Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government — ECB’s Honohan Says Greece Euro Exit Can Be Managed

Greece's anti-bailout party is sticking to its guns and won't join a unity government. It might become one of the first time in recent history that democratically elected people would actually respect their campaign promises!

(Bloomberg) May 13, 2012 — Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government, pushing the country closer to new elections that have sparked concerns about a euro-area exit. 

“Syriza won’t betray the Greek people,” leader Alexis Tsipras said in statements televised on state-run NET TV after a meeting brokered by President Karolos Papoulias between the party and the leaders of the New Democracy and Pasok parties. “We are being asked to agree to the destruction of Greek society.”

The paragraph just above from Alexis Tsipras is a lifetime lesson in politics: "Syriza won't betray the Greek people": I hope it doesn't and stick to their campaign promises, but what Alexis Tsipras is asking for, is for Syriza to actually join the unity government, to save the banks, (and hence he's calling them to betray the people and their promises). And he calls that "not betraying the Greek people". 

The Greek society has been destroyed by the last 70 years of people like him leading the country to its financial and democratic bankruptcy. Yet, he's trying to push the burden on Syriza, and pretending they are the ones destroying their society.

Lifetime lesson for me, and I hope for everybody who's reading this. One thing you can be sure of, is that the media and history books will convey only Tsipras interpretation, instead of the truth.

After printing hundreds of billions of Euros, trying to save European banks from a Greek default, the money is down the sink now, and it seems like the ECB finally realised that this battle against the inevitable won't be won, and that the markets will prevail. I hope Trichet is watching this mess, the result of his arrogant, ignorant, and destructive policies.

It is now qualified as a "non-attractive" event, while 2-3 years ago, it was "the end of the world".

(Bloomberg) May 12, 2012 — A Greek exit from the euro could be “technically” managed yet would damage confidence in the monetary union, said European Central Bank Governing Council member Patrick Honohan. 

A departure by Greece would be “a rather destabilizing kind of event” for the rest of the euro area and all sides are working to try to avoid it, Honohan told a conference in the Estonian capital, Tallinn, today. “It is not necessarily fatal, but it is not attractive.”

Jim Grant Interviewed on Bloomberg TV Discusses the ECB the EU Mess

Jim Grant was interviewed on Bloomberg TV yesterday, Nov the 11th. Unfortunately, the video on Bloomberg.com is broken. Luckily, the video is also available on YouTube, but embedding is disabled.

ZeroHedge has done a good job at summarizing the interview:
On the three thread by which the world currently hangs:

i) by the financial probity of Italy

ii) by the determination of Greece to implement austerity measures

iii) and by the responsibility of our money spinning central bankers

"These are very slender threads indeed."

On what the ECB will do:

The ECB has expanded its balance sheet mightily under Trichet. We have a new leader and we have a new imperative. I dare say Europe is going to print money.

On central bank monetization and its implications:

The Italian yields did not fall on their own. It raises questions of overall integrity of market prices. In the US the Fed has nationalized the yield curve. In Europe much the same is going on: the SNB is expanding its balance sheet at astonishing rates of speed. The world over there is seeing immense money printing and there is a huge race to debase on the behalf of the sponsors of paper money.

Central banks are insolvent:

The ECB has a ratio of non-AAA rated assets to equity of 14 to 1. What the ECB has been doing is stepping in where private money fears to tread. In the private sector we call the heading for trouble... The New York Fed is leveraged 100 to one.

And the kicker analogy which is absolutely spot on:

The ECB is now implementing the MF Global trade.

He also discusses:

• Immense money printing by the Swiss National Bank (SNB)
• The farmland price bubble in the US: everybody is chasing it, the income yield of about 2.5%, which is at the lowest of the past 40-50 years. In the late 80s, at the bottom, they were yielding 7-8% and trading for about 10% of the current value.

I would add that once must be mad to buy farmland which is such an illiquid asset and which will be prone to all the government manipulation and extortion as soon as the second leg of the Greater Depression settles in, with confiscations, price fixings etc.

Germany and China Refuse To Bailout Greece By Taking The Losses

The Germans and the Chinese do not want to buy insolvent nations debt. And who could blame them for that? Only politically driven liars such as Geithner and Trichet could come up with such silly ideas...

Bloomberg News - Sep 13, 2011 — China shouldn’t buy bonds issued by individual euro-area countries because their leaders and the European Central Bank are in disarray, said Yu Yongding, a former adviser to China’s central bank. 

“China has to wait until it can see a clearer road map by euro countries for solving sovereign-debt problems,” Yu, who is based in Beijing, said in e-mailed comments today. The nation is not a lender of last resort for “troubled countries,” he added.

