Renamed Again …

Upon the suggestion of one of our readers, we have renamed the 'aggregated news' page a second time, this time from 'Odds & Ends' to 'Tidbits'. Per definition, 'odds and ends' are 'miscellaneous items' (trivia: the term originated in sawmills and lumberyards, describing irregularly cut pieces of board and end pieces trimmed from boards cut to specific length), while 'tidbits' are 'choice morsels'.

So here we go.

 

Greece – The Paymaster Drops In

Angela Merkel is finally visiting Greece in person. As might be imagined, her arrival in the crisis-stricken country is greeted with joy by everybody there. In fact, it seems there is a storm of protests in the works. From our perspective the important point is that this is yet another sign that the eurocracy is by no means prepared to let Greece go. The often invoked 'irreversibility' of the euro must not be questions and will apparently be defended at all costs.

Der Spiegel: Merkel Ventures to Athens in Late Show of Solidarity (sub-titled 'Un-welcome Wagon')

A few choice quotes:

 

 

„Merkel, hated by many Greeks who hold her personally responsible for their economic plight, will encounter massive protests by Greece's left-wing opposition and trade unions.


"She does not come to support Greece, which her policies have brought to the brink. She comes to save the corrupt, disgraced and servile political system," said Alexis Tsipras, who leads the opposition Syriza alliance. "We will give her the welcome she deserves."


[…]


Some 7,000 police drafted from all over Greece will be deployed in Athens where they will turn the government district into a No-Go area for protesters during her six hours of talks with Prime Minister Antonis Samaras, President Karolos Papoulias and industry representatives.


Snipers will man the roofs of surrounding buildings and police helicopters will accompany her convoy on the long trip from Athens airport to the city center, media reports said. One could be forgiven for thinking she was visiting Kabul rather than a long-standing European ally.“


 


(emphasis added)

 

'More Time' for Greece


In an implicit recognition of Greece's ongoing de facto insolvency, the IMF and the euro-group are now considering 'giving Greece more time' to reach its budget targets, just as long as 'it doesn't cost more'. However, as the ECB's Jörg Asmussen already said a little while ago, "it is logically quite wrong to say: we need more time, but not more money." So this idea seems to suffer from an inherent contradiction. Nevertheless, here it is:


Reuters: Euro zone, IMF mull 2-year extension for Greek bailout


Apparently though things haven't yet gone beyond the 'mulling' stage (we predict they eventually will…), as Finland and the Netherlands are unhappy about the idea.

 


“Euro zone finance ministers and the International Monetary Fund held a "thorough and robust" debate on Greece on Monday, but failed to make significant progress in deciding how best to get the country back on track with its bailout program.”

 


'Robust debate' is diplomat-speak for 'a food fight almost broke out'.

 

Spain: No Bailout Required?


It is quite amusing to observe the back and forth about whether or not Spain should apply for ESM help. Germany's finance minister Schäuble is certain: it's not necessary. Why is he so certain? Because that's what 'Spain's government says again and again'. The bank bailout will fix everything.

Reuters: German Finance Minister: Spain does not need financial aid


It is widely held that Spain can indeed forego an application as long as the 10 year government bond yield remains below the 6% level. Currently it resides at 5.73%:


 


 

Spain's 10 year government bond yield: still below 6% – click for better resolution.


 


 

There's only one problem with that: there is no way Spain will meet its deficit targets. As Bloomberg reports, the hole in Mariano Rajoy's budget keeps growing faster than his spending cuts.


Bloomberg: Rajoy’s Deepening Budget Black Hole Outpaces Spain Deficit Cuts

 


“The black hole in Spain’s budget has grown faster than Prime Minister Mariano Rajoy’s attempt to cut it, portending the same dynamic that has squeezed Greece.

The harshest austerity since the return to democracy in 1978 has failed to contain the deficit as the economy sinks deeper into recession. The shortfall rose in the first half of the year, as it did in the previous 12 months. Even after a sales-tax increase and health-care cuts kick in this quarter, it may still approach last year’s 9.4 percent of gross domestic product, said Ignacio Conde-Ruiz, an economist at the independent Applied Economic Research Foundation in Madrid.”

 

(emphasis added)

9.4% are a far cry from the 'official target' (only recently revised) of 7.4% (6.3% not counting banking system support). Currently the markets don't care, on the theory that the ECB will come to the rescue. However, one should not lose sight of the fact that previous iterations of 'target misses' both in Spain and elsewhere have routinely served as trigger events for an intensification of the crisis.

 

Portugal 'On Track' – But Needs Extra Year Anyway

The next €800 million aid tranche for Portugal has been approved, amid general agreement that the country is implementing the necessary reforms even faster than expected. And yet, it has also 'been given an extra year to meet its deficit targets'.

Reuters: Euro zone approves 800 million euros aid to Portugal

Meanwhile Portugal's unions have decided to fight the latest austerity measures announced by the government, the latest iteration of which consisted of a steep hike in income taxes. Once again a government cannot stand the thought of shrinking – so instead of cutting spending, it imposes a higher tax burden on its citizens.

