And So It Rumbles On...

I haven't done a Eurozone post for a while largely because it consists of soporific repetition, however rumble on it still does:

And:

And:

It all reminds me of this post by the FT in 2010 regarding the sterling devaluation crisis in the 1960's:

To some who went through the unsuccessful struggle from 1961 to 1967 to stave off sterling devaluation, the series of crises surrounding the euro will be drearily familiar. First there is a surprise loss of confidence. Then there is a series of rescue operations, usually taking the form of international guarantees of one kind or another. These are backed up by domestic restrictive measures leading to a domestic recession of sorts. In time the financial pressures ease and near-normality is seen to return. But then, when few are looking, there is another crisis, another set of international rescues and another set of domestic restrictions. And so on. Eventually the struggle is abandoned, and political and financial leaders work to pick up the pieces.

During the period when sterling devaluation was known as “the great unmentionable” a tiny band of Treasury officials kept “a war book” on how to deal with the unmentionable if it nevertheless happened. Harold Wilson, the prime minister, ordered that the “war book” be physically burned, which it was of course not. It is difficult to believe that such a manual does not exist in Athens, Frankfurt and perhaps other European centres.

Can we put it out of its misery yet...?

Last Man Standing

Contagion contagion everywhere; Spain is being hit with ever higher borrowing costs, so has Belgium, and Italy - bond yields which are again above the 7% level - and Portugal and so on. The markets have already assumed that France will lose its treasured AAA status. Then this morning contagion has hit the last man standing - the benchmark - Germany. 'A disaster' is what the German bond auction is being called (my emphasis):

LONDON, Nov 23 (Reuters) - German government bonds fell sharply on Wednesday after investors shunned the country's auction of new 10-year debt, signalling that the fast-spreading euro zone crisis was eroding the safe haven status of German debt.

Germany drew significantly less [sic] bids than the amount on offer for its Bunds, with investors deterred by very low yields. The euro zone powerhouse was caught between the best and worst possible scenarios on the euro zone crisis.

"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London. "If Germany can only manage a 0.65 cover in actual terms for what is going to be their next benchmark then what hope for everybody else?"

"It really tells you that the Bund yields are at the completely wrong level ... never mind that they are a safe haven. There's certainly a partial element of 'they (investors)would rather not have euros' in there."

The decisions by Germany are essential to the survival or otherwise of the Euro. As argued before on this blog, Germany faces an impossible position; it wants the survival of the Euro but is unable to take the steps necessary to ensure this. In a great piece Acting Man calls it An Intractable Problem.

The EU of course is arguing for more integration via Eurobonds as a solution:

The EC is launching a consultation to assess if the 17 eurozone countries can issue the bonds to raise cash.

Mr Barroso's 'stability bonds' plan would see much more investigation and control of the budgets of countries within the eurozone, to avoid a repeat of the bailouts and crises affecting the region.

But the EU must know that this would be illegal under German Constitutional Court rulings, it makes one wonder whether not only is this the last desperate throw of the dice for more integration but the laying of the groundwork for the blame game when it all goes pear shaped - that it was Germany's fault for not listening to the EC and its 'messiah' Barroso. The collapse of the Euro will cause enormous political ramifications and fallout.

The Financial Times has interesting piece that the markets have effectively 'smoked out' a stealth operation by the Bundesbank to try to control the German bond market, which spectacularly failed this morning:

That, alongside the fact that the Bundesbank is retaining an ever greater share of bonds from auction, suggests only one thing to the logical mind. It is the Bundesbank which is cornering the bund market on purpose. And it’s doing so to ensure that the one last repo rate in Europe that can be controlled remains suppressed.

The rate is important to suppress because almost all interbank funding is now done on a secured basis against the best quality collateral. Which implies two important points: 1) that the ECB itself has lost control and depends almost entirely on the Bundesbank to enforce its low rate policy target and 2) that the Bundesbank is having to retain more bunds from the market than ever before just to ensure the last functioning repo rate in Europe doesn’t spiral out of control.

That, we would say, is a big deal.

