Dexia Deal Unravels

In mid October I wrote that the rescue "plan" for Dexia was unravelling.

Today (one month later) the media are awash with reports that Belgium is pressing France to pay more into an emergency facility for Dexia.

For why?

Because Belgium knows that if Dexia falls over, the collateral damage to France (wrt its exposure to Dexia) would be immense.

France is less than amused, because if it pays more into the rescue fund it's AAA rating will be undermined.

This "renegotiation" is of course going to send the whole deal "tits up".

As I noted in October:

THERE IS NO PLAN!

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The European Financial Clusterfuck

The European financial clusterfuck continues this week unabated.

Here are but a few headlines to start the week with:

- Moody's has issued a downgrade warning on France.

- Despite a landslide victory in Spain, for a party that will implement further austerity measures, markets are falling and Spanish bond yields are rising.

- Hungary has asked the EU and IMF for financial assistance, oddly enough they haven't put a figure on how much they actually want/need!

- The European Commission has sated that the "cure" for Europe's ills are Eurobonds. This has been publicly slapped down by Germany, which stated that Eurobonds were not a "cure" at all.

- The EU's Jean-Claude Juncker says if France were to lose its AAA rating so would the EFSF.

Wrt the latter point, so what?

The EFSF is a busted flush anyway, a downgrade in rating is completely irrelevant.

Oh, and if anyone is remotely interested, Belgium's politicians have yet again failed to form a government (Belgium has now been without a government for 526 days).


The week starts as it means to go on, badly!

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Europe Is Fucked!

Those of you who still think that the "leaders" of the Eurozone are capable of "leading" Europe out of its financial crisis, may care to read a few choice extracts from a report in the Telegraph about what really is going on at the Euro meeting this weekend:

"She says she is on a diet and then helps herself to a second helping of cheese," the French president allegedly said after a dinner meeting with Mrs Merkel....

Francois Baroin, the young and inexperienced French finance minister, attempted to hit back, complaining that the IMF's default medicine would hit France the hardest; the country's banks are highly exposed and could threaten its "untouchable" AAA rating. ....

But Mrs Lagarde, who had held his post until taking up the IMF job this summer, "shut him up" by brandishing the report and pointing to it its detailed figures. "She really slapped him down - and in perfect English too, a language he cannot speak," said a diplomat. ....

Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU's anthem, Ode to Joy," said an incredulous EU official. .....


So pointless was the gathering, that Didier Reynders, the Belgian finance minister, left early to attend the world premiere of the new Tintin film, The Secret of the Unicorn. .....

Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today. 
 
"Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable," said one diplomat. ....

It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister." 

It should be clear to even to the Europhiles, that Europe is fucked!

Learn this for prep:

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

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Dexia Rescue "Plan" Starts To Unravel

Belgium's hopes of rescuing Dexia, in a clean and market pleasing manner, have been dashed.

The European Commission has started to investigate the "plan", and assess whether the Euro4BN paid by Belgium contains state aid and, if so, whether it complies with EU rules on restructuring support.

As with all Eurozone rescue "plans", this appears to have been made up on the spur of the moment in a state of panic.

Now repeat after me:

THERE IS NO 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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Dexia's Midnight Runners - Dexia Suspended

Share trading in Dexia has been suspended.

Oddly though their website has yet to mention it.

We can assume that the run on the bank (mentioned earlier today) will continue, and that Belgium (now that yields are rising) may well become the next Greece.

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Dexia's Midnight Runners

Dexia is to be nationalised.

Fine?

Not really.

Belgium does not have the money to cover Dexia's exposure.

Belgium - Dexia: 180% of GDP.

One thing is for sure, they had better hurry up; as Euro1BN has already been lost as a result of a run on the bank.

Next up, as per my article earlier this morning, three French banks.

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The New "Reality" From The Bunkers of Euroland

As the EU refuses to act to resolve the never ending crisis, markets have become used to the new "reality" of rumours/denials/promises/reneges being made by those allegedly "leading" Europe.

Unsurprisingly this febrile atmosphere, as we wait for Greece to finally/officially default and leave the Eurozone, has caused wild swings in the markets.

The latest round of news and rumours will do nothing to quell the volatility.

On the news front:

- Moodys' have downgraded Italy
- Greece is on strike (below is live footage from Syntagma Square)

Watch live streaming video from stopcarteltvgr at livestream.com

- Cameron (rather bizarrely) wants everyone to pay off their credit card debt (doesn't he understand that consumer economies are built on debt?) UPDATED Frightened by the ridicule heaped upon him, Cameron has changed that part of his speech.

On the rumour front:

The EU would have us believe that Dexia will be saved, and that European banks will be recapitalised. Oddly enough the markets actually believed this briefly and rallied. Commonsense then dawned, as the markets realised that this was in fact the normal bullshit being pumped out by the clueless bunker dwellers who "lead" the Eurozone.

As I noted yesterday, given Dexia's exposure (180% of Belgium's GDP), saving the bank is all but impossible. Add into the mix that other banks are also going to need saving (eg BNP and a number of Italian ones) and it becomes clear that the Eurozone is powerless to save them.

Unless the EFSF is expanded by to many trillions, it just can't be done. Germany has stated that it will not allow an expansion of EFSF.

