ARmy Rumour SErvice

Originally Posted by alib

Yerman Yanis It is (un)official (but true): Spain is the fourth fallen Eurozone member-state

Nothing deceptive about it, everything is out in the open.
Countries in need of funding have had to enter into programmes with outside monitoring. Spain itself does not need funding, and is naturally reluctant to hold out its hand. This would mean a programme which would wallop the two tier labour market, and upset the unions which have put the current government in power.
The issue they have not tackled is the development industry and banking sector. Rather disappointingly, they have had ample means to do it, but have not - always holding out for a cheaper option.

Originally Posted by Alsacien

Spain does not need a bailout, but their failure to get to grips with their development industry and banking sector is likely to mean the banks will need one - simply because it will be too much for the government to realise in a short time frame. Thus the simple delaying tactic in recent months until they can lay their hands on cheaper money, delay and pray is the term being used.

There seems to be a degree of hair splitting on this one. If the Spanish government can't directly afford to bail out its banking sector (and there looks to be a lot of bad debt lurking in the shadows), then it's got to have eurozone support. Even if the EFSF is used to recapitalise the banks (and the money doesn't go direct to the Spanish government), isn't this essentially a bail out by another name?

The other thing I can't work out is why the ECB is not restarting its bond buying program. I would have thought there was a clear advantage in trying to bring down the Spanish bond prices. After all, that's got to be cheaper than risking a full blown Spanish bailout?

Wordsmith

Originally Posted by Wordsmith

There seems to be a degree of hair splitting on this one. If the Spanish government can't directly afford to bail out its banking sector (and there looks to be a lot of bad debt lurking in the shadows), then it's got to have eurozone support. Even if the EFSF is used to recapitalise the banks (and the money doesn't go direct to the Spanish government), isn't this essentially a bail out by another name?

The other thing I can't work out is why the ECB is not restarting its bond buying program. I would have thought there was a clear advantage in trying to bring down the Spanish bond prices. After all, that's got to be cheaper than risking a full blown Spanish bailout?

Wordsmith

No hair splitting, unlike other countries in a programme Spain does not need outside aid. It could afford to underwrite its banking sector if it had acted sooner, and it can afford to underwrite its banking sector if it can stretch things out. It has many choices other countries did not have, and is looking for the cheapest option.

Why should the ECB want to reduce Spanish bond prices?
How many times do I need to repeat that national fiscal problems cannot be solved by central monetary solutions. Spain is the master of its own destiny, just like every other country with issues.

Originally Posted by Alsacien

No hair splitting, unlike other countries in a programme Spain does not need outside aid. It could afford to underwrite its banking sector if it had acted sooner, and it can afford to underwrite its banking sector if it can stretch things out. It has many choices other countries did not have, and is looking for the cheapest option.

If Spain doesn't required outside aid, why is it looking to refinance Bankia by selling sovereign debt to other Spanish banks, using the proceeds to shore up Bankia's balance sheet and allowing the other Spanish banks to use the sovereign debt as collatoral with the ECB. That's hardly a conventional way of refinancing a bank.

Indeed it looks more like RBS's cow economics...

ROYAL BANK OF SCOTLAND (VENTURE) CAPITALISM

You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.

The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more.

You sell one cow to buy a new president of the United States , leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull.

Originally Posted by Alsacien

Why should the ECB want to reduce Spanish bond prices? How many times do I need to repeat that national fiscal problems cannot be solved by central monetary solutions. Spain is the master of its own destiny, just like every other country with issues.

Spain has both a solvency and a liquidity problem.

I would agree with you that Spain must correct its solvency problems itself, but the question arises as to whether it has the liquidity to survive for long enough to solve its solvency problems. It's going to take Spain a number of years to bring its deficit down - its liquidity problems are going to arrive a long time before that. Thus, there would be merit in the ECB trying to reduce Spanish bond prices as it would reduce the cost of Spain servicing its debts.

Wordsmith

On Project Syndicate Greece-Proofing China by Yu Yongding

...
Finally, China should be ready to extend a helping hand. To ensure that the post-Grexit eurozone’s integrity faces no further immediate threats, China must join international partners in establishing a fully credible firewall, via the IMF. However, the eurozone, and Germany in particular, must fully acknowledge the fundamental causes of Greece’s exit and pledge to move towards fiscal union, while acknowledging that an austerity-only approach towards other at-risk members is a dead end.

An adequate firewall and a European commitment to structural reform would go far toward calming markets and reducing the risks to any Chinese contribution. In other words, any assistance that China provides must be “throwing good money after good potential results.”

Of course, IMF governance reform will also need to be part of the discussion. Meanwhile, the eurozone will likely be more open to foreign investment out of necessity, and cash-rich Chinese companies should continue to pursue opportunities via FDI or corporate acquisitions.

A potential Grexit will present entirely new challenges to China in the coming months, and the country must avoid complacency over its own exposure. A battle plan for both the present and the future is needed now.

It's worth pointing out in a few ways way China could be seen as very big Ireland, a nation of gamblers, a rapidly up-skilled workforce, an intimate relationship with entrepreneurial American capital, a big expansion in manufacturing, some excellent civil servants, an ideological monoculture, rampant kinship cronyism and crazed construction has been at the heart of their long boom. In this case massive state construction projects, like freeways for which cynical observers pointed out there were no cars for, now crowded with Kraut motors. They have been at this for decades.