Bloomberg News - Sep 14, 2011— Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled that developed nations should cut deficits and open markets rather than rely on China to bail out the world economy. 

“Countries must first put their own houses in order,” Wen said today at the World Economic Forum in the Chinese city of Dalian. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.” 

China can best contribute to the global economic recovery by ensuring steady growth at home, Wen said, calling on the European Union and U.S. to allow more Chinese investment in return.

Sept. 17 (Bloomberg) — Germany’s top two finance officials rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.[...]
“We don’t think that real economic and social problems can be solved by means of monetary policy,” said German Finance Minister Wolfgang Schaeuble, speaking alongside Weidmann after the meeting of EU finance ministers and central bank governors. “That has never been the European model and it won’t be.” 

Neither German policy maker ruled out leveraging the backstop’s lending capacity, saying the feasibility of the idea depends on how it’s done. It wouldn’t be acceptable to leave the ECB with the risks from such an operation, said Weidmann.

Now the real question is: when will the markets and the politicians finally realize that there will be easy solution, and that Greece will default (first) and many many other sovereigns will follow? The sooner these uncertainties are resolved, the sooner the recovery can start.

ECB Executive Board Member and Governing Council, Jürgen Stark, Resigns

A few months ago Axel Webber had already resigned following a clash with Trichet's illegal sovereign bond buying, and on friday, another member of the executive board left:

Today, Jürgen Stark, Member of the Executive Board and Governing Council of the European Central Bank (ECB), informed President Jean-Claude Trichet that, for personal reasons, he will resign from his position prior to the end of his term of office on 31 May 2014

Accordingly to CalculatedRisk, Stark was an inflation hawk and opposed all EU bailouts and ECB bond buying.

Trichet doesn't have much time left at the ECB — only about 60 days — and it's really high time he leaves and takes his legacy of illegal actions and lies with him.

Isn't it ironic that in French, "Trichet" is pronounced the exact same way as the verb "tricher", which in French means "to cheat"?

Trichet should have followed Greenspan and left when it was the peak of the markets with a positive legacy. He will now fall in the abyss as one of the worst central bankers along with Bernanke.

In any case, it means that the Germans are getting really really annoyed by the ECBs actions, adding even more pressure to the situation. I'm curious to see how this pans out, but it's obvious it's not good for the Euro, nor for the sovereigns on the verge of collapsing.

A complete crippling of the ECB and the default of the sovereigns will have positive outcomes for the people though.

Bank of Japan Prints another 5 Trillion Yen, 60 Trillion in 4 days — That is $750 billion

As it has become customary, Bank of Japan printed a few more trillion yens today. It also appears that yesterday, they didn't print 3.5 trillion as I reported, 5.

March 17 (Reuters) - The Bank of Japan on Thursday offered to inject a further 5 trillion yen ($61 billion) into the banking system, continuing its effort to calm markets in the wake of the yen's spike to a record high against the dollar.

These adds to the $700 billion already printed in the previous 3 days.

March 16 (Canadian Press) Japan's central bank continued to flood money markets with cash on Wednesday, bringing its total emergency funding to nearly $700 billion as it tries to soothe fears about the economic impact of the catastrophic earthquake, tsunami and unfolding nuclear crisis.
[...]
The Bank of Japan conducted emergency operations for the the third day in a row, bringing its total liquidity injection to 55.6 trillion yen ($688.3 billion) since Monday. By flooding the banking system with money, it hopes banks will continue lending and meet the likely surge in demand for post-disaster funds.

It took Bernanke and his QE 2 6 months to print $700 billion, and Shirakawa has now reached $750 billion in 4 days.

As I said yesterday, I am worried that Bernanke and Trichet, the two challengers for the gold medal of money printers, might find the challenge interesting, and also find a new source of inspiration in Governor Masaaki Shirakawa, who by the way, seem to be worshiping Gideon Gono, The Reserve Bank of Zimbabwe Governor.

Bundesbank President Axel Weber resigned due to the lack of acceptance of his views by Eurozone leaders

This is a follow up to yesterday's post Bundesbank President Axel Weber steps down, Ruling Out ECB. It looks I was right after all: Axel Weber has been pushed into political/career suicide. Why? Very easy to guess: the ever increasing number of debt-addicted and corrupt political leaders what what Trichet (and the ECB) has illegally offered them so far, that is the monetization of their debt. Given that it seems like an Italian might be succeeding Trichet, all red flags should be on for the self-destruction of the Euro.