Therefore, simply put, there is simply not enough money in Europe to save the banks without there being significant crystallisation of losses and a major print run of paper.

Meanwhile deep in the bunkers of the Eurozone our leaders are drafting the next rumour, which they hope will underpin the markets.

Fat chance!

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A Finger of Fudge

As the Eurozone crisis worsens, and continues to play havoc with the global economy, Eurozone finance ministers have indulged in a large serving of fudge.

They have cancelled a meeting, scheduled for 13 October, when they were expected to sign off on the next tranche of Greek bailout money.

For why?

As reported yesterday, Greece has announced that it will miss its deficit reduction plan for 2011.

The Greek Finance Minister, Evangelos Venizelos, has said that a "delay" (note that the EU has "cancelled" the meeting, not "delayed" it)  will not cause Greece any problems as Greece has funds until November.

This is rather an "odd" admission, as Greece had previously said that it needed the money by mid October in order to avoid defaulting on its loans.

Does anyone believe anything the Greeks say anymore?

Anyhoo, the media are of the view that the "cancellation" or "delay" (depending on how optimistic you are) of the meeting is to enable the Eurozone to come up with a fudge; whereby the Eurozone's mandated budget targets for Greece for 2011 would be combined with the targets for 2012. Thereby fudging Greece's failure, and kicking the much kicked can further down the road to financial oblivion.

All very well if you are a Eurozone finance minister. However, the longer this farce continues the longer the global economy suffers.

In other news, Dexia SA (which is on the verge of collapse), BNP Paribas SA and Societe Generale SA are in a state of denial and are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism that they haven't written down the bonds sufficiently.

The French and Belgium governments have pledged to prop Dexia up. However, they have overlooked one "small" detail"; namely the size of Dexia's exposure when compared to the host country's GDP.

Want to scare yourselves?

- Belgium - Dexia: 180% of GDP

Remember folks, Dexia passed its "stress test"!

Here are some other well known banks:

• France - BNP Paribas, Credit Agricole, SocGen: 237% of GDP
• Germany - Deutsche Bank: 84%
• Italy - Unicredit, Intesa Sanpaolo: 101%
• Netherlands - Fortis: 155%
• Spain - Banco Santander: 92%
• UK - RBS, Barclays, HSBC: 337%

 Source ZeroHedge

To put it bluntly the Eurozone hasn't a hope in hell of saving these banks, if they fall over. Dexia most certainly is going to collapse, and next up is rumoured to be Deutsche.

In other news, the rumour that Germany is printing Deutsche Marks in order that it may leave the Eurozone is doing the rounds again.

I for one would very much welcome that, as it would allow the remaining members of the Eurozone to devalue the currency and breath life into their dying/dead economies.

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The Boil Must Be Lanced

Unsurprisingly, it has been confirmed that Greece will not meet it budget targets. The 2012 draft budget approved by the Greek cabinet on Sunday predicts a deficit of 8.5% of gross domestic product (GDP) for 2011, this is well short of its 7.6% target.

Markets around the world are falling, apparently they have been "surprised" by this news.

Why?

It has been obvious for months that Greece will not meet its targets and will default.

As neatly summed up in the Telegraph

"Until Greece defaults it's hard to see any resolution."

The boil must be lanced, and quickly.

Meanwhile, the Belgium bank Dexia (which ran out of cash this summer) is about to collapse/be nationalised.

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Europe Plays Canute

France, Italy, Spain and Belgium have decided to take on the role of King Canute and are attempting to turn back the tides of the markets. They have banned the short-selling of banking stocks.



The ban will last 15 days.



A similar ban was put in place in 2008.



The result?



The shorters were proved right.



As such this ban will have little positive effect, and may well exacerbate the situation.

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Eurozone Cracks Appear

The cracks in the Eurozone are emerging again as the European Central Bank (ECB) was forced to intervene in bond markets in order to push down yields on Greek, Irish and Portuguese bonds.

The purchasing on bonds to prop up Eurozone countries is not universally supported, Germany fears that this is a sign of "policy creep" (ie backdoor rescues for failed states). The result of German pressure on the ECB to limit intervention has been the displacement of market jitters (or, for want of a better word, "predators") to Belgium, which is now experiencing a significant increase in bond yields. Belgium's economic woes are compounded by the fact that its political system has been in stasis for seven months since the election left it without a government.

As the crisis continues and, by definition, the size and number of bailouts so other states (once deemed strong) will be dragged down.

Like it or not the EU will have to change its policy, and give an unlimited guarantee of funding to failed states, if it wishes to maintain a single currency. Failing that, in my opinion before mid year, it is likely there will be a two tier Euro (or exit of the Euro by several member states).

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Exports Unresponsive

Despite the fall in the value of Sterling, statistics (if they can be relied upon) show that Britain's trade deficit grew from £7.6BN in October to £8.3BN in November.

In theory a falling pound should stimulate exports, and curtail imports.

One small piece of positive news is that shoppers from the Continent are flocking to London to snap up bargains.

Richard Brown, the chief executive of Eurostar, is quoted in The Times:

"We are an international business, and while the pound is weak, that means that London is much cheaper for people coming from France and Belgium, so we have seen 15 per cent and more growth in visitors coming to London, a lot of them using our shops and buying stuff here in London."

Let us trust that the bargains that they are purchasing are British, and not foreign imports.

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