Category Archives: Germany

MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT

Posted on by

Looks like Merkel is speaking purely for political effect, which may be all she’s capable of, unfortunately.

Fact is, from the beginning, without the ECB ultimately writing the check, it’s all been in ponzi.

And like all ponzi’s, it seems to work on the way up, and disintegrates on the way down.

With the ECB writing the check, deficits can be determined by further political/public purpose, without concern of ‘market forces’ undermining finance.

Without the ECB writing the check, it all probably keeps disintegrating, as none of the member nations can be inherently solvent without some form of ECB support.

MERKEL SAYS GOAL OF TONIGHTS DISCUSSIONS MUST BE TO HAVE A SOLUT ION WHICH PUTS GREECE AT A DEBT TO GDP RATIO OF 120 PCT BY 2020
MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT
MERKEL: GERMAN EFSF CONTRIBUTION WON’T EXCEED E211 BLN
MERKEL: BANK RECAP NECESSARY TO PREVENT CONTAGION
MERKEL: NEED PERMANENT SUPERVISION OF GREECE
MERKEL: TROIKA SUPERVISION DOESN’T SUFFICE
MERKEL: GREEK BOND HAIRCUT ALONE WON’T SOLVE PROBLEMS
MERKEL:PSI MUST BE MUCH HIGHER THAN AGREED ON JULY 21
MERKEL: NEED SIGNIFICANT PSI IN GREEK RESCUE

Share

Germany, the 10th plague

Posted on by

Ok, it’s a stretch, but the biblical story of the 10 plagues does come to mind.

One by one various member nations have seen their funding taken away. The process begins with interest rates spiking to the point where, for all practical purposes, they can’t fund themselves without outside assistance.

There has been blood in the streets of Greece.

And the latest spread of the contagion to French interest rates, however politically incorrect, does bring to mind the plague of frogs, which was closely followed Sarkozy’s begging for the ECB, only to be turned down by Germany’s still hard hearted Merkel.

So might it be with the 10th plague, the killing of the first born, which, in the case of the euro is Germany, we will see the final liberation of the euro zone from it’s enslaving institutional structure?

Maybe next spring? When the chauffeur drives up in a Nissan to take them to the promised land?

Watching those German rates closely!

Share

Merkel Cancels EFSF Speech to German Parliament

Posted on by

Merkel Cancels EFSF Speech to German Parliament, Lawmakers Say

By Brian Parkin

October 20 (Bloomberg) — German Chancellor Angela Merkel has canceled her planned speech to parliament in Berlin tomorrow because of a deadlock over proposals to leverage the European Financial Stability Facility to give it more firepower, three German lawmakers said.

The lawmakers are Norbert Barthle from Merkel’s Christian Democratic Union and opposition lawmakers Carsten Schneider and Priska Hinz.

Share

GERMAN COALITION SOURCES: MERKEL SAYS LEVERAGING EFSF VIA ECB IS RULED OUT

Posted on by

The news out of Europe has turned from mixed for the last week or so to troubling.

On the one hand they seem to realize that the answer is the ECB writing the check, and on the other they seem to be saying they don’t want to do that. And on the one hand they say Greece won’t default, and on the other is a serious discussion of the ramifications of default. And as the haircut talk on private holders of Greek debt has gone from 21% to 50% and maybe more, the ECB says they will keep their Greek bonds which will presumably mature at par, but at the same time additional ECB capital calls are under consideration due to what they call increased risk of loss.

The idea that the EFSF alone writing checks to support Portugal, Spain, and Italy would weaken the credit worthiness of the core has also been discussed, which is why talk of ECB support had materialized.

Meanwhile, even as the austerity continues to bite, perhaps to the point where the austerity is now causing deficits to be larger, additional austerity measures continue to be demanded and imposed.

And where the banks stand with regard to solvency is anyone’s guess as well.

In other words, it’s all moving further away from any sense of resolution, with uncertainty about as high now as it’s ever been, as is the potential for a catastrophic financial event.

Share

ECB Capital

Posted on by

I’ve been reading up some on ECB capital.

Seems a minimum capital level for the ECB is not specified.

However, the ECB distributes profits ultimately to the national govts.

And that ECB losses are ultimately the responsibility of the national govts.

That’s why, faced with potential losses, the ECB has required the national central banks to advance additional capital to the ECB.