It's hard to understand why Merkel is not supporting Weber, given that the Euro is basically the Deutsche Mark and that the only sound economy in the Eurozone is Germany's. Merkel is destroying Germany's credit worthiness and the Eurozone currency for no obvious reason — except maybe the fear that sovereign defaults might hurt Germany's export, which would not be the case in any way, quite the opposite.

Feb. 12 (Bloomberg) -- Bundesbank President Axel Weber said a lack of “acceptance” among euro-area leaders for his views on monetary policy caused him to give up on becoming the next chief of the European Central Bank, Der Spiegel reported.

Weber, who resigned yesterday, said his decision not to aim to replace Jean-Claude Trichet as ECB president started forming last May, fueled by misgivings from “several governments” over his opposition to the ECB’s program of buying government bonds.

“The president is in an exceptional position,” Weber said in an interview with the German magazine published today. “But if he represents a minority opinion on important matters, then the credibility of his office suffers.” Bundesbank spokesman Benedikt Fehr confirmed Weber’s remarks by telephone.

The loss of the front-runner for the ECB’s top job leaves European leaders balancing whether to reward policy experience or protect national interest in picking Europe’s main monetary official. Weber said “it’s not so important” what nationality the next ECB chief has, though he called for Trichet’s successor to be “credible” and embody a “stability culture.”

The departing Bundesbank chief hailed Jens Weidmann, German Chancellor Angela Merkel’s top economic adviser and a former student of Weber’s, as an “absolute professional.” Weidmann is a leading candidate to replace Weber at the helm of the Frankfurt-based German central bank, Bild newspaper reported Feb. 9, citing unnamed government and central bank officials.
[...]
Weber said his “principal concerns” about the ECB’s bond- buying program haven’t abated, though the volume of funds the bank is lending to governments is “still controllable.” Weber said the ECB won’t let up in its fight against inflation even after he leaves the Bundesbank on April 30.
[...]

Hat Tip to blbl for sending me the link to the report.

Bundesbank President Axel Weber steps down, Ruling Out ECB

It looks like Alex Weber, one of the few heavy weight of the European Union monetary policy and opponent to Jean-Claude Trichet's not-only inflationary and coward but also illegal actions, has had enough, and has resigned from his position.

Unfortunately, this means that mad-money-printers both at the Fed and the ECB are pushing their opponents outside of the competition.

The quotes are quite long, but it's interesting for those of us who do not know the details of the ECB and it gives some useful background information.

Yesterday

Feb. 9 (Bloomberg) -- Bundesbank President Axel Weber plans to step down later this year, a decision that would rule him out of the race to succeed Jean-Claude Trichet as head of the European Central Bank, said a person who spoke to Weber today.

Weber may leave his job about a year before his Bundesbank term expires in April 2012, said the person, who spoke on condition of anonymity. The German central bank head discussed his plans with Chancellor Angela Merkel today, the person said.
[...]

Today

Feb. 10 (Bloomberg) -- The campaign for the top job at the European Central Bank was thrown open as the sudden and unexplained withdrawal of German front-runner Axel Weber cleared the way for a slew of candidates to replace Jean-Claude Trichet.

Central bankers Mario Draghi of Italy, Luxembourg’s Yves Mersch and Erkki Liikanen of Finland saw their chances of winning Europe’s top economic post rise as did Germany’s Klaus Regling, who runs the region’s bailout fund. Trichet’s non-renewable eight-year term expires in October.

“The top candidate is now out of the game,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. “We can now focus on alternative candidates and the political push behind appointing the next ECB president.”

Weber’s fate whipsawed the euro, forcing the debate over the world’s second-most important monetary post after U.S. Federal Reserve chairman into the open just as European leaders grapple with how to put an end to the sovereign debt crisis that has shaken the single currency’s foundations.

Unsourced media reports yesterday of a pullout by Weber, head of the Bundesbank, shattered German efforts to steer the ECB nomination behind the scenes, prompting a telephone confrontation with German Chancellor Angela Merkel and subsequent confirmation by Weber associates.

Weber, 53, plans to quit the Bundesbank in a decision that would rule him out of the ECB running, said a person who spoke with him yesterday. He will leave about a year before his term ends in April 2012. Weber, who ducked calls for a public declaration, is scheduled to speak in Vienna today.
[...]
Until his exit, leaders would have had to balance Weber’s two-decade academic record and citizenship of Europe’s largest economy with his outspokenness and opposition to the ECB’s bond- buying program, a key part of Europe’s crisis-fighting strategy.

As Merkel weighed whether to push Weber to reconsider or float another German candidate, the ECB succession looked set to come up March 11 at a special 17-nation euro-area summit on the debt crisis that European Union President Herman Van Rompuy called yesterday.

