Europe’s latest bailout nonsense is now out and it is getting much worse. Multiple Greek, Portuguese and Irish bailouts later and these people just want to continue what has already failed. There is absolutely nothing in the new plan that would even remotely start to address the real problems. In stead we will just kick the can further down the road.
Here is the statement by the heads of state of the euro area governments.
We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States. We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures.
Today, we agreed on the following measures:
1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures including privatisation recently adopted by the Greek Parliament. These are unprecedented, but necessary, efforts to bring the Greek economy back on a sustainable growth path. We are conscious of the efforts that the adjustment measures entail for the Greek citizens, and are convinced that these sacrifices are indispensable for economic recovery and will contribute to the future stability and welfare of the country.
2. We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. The total official financing will amount to an estimated 109 billion euro. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to continue to contribute to the financing of the new Greek programme. We intend to use the EFSF as the financing vehicle for the next disbursement. We will monitor very closely the strict implementation of the programme based on the regular assessment by the Commission in liaison with the ECB and the IMF.
3. We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years. In this context, we will ensure adequate post programme monitoring. We will provide EFSF loans at lending rates equivalent to those of the Balance of Payments facility (currently approx. 3.5%), close to, without going below, the EFSF funding cost. We also decided to extend substantially the maturities of the existing Greek facility. This will be accompanied by a mechanism which ensures appropriate incentives to implement the programme.
4. We call for a comprehensive strategy for growth and investment in Greece. We welcome the Commission’s decision to create a Task Force which will work with the Greek authorities to target the structural funds on competitiveness and growth, job creation and training. We will mobilise EU funds and institutions such as the EIB towards this goal and relaunch the Greek economy. Member States and the Commission will immediately mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms. The Commission will report on progress in this respect in October.
5. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euro.1 Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks. We will provide adequate resources to recapitalise Greek banks if needed.
Firstly, these measures have absolutely nothing to do with bringing the Greek economy back on a sustainable growth path, but they have everything to do with making sure that all losses from bank balance sheet are transferred to the middle classes of European countries. In fact these five points rather openly tell that the plan is to extract as much interest payments out of Greece as possible.
Secondly, if the heads of state are so convinced this next failure will bring Greece back on track, then where is the full discussion on why the first package was a total failure although it was said that it would do the very same thing.
The plan will include giving out loans at 3.5 per cent, but at least at the EFSF funding cost that could actually be a problem now that EFSF’s operations are massively widened. The plan will also extend maturities of earlier bailout loans. I would like to have an explanation from prime minister Katainen on why the maturities are extended, because he specifically promised that all bailout funds would be paid back as planned before the first Greek bailout. In fact this was the way the bailout support was rammed through. I would also like to have an explanation from Finnish Police on why is this not under investigation as it is clearly criminal fraud. Also giving loans at massively under market rates is not a loan but a massive wealth transfer from Finnish taxpayers.
On point number four, I have to say that centrally planned economies do not work, they lead to massive inefficiencies. Moreover, I am curious as to with what authority did Katainen promise that Finland would devote all resources necessary to help Greece because only the parliament can spend taxpayer money.
Additionally, the EFSF now seems to have adopted a right to finance banks directly, but at least Finnish parliament has not granted it a right to do so. The loan guarantees are only for funding sovereign nations. Seems to be like a European version of TARP where you get a right to do something and then just do whatever you like and somehow that is legal.
Private sector involvement:
6. As far as our general approach to private sector involvement in the euro area is concerned, we would like to make it clear that Greece requires an exceptional and unique solution.
7. All other euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.
Well, as you can see, this sure speaks volumes about private sector involvement. But all joking aside, just look at the Greek yield curve and you know just how much private sector involvement there is. Moreover, you got to love the pair of phrases at point 5: “The financial sector has indicated its willingness to support” and “We will provide adequate resources to recapitalize Greek banks if needed”. It isn’t much of a private sector involvement if the risk will be promptly transferred onto the backs of the taxpayers. The purpose of the bailouts is to benefit the banks, so EU should just drop this private sector involvement war propaganda nonsense.