Whatever the case, Wednesday’s auction suggests the Bundesbank’s stealth operation has finally been outed. The question is, will the Bundesbank now be broken too?

One thing is for sure, though, now that Eurozone contagion has infected Germany, it's game over.

"I'm Mad"

Despite the EU's overtly anti-democratic manoeuvres last week to tell Italy and Greece what Government they should have, it hasn't worked - the Euro crisis continues unabated, contagion has hit Spain, France and Belgium. It's getting to the point where it's easier to list the Eurozone countries that aren't in trouble.

It's clear that the EU or member states cannot take the necessary measures to stem the crisis - they are sleepwalking into Euro meltdown where the consequences will be massive but are largely unpredictable.

I should be magnanimous in these times, but I'm afraid I can't be. I don't for one minute enjoy the consequences of the chaos on the impact on jobs and the economy but what is amusing is the ever desperate rhetoric from those that have always supported the Euro - Nick Clegg (my emphasis):

It means absolutely nothing to millions of people across the EU who are worried about economic security. They are worried about prospects for their children. The only people who will benefit will be populists, chauvinists and demagogues, who will exploit that lack of political leadership."

Oh here we go - more labels, more insults. This is why, after decades of abuse for trying to argue against a flawed system of government and currency thus being inundated with abuse I have little sympathy. The battle against the EU has largely been a lonely and hostile one - those in favour refusing to engage in debate but instead chuck insults about like cheap confetti at a wedding.

So it is with some amusement that I read this post from the Europhile blog EU Weekly:

I am mad and disappointed.

I am mad at an half finished euro, which has been created without any sort of exit close in the treaty – Not that I ever wish for such a close to be used, just that it is a good sign of a well thought project to have an end-point ready, just in case.

I am mad at an over-optimistic eurozone that accepted Greece despite its lag in matching the growth and stability criteria and continued to ignore the obvious reality as long as things were looking OK and the illusion could be held.

I am mad because the euro is not just a great project or a nice dream. It has become a reality, it has been built upon and brought successful growth and integration among the european states. The euro add solid results and consequences making it impossible to be dismantled or even weaken. It has to be saved, rebuild, made stronger… there is no other options.

That’s why more than anything I am mad and disappointed at the European leaders who fail again and again to tackle the problem and do what is needed to make the euro as strong as it is supposed to be. Every major actor of the financial world agrees to say that the best option is to go forward into a federalist union with eurobonds as the core of the public debt for member states, but all that Merkozy et al. are doing is finding workarounds to the issue, half-fixing the problem for a few months.

It reads like a perestroika advocate within the Soviet Union - believing that the system is fine; it just needs a little retuning.

No. The EU is flawed, it's conception was flawed, the Euro is flawed, everything about it is flawed. In years to come, when the EU and the Euro has collapsed, historians will wonder with bemusement how earth did we fall for this trick for so long?

A New Phase

Just my luck, on the day the Eurozone entered a new and more dangerous phase - yields on Italian Bonds smashing through the psychologically important 7% figure yesterday - I found myself on family business which meant I had no internet access.

Not so much as hit the buffers, the Eurozone has instead crashed right through them, as Italy enters bailout territory. One problem, it's too big to bailout. To illustrate the seriousness of this new phase, an orderly breakup of the Euro is now being seriously discussed, in effect jettisoning the peripheral countries and France and Germany going for a smaller Eurozone. But, given the glacial speed of EU decisions, events look set to overtake them - contagion is already reaching Spain and France today. It looks set to be another bloodbath.

One thing's for sure, we are witnessing European history in the making.

No Surprises

In news as unexpected as seeing bears heading towards the nearest wooded area clutching newspapers, the German parliament has backed the expansion of the European bail-out fund, in an apparent 'crucial' vote this morning.

This is the same package that was discussed in July - it's only taken a couple of months. Meanwhile the Eurozone crisis has moved on, The vote is irrelevant.

Italy has paid a record Euro-era high for bonds, the Greeks are still revolting, oh and Spain is still in trouble.

Move Along, Nothing To See Here

The Boiling Frog's favourite EU Commissioner has decided that everything in the Euro garden is rosy, here's a selection of his latest quotes:

"While I cannot yet say ‘Mission accomplished', I am increasingly confident that we are entering into the endgame of the crisis management phase."