“We have time now to find a replacement at the Bundesbank because as I understand it Mr. Weber is leaving later this year, Michael Meister, the senior finance and economy spokesman for Merkel’s Christian Democratic bloc, said in an interview. “As for a successor to Mr. Trichet: no, it doesn’t have to be a German. It has to be a good person.”

Whoever succeeds Trichet, Merkel has to persuade a skeptical electorate that bailing out wayward partners in the currency union and saving the euro is worth the cost, of which Germany bears the biggest share. Greater financial support for indebted euro-area countries was opposed by 64 percent of German respondents in a Jan. 28 FG Wahlen poll.

‘What a Blow’

“What a blow. For the Chancellor. For the Euro,” says the lead editorial in Bild, Germany’s biggest-selling newspaper. “And all this at a time when Germans are losing trust in the euro, and when they feel like its mere paymasters. Against this gut feeling a German at the head of the ECB would have been very important.”

One piece in the ECB puzzle fell into place yesterday when Belgium’s Peter Praet emerged as the favorite to win an Executive Board seat that opens up in May. Praet, 62, a Belgian central bank aide, is set to be recommended Feb. 14 for the post being vacated by Austria’s Gertrude Tumpel-Gugerell, seven European officials familiar with the process said.

Weber enters the annals of EU history littered with front- runners who ultimately failed to get the top job, from flopped bids to run the European Commission by Belgium’s Jean-Luc Dehaene in 1994 and Guy Verhofstadt in 2004 to Tony Blair’s campaign to be the first EU president in 2009.

Married with two children of high school and university age, Weber took the helm of the Bundesbank in 2004 and spoke just this week about the workload of being a top central banker.

“Working days become longer, and weekends are no longer weekends,” Weber said in Tallinn on Feb. 7. “I never dreamed that I would be a policy maker myself.”

Weber’s retreat was a reminder that politics, not central banking ideology, will determine who succeeds Trichet. No deadline is set for a decision, the first time Europe has named a chief central banker since the ECB’s first two presidents were picked at a dramatic summit in May 1998, eight months before the euro’s birth.

At the time, Wim Duisenberg of the Netherlands, endorsed by Germany, faced a veto threat from France. A political deal was hatched to give him the job, as long as he stepped down early to make way for Trichet, who is set to serve the full eight-year term. Citigroup Inc. economist Juergen Michels said yesterday that this time leaders may wait until mid-October to make their choice.

Bank of Italy Governor Draghi, 63, is the only declared candidate for the top post, though the backing of Prime Minister Silvio Berlusconi may count against him in policy circles -- Italy’s leader faces a formal request to stand trial for alleged abuse of power and paying a minor for sex.

As chairman of the Financial Stability Board, Draghi has been at the core of international efforts to rewrite the rules of global finance following the credit crisis, experience that may prove valuable given Trichet now chairs Europe’s new risk watchdog.

The holder of an economics doctorate from the Massachusetts Institute of Technology, Draghi spent the early part of his career as an official in the Italian Treasury. He worked on Group of Seven meetings and led the privatization of $105 billion worth of Italian companies, including Enel Spa, Telecom Italia SpA and Banca Nazionale del Lavoro SpA.

A potential handicap is Draghi’s three-year stint as a vice chairman of Goldman Sachs Group Inc., which may open him up to sniping from leaders who blame investment banks for the credit crisis. His selection would leave two southern Europeans atop the ECB, with Portugal’s Vitor Constancio as vice president. A third, Jose Barroso of Portugal, runs the European Commission.

Luxembourg Central Bank Governor Mersch, 61, ranks as a German-style inflation hawk, with an ability to speak to Germans and French in their own language and to the financial markets in theirs, English. A lawyer by training who helped negotiate the 1991 Maastricht Treaty that created the euro, Mersch has sat on the ECB’s council since its inception.

The appointment of Mersch, who decorates his bank with art work from around Europe, might force Luxembourg Prime Minister Jean-Claude Juncker, Europe’s longest-serving government head, to give up his role as the chairman of the monthly meetings of euro-area finance ministers.

Liikanen, 60, has run Finland’s central bank since 2004. After negotiating Finland’s 1995 accession to the EU, he served as European budget and business-promotion commissioner. He made his mark in Brussels prodding governments to open their telecommunication markets to competition and for ensuring new controls on chemicals didn’t put companies such as BASF AG at a disadvantage to rivals.

As Finland’s finance minister in the late 1980s, he oversaw the boom of the Nordic economy before growth slumped. The youngest Finn ever elected to parliament at the age of 21, Liikanen has first-hand knowledge of business as a former member of the supervisory board of stainless-steel maker Outokumpu Oyj. A potential obstacle is that fellow countryman Olli Rehn is now EU commissioner for economic and monetary affairs.

