Euro crisis: “When it becomes serious, you have to lie.”?

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Another article, to add to those noted by Mick, on the wider economic and political considerations being argued in the eurozone.  At the Guardian, Nuno Monteiro and Eduardo Sousa warn

While a growing number of analysts recognise the likelihood of sovereign-debt defaults across Europe’s periphery in the next few years, the continent’s political and financial elites continue to see restructuring as the third rail of financial options. Despite all signs that the euro may be set on an implosion course, the EU and the European Central Bank (ECB) are in a state of denial.

As we have recently argued – and, in response to our readers, here – the most likely scenario is that Greece and Ireland default on their debts over the next few years, with Portugal soon following, dragging Spain into the circle of the damned. But instead of facing this likely state of affairs, Europe’s top leaders remain obdurate in placing the burden of the crisis entirely on the shoulders of the highly indebted countries’ taxpayers. Every time a eurozone default is mentioned, European political leaders – and the bankers whose money is at risk – come out in force against a serious discussion of the topic, in a short-sighted attempt to keep the sinking bailout ship afloat.

This wall of silence creates a false polarisation between a solution that burdens solely debtors and another that punishes only creditors. It pretends there is no middle ground and, by doing so, prevents a serious discussion on how to design and implement a restructuring plan. But by refusing to explore this middle ground and develop softer options in case bailout packages fail, Europe’s statesmen are increasing the likelihood of a hard, unstructured and unmanaged default by Europe’s peripheral countries, with severe effects for European and global markets, including the possible breakup of the euro.

Read the whole thing.  But be aware that Frau Bundeskanzerlin has already said ‘Nein’.  At least until 2013.

Even then, it will still be “squeaky bum time in government buildings all over Europe.”

And, to be fair, the President of the Euro Group of finance ministers, Luxembourg’s  Prime Minister, Jean-Claude Juncker, has said that “soft restructuring” of Greece’s debts was a possibility.  A BBC report notes the response

The European Central Bank’s chief economist Juergen Stark said restructuring the debt would be a “recipe for catastrophe”.

He blamed “vested interests” in the UK and the US for fuelling pressure on Greek financial markets.

Lorenzo Bini Smaghi, a member of the board of the ECB, also rejected the soft restructuring idea, saying it would bring the Greek economy “to its knees” and be bad for the whole eurozone.

Although, via the Wall Street Journal’s Brussels blog [9 May], an EUobserver report suggests Jean-Claude Juncker might not be a reliable witness… [Are any of them? - Ed]  You might very well think that… 

The audio’s a bit ropey, but here’s the video.

EUOBSERVER / BRUSSELS (20 April) – Eurogroup chief and Prime Minister of Luxembourg Jean-Claude Juncker telling how he “had to lie” in his career in order not to feed market speculations. He was speaking at a conference on economic governance organised by the European Movement.

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  • OneNI

    I wonder did Enda and Cameron discuss the possibility of the Republic going back into sterling post default?

  • DC

    Financial innovation has polluted the capitalist system because it only really produced poorly structured credit, which when released caused inflation, but once collapsed caused massive deflation. And to deflate is to default – because you haven’t a hope of meeting repayment terms if you allow massive deflation.

    The uber wealthy who profited during the boom years between 2002-2007 should have their assets frozen and a proportion returned back into financial services because the money they took out was really only nominal, they don’t deserve to keep that money. The public have been landed with a bill to pay for the depression, while the uber wealthy have walked off with grossly inflated profits, that were kept up sky high due to the way in which credit was structured inside financial markets. But that credit pyramid collapsed through incompetence, poorly structured credit – so they should return the money.

    These bonuses was simply bogus money – fools gold. Pay it back. Sir Fred included. Why are the taxpayers paying for this?!

    See this link – Henry ‘Hank’ Paulson and many many others like him should have their assets frozen and a proportion of this wealth should be ploughed back into the banks that are now bankrupt as a result of the credit bubble bursting.

    http://www.spiegel.de/international/business/0,1518,608993-2,00.html

    Global Rage at Bankers’ Bonus Excesses
    By SPIEGEL Staff

    Part 2: The Illusion of Value

  • Alias

    “Why are the taxpayers paying for this?!” – DC

    Because nations were hoodwinked by europhiles into giving their sovereignty away to EU elites who duly use that sovereignty to promote their own interests in place of the interests of those who duly disposed of the sovereignty to promote their own redundant national interest:

    “Europe’s top leaders remain obdurate in placing the burden of the crisis entirely on the shoulders of the highly indebted countries’ taxpayers.”

    What are the taxpayers going to do? Stop paying their taxes and face criminal sanction by the state? That’s all they can do since they don’t have the sovereignty to do anything else.

    “I wonder did Enda and Cameron discuss the possibility of the Republic going back into sterling post default?” OneNI

    Given that UK ESCB lenders would be stung for over 100 billion, Mr Cameron would be more concerned about the collapse of Sterling than about throwing a lifeline to a state that just dumped his country into the quagmire.

    The reality is that Irish taxpayers haved bailed-out the UK by underwriting losses that belong to that state’s reckless ESCB lenders. As we cannot afford to bail-out the UK and the rest of that reckless ilk, that situation will require correction. That will probably have to come from the people rising up against neo-colonial interests and its europhile stooges in Ireland, so I’d guess another few years of severe economic hardship should bring the public to that mood.

  • Greenflag

    If Europe’s top leaders are obdurate they are no less so than the US Government which is scheduled to ‘default’ on it’s financial commitments on Aug 2 having just narrowly averted a default due to some shady re-allocation of federal government employee’s pension funds in order to meet current expenditures .