AP: Transport strikes in Portugal herald new protests

 

Transport strikes in Portugal brought misery for thousands of commuters Thursday, and trade unions vowed to step up their fight against the government's latest batch of austerity measures.

The center-right government announced Wednesday steep increases in income taxes next year to meet the financial targets demanded in return for last year's €78 billion ($100 billion) bailout.

Finance Minister Vitor Gaspar said the increases would be "enormous."

They come on top of pay and welfare cuts and tax hikes this year that, as in other European countries caught in the continent's financial crisis, have fueled growing discontent. Portugal is in a deep recession, with record unemployment of 15.9 percent.

Compounding the coalition government's difficulties, Prime Minister Pedro Passos Coelho had told the Portuguese that their belt-tightening sacrifices over the past 18 months would pay off. The recession would bottom out this year, and the jobless rate would level off at 16 percent, he said.

But the government now says the economic contraction will extend into 2013 — a fourth year of recession in five — and unemployment will rise to 16.4 percent.”

 

(emphasis added)

The markets however remain sanguine about Portugal's outlook – an assessment that could change if social upheaval and unrest reach hitherto unexpected dimensions. As in other euro area nations under 'troika' control, there is always a residual danger that political extremists could gain a foothold if the economic situation worsens appreciably further.

 

Lithuania 'Austerity-Weary'

It seems Lithuania's government, led by the dour Andrius Kubilius won't survive the upcoming election. In a nod to the crisis, the government has postponed its time table for euro entry as well, now rescheduled to 2014 or 2015 (depending on who is asked). Presumably the idea is 'if the euro still exists in 2015, it will be safe to join'. Naturally no-one wants to join the common currency while member states have only the choice of either becoming bailout applicants or members of the paymasters club. Neither option seems very appealing, hence Vilnius is creating this safety time buffer now.

Reuters: Lithuania to reject austerity, quick euro entry in vote

 


 

Andrius Kubilius the Dour. As one of his advisers has said, he seems like a surgeon who would say 'Let me cut off the leg, but you won't get any anesthesia'.

(Photo via Reuters)

 


 

ECB: The Banking Union 'Game Changer'

ECB executive board member Benoit Coeure was out touting the blessings of the planned 'banking union', which if memory serves is something Germany remains highly skeptical of. It is easy to see why: once a common deposit insurance fund is established, a credit boom in some countries could quickly become a black hole for the finances of others. This is essentially already playing out in the case of Ireland and Spain in a somewhat mitigated form (mitigated in the sense that the funds are supposed to be paid back).

Coure was gushing about how the banking union would 'fundamentally alter the region's debt crisis' and basically 'fix everything'. Almost sounds as though it's the best thing since the invention of sliced bread.

Reuters:  ECB's Coeure says banking union a "game-changer"

Now, leaving aside for a moment that those who think they are most likely to end up paying for this are less than eager to establish it, Couere errs on a very fundamental level. His thinking apparently goes that once banks regardless of the sovereign territory in which they are based are backstopped from the fiscal   and regulatory side by all euro area members,  market participants won't be so quick to sell bank stocks or refuse to extend funding to banks based in crisis countries. Perhaps, but this is like saying that one can solve the problem by treating superficial symptoms. The problem remains of course the (never  named in mainstream debate) practice of fractional reserve banking – the ability of banks to create deposits from thin air and thereby set boom-bust cycles into motion.

As long as this practice is not recognized as being at the root of the crisis, all attempts to 'regulate crises away' are ultimately futile and bound to fail.  Of course in the near future the danger of another credit boom getting started seems fairly negligible, but this is not an immutable condition.

 

IMF in 'Warning and Prodding' Mode

Lastly, the IMF is busy 'prodding' the US and EU alike to 'do something' to get economic growth back on track. Sure, but what?

Reuters: IMF warns global economic slowdown deepens, prods U.S., Europe

 

“The IMF said the global economic slowdown is worsening as it cut its growth forecasts for the second time since April and warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump.

Global growth in advanced economies is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks, the International Monetary Fund said in its World Economic Outlook, released ahead of its twice-yearly meeting, which will be held in Tokyo later this week.

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component," it said.

"The answer depends on whether European and U.S. policymakers deal proactively with their major short-term economic challenges."

 

(emphasis added)

Is anyone else struck by the fact that these admonishments mainly consist of the regurgitation of platitudes we have all heard a thousand times already? Here too we are confronted with a fundamental error: the belief of the world's bureaucrats and politicians that a 'solution' to economic woes can only come from them, imposed top-down, so to speak. In one sense this is correct: they could do whatever it takes to get the hell out of the way and let the free market work in as unhampered a fashion as possible. Cut taxes and deregulate the economy to the maximum extent. That is however not what they have in mind. They think they need to 'plan' the economy more efficiently, even while they admit (between the lines) that they actually have no plan.

 


 

 

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