Unlike Ireland Beijing despite being a genuine third world country bankrolled this it itself while propping up profligate Septic consumerism with vast amounts of credit often of cheap crap made in China. Chinese state-capitalism is almost the oposite in some ways to the Irish neo-liberal model. Ireland is a relatively free, constitutional democracy, China certainly is not, the party does not believe in all this voting business, rulers come and go on ten yearly cycles, try to mess with that and they'll drive an MBT over you. Not for them the Panglossian neo-liberal faith in the guiding hand, the state keeps a damn close eye on things and is notably punitive of failed cute hoors, sometimes executing them. Even with this close style of management China will go pop at some point, the question is not if but when and how robust it will be in failure? Unlike the Western states their hothouse economy brushed aside a minor globalized shock like Lehman but the end of the Euro is potentially an event of a very different scale.

Originally Posted by Wordsmith

I would agree with you that Spain must correct its solvency problems itself, but the question arises as to whether it has the liquidity to survive for long enough to solve its solvency problems. It's going to take Spain a number of years to bring its deficit down - its liquidity problems are going to arrive a long time before that. Thus, there would be merit in the ECB trying to reduce Spanish bond prices as it would reduce the cost of Spain servicing its debts.

Wordsmith

Spains ability to secure cheap financing on the open market is directly related to the action Spain is (or is not) taking to resolve its internal issues.
Taking the pain away is not going precipitate action on the part of the Spanish government, and solving national issues that have nothing to do with the Eurozone as a whole are not part of the ECB's remit, therefore no action.

On CityWire Greece: political fragmentation shatters the euro dream by Rob Kyprianou

...
Austerity isn't working

If there is one clear result of the election it is that the Greeks have found their anti-austerity voice. Austerity is not working, with the budget deficit rising and revenues trailing target. In the first four months of the year revenues are €500 million behind target, attributed to tax evasion and lower consumer spending. VAT revenues were €800 million below the same period last year. Social security spending in the first four months came to half their yearly allocation.

Public investment is taking a hit, with the public investment programme sacrificed. The budget is for €7.3 billion to be spent this year, yet in the first four months less than €1 billion was spent. And there is more bad news for growth – tourism, one of Greece’s few growth engines, is so far down around 15% from last year. Year-on-year the budget deficit has risen by €1.77 billion, or 24%, in the first four months of the year.

And to cap it all, the tax arbitration committee set up to seek compromises in tax disputes has not met yet as the sitting judges are not interested in unpaid work.

The Organisation for Economic Co-operation and Development expects the economy to contract by 5.3% this year, with a further fall expected next year. Unemployment is forecast to reach 22% this year. And the stock market has reached 22-year lows.

The Greek revolt may be timely as they sense a growing understanding around Europe that austerity does not necessarily lead to fiscal solvency.

Greeks understand that an exit from the euro would cause devastating destruction of wealth and leave the Greek nation in financial ruin. The Greek people do not see the 17 June election as a referendum over membership, as they want to stay in and they do not believe they will be ejected from the euro.

Universal call for renegotiation

They do, however, see the election as a referendum on the austerity package. Now every political party has lined up behind renegotiation, even those that promoted the deal to the Greek people in the first place. The Socialist Pasok party wants to extend the years over which the terms are applied, while New Democracy wants to introduce pro-growth measures.

The risk is that anti-bailout rhetoric by any new government, fortified by the belief that Greece will not be thrown out or cut off from funding, could trigger a run on deposits. Events could unfold quickly, and a game of bluff could follow with the Greeks ignoring the bailout programme under the heading of 'renegotiation'. If Tsipras is in the new government, this approach will be fuelled by his belief that he is saving Europe.

At the same time there is clear exasperation with Greek politicians in some European circles and especially among German politicians. The deputy leader of the CSU, one of Merkel’s coalition partners, has said that Greece may be better off outside the euro. The EU Council president Van Rompuy has said 'claims made by some, according to which Greece can reject the deal but remain in the euro, are not a utopia but a lie'.

The problem is how do you stop capital flight during this stand-off?
...

My bold, so what we have in the next Greek election is really a referendum not on wether to take the bailout but on how to haggle for better terms from the Troika.

From a Greek perspective this is entirely rational, sledgehammer austerity unsurprisingly is proving fiscally suicidal for Greece, bumping them out of the Euro carries scary levels of risk for the rest of the EU and perhaps even the global economy. Yet it may happen, the Germans have judged the Bubbles and passed sentence and don't seem willing to listen to any such plea bargaining, the sentence must be carried out, it matters little that they'll certainly be throwing money into a deepening hole if the terms are kept. With the much larger Spain apply daffy deficit hawk strictures as it heads into depression this is a great way to really spook the markets.

Originally Posted by alib

On CityWire Greece: political fragmentation shatters the euro dream by Rob KyprianouMy bold, so what we have in the next Greek election is really a referendum not on wether to take the bailout but on how to haggle for better terms from the Troika.

From a Greek perspective this is entirely rational, sledgehammer austerity unsurprisingly is proving fiscally suicidal for Greece, bumping them out of the Euro carries scary levels of risk for the rest of the EU and perhaps even the global economy. Yet it may happen, the Germans have judged the Bubbles and passed sentence and don't seem willing to listen to any such plea bargaining, the sentence must be carried out, it matters little that they'll certainly be throwing money into a deepening hole if the terms are kept. With the much larger Spain apply daffy deficit hawk strictures as it heads into depression this is a great way to really spook the markets.

So for 10 years you spend Euro 1500 a month, while earning Euro 1000 a month.
Then you spend 2 years earning Euro 900 a month while spending Euro 950 a month.
Your overdraft stands at Euro 61,200 and nobody wants to extend your credit line.....and "austerity" (whatever that is) has failed?