase serves as an indicator of problems that resemble what happened in late 2008.

To add to the indicators of problems ahead, talks between Greece and a visiting troika of international inspectors (IMF, the European Union, and the European Central Bank) were suspended today.

The talks ended abruptly this morning, as there is some disagreement over Greece's ability to meet its deficit targets.

The troika is expected to return in 10 days time.

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