However, in the event of losses, the ECB is not required to call for capital from its members, but as a matter of policy the ECB has called for capital from its members when it deemed the risk of losses had risen.

So while the ECB, like the Fed, can, operationally, allow its capital to go negative without operational consequence. The ECB, unlike the Fed, looks to keep it’s capital positive by requiring contributions from its members.

This therefore means, for example, that should the ECB realize losses on its Greek bonds, it will demand additional capital from the national central banks/national govs. which will further erode their solvency.

The reason for this seems to be the notion that ECB losses left as negative capital would otherwise be inflationary.

Share

ECB and Euro zone on Greek debt haircuts

Posted on by

So how do you reconcile these two releases?

How about, they want the market to price in large haircuts so the ECB can buy the bonds that much cheaper?

Just guessing!

ECB Says Private-Sector Involvement in Rescues is Stability Risk

By Jeff Black

October 13 (Bloomberg) — The ECB said the involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector. While private-sector involvement “is certain to place significant stress on the solvency of banks and other private financial institutions in the country concerned, it will also have an impact on the balance sheets of banks in other euro-area countries,” the bank said in its monthly bulletin today. “The ECB has strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default.”

Europe eyes bigger Greek losses for banks

By Jan Strupczewski

October 12 (Reuters) — Euro zone countries will ask banks to accept losses of up to 50 percent on their holdings of Greek debt. Ahead of a make-or-break summit of European leaders on October 23 at which a comprehensive new Franco-German crisis plan is expected to be discussed, four euro zone officials told Reuters that a “haircut” of between 30 and 50 percent for Greece’s private creditors was under consideration. That is far more than the 21 percent loss they had asked banks, pension funds and other financial institutions to accept in July as part of a second rescue package for Athens.

Share

Merkel does not want to allow Greece to default

Posted on by

To my point,
Merkel’s view is now that allowing Greece to default is a gift to the Greek govt. that
rewards bad behavior, introduces moral hazard, etc.

The trick is to support Greece and not permit default without using German taxpayer funds and without weakening the credit capacity of Germany.

Hence, the current policy of ECB bond buying,
which accomplished all of the above,
is not inflationary,
carries austerity as it’s prime term and condition,
holds Greece to it’s obligations,
enhances ECB earnings and capital,
and is operationally sustainable,
is likely to continue.

Merkel said that her “entire council” of economic advisers says Greek debt should be restructured, advice that she is not prepared to take. “If we tell a country ‘We cancel half of your debt,’ that’s a great deal,” she said. “Then the next guy will immediately show up and say he wants the same.”

Share

Mosler: Greek Default Not Logical Path Out of Crisis

Posted on by

Mosler: Greek Default Not Logical Path Out of Crisis

By Forrest Jones and Kathleen Walter

September 30 — Letting Greece default won’t end Europe’s crisis and won’t allow Germany and other core nations to brush themselves off and move merrily on their way, says Warren Mosler, principal and co-founder of AVM, an international bond firm with 30 years of experience in Europe and author of the 2010 book, “The 7 Deadly Innocent Frauds of Economic Policy.”

In fact, it will do the opposite. It will cost money and rattle key export markets for Germany and other countries targeting European periphery countries.

Greece has run up debts and may default and exit the euro, yet many in wealthier nations such as Germany oppose bailouts for Greece and other debt-ridden Mediterranean nations.

They also have opposed backing euro-wide bonds, which basically shores up the Greek economy via the financial backing of the Greece’s richer northern neighbors.

However, allowing the European Central Bank to play a role in Greece’s economic reform will not put the load on German, French and other taxpayers, Mosler says.

“It’s a question if a bailout now is good for Germany and France but not so good for Greece, because if Greece is allowed to default, then their debt goes away. They are agreeing to wipe out their debt and it reduces their payments,” he said in an exclusive Newsmax.TV interview.

“But if they fund Greece, and don’t allow them to default, then Greece has to continue to make these payments. So the whole dynamic has changed from doing Greece a favor to disciplining Greece by not allowing them to default.”

That makes default, arguably, less imminent.

“I would think the odds are shifting to the endgame where Greece doesn’t default, where at the end of the day Greece is forced though the austerity measures to run a primary balance or primary surplus, the interest payments will largely wind up with up with the European Central Bank, who is buying Greek debt in the marketplace,” Mosler says.