8. To improve the effectiveness of the EFSF and of the ESM and address contagion, we agree to increase their flexibility linked to appropriate conditionality, allowing them to:
- - act on the basis of a precautionary programme;
- - finance recapitalisation of financial institutions through loans to governments including in non programme countries ;
- - intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability and on the basis of a decision by mutual agreement of the EFSF/ESM Member States, to avoid contagion.We will initiate the necessary procedures for the implementation of these decisions as soon as possible.
9. Where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area Member States from their guarantees to the EFSF.
The number 8 is very important (don’t confuse with effective). This seems to allow the EFSF to act without political oversight in any country it wishes and to finance financial institutions. But more importantly, EFSF now becomes the European version of Plunge Protection Team. You will likely see massive ramp-ups during the last hour of trading if the stock market could close 2 per cent down for the day. This seems to be an attempt to legalize the secondary market interventions that ECB has been carrying out before but I would like to remind you that manipulation financial market is illegal in every euro area country. It does not make it any less illegal if is is done by the government. Financial markets manipulation is only allowed in connection to underwriting IPOs.
Finland decided to allow the bailout only on the condition of collateral and Katainen has been presenting this as if the collateral is part of the deal, but as you can see from point 9, it isn’t. Considering that everything EU representatives are saying is that there is no risk, it would seem to me that EFSF will not be requesting any collateral. This is most definitely against Katainen’s mandate.
Fiscal consolidation and growth in the euro area:
10. We are determined to continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes. We welcome Ireland and Portugal’s resolve to strictly implement their programmes and reiterate our strong commitment to the success of these programmes. The EFSF lending rates and maturities we agreed upon for Greece will be applied also for Portugal and Ireland. In this context, we note Ireland’s willingness to participate constructively in the discussions on the Common Consolidated Corporate Tax Base draft directive (CCCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ Pact framework.
11. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Public deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest. In this context, we welcome the budgetary package recently presented by the Italian government which will enable it to bring the deficit below 3% in 2012 and to achieve balance budget in 2014. We also welcome the ambitious reforms undertaken by Spain in the fiscal, financial and structural area. As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.
12. We will implement the recommendations adopted in June for reforms that will enhance our growth. We invite the Commission and the EIB to enhance the synergies between loan programmes and EU funds in all countries under EU/IMF assistance. We support all efforts to improve their capacity to absorb EU funds in order to stimulate growth and employment, including through a temporary increase in co-financing rates.
With new rates and maturities granted to Portugal and Ireland more losses are incurred for Finnish taxpayers and German taxpayers for that matter. Once this deal closes (although I don’t understand why would Finland, Germany or Greece support this), the P, G and I from PIIGS are in default.
The Union of European Socialist Republics is very close to becoming reality with national budgets effectively controlled by EU heads of state and the new European Monetary Fund (EFSF) and common tax rates being planned. I would like to remind you that government powerful enough to give you everything you need is also powerful enough to take everything away from you. But it seems like nothing will happen in Finland at least before the government is forced to raid the pension funds.
13. We call for the rapid finalization of the legislative package on the strengthening of the Stability and Growth Pact and the new macro economic surveillance. Euro area members will fully support the Polish Presidency in order to reach agreement with the European Parliament on voting rules in the preventive arm of the Pact.
14.We commit to introduce by the end of 2012 national fiscal frameworks as foreseen in the fiscal frameworks directive.
15. We agree that reliance on external credit ratings in the EU regulatory framework should be reduced, taking into account the Commission’s recent proposals in that direction, and we look forward to the Commission proposals on credit ratings agencies.
16. We invite the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area..
Interesting how the external credit ratings were completely OK when they were artificially high few years ago, but now that they somewhat reflect reality, they must be abolished.