A longshot contender -- and the youngest -- could be Athanasios Orphanides, 48, who heads Cyprus’s central bank and counts 17 years as a Federal Reserve economist on his resume. The first ECB official to argue in favor of zero interest rates amid the recession, he was born in communist-ruled Czechoslovakia before studying at MIT.

The ECB’s first two chiefs were drawn from the central banking community, lessening the chances of a possible German compromise candidate, Regling, now in charge of the 440 billion- euro ($604 billion) rescue fund for debt-hit states.

While lacking a central banking pedigree, Regling, 60, served in the German Finance Ministry and ran the European Commission’s economics department before taking on his role as debt-crisis firefighter. “I have a great job,” Regling told reporters in Berlin yesterday.

Julian Callow, chief European economist at Barclays Capital in London, said whoever wins the job may not much change the tone of ECB policy making, which is set by the consensus of a 23-member Governing Council.

“We would not envisage a significant change in its strategy or reaction function,” said Callow. “The lesson of the ECB’s history so far is that while the personnel may change, the institution has stuck firmly to its clearly defined mandate ‘to maintain price stability.’”

Greek, Irish, Spanish Banks are on the verge

Nothing good can come out of this messy situation that Trichet has created for himself and Europe. The good news is that the political tensions are rising among the Eurozone countries on the bailouts and pressure is also increasing on the ECB, both from insolvent countries (PIIGS, France, etc.) internally as well, between the German austerity thinking on one side, and the money printers (the others). We could reach a blockage, which would be the best possible outcome.

Oct. 29 (Bloomberg) -- Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.

Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. [...]

Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery.

“The ECB is going to have to support these smaller banks for many years to come,” said Simon Maughan, an analyst at MF Global Ltd. in London, who has tracked the industry for more than 15 years. “The ECB has to keep these banks alive and hope and pray that the local regulators force them to restructure and make them profitable again.”

The ECB doesn't have to do any of these. But they will nonetheless try, even if it's not the right thing to do, nor ethically, nor for the economy.

[...] Irish, Greek and Portuguese banks have been shut out of the corporate bond market since April. Italian banks fared better as its economy grew 0.5 percent in the second quarter, outpacing expansion in Spain and Portugal.

Spain’s two biggest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, have been able to tap the market because they rely less on their home market for revenue than competitors. Banco Santander, Spain’s largest lender, gets 25 percent of its profit from Spain, while BBVA gets about 46 percent of its earnings from Spain and Portugal, according to third-quarter earnings reports. The two have sold about $9.8 billion of debt since July 23 after raising nothing in May and June, according to Bloomberg data. Spain’s smaller banks only sold $2.48 billion of securities in the same period.

[...]
Investors demand an average yield of 1,010 basis points more than government securities to own bonds sold by Irish banks, according to Bank of America data. That compares with 252 basis points for Spanish lenders and 190 basis points for Italian banks.

That’s making it harder for the ECB to remove the emergency measures it put in place following Lehman’s failure. The ECB, which ceased giving 12-month loans last year and intended to phase out other liquidity measures earlier, was forced to delay its exit by Greece’s debt crisis. In May, the ECB agreed to make an additional six-month loan to banks and extended its offer of unlimited three-month tenders. Banks can borrow as much as they want for periods of between a week and three months.

“There are certain banks in the euro area that have become highly dependent on the liquidity injected by the euro system,” ECB council member Mario Draghi said in Rome on Oct. 1. “These banks should be addressed by national authorities otherwise we would have so-called zombie banks for some time.”

What about addressing the problem at the root of it, Mr Draghi? Stop lending to insolvent institution seems to be the obvious thing to do?

Trichet should be fired

Just a bit more than a year ago, I wrote a post titled Trichet should resign. Today, with the ECB and EU bailout package, I understand that I made a mistake:

ECB Press Release (via Mish)

In view of the current exceptional circumstances prevailing in the market, the Governing Council decided:

1. To conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional. ...

2. To adopt a fixed-rate tender procedure with full allotment in the regular 3-month longer-term refinancing operations (LTROs) to be allotted on 26 May and on 30 June 2010.

3. To conduct a 6-month LTRO with full allotment on 12 May 2010, at a rate which will be fixed at the average minimum bid rate of the main refinancing operations (MROs) over the life of this operation.

4.To reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010.

The ECB actions are illegal, as clearly showed by David Rosenberg, who points to These are the famous “no bailout” provisions of the EU Treaty:

Article 101 prohibits “overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of Member States” (ie, Neither the ECB nor other central banks can lend) to “central governments ... or other public authorities.” Period. Prohibited — tsk, tsk, tsk.

