France Prepared To Support Greece in Debt Negotiations

Support, whatever that means.

The negotiations and discussion surrounding the Greek debt issue are not straightforward nor transparent.

People will tend to project their own opinions on to this since it is rather complicated, especially for those not familiar with international politics.

There are a number of issues involved, and a number of players, some with their own interests and agendas that intersect enough with this to bring them into the discussions.

And like most political situations of complexity the ultimate resolution will likely involve some compromise.  So those who prefer to enhance their reputation by second guessing will almost certainly have some opportunity to say 'I told you so.'   Like so many stock forecasters, they write their hits in marble, and their misses in sand. 

In addition, I cannot stress enough that relying on only one category of mainstream media sources on this entire topic can be highly misleading.

The amount of spin and perception management being generated even by 'name' media sources these days is pronounced. Remember the stories being put out earlier this month that Russia was on the ropes, and was selling its gold to meet its reserve obligations?

And there are global macro and political issues enough so that the neo-liberal establishment will be keenly interested in becoming involved in this, fear contagion and the 'domino effect' not only in Europe, but in their own countries. 

And quietly, almost unnoticed, China and Russia keep accumulating gold bullion.

Such are the times of currency wars. And I think we might know to whom most of the Western commercial press owes their allegiance. And they are not the only ones.

But they are unusually shameless considering the image that their PR has created. I have not seen this much blatant propaganda in the major news in a very long time, probably not since the early part of the Vietnam war.  

France 24

France ‘prepared to support Greece’ in debt renegotiations

01/02/2015

France’s Socialist government offered support Sunday for Greece’s efforts to renegotiate debt for its huge bailout plan, amid renewed fears about Europe’s economic stability.

The backing was a victory for Greek Finance Minister Yanis Varoufakis, holding talks with European officials to push for new conditions on debt from creditors who rescued Greece’s economy to save the shared euro currency. Worries have mounted that Greece’s new far left government might not pay back its debts.

Varoufakis is also visiting London and Rome – and said Sunday that he would visit Berlin. The German government has been particularly angry at the new Greek government’s position and bluntly rejected suggestions that Greece should be forgiven part of its rescue loans.

Varoufakis insisted that Greece wants to pay the money back, but said he wants new terms and new negotiating partners, arguing that “it’s not worth” discussing with the so-called “troika” of creditors who set the strict terms for Greece’s rescue.

France’s Socialist leadership, whose president has campaigned against austerity, presented itself Sunday as a possible mediator between Greece and creditors.

French Finance Minister Michel Sapin insisted his country wouldn’t support canceling the debt, but offered support for a new timeframe or terms.

“France is more than prepared to support Greece,” Sapin said after meeting Varoufakis, saying Greece’s efforts to renegotiate were “legitimate.” Sapin urged a “new contract between Greece and its partners.”

Greek Prime Minister Alexis Tsipras and his new government have worried financial markets and German and other European officials by pushing to scrap painful budget cuts and rethinking the debt. Tsipras sought to calm worries over the weekend after days of increasingly heated discussions.

Varoufakis announced that he has retained financial consultants Lazard as advisers to the Finance Ministry on issues of public debt and fiscal management. The socialist PASOK party, which ran Greece during part of its debt crisis, praised the decision, noting that then-Finance Minister Evangelos Venizelos also hired Lazard advisers when he negotiated with private bondholders in 2011-2012.

The Question Is 'How Best To Default' and Not 'How Best to Maintain the Unsustainable'

"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."

John Dalberg Lord Acton

Greece is the most awkward of the EU countries by far in terms of economic fit.

There is no conceivable way that Greece can remain in a single currency union without regular transfer payments from the rest of the EU to compensate them for holding a highly overvalued currency relative to their own economy, geared more to the Germans and the French.

The problem is that the political structure of the EU does not accommodate this sort of adjustment, and within the current political character of the EU the notion of such payments is abhorrent.  The Germans, for example, have never thought of themselves as 'fellow Europeans' with a country such as Greece, and the economic structure of Europe does not easily lend itself to de facto payments.