And:

"Preventing a European Lehman has not been a simple task, with 27 fiscal authorities and 11 central banks - we never had the genius of Alexander Hamilton to draw on, like you did, unless you count Jacques Delors for this too - but the task has nevertheless been accomplished."

And:

"The euro's critics are wrong to claim that [the crisis] will lead to its failure or break-up. The euro will not only survive but is coming out of the crisis stronger than before."

With Greece about to default, and Ireland and Portugal in the same boat plus Spain not being out of the woods yet, not to mention significant worries about Italy and Belgium (who currently hold the world record for not having a government - with implications on its credit rating), one might be tempted to beg to differ.

Although in fairness Mr Rehn wasn't wrong when he said the following:

He concluded by repeating the mantra EU leaders have chanted from the very beginning of the area's crisis that the bloc will do "whatever it takes" to save the single currency.

"The euro is not just a technical monetary arrangement, but rather the core political project of the European Union."

I suspect EU Commissioner Olli Rehn will come to regret his words, and I look forward to that day very much.

Another Day, Another Bailout

As widely expected, Portugal is in talks with the EU regarding a bail-out, so widely expected in fact that the markets this morning appear to have taken the news in their stride.

This was soon followed by an announcement that Spain is not seeking a similar bailout:

'Spain is not at risk at all after Portugal has asked for a rescue,' Finance Minister Elena Salgado told Spanish National Radio.

So Spain has now passed; 'nothing is true until officially denied' test. The UK will naturally be contributing to the bailout of Portugal, to the tune of around £6bn. Thankfully we're not in debt ourselves and have lots of cash to spare to help out our EU neighbours. Oh wait...

Ireland Prints Its Own Euros

A great spot by the Talking Clock, the Irish Independent reports (my emphasis):

EMERGENCY lending from the ECB to banks in Ireland fell in December, the first decline since January 2010, but only because the Irish Central Bank stepped up its help to banks.

The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money.

Wow! This is desperate stuff, the ramifications of which are potentially enormous. It surely defeats the object of a single currency having individual member states printing money on a whim. What is now obvious is that the issue of Ireland and its bailout is far from over:

In hindsight, the attention of the market moving to Portugal or Spain was a misdirection of where the real attention needed to be, and that is Ireland still.

The bail out of Ireland, funded currently from their own retirement savings, has not been ratified by their government. The ECB has not started to poured funds from the Stabilization fund into Ireland yet, as they await ratification of the bailout.

The bailout, like a ticking time bomb has not been ratified yet, and if Fianna Fail’s 1 vote coalition collapses before the vote, all bets are off as to it ever being passed.

And it's not even clear that Ireland have permission to do this:

Ireland Central Bank was allowed, with or with out permission, to print up up new Euros without new sovereign debt issued behind them.

As Ireland have now set a precedent will Greece, Portugal and Spain do the same? The inflationary pressures of doing so will greatly increase. So how will Germany react to this, given that they are obsessed with keeping inflation low at all costs for very obvious historical reasons.

The crisis affecting the Euro has just deepened.

Déjà Vu Again

A new year, but the same old problems. The Euro continues to beg to be put out of its misery:

Portugal is resisting pressure to become the next eurozone nation forced into a massive financial bailout.

Perhaps worryingly for the Portuguese people, the noises out of Lisbon match those Ireland made in the days leading up to its own European Union/International Monetary Fund bailout worth £72bn.

But there is a growing belief that Portugal may also have to climb down in its opposition to a rescue package, which some commentators estimate could reach £66bn.

And guess what?

Under any deal, Britain is committed to making a contribution.

Bailing out Portugal is to save the Euro by trying to protect Spain - whose banks are massively exposed to Portuguese debt. Spain is too big to be bailed out. This is desperation to protect contagion spreading to Spain, which may or may not work. Naturally, during the processes of the euroslime protecting their own interests, the question of Portuguese democracy, and voter's wishes, will trampled on, burnt gleefully and buried six foot under:

It’s believed that Portugal is negotiating a private placement. Their objective is to take some pressure off, rather than rely solely on the market and having to defend her sovereignty in the press.