As for quantitative easing, it “shall be prohibited as shall the purchase directly from them” by the ECB. (Oh — so we’ll circumvent that by having the national central banks do the bidding — literally.) The ECB is constitutionally prohibited from lending money to the Greek central bank or buying their notes directly.

The Treaty on the Functioning of the European Union (2008/C 115/01)
Article 123 (ex Article 101 TEC)
1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as “national central banks”) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.

Article 124 (ex Article 102 TEC)
Any measure, not based on prudential considerations, establishing privileged access by Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States to financial institutions, shall be prohibited.

Article 125 (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.

Article 126 (ex Article 104 TEC)
1. Member States shall avoid excessive government deficits.


Now, how can one put a claim against these illegal actions? Anyone?

Denmark the next country to default?

Bloomberg has published an article summing up information found in a ECB report and the conclusions are quite scary. The UK is in very serious trouble, but it looks like Denmark is in far worst state than even the UK. All in all, I am a bit doubtful about my long EUR position against both the USD and GBP because depending on what the ECB will do following the collapse of one of the many default-candidates in the Eurozone. My position will need to be assessed but for now, I think the ECB has been able to control is destructive powers and even if I stated several times that Trichet should resign, it still seems that he's trying to avoid following the BoE and the Fed toward hyper-inflation. [Update: Just to clarify, Denmark is not in the Eurozone. But Portugal, Greece, Spain, Italy are. It will also be interesting to see what the ECB does if (when?) Denmark defaults]

June 12 (Bloomberg) -- European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.

The U.K. pledged 781.2 billion euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states and obtained by Bloomberg News. Denmark, where 13 of the country’s 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion euros. [...]

[My Comment: Denmark: Population of 5.5 Million (less than Greater London) GDP of around $200 Million, 140 banks (!!!!) 13 of which were bailed out with about 600 B€ that is about 4 times the GDP of country. Denmark reminds me of Iceland...]

EU governments approved about 311.4 billion euros for capital injections, 2.92 trillion euros for bank liability guarantees, 33 billion euros for relief of impaired assets and 505.6 billion euros for liquidity and bank funding support, a total of 3.77 trillion euros, the document shows.

The U.S. government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.

[My Comment: there still is a huge gap between the waste done by the EU and the US]

A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80 percent of bank loans in central and eastern Europe come from lenders owned by six western European EU countries, according to Moody’s Investors Service.

All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.[...]

The British government this year secured promises of additional mortgage and business lending from Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc in return for aid.[...]

Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion euros. Commerzbank AG, Germany’s second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.

Following is a table of European government’s commitments. All figures are in billions of euros and include capital injections, guarantees granted, effective asset relief and liquidity interventions.

United Kingdom 781.2
Denmark 593.9
Germany 554.2
Ireland 384.5
France 350.1
Belgium 264.5
Netherlands 246.1
Austria 165
Sweden 142
Spain 130

Here are the previous related posts:

• 2009-05-18 Trichet not as hopeless as it seems
• 2009-14-18 Trichet should resign
• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

Trichet not as hopeless as it seems

I wrote a few weeks ago that Trichet is following Ben Bernanke and Mervyn King toward the abyss but it seems that Trichet is not as hopeless as he wants us to believe and that he might actually be trying to resist the pressures to debase the Euro. As more details emerge, it is now confirmed that there internal clashes and tensions and more or less all the guesswork that I made in my previous post tend to be confirmed by this report from Bloomberg:

May 14 (Bloomberg) -- European Central Bank policy makers clashed over the bank’s asset-buying program and prospects for a recovery less than a week after President Jean-Claude Trichet engineered a truce.

Vice President Lucas Papademos said in Vienna today that a recovery may come sooner than previously thought. Minutes earlier, Dutch council member Nout Wellink said economists shouldn’t get too optimistic about “green shoots.” That came a day after Germany’s Axel Weber and Slovenia’s Marko Kranjec reopened a split over the size of the ECB’s bond-purchase plan.
[...]
A split on the 22-member Governing Council this year has made it difficult for Trichet to send a clear signal on how the ECB will step up its fight against Europe’s worst recession since World War II. While he won support on a plan to purchase 60 billion euros ($82 billion) in covered bonds, a compromise on the program’s focus and scope may already be unraveling.