Inquiring minds are researching the Article 125 of the Lisbon Treaty. It stipulates the following (emphasis mine):
(ex Article 103 TEC)
1. The Union shall not be liable for or assume the commitments of central governments,regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.
2. The Council, on a proposal from the Commission and after consulting the European Parliament, may, as required, specify definitions for the application of the prohibitions referred to in Articles 123 and 124 and in this Article.
Bottom line: every single European bailout has been illegal. Unfortunately there appears to be no enforcement mechanism for these crimes nor are even so called “political adversaries” pointing this out. And I don’t even believe that could happen before at least half the people are homeless begging for food on the street (it’s not going to get to that, but the people will continue to support their own demise). Just look at the Irish election as the most recent and perhaps the most ruthless example. They voted a new party in power that promised to reverse course only to realize that after the election the new party did a clean 180.
What is the European Financial Stability Facility?
Plenty of information can be found on its website.
The European Financial Stability Facility (EFSF) was created by the euro area member states following the decisions taken May 9, 2010 within the framework of the Ecofin Council.
As part of the overall rescue package of €750 billion, EFSF is able to issue bonds guaranteed by EAMS for up to € 440 billion for on-lending to EAMS in difficulty, subject to conditions negotiated with the European Commission in liaison with the European Central Bank and International Monetary Fund and to be approved by the Eurogroup.
EFSF has been assigned the best possible credit rating; AAA by Standard & Poor’s and Fitch Ratings, Aaa by Moody’s.
EFSF is a Luxembourg-registered company owned by Euro Area Member States. It is headed by Klaus Regling, former Director-General for economic and financial affairs at the European Commission.
The EFSF issues bonds guaranteed by member countries and then loans them to program countries. The guarantees allow the vehicle to borrow at very low rates and secure AAA ratings. However, now that EU heads of state agreed that EFSF can start speculating on any secondary markets it wishes and manipulate markets of its choosing together with additional borrowing, rights to finance banks, and massive losses incurred by extending maturities and lowering lending rates, I don’t see how could the EFSF retain its AAA ratings when its commitments have been guaranteed by countries that need themselves need bailouts. You should see by now that this arrangement cannot possibly work, but moreover you should realize that when a big reason behind the financial crisis was off-balance sheet SIVs and various non-transparent structured financial products, the solution cannot possibly be to do the same on a grander scale. But as I have stated before, governments will engage in desperate action of ever increasing scale before the day comes that there isn’t any money left.
On the same topic, Bloomberg BusinessWeek reports that ECB will accept defaulted Greek bonds as collateral. This is of course understandable course of action from these idiots as we have learned that Greek banks are major holders of Greek bonds. It would not help their agenda to completely deprive them of cash although that would be the right course of action. No one should take defaulted bonds as collateral at par value. I’d like to remind you that a key reason behind the financial crisis was the concept of ignoring true creditworthiness. These very same people have condemned it many times, but now they are doing it themselves, just on a grander scale.
Jean-Claude Trichet said the European Central Bank may be able to accept Greek collateral in the event of a default because euro-area states have agreed to provide guarantees.
What actions would actually work
I have stated these plenty of times, but here are some things that would actually support the situation, which will involve an economic depression. Unfortunately though, EU heads of state are hell-bent on doing the exact opposite.
- Prosecute financial fraud including passing illegal bailouts
- Force banks to mark everything to market and then liquidate insolvent banks
- Return to free market principles
- Creditors and independent bankruptcy courts should handle insolvencies
- Stop manipulating financial markets
- Stop stealing from productive parts of the economies
- Stop supporting the parts of the economies that destroy value
- Stop infringing on national sovereignty
- More of the same that did not work
- No solutions that are desperately required
- German and Finnish taxpayers are completely raped
- Causes of financial crisis are magnified instead of resolved
- I don’t understand why would any party agree to this