It simply can't continue like this.

Update: from the Guardian:

"A bailout for Portugal is inevitable – foreigners own 80% of Portuguese debt and they have decided to stop lending to Portugal," said Jonathan Tepper, chief editor at Variant Perception, a research firm in London.

A Coincidence?

Two months ago, before the bidding to host the 2018 and 2022 World Cups took place, Spain and Qatar were under investigation for alleged vote trading, and although subsequently cleared, Qatar did indeed win the rights to host the 2022 World Cup. Qatar being world renowned for its long standing football heritage.

Now just over a week since the open and honest voting procedure took place we learn that Barcelona has a new shirt sponsor. Barcelona are famous for never having a shirt sponsor, the shirts remaining unsoiled by corporate logos (though they have recently paid to support the UNICEF cause). Something which the fans were rightly proud of.

That has all changed as Barcelona have signed up to biggest shirt sponsorship deal in history, worth £125 million. And the new sponsor? The Qatar Foundation. Surely a coincidence?

Yes You Do, No We Don't,

Portugal is now entering the first step of being bailed-out by denying that it needs one:

Portugal insisted this morning that it was under no pressure from its European Union partners to accept a multimillion euro bailout that could prevent the crisis in the eurozone spreading to its neighbour Spain.

After Financial Times Deutschland reported eurozone nations and the European Central Bank were urging Portugal to follow Ireland and capitulate to financial aid, the office of the Portuguese prime minister José Sócrates said it was "totally false" that the country was under such pressure.

Which has done nothing to lessen the markets fears:

LONDON (Dow Jones)--Denials by the Portuguese and Spanish governments that Portugal is under pressure to seek financial aid failed to prevent another sell-off in both countries' sovereign bonds Friday.

The yield premium that investors demand to hold 10-year Portuguese sovereign bonds rather than German bunds rose 12 basis points to 444 basis points, according to Tradeweb.

Spain's 10-year bund spread rose 15 basis points to a fresh euro-era record high of 267 basis points.

The contagion is gathering momentum and spreading:

"[Talk of Portugal being forced to accept aid] all looks like papering over the cracks and will not lead to any confidence in the single currency," Citigroup said in a note. "It seems that factors are lining up now to conspire against the euro. No amount of jawboning from various officials will lessen the chance of contagion spreading."

One wonders how long the EU can keep putting off the inevitable.

Update: Spain are doing the denying bit now:

MADRID (Reuters) - Spain flatly ruled out needing a bailout and said results of extra health checks on its ailing savings banks would be published next spring, as its government and central bank stepped up efforts to calm uneasy investors.

Prime Minister Jose Luis Rodriguez Zapatero said there was "absolutely" no chance Spain would need to seek outside help to manage its finances..

That's "flatly ruled out"...and..."absolutely no chance".

The Euro May Not Survive

...according to Joseph Stiglitz, one of the world's leading economists. The Telegraph reports:

The former chief economist of the World Bank and a Nobel prize winner also predicted that short-term speculators in the market could soon start putting pressure on Spain, which is struggling with a large deficit and high unemployment.

And he warns:

... that Spain, similarly to Greece, was now in the speculators' sights. Under the rules of the game, Spain must now cut its spending, which will almost surely increase its unemployment rate still further," he said. "As its economy slows, the improvement in its fiscal position may be minimal.Spain may be entering the kind of death spiral that afflicted Argentina just a decade ago. It was only when Argentina broke its currency peg with the dollar that it started to grow and its deficit came down.

At present, Spain has not been attacked by speculators, but it may be only a matter of time.

And sensibly Mr Stiglitz argues:

... that the different needs of countries with high trade surpluses, particularly Germany, and those running deficits such as Ireland, Portugal and Greece, meant that the single currency was under intense pressure and may not survive. He suggests that one way to save the euro would be for Germany to leave the eurozone, so allowing the currency to devalue and help struggling countries with exports.

Can someone please put this flawed and damaged currency out of its misery asap.