Kranjec said in an interview yesterday the ECB is likely to spend more than 60 billion euros, a figure that Weber insisted would be a “maximum.” The debate rumbled on today across Europe, with Slovakia’s Ivan Sramko saying nothing can be excluded and Executive Board member Jose Manuel Gonzalez-Paramo saying there’s no plan to expand purchases “at the moment.”
[...]
On May 7, the ECB cut the key rate to a record-low 1 percent and Trichet said that it’s not necessarily its lowest level. He also announced the ECB’s unprecedented decision to buy covered bonds, securities backed by mortgages and public-sector loans which have suffered a slump in demand during the financial crisis. Details of the plan are to be unveiled next month.
[...]
The size of the ECB’s plan “is peanuts for an economy the size of the euro zone,” economics professor and former Bank of England policy maker Willem Buiter said at a conference in Dublin yesterday. “I expect they will announce more or that the recession in the euro zone will be longer and deeper than would otherwise be necessary.”

The Federal Reserve, Bank of England and Bank of Japan have already lowered their key rates to close to zero and are buying government and corporate debt, effectively pumping new money into their economies in a policy some economists label quantitative easing.
[...]
Executive board member Juergen Stark later weighed in on the debate, saying Trichet is the only council member whose voice counts.

“At the end of the day the president is ‘porte parole’ of the governing council,” Stark said this evening in Berlin, using a French phrase meaning spokesman. “So listen to what the president says.”

“Trichet should probably impose some order,” said Stephane Deo, chief European economist at UBS AG in London. “The deluge of conflicting messages is putting more volatility into the markets.”
[...]

Here are the previous related posts:

• 2009-14-18 Trichet should resign
• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

Trichet is following Ben Bernanke and Mervyn King toward the abyss

I've been quite vocal about Trichet and the ECB since August 2008 when Trichet decided to abandon the Euro and follow Ben Bernanke's and Mervyn King's demagogic, dangerous and destructive policies. I've said it before and I'll say it one more time: Trichet should resign! (recommended read to understand my stance.)

So today Trichet reduced the repo rate of the ECB by 0.25% to 1.00% (which really doesn't have any impact and is really a symbolic act since the mid-March actions when the ECB Stealthly Approaches Zero Rates) but they also announced that they would start Quantitave Easing (which uncyphers into plain English to print money). The good news is that this might be just another symbolic gesture from Trichet in order to please politicians because he is going to print only 60 billion EUR which is a drop compared to the size of the Eurozone economy and also compared to the trillions of USD that Bernanke is printing.

[Update: I just found this report on Bloomberg, which basically confirms my analysis]

(Bloomberg) -- Jean-Claude Trichet has dragged the European Central Bank into a new era by pursuing direct asset purchases over the objections of Germany’s Bundesbank.

President Trichet today announced the ECB will buy 60 billion euros ($80 billion) of covered bonds, taking markets by surprise after Bundesbank chief Axel Weber had campaigned against such a policy.
[...]
Trichet’s policy shift, pushed by smaller nations such as Cyprus, Greece, Austria and the Netherlands, is a setback for the conservative Bundesbank, which provided the blueprint for the ECB at its inception in 1998.
[...]
“It’s a blow to his personal credibility,” said David Tinsley, an economist at National Australia Bank in London. “The Rubicon that’s been crossed is that the ECB will be accepting private credit risk on its balance sheet.”

Weber said on April 15 that “direct interventions, such as the purchase of corporate debt, shouldn’t take priority.” He pushed instead for the ECB to lengthen the maximum maturities on its loans to banks to 12 months from six months, a measure the central bank also announced today.
[...]
The ECB’s bond plan is nevertheless dwarfed by programs in other parts of the world. It is equivalent to about 0.5 percent of euro-region GDP, says Lloyds TSB Group Plc. That compares with debt-purchase programs in the U.K. and the U.S. amounting to 8 percent and 2 percent of GDP respectively.

Here are the previous related posts:

• 2009-14-18 Trichet should resign
• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

Trichet should resign

New episode on the series I started about a year ago now: Trichet's inability to keep words and actions synced and also his failure with his mission: protecting the value of the EUR.

• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

Trichet has been saying one thing just to do the opposite for quite some time now, which is quite annoying and has tarnished his reputation quite substantially for that matter. He has also miserably failed to protect the value of the Euro, specially if you compare its value against Gold or if you do grocery shopping. And now that the Euro has managed to fall substantially against two of the most mismanaged currencies in the world (Japanese Yen and US Dollars) one wonders why he doesn't just hand his resignation.

Nonetheless, I am suspecting that he is not doing what he wants to do, but rather what the politicians want him to do, because of all the pressure he must be baring and the need to do something. But then, it means that he has thrown the independence of the ECB away and is now just following the route decided by politicians who have no incentive in protecting the currency at all.