    Meanwhile on Wall St the ‘bankers’ continue to hold their collective weaponry to the head of the Federal Reserves and the people’s elected representatives . In Europe it’s the same story with the German and French banks being stand ins for Wall St and in the UK it’s no different .

    The ‘political leaders’ everywhere have their heads in the sand and simply are hoping against hope that some ‘deus ex machina ‘ will arise to get them all off the hook . But none is seen. At this stage it’s looking like only mass popular action against the ECB , and the Wall St & City of London ‘crooks’ will ‘wake up’ our so called elected representatives.

    Meanwhile as the IMF searches for a new Chairman after it’s previous head is jailed and manacled in New York for alleged physical attacks on a hotel maid – Kanzler Merkel is looking to replace the disgraced Strauss Kahn with another European . But hark the voice of the BRIC countries may be getting a hearing with Brazil, Russia , India and China demanding one of theirs be given consideration .

    And when one thinks about it why not a Chinese IMF Chairman . The country has impeccable financial credentials being the world’s second greatest exporter -fastest growing major economy but better than all that it’s a one party =non democratic State who’s economic ideology can best be described as ‘authoritarian ‘ capitalism with no opposition . Should suit the IMF crowd no end -one would think . Perhaps they can dragoon Russia into the Euro Zone and stick an ex KGB in as head of the ECB ?

    Au revoir democracy and mercy beaucoup to you too Wall St and the City .

  • wee buns

    ”The reality is that Irish taxpayers haved bailed-out the UK by underwriting losses that belong to that state’s reckless ESCB lenders.”

    A point that very few people realise.

  • DC

    Alias, I’m not buying your ‘europhile’ argument, it’s a banking problem affecting many political systems: Europe, America and Britain.

    The answer to the problem can be found below:

    But the bankers deny their own culpability and refuse to do anything to atone for their sins. Even though many banks would have gone under without government help, it has only occurred to a very few bankers that they should pay back their bonuses, which are based, after all, on illusionary results.

    This to me is better than raping the taxpayers silly.

  • DC

    This abive article was written in a German magazine and I suppose what’s sauce for the goose is sauce for the gander.

    Look to their own German bankers than to the Irish taxpayer.

  • Pete Baker

    Guys

    Could you try to focus your comments on the actual topic?

    Rather than trying to steer the discussion into other, mostly imaginary, areas…

  • Alias

    I think the main article is spot-on, and doesn’t need any comment.

    The non-political markets now refer to the EU’s banking policy as P&E – pretend and extend. That is where the lender pretends that the borrower can repay the loan one day. It is hoped that the asset that borrower has exchanged the lender’s cash for will one day be restored in value so that the borrower sell the asset and return the lender’s cash. On that fanciful basis, the lender agrees to extend the loan so that the borrower does not default on the loan and thereby force the lender to carry the loan as a loss on his books.

    Does that sound familiar? It is the policy that the Irish banks have been using to hide substantial losses. They are issuing moratoriums all over the place, and for all sorts of loans – not just property related. It is the policy behind NAMA (hold the devalued asset until its value is retored by a rising market) and it is the policy of the ECB – lend to insolvent banks so that they can hide the level of their debt. It is a policy of fraudulent concealment of debt.

    Essentially, eurosystem banks based in Ireland borrowed hundreds of billions from eurosystem banks based outside of Ireland and converted it into property and other assets that only be converted back into cash at a prevailing market discount of circa 70%. That discount is the loss that these banks are trying to avoid carrying on their balance sheets, with the complicity of the ECB and the rest of the EU. That loss is actual, and sooner or later they are going to have to accept that reality and take the hit. The damage that the EU and its politics has done to Ireland and is continuing to do is mindboggling, but just as mindboggling is why we allow the EU and the europhiles in this state to do this damage when we should be in survival mode and acting according to our own interests. The EU is a failed project, and Ireland’s dole lines measure the lenght of that failure.

  • abucs

    I don’t want to get off topic but you have to ask how can proffesional bankers make such a basic highschool errors with such large sums of money. Also how can politicians and financial regulators allow these mistakes to proceed.

    Is the system rigged to promote short-termism where the bankers (and others) are in and out with large sums of money and don’t care that it all falls apart?

    and/or

    Is there some mindset in the culture that promotes the telling of lies to ourselves because of what we would like to believe – rather than what is actually true?

    In such a field where there are large sums of money involved, and all the associated greed, the cultural acceptance of lieing (demonstrated by Jean-Claude Juncker above) is a hugely detrimental mindset to have.

    And if lies are part of the whole cultural mindset – can we believe these guys now? or the next time?

    In fact what is the cultural mindset of these people? and where does it come from? and who allows it to dominate?

  • wee buns

    ”In fact what is the cultural mindset of these people? and where does it come from? and who allows it to dominate?”

    Pertinent questions & I shall look forward to hearing what others think as I personally am baffled (and did I mention deeply depressed) as to the enormity of destruction as a consequence.

  • http://amanfrommars.blogspot.com/ amanfromMars

    The reality is that Irish taxpayers haved bailed-out the UK by underwriting losses that belong to that state’s reckless ESCB lenders. …. Alias 19 May 2011 at 4:54 pm

    Alias,

    If that reality is only a reality created by BIFFO running off at the mouth, before hightailing it outta there for his own safety, is it a reality which the Irish taxpayers are not liable for, and quite why the eejits would be accepting the sale of their nationality and manhood for a fistful of dollars/euros/pounds or whatever, would confirm that they are indeed eejits, rather than me having to profoundly apologise for such a stereotypical slur upon them, which I can assure you it would be my most humble pleasure to be able to do because it was warranted and well earned.