Furthermore, the logic that applies to keeping Greece in the eurozone applies to the other nations such as Italy.

“It used to be if Germany, France and the others bailed out Greece, and then suddenly they have to bail out Ireland, Portugal, Spain and Italy, they could never have the capacity to do that. It’s now understood that there is no limit, no nominal limit to the check that the European Central Bank can write,” Mosler says.

Plus, Europe can expect no side effects of such Central Bank involvement.

“It will not weaken the euro, it will not cause inflation and it will not increase total spending in the region. In fact it will help reduce total spending in the region because the European Central Bank imposes terms and conditions when it intervenes.”

Should Greece default, however, Europe would feel the pain, but it shouldn’t be too bad in the United States, Mosler says.

Yes, regulators would have to react.

“The FDIC would have to decide how they would want to respond to a drop in equity. Would they want the banks to raise more capital? Would they give them time to do it?”

But they wouldn’t have to react too much.

“They don’t need to shut the banks down, it doesn’t need to be disruptive to the real economy.”

Turning to the United States and President Barack Obama’s economic policies, Mosler says the president is on the right track by running deficits, but adds he’s doing a poor job of explaining the rationale behind his policies.

Or he just doesn’t understand it.

Share

Mosler Bonds for the ECB, and reasons why Greece will not be allowed to default

Posted on by

First, The ECB should turn the bonds it buys into Mosler bonds, by requiring the govt of issue to legally state that in the case of non payment, the bearer on demand can use those bonds for payment of taxes to the govt of issue.

The ECB holding Mosler bonds will shift the default option from the issuer to the ECB, as in the case of non payment,
the ECB would have the option to make it’s holdings available for sale to tax payers of that nation to offset their taxes.

Therefore, conversion to Mosler bonds will ensure that the ECB’s holdings of national govt debt are ‘money good’ without regard to external credit ratings, and give the ECB control over the default process.

Second, I see several substantial reasons Greece should not be allowed to default, which center around why it’s in the best interest of Germany for Greece not to default.

Sustaining Greece with ECB purchases of Greek debt costs German tax payers nothing.

The purchases are not inflationary because they are directly tied to reduced Greek spending and increased Greek taxes, which are both deflationary forces for the euro zone.

Funding Greece facilitates the purchase of German exports to Greece.

Funding Greece does not reward Greek bad behavior.
Instead, it exacts a price from Greece for its bad behavior.

With the ECB prospectively owning the majority of Greek debt, and, potentially, Greek Mosler bonds, Greece will be paying interest primarily to the ECB.

The funding of Greece by the ECB carries with it austerity measures that will bring the Greek budget into primary balance.

That means Greek taxes will be approximately equal to Greek govt expenditures, not including interest, which will then be largely payments to the ECB.

So if default is not allowed, the Greek govt spending will be limited to what it taxes, and additional tax revenues will be required as well to pay interest primarily to the ECB.

But if default is facilitated, Greece will still be required to spend only from tax revenues, but the debt forgiveness will mean substantially lower interest payments to the ECB than otherwise.

And while without default, it can be said that the holders of Greek bonds have been bailed out, the euro zone will be considering the following:

The ECB buys Greek bonds at a discount, indicating holders of those bonds have, on average, taken a loss.

The EU in general did not consider the purchase of Greek bonds as bad behavior that is rightly punished with a default.

In fact, it was EU regulation and guidelines that resulted in the initial purchases of Greek bonds by its banking system.

Therefore, I see the main reason Greece will not be allowed to default is that not allowing default serves the further purpose of Germany and the EU by every measure I can think of.

It sustains the transfer of control of fiscal policy to the ECB.
It’s deflationary which helps support the value of the currency.
It provides for an ongoing income stream from Greece to the ECB.

Note, however, that not long ago it was not widely recognized as it now is that the ECB can write the check without nominal limit.

Before the EU leaders recognized that fundamental of monetary operations, Greek default was serious consideration for financial reasons as it was believed the funding of Greece and subsequently the rest of the ‘weaker’ euro zone nations would threaten the entire euro zone’s ability to fund itself.

It is the realization that the ECB is the issuer of the currency, and is therefore not revenue constrained, that leads to the conclusion that not allowing Greece to default best serves public purpose.

(as always, feel free to distribute, repost, etc.)

Share