Then again, if he is not doing what he thinks he should be doing, why doesn't he just hand his resignation letter? Or if he has thrown the ECB's independence into oblivion, why hasn't he been asked to leave?

April 17 (Bloomberg) -- The euro fell to a one-month low against the dollar after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to restore confidence, signaling further interest-rate cuts.
[...]
Trichet said in a speech in Tokyo today that any ambiguity in the direction of policy will delay a recovery in the 16- nation region’s economy.

“Public authorities, executive branches, and central banks must do all they can to restore, preserve and foster confidence among households and corporations in order to pave the way for sustainable prosperity,” Trichet said.
[...]
“Traditionally, the U.S. economy picked up ahead of the U.K., Asia and the euro zone,” Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. “Accordingly, we would favor to be long the U.S. dollar and the British pound against the euro.”

I particularly like that guy Benedikt who seem to be a complete idiot and really understanding nothing in economics — but then you wouldn't be surprised to hear that he's a currency strategist and that he is working for UBS which was particularly good at forecasting the collapse and profiting from it, right?

ECB Stealthly Approaches Zero Rates

I have already mentioned a couple of times last year that Trichet is no political courage and that he had abdicated from its duties which are very simple as they fit in one single statement: protect the value of the €. He has one task, and he has yet managed to miserably fail.

So basically, this is the third episode to this series, the first two ones being:

• $ up 0.05 € in 24 hours as Trichet abandons war against inflation
• R.I.P EUR

So basically Trichet has an issue: he cannot simply stick to his own words. Every time he says something, he does the opposite a few weeks later. He has constantly said that he won't decrease rates, yet he has actually decreased them substantially for the past several months. But here is the final straw:

March 12 (Bloomberg) -- European Central Bank President Jean-Claude Trichet’s new weapon to battle the recession is taking him closer than it seems to zero interest rates.

Trichet is allowing the ECB’s deposit rate, which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short- term borrowing costs. At just 0.5 percent, the deposit rate matches the Bank of England’s key setting and is only a step away from the zero-to-0.25-percent range the Federal Reserve uses.
[...] The deposit rate is “very, very low,” Trichet said three times in an hour at a press conference on March 5.

The ECB’s decision to offer banks unlimited amounts of cash, announced on Oct. 8, has culminated in the deposit rate setting the new de facto cost of short-term money. The measure removed the need for banks to borrow in the money market to meet their reserve requirements.
[...]
Trichet hasn’t ruled out further rate cuts. The ECB has “not decided ex-ante that the present level was the lowest,” he said during a press conference in Vienna today. Still, “we are at very low rates.”
[...]
The ECB has cut its main refinancing rate by a total of 2.75 percentage points since early October.
[...]
That is allowing Trichet to argue “that the ECB does not have such a different monetary-policy stance from the Fed and Bank of England,” said Gilles Moec, an economist at Bank of America Merrill Lynch in London.

R.I.P EUR

I already mentioned this a few month ago on my August post, Trichet has abandoned the ship of monetary stability and has given up on this duty as the safe keeper of the Euro.

For the past week or so, Trichet and the various governments of the Eurozone have decided to plot the murder of the Euro, and to celebrate that with hyperinflation in order to revive the stock markets from its due correction.

Here's a small non-exaustive list of what they have done (or not done) in order to kill the Euro:

• Trichet didn't raise interest rates while inflation was already 150% above his targets.
• Trichet droped interest rates to avoid a collapse of the USD, and hence decided to sacrifice the Euro to save USD. I didn't know that the ECB's job was also to prevent the collapse of the USD.
• EU Nations Commit 1.3 Trillion Euros to Bank Bailouts, that is more than 250% of the bailout package of the US, which was already outrageously enormous.
• Fed Lets Europe Central Banks Offer Unlimited Dollars, Removes Swap Limits."The European Central Bank, the Bank of England and the Swiss National Bank will offer European banks unlimited dollar funds with maturities of seven, 28 and 84 days at fixed interest rates". I am trying to make sense of this.

I used to be a €-bullish, then I turned a €-sceptic in August, and now, well, I am preparing the Funeral of the €, which will probably pass away at the same time as its older relatives: the £ and the $.

$ up 0.05 € in 24 hours as Trichet abandons war against inflation

The € trades at 1.50xx against the $ where it was trading at 1.55xx just 24 hours ago, before ECB's governor Trichet made a speech where he declared that he was basically done with tightening the rates.

With inflation hitting an almost all time high in July in the Eurozone at 4.1% while the ECB target is 2%, we can say that Trichet not only has failed since inflation is more than 100% higher than the target, but by announcing the end of the tightening, he, in my opinion, abandons war against inflation.