Greece Will Default

Fitch says that the Greek bond swap, if implemented, would constitute a rating default and result in downgrade to "restricted default".

For good measure they have just downgraded Greece from CCC to C.

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The Fate of The Euro To Be Decided At The Gates of Rome

The ratings agency Fitch has decreed that the fate of the Euro will be decided at the gates of Rome, and has put Italy on notice that it faces a downgrade at the end of this month.

For good measure, Fitch's head of rating has stated that if Italian debt is restructured it will mark the end of the Euro as a reserve currency.

Given that a downgrade of Italy will increase the likelihood of a debt restructuring, Fitch has placed itself in the role of judge, jury and executioner.

In other news, the French are determined to push through a financial transactions tax; despite the fact that this tax has split the German coalition.

As European dictators learned in the past, a war on two fronts (in this case three fronts, Greece, Italy and France/Germany) is unwinnable. The European political "elite" need to focus their minds, and determine exactly what it is they really need to do, can do and want to do in the short term.

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Quelle Dommage!

One week on from the "Summit To Save The Euro", and it appears that the much hyped "deal" is already unravelling before it is even signed.

Viz:

- Fitch has downgraded a number of banks, including BNP Paribas and Deutsche Bank.

- The leaders of Hungary and the Czech Republic have stated that they are ready to reject the planned treaty changes and implied move towards a centralised tax system. 

- Mario Draghi, the head of the European Central Bank (ECB), warned that the bond-buying programme was “neither eternal nor infinite”.

- Pedro Nuno Santos, vice-president of the Portuguese Socialist Party told MPs:

"We have an atomic bomb that we can use in the face of the Germans and the French: this atomic bomb is simply that we won't pay.

Debt is our only weapon and we must use it to impose better conditions, because recession itself is what is stopping us complying with the (EU-IMF Troika) accord. We should make the legs of the German bankers tremble."

- Greece has yet to agree a deal with its bondholders etc.

Despite the above, the French appear to believe their own hype. France's finance minister Francois Baroin said:
   
"It's true that the economic situation in Great Britain is very worrying and that we prefer being French rather than British on the economic front at the moment. 
 
We don't want to be given any lessons and we don't give any."

As I said last Friday:

"Cameron, over the coming days, will be vilified by many for his actions. However, time will prove that the Eurozone and its "leaders" are not up to the job of running single currency.

Oh, and by the way, the "new treaty" is not yet a done deal. Member states have to formally sign up to it, and at least Poland and Ireland are already discussing having to hold referendums before they sign up!"

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Latvia, a Portent of the Future

Fitch has cut Portugal's credit rating to junk.

It has downgraded Portugal from BBB- (its lowest investment grade rating) to BB+ (the highest non-investment grade), with a negative outlook.

Meanwhile, in Latvia, people are queuing to take cash out of ATMs as stores now only accept cash.

Is Latvia a portent of the EU's future?

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Death By a Thousand Cuts

The slow torture death of the Eurozone continues, with the announcement by Fitch that they have cut the long-term sovereign credit ratings on Spain to 'AA-' from 'AA'.

There is a G20 meeting in Paris today, at which the Euro crisis will be discussed. However, those who expect some form of coherent plan to be announced will be severely disappointed.

Angela Merkel is playing down expectations of a quick solution to the eurozone crisis,  in her view the euro crisis cannot be solved overnight and there is no "big bang" solution.

Had the Eurozone "leaders" put some effort into resolving this mess last year, then one might have had some sympathy/respect for her view. However, the situation is critical, the markets are ahead of the curve whilst the politicians are months behind it.

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Greece Lowest in The World

Fitch has cut Greece's credit rating by three levels to CCC.

This rating gives Greece the lowest grade for any country in the world.

Default is now a certainty.

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The EU "Does a Canute"

I am more than amused to see that the EU has taken mighty umbrage at the downgrades by the ratings agencies of Greece and Portugal.

Indeed the EU is so annoyed with the ratings agencies that Jose Manuel Barroso, the European Commission president, all but declared that it was an Anglo Saxon conspiracy by all ratings agencies.

All very nice for the soundbites, maybe. However, he conveniently forgot that Fitch is in fact French.

The EU and its whinging ministers have as much chance of turning the ebbs and flows of the markets as Canute did the sea. Unless the EU understands that point, the EU experiment is doomed to fail.

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Crisis? What Crisis?

Unsurprisingly, given the resignation of the Prime Minister (Jose Socrates) and the ongoing budget turmoil, Portugal has had its credit rating downgraded by Standard & Poor's to BBB and by Fitch to A-.

Despite the turmoil and the downgrade, the EU have delayed making a decision as to providing a "comprehensive package" to tackle the eurozone debt crisis.

Instead the EU has adopted the ostrich policy of sticking its head in the sand. Jean-Claude Trichet, President of the European Central Bank, said that Portugal must implement the fiscal austerity measures that Mr Socrates had proposed.

All very well, but it is precisely those austerity measures that were rejected along with Mr Socrates!

As ever, the EU displays a remarkable talent for being out of touch with reality.

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Councils Breached Guidelines

The Audit Commission has issued a report "Risk and Return: English local authorities and the Icelandic banks" that states that seven local authorities breached guidance and their own treasury protocols by investing £32.8M with Icelandic banks just before their collapse last October.

The report identified the following boroughs as negligent;authorities and the Icelandic banks, found London Borough of Havering, Kent County Council, Redcar and Cleveland Borough Council, Restormel Borough Council, Bridgnorth District Council, North East Lincolnshire Council and South Yorkshire Pensions Authority.

The authorities relied too heavily on credit rating agencies and external advisers.

Kent invested £3M of its cash in an Icelandic bank, after a finance official failed to open an e-mail which warned it not to do so.

The majority of the 451 authorities had invested within the rules laid out by the Chartered Institute of Public Finance and Accountancy (Cipfa). However, the report recommends a review of Cipfa guidelines, training for councillors and staff to enable them to interpret and question external and internal advice, monitoring of a wider range of information continually and revision of the national framework to reassess the consideration given to liquidity, security and yield.

The councils deny the report's findings.

Rita Greenwood, the finance officer at Havering council, said that the council made a deposit in an Icelandic bank 20 minutes before an alert went out which downgraded the banks to a lower security rating.

"We refute being called negligent. We rely on ratings done by established international organisations such as Fitch and Moody's and we were absolutely following all our policies and procedures."

The Guardian quotes Nick Chard, Kent county council's cabinet member for finance:

"The position and language used by the Audit Commission is quite extraordinary; it really is a case of the pot calling the kettle black. The Audit Commission's own internal report stated that they were not aware of the potential problems with Icelandic banks until Monday 6 October 2008; yet they are highly critical of local authorities making deposits after April 2008."

He noted that the commission has 18% of its total deposits in Icelandic banks compared with Kent's 9%.

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Northern Wreck Gets an F

As Northern Rock's shares fall ever lower, credit rating agency Fitch announced that it has cut its rating of Northern Rock to grade F, its lowest. It said that but for Bank of England and Treasury support "the bank would have defaulted".

Meanwhile Gordon Brown, and his sidekick Alistair Darling, continue to dither over what to do about Wreck; nationalise or let it collapse.

It is clear that this failed (destroyed) bank needs to be put out of its misery now, for the benefit of the country and Britain's much tarnished financial reputation.

Does Brown have the cajones to make such a decision?

No, he doesn't.

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