Compare this to the US, with Greece as one of the poorer states, which receives much more in tax receipts and federal projects than the tax revenue that they send in.

It 'works' in the US because it is one nation by structure and by character. Despite their regional differences, most Americans can comfortably think of themselves as 'Americans' first wherever they might live. Unless they are urban cowboys from Texas perhaps (lol).

Every time I look at the structure of the EU politically and economically with the one currency I ask myself, "What were they thinking?"  There is no way to go by halves with a single currency and no accompanying political union. 

But this is the sort of building by half measures to which Europe has often been susceptible.  Bureaucrats love compromise, often blinded to how weak and unsustainable that compromise might be. Any deal is not always better than 'no deal,' except to the dealmakers.

So either the EU will change politically, which is highly unlikely, or Greece will leave the EU and once again obtain its own currency.

I think that outcome is almost predetermined. Now it is only a question of 'how' and mostly with regard to the possibilities of cross-contamination in the financial realm.

The best solution is for Greece to simply leave the EU, default on its debts, nationalize its banks, and restore the drachma at some highly devalued level. I think Iceland shows the way in this. This will greatly disappoint the private financiers who are licking their lips at the prospect of buying real national assets on the cheap with overvalued paper.

The worst problems will be for the European banks who hold Greek debt.

I would consider seriously an action that allows the banks to simply write off the Greek debt, and declare all CDS on Greek sovereigns null and void except for those who actually hold Greek bonds, to the extent of fifty percent of their nominal value.

If this is not workable, I would suggest that Europe also should nationalize and restructure their banks. This is what ought to have been done in 2008, and much of what has been done since then is waste. The greatest resistance to this will come from the one-worlders and their friends in the Anglo-American financial cartel. They would also like a single world currency, which is unworkable without government by a 'new world order.'

The absolute worst model is the American way, in which the banks are given the keys to the Treasury, the markets, and the political process, and allowed to do as they please, while maintaining a thin facade of legitimate government by the people.

They may as well get this done, and stop the charade. And then the rest of the world can begin thinking of how they might reform international trade, replace the existing reserve currency system, and bring the Anglo-American privateers back under control once again.

European Banks Face Devastating Exposure to Emerging Markets

This view from the City of London is interesting, given the devastation that permeates their own surrounding landscape. The Anglo-Americans seem to be throwing down the gauntlet. What now, Monsieur Trichet?

The European banking system is certainly a mess, and if there was a case to be made for pursuing the 'Swedish option' of nationalizing the banks in a crisis of their own making this is it.

One sentence in this was especially eye-catching.

"We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights."

Problem -> Reaction -> Solution.

There always seem to be some arcane powers at the ready to solve the unexpected crisis.


UK Telegraph
Failure to save East Europe will lead to worldwide meltdown
By Ambrose Evans-Pritchard
11:17PM GMT 14 Feb 2009

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.

Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.

But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.

Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.

The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve.

We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.

Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.

"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.

If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.

The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.

So we watch and wait as the lethal brush fires move closer.

If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?

European Bank Bailouts Could Precipitate a Government Crisis

There is talk that European banks may be sitting on £16.3 trillion of toxic assets and could suffer massive losses.

There is a business decision to be made as well as a policy decision.

The prescription for a cure must include the option to nationalize, liquidate, investigate, and prosecute. And above all to act not out of fear, or of vengance, but with a practical and comprehensive justice.


UK Telegraph
European bank bail-out could push EU into crisis
By Bruno Waterfield in Brussels
3:50PM GMT 11 Feb 2009

A bail-out of the toxic assets held by European banks' could plunge the European Union into crisis, according to a confidential Brussels document.

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned.

"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.

National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

The Commission figure is significant because of the role EU officials will play in devising rules to evaluate “toxic” bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.

In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.

“Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance,” the